485BPOS 1 d485bpos.txt JH ACCT N - CVUL 03, CVUL 04 As filed with the U.S. Securities and Exchange Commission on April 27, 2006 Registration No. 333-100567 ---------------------------------------------- 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.5 [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 John Hancock Life Insurance Company (U.S.A.) Separate Account N Corporate VUL A Flexible Premium Variable Life Insurance Policy Science & Technology American Growth American Growth-Income Pacific Rim U.S. Global Leaders Growth Equity-Income Health Sciences Quantitative All Cap American Blue Chip Income and Growth Emerging Growth All Cap Core Income & Value Emerging Small Company PIMCO VIT All Asset Small Cap Total Stock Market Index Global Allocation Small Cap Index Blue Chip Growth High Yield U.S. Large Cap U.S. High Yield Bond Dynamic Growth Core Equity Strategic Bond Mid Cap Stock Strategic Value Strategic Income Natural Resources Large Cap Value Global Bond All Cap Growth Classic Value Investment Quality Bond Strategic Opportunities Utilities Total Return American Bond Financial Services Real Estate Securities Real Return Bond International Opportunities Small Cap Opportunities Core Bond Small Company Value Active Bond International Small Cap Special Value U.S. Government Securities International Equity Index A Mid Cap Value Money Market American International Value Lifestyle Aggressive International Value All Cap Value Lifestyle Growth International Core 500 Index Quantitative Mid Cap 500 Index B Lifestyle Balanced Mid Cap Index Fundamental Value Lifestyle Moderate Mid Cap Core U.S. Core Lifestyle Conservative Global Large Cap Capital Appreciation Quantitative Value
* * * * * * * * * * * * The SEC has not approved or disapproved these securities or passed upon the accuracy or adequacy of this prospectus. Any representation to the contrary is a criminal offense. CVUL03 5/2006 1 TABLE OF CONTENTS RISKS/BENEFITS SUMMARY..................................................... 3 Benefits................................................................. 3 Risks.................................................................... 4 FEE TABLE.................................................................. 5 TABLE OF INVESTMENT OPTIONS AND INVESTMENT SUBADVISERS..................... 7 POLICY SUMMARY............................................................. 13 General.................................................................. 13 Death Benefits........................................................... 13 Premiums................................................................. 14 Policy Value............................................................. 14 Policy Loans............................................................. 14 Surrender and Partial Withdrawals........................................ 14 Lapse and Reinstatement.................................................. 14 Charges and Deductions................................................... 14 Investment Options and Investment Subadvisers............................ 15 Investment Management Fees and Expenses.................................. 15 GENERAL INFORMATION ABOUT JOHN HANCOCK USA, RATINGS AND THE SEPARATE ACCOUNT.......................................................... 15 John Hancock USA......................................................... 15 Ratings.................................................................. 15 The Separate Account..................................................... 16 ISSUING A POLICY........................................................... 16 Use of the Policy........................................................ 16 Requirements............................................................. 16 Temporary Insurance Agreement............................................ 17 Underwriting............................................................. 17 Right to Examine the Policy.............................................. 17 Life Insurance Qualification............................................. 18 DEATH BENEFITS............................................................. 18 Flexible Term Insurance Option Rider..................................... 19 Death Benefit Options.................................................... 20 Changing the Death Benefit Option........................................ 20 Changing the Face Amount and Scheduled Death Benefits.................... 21 PREMIUM PAYMENTS........................................................... 23 Initial Premiums......................................................... 23 Subsequent Premiums...................................................... 23 Premium Limitations...................................................... 24 Premium Allocation....................................................... 24 CHARGES AND DEDUCTIONS..................................................... 24 Premium Load............................................................. 24 Sales Load or Surrender Charge........................................... 24 Monthly Deductions....................................................... 25 Asset Based Risk Charge Deducted from Investment Accounts................ 27 Investment Management Fees and Expenses.................................. 27 Reduction in Charges and Enhanced Surrender Values....................... 27 COMPANY TAX CONSIDERATIONS................................................. 27 POLICY VALUE............................................................... 27 Determination of the Policy Value........................................ 27 Units and Unit Values.................................................... 28 Transfers of Policy Value................................................ 28 2 POLICY LOANS............................................................... 29 Interest Charged on Policy Loans......................................... 29 Loan Account............................................................. 30 POLICY SURRENDER AND PARTIAL WITHDRAWALS................................... 30 Policy Surrender......................................................... 30 Partial Withdrawals...................................................... 30 LAPSE AND REINSTATEMENT.................................................... 30 Lapse.................................................................... 30 Reinstatement............................................................ 31 THE GENERAL ACCOUNT........................................................ 31 Fixed Account............................................................ 31 OTHER PROVISIONS OF THE POLICY............................................. 32 Policy owner Rights...................................................... 32 Beneficiary.............................................................. 32 Incontestability......................................................... 32 Misstatement of Age or Sex............................................... 32 Suicide Exclusion........................................................ 32 Supplementary Benefits................................................... 32 TAX TREATMENT OF THE POLICY................................................ 33 Life Insurance Qualification............................................. Tax Treatment of Policy Benefits......................................... Alternate Minimum Tax.................................................... Income Tax Reporting..................................................... OTHER INFORMATION.......................................................... 37 Payment of Proceeds...................................................... 37 Reports to Policy owners................................................. 37 Distribution of the Policies............................................. 37 Responsibilities of John Hancock USA..................................... 38 Voting Rights............................................................ 38 Substitution of Portfolio Shares......................................... 39 Records and Accounts..................................................... 39 State Regulation......................................................... 39 Further Information...................................................... 39 Financial Statements..................................................... 40 APPENDIX A: DEFINITIONS.................................................... 41 This prospectus does not constitute an offering in any jurisdiction in which such offering may not lawfully be made. No person is authorized to make any representations in connection with this offering other than those contained in this prospectus, the portfolios prospectuses, or the corresponding Statements of Additional Information. The purpose of this variable life insurance policy is to provide insurance protection for the beneficiary named therein. No claim is made that this variable life insurance policy is in any way similar or comparable to a systematic investment plan of a mutual fund. Examine this prospectus carefully. The Policy Summary will briefly describe the policy. More detailed information will be found further in the prospectus. RISKS/BENEFITS SUMMARY Benefits Some of the benefits of purchasing the policy are described below. Death Benefit Protection. This prospectus describes a flexible premium variable life insurance policy, which provides for a death benefit payable to the beneficiary of the policy upon the death of the insured. Variable life insurance is a flexible tool for financial and investment planning for persons needing death benefit protection. You should consider other forms of investments if death benefit protection is not one of your financial planning objectives, as there are additional costs and expenses in providing the insurance. 3 Access To Your Policy Values. Variable life insurance offers access to Policy Value. You may borrow against your policy, or surrender all, or a portion of your policy through a partial withdrawal. There are limitations on partial withdrawals. See "Policy Surrender and Partial Withdrawals" for further information. Tax Deferred Accumulation. Variable life insurance has several tax advantages under current tax laws. For example, Policy Value accumulates on a tax-deferred basis and a transfer of values from one sub-account to another within the policy generates no taxable gain or loss. Any investment income and realized capital gains within a sub-account or interest from the Fixed Account are automatically reinvested without current income taxation to the policy owner. Investment Options. In addition to the Fixed Account, the policy provides for access to a number of variable investment options, which permit you to reallocate your Policy Value to meet your changing personal objectives, goals, and investment conditions. Information regarding each investment option may be found in the portfolio prospectuses. Flexibility. The policy is a flexible premium variable life insurance policy in which varying premium payments are permitted. You may select death benefit options and an additional policy rider. You may increase or decrease the amount of death benefit. You are able to select, monitor, and change investment choices within your policy. Risks Some of the risks of purchasing the policy are described below. Fluctuating Investment Performance. Policy Value invested in a sub-account is not guaranteed and will increase and decrease according to investment performance. You assume the investment risk of Policy Value allocated to the sub-accounts. A comprehensive discussion of each sub-account's objective and risk is found in the portfolio prospectuses. You should review these prospectuses carefully before allocating Policy Value to any sub-accounts. Unsuitable for Short-Term Investment. The Policy is intended for long-term financial planning, and is unsuitable for short-term goals. Your policy is not designed to serve as a vehicle for frequent trading. Policy Lapse. Sufficient premiums must be paid to keep a policy in force. There is a risk of lapse if the Policy Value is too low in relation to the insurance amount, if investment results are less favorable than anticipated or if extensive policy loans are taken. A policy lapse could have adverse tax consequences since the amount received (including any loans) less the investment in the policy may be treated as ordinary income subject to tax. Since withdrawals reduce your Policy Value, withdrawals increase the risk of lapse. Decreasing Death Benefit. Any outstanding policy loans and any amount that you have surrendered or withdrawn will reduce your policy's death benefit. Adverse Consequences of Early Surrender. There are surrender charges assessed if you surrender your policy in the first 10 years from the purchase of the policy or the effective date of a Face Amount increase. Depending on the amount of premium paid and the Policy Value at the time of surrender, there may be little or no Net Cash Surrender Value paid to you when the policy is surrendered. In addition, there are adverse consequences associated with partial withdrawals including potential policy lapse and adverse tax consequences. There may also be adverse consequences associated with full surrender of the policy. Adverse Tax Consequences. You should always consult a tax adviser about the application of federal and state tax law to your individual situation. The federal income tax treatment of life insurance is complex and current tax treatment of life insurance may change. 4 FEE TABLES The following tables describe the fees and expenses that you will pay when buying, owning, and surrendering the policy. 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 the prospectus disclosure rules. Consequently, the actual rates charged may be slightly higher or lower than those shown. The first table describes the fees and expenses that you will pay at the time that you buy the policy, surrender the policy, or transfer cash value between investment options.
Transaction Fees -------------------------------------------------------------------------------------------------------------------------- Charge When Charge is Deducted Amount Deducted -------------------------------------------------------------------------------------------------------------------------- Maximum Premium Load Charge Upon receipt of premium 2% of each premium paid Imposed on Premium (Load) Maximum Sales Load Charge Imposed on Premium/1/ Upon receipt of premium 8% (Coverage Year 1)/2/ Maximum Surrender Charge (Load)/1/ Upon termination or reduction of any 5% (Coverage Year 1)/3/ Coverage Amount that is subject to a surrender charge including surrender of the policy for its Net Cash Surrender Value, partial withdrawal in excess of the Free Withdrawal Amount, decrease in the Face Amount, or policy lapse. $25 (only applies to Transfer Fees Upon transfer transfers in excess of 12 in a Policy Year) Dollar Cost Averaging Upon transfer Guaranteed $ 5.00 Current $ 0.00 Asset Allocation Rebalancer Upon transfer Guaranteed $ 15.00 Current $ 5.00
1 A policy is subject to either a Sales Charge or a Surrender Charge but not both. The policy indicates which charge is applicable. 2 The Sales Load Charge declines in subsequent Coverage Years as noted below: Coverage Year Percentage Coverage Year Percentage ---------------------------------------------------------------- 1 8.00% 4 2.00% 2 6.00% 5 1.00% 3 3.00% 6+ 0.00% 3 The Surrender Charge declines in subsequent Policy Years as noted below: Coverage Year Percentage Coverage Year Percentage ---------------------------------------------------------------- 1 5.00% 6 1.50% 2 4.00% 7 1.00% 3 3.00% 8 1.00% 4 2.50% 9 0.50% 5 2.00% 10+ 0.00% The surrender charge are a percentage of the sum of all premium payments attributed to a Coverage Amount in the first five Coverage Years. The next table describes the fees and expenses that you will pay periodically during the time that you own the policy, not including fees and expenses of the portfolios, the underlying variable investment options for your policy. 5
Charges Other Than Those of the Portfolios --------------------------------------------------------------------------------------------------------- When Charge is Charge Deducted Amount Deducted --------------------------------------------------------------------------------------------------------- Cost of Insurance/1/ Monthly Minimum and Maximum Charge The possible range of the cost of insurance is from $0.00 to $83.33 per month per $1,000 of the net amount at risk. Charge for a Representative Policy Subject to Sales policy owner (a 45 year old Charge: The Cost of non-smoking male) (rating Insurance rate is $0.16 classification is for short per month per $1,000 of form underwriting) the net amount at risk. Policy Subject to Surrender Charge: The Cost of Insurance rate is $ 0.35 per month per $1,000 of the net amount at risk. Cost of Insurance - Monthly Minimum and Maximum Charges The possible range of the Optional FTIO Rider cost of insurance is from (Flexible Term $0.00 to $83.33 per month Insurance Option)/1/ per $1,000 of the net amount at risk Charge for a Representative The Cost of Insurance policy owner (a 45 year old rate is $0.10 per month non-smoking male) rating per $1,000 of the net classification is for short amount at risk form underwriting) Mortality and Expense Monthly 0.04% (0.50% annually)/2/ Risk Fees Administration Fees Monthly $12 per Policy Month. Loan Interest Rate (Net) Annually 0.75%/3/
1 The cost of insurance varies based on individual characteristics and the charges shown in the table may not be representative of the charge a particular policy owner will pay. A policy owner may obtain additional information regarding cost of insurance charge by contacting the Company. The election (or failure to elect) the optional FTIO rider will impact the total cost of insurance charges. 2 Currently the Company is charging the following rates: Policy Year Annual Rate ----------- ----------- 1-10 0.50% 11+ 0.20% 3 The Loan Interest Rate (Net) is equal to the rate of interest charged on the policy loan less the interest credited to the Loan Account. Currently this rate is 0.75% for Policy Years 1-10 and 0.25% for Policy Years 11 and higher. The maximum loan rate is 4%. 6 The next table describes the minimum and maximum annual operating expenses of the portfolios that you will pay during the time that you own the policy. The table shows the minimum and maximum fees and expenses charged by any of the portfolios, as a percentage of the portfolio's average net assets for 2005. More detail concerning each portfolio's fees and expenses is contained in the prospectus for the portfolios. Annual Operating Expense of the Portfolios (Expenses that are Deducted from Portfolio Assets) Minimum Maximum ------- ------- Expenses that are deducted from the portfolio assets, including advisory fees, Rule 12b-1 fees and other expenses 0.50% 1.53% The next table describes the fees and expenses for each of the portfolios. Except as indicated in the footnotes at the end of the table, the expenses are expressed as a percentage of the portfolio's average net assets for the fiscal year ending December 31, 2005. More detail concerning each portfolio's fees and expenses is contained in the prosepctus for the portfolio. Portfolio Annual Expenses (as a percentage of Trust average net assets for the fiscal year ended December 31, 2005)
Management Other Total Annual Portfolios Fees 12b-1 Fees Expenses Expenses ---------- ---------- ---------- -------- ------------ Science & Technology 1.05%/A/ 0.05% 0.07% 1.17% Pacific Rim 0.80% 0.05% 0.24% 1.09% Health Sciences 1.05%/A/ 0.05% 0.12% 1.22% Emerging Growth 0.80% 0.05% 0.08% 0.93% Emerging Small Company 0.97% 0.05% 0.07% 1.09% Small Cap/B/ 0.85% 0.05% 0.03% 0.93% Small Cap Index 0.49% 0.05% 0.04% 0.58% Dynamic Growth 0.95% 0.05% 0.07% 1.07% Mid Cap Stock 0.84% 0.05% 0.08% 0.97% Natural Resources 1.00% 0.05% 0.07% 1.12% All Cap Growth 0.85% 0.05% 0.06% 0.96% Strategic Opportunities 0.80% 0.05% 0.08% 0.93% Financial Services 0.82%/C/ 0.05% 0.09% 0.96% International Opportunities 0.90% 0.05% 0.06% 1.01% International Small Cap 0.92% 0.05% 0.21% 1.18% International Equity Index A/B/D/ 0.54% 0.05% 0.09% 0.68% American International/E/ 0.52% 0.60% 0.08% 1.20% International Value 0.82%/F/ 0.05% 0.19% 1.06% International Core 0.89% 0.05% 0.07% 1.01% Quantitative Mid Cap 0.74% 0.05% 0.10% 0.89% Mid Cap Index 0.49% 0.05% 0.04% 0.58% Mid Cap Core 0.87% 0.05% 0.08% 1.00% Global 0.82%/F/ 0.05% 0.16% 1.03% Capital Appreciation 0.81% 0.05% 0.05% 0.91% American Growth/E/ 0.33% 0.60% 0.04% 0.97% U.S. Global Leaders Growth 0.70% 0.05% 0.06% 0.81% Quantitative All Cap 0.71% 0.05% 0.06% 0.82% All Cap Core 0.80% 0.05% 0.07% 0.92% Total Stock Market Index 0.49% 0.05% 0.04% 0.58% Blue Chip Growth 0.81%/A/ 0.05% 0.07% 0.93% U.S. Large Cap 0.83% 0.05% 0.06% 0.94% Core Equity 0.79% 0.05% 0.06% 0.90% Strategic Value 0.85% 0.05% 0.08% 0.98% Large Cap Value 0.84% 0.05% 0.08% 0.97% Classic Value 0.80% 0.05% 0.24% 1.09% Utilities 0.85% 0.05% 0.19% 1.09% Real Estate Securities 0.70% 0.05% 0.06% 0.81% Small Cap Opportunities 0.99% 0.05% 0.08% 1.12% Small Company Value/D/ 1.03%/A/ 0.05% 0.05% 1.13% Special Value 1.00% 0.05% 0.21% 1.26% Mid Cap Value 0.85% 0.05% 0.05% 0.95% Value 0.74% 0.05% 0.06% 0.85% All Cap Value 0.83% 0.05% 0.07% 0.95% 500 Index 0.46% 0.05% 0.05% 0.56% 500 Index B/B/D/H/ 0.47% N/A 0.03% 0.50% Fundamental Value 0.77%/C/ 0.05% 0.05% 0.87% U.S. Core 0.76% 0.05% 0.05% 0.86% Large Cap/B/ 0.84% 0.05% 0.05% 0.94% Quantitative Value 0.70% 0.05% 0.06% 0.81% American Growth-Income/E/ 0.28% 0.60% 0.05% 0.93% Equity-Income 0.81%/A/ 0.05% 0.05% 0.91% American Blue Chip Income and Growth/E/ 0.44% 0.60% 0.04% 1.08% Income & Value 0.79% 0.05% 0.08% 0.92% PIMCO VIT All Asset 0.20% 0.25% 1.08/F/ 1.53% Global Allocation 0.85% 0.05% 0.19% 1.09% High Yield 0.66% 0.05% 0.07% 0.78% U.S. High Yield Bond/B/D/ 0.74% 0.05% 0.21% 1.00% Strategic Bond 0.67% 0.05% 0.08% 0.80% Strategic Income 0.73% 0.05% 0.30% 1.08% Global Bond 0.70% 0.05% 0.12% 0.87% Investment Quality Bond 0.60% 0.05% 0.09% 0.74% Total Return 0.70% 0.05% 0.07% 0.82% American Bond/E/ 0.43% 0.60% 0.04% 1.07% Real Return Bond 0.70% 0.05% 0.07% 0.82% Core Bond/B/ 0.67% 0.05% 0.07% 0.79% Active Bond/B/ 0.60% 0.05% 0.07% 0.72% U.S. Government Securities 0.59% 0.05% 0.07% 0.71% Money Market/B/D/ 0.49% N/A 0.04% 0.53% Lifestyle Aggressive 0.05% 0.05% 0.95%/G/ 1.05% Lifestyle Growth 0.05% 0.05% 0.89%/G/ 0.99% Lifestyle Balanced 0.05% 0.05% 0.86%/G/ 0.96% Lifestyle Moderate 0.05% 0.05% 0.81%/G/ 0.91% Lifestyle Conservative 0.05% 0.05% 0.78%/G/ 0.88%
/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 Assets of the T. Rowe Portfolios Fee Reduction ----------------------------------------------------------- ------------------- (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 Assets of the T. Rowe Portfolios Fee Reduction ----------------------------------------------------------- ------------------- (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 First and Excess Over Portfolio $50 Million $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. /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 advisory 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/ "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. /G/ 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, 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%. /H/ 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 USA 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 0.22% and the Total Fund Annual Expenses shown would be 0.25%. 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. 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 7 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. The portfolios available under the policies are as follows:
Portfolio Portfolio Manager Investment Description --------------------------- ---------------------------------------- --------------------------------------------------- Science & Technology T. Rowe Price Associates, Inc. Seeks long-term growth of capital by investing, under normal market conditions, at least 80% of its net assets (plus any borrowings for investment purposes) in common 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 MFC Global Investment Management Seeks long-term growth of capital by investing in a (U.S.A.) Limited diversified portfolio that is comprised primarily of common stocks and equity-related securities of corporations domiciled in countries in the Pacific Rim region. Health Sciences T. Rowe Price Associates, Inc. Seeks long-term capital appreciation by investing, under normal market conditions, at least 80% of its net assets (plus any borrowings for investment purposes) in common stocks of companies engaged in the research, development, production, or distribution of products or services related to health care, medicine, or the life sciences. Emerging Growth MFC Global Investment Management Seeks superior long-term rates of return through (U.S.A.) Limited capital appreciation by investing, under normal circumstances, primarily in high quality securities and convertible instruments of small-cap U.S. companies. Emerging Small Company Franklin Advisers, Inc. Seeks long-term growth of capital by investing, under normal market conditions, at least 80% of its net assets (plus any borrowings for investment purposes) in common stock equity securities of companies with market capitalizations that approximately match the range of capitalization of the Russell 2000 Growth Index* at the time of purchase. Small Cap Independence Investment LLC Seeks maximum capital appreciation consistent with reasonable risk to principal by investing, under normal market conditions, at least 80% of its net assets in equity securities of companies whose market capitalization is under $2 billion. Small Cap Index MFC Global Investment Management Seeks to approximate the aggregate total return of (U.S.A.) Limited a small cap U.S. domestic equity market index by attempting to track the performance of the Russell 2000 Index.* Dynamic Growth Deutsche Asset Management Inc. Seeks long-term growth of capital by investing in stocks and other equity securities of medium-sized U.S. companies with strong growth potential. Mid Cap Stock Wellington Management Company, LLP Seeks long-term growth of capital by investing primarily in equity securities of mid-size companies with significant capital appreciation potential. Natural Resources Wellington Management Company, LLP Seeks long-term total return by investing, under normal market conditions, primarily in equity and equity-related securities of natural resource-related companies worldwide. All Cap Growth AIM Capital Management, Inc. Seeks long-term capital appreciation by investing the portfolio's assets, under normal market conditions, principally in common stocks of companies that are likely to benefit from new or innovative products, services or processes, as well as those that have experienced above average, long-term growth in earnings and have excellent prospects for future growth.
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Portfolio Portfolio Manager Investment Description --------------------------- ---------------------------------------- --------------------------------------------------- Strategic Opportunities Fidelity Management & Research Company 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 Davis Advisors Seeks growth of capital by investing primarily in common stocks of financial companies. During normal market conditions, at least 80% of the portfolio's net assets (plus any borrowings for investment purposes) are invested in companies that are principally engaged in financial services. A company is "principally engaged" in financial services if it owns financial services-related assets constituting at least 50% of the value of its total assets, or if at least 50% of its revenues are derived from its provision of financial services. International Opportunities Marisco Capital Management, LLC 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 Templeton Investment Counsel, Inc. 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 SSgA Funds Management, Inc. Seeks to track the performance of broad-based A 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.) American International Capital Research Management Company 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 Templeton Investment Counsel, Inc. 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. International Core Grantham, Mayo, Van Otterloo & Co. LLC 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 MFC Global Investment Management Seeks long-term growth of capital by investing, (U.S.A.) Limited under normal market conditions, at least 80% of its total assets (plus any borrowings for investment purposes) in U.S. mid-cap stocks, convertible preferred stocks, convertible bonds and warrants. Mid Cap Index MFC Global Investment Management Seeks to approximate the aggregate total return of (U.S.A.) Limited a mid-cap U.S. domestic equity market index by attempting to track the performance of the S&P Mid Cap 400 Index*. Mid Cap Core AIM Capital Management, Inc. Seeks long-term growth of capital by investing, under normal market conditions, at least 80% of its assets in equity securities, including convertible securities, of mid-capitalization companies. Global Templeton Global Advisors Limited 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 Jennison Associates LLC Seeks long-term capital growth by investing at least 65% of its total assets in equity-related securities of companies that exceed $1 billion in market capitalization and that the subadviser believes have above-average growth prospects. These companies are generally medium-to-large capitalization companies. American Growth Capital Research Management Company 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 Sustainable Growth Advisers, L.P. Seeks long-term growth of capital by investing, under normal market conditions, primarily in common stocks of "U.S. Global Leaders." Quantitative All Cap MFC Global Investment Management Seeks long-term growth of capital by investing, (U.S.A.) Limited under normal circumstances, primarily in equity securities of U.S. companies. The portfolio will generally focus on equity securities of U.S. companies across the three market capitalization ranges of large, mid and small.
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Portfolio Portfolio Manager Investment Description --------------------------- ---------------------------------------- --------------------------------------------------- All Cap Core Deutsche Asset Management Inc. 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 MFC Global Investment Management Seeks to approximate the aggregate total return of (U.S.A.) Limited a broad U.S. domestic equity market index by attempting to track the performance of the Wilshire 5000 Equity Index*. Blue Chip Growth T. Rowe Price Associates, Inc. Seeks to achieve long-term growth of capital (current income is a secondary objective) by investing, under normal market conditions, at least 80% of the portfolio's total assets in the common stocks of large and medium-sized blue chip growth companies. Many of the stocks in the portfolio are expected to pay dividends. U.S. Large Cap Capital Guardian Trust Company Seeks long-term growth of capital and income by investing the portfolio's assets, under normal market conditions, primarily in equity and equity-related securities of companies with market capitalization greater than $500 million. Core Equity Legg Mason Funds Management, Inc. 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 Massachusetts Financial Services Company 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 Mercury Advisors Seeks long-term growth of capital by investing, under normal market conditions, primarily in a diversified portfolio of equity securities of large cap companies located in the U.S. Classic Value Pzena Investment Management, LLC Seeks long-term growth of capital by investing, under normal market conditions, at least 80% of its net assets in domestic equity securities. Utilities Massachusetts Financial Services Company 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 Deutsche Asset Management Inc. Seeks to achieve a combination of long-term capital appreciation and current income by investing, under normal market conditions, at least 80% of its net assets (plus any borrowings for investment purposes) in equity securities of real estate investment trusts ("REITS") and real estate companies. Small Cap Opportunities Munder Capital Management 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 Company Value T. Rowe Price Associates, Inc. Seeks long-term growth of capital by investing, under normal market conditions, primarily in small companies whose common stocks are believed to be undervalued. Under normal market conditions, the portfolio will invest at least 80% of its net assets (plus any borrowings for investment purposes) in companies with a market capitalization that do not exceed the maximum market capitalization of any security in the Russell 2000 Index* at the time of purchase. Special Value Salomon Brothers Asset Management Inc. Seeks long-term capital growth by investing, under (only Series II available) normal circumstances, at least 80% of its net assets in common stocks and other equity securities of companies whose market capitalization at the time of investment is no greater than the market capitalization of companies in the Russell 2000 Value Index*. Mid Cap Value Lord, Abbett & Co Seeks capital appreciation by investing, under normal market conditions, at least 80% of the portfolio's net assets (plus any borrowings for investment purposes) in mid-sized companies, with market capitalization of roughly $500 million to $10 billion. Value Van Kampen Seeks to realize an above-average total return over a market cycle of three to five years, consistent with reasonable risk, by investing primarily in equity securities of companies with capitalizations similar to the market capitalization of companies in the Russell Midcap Value Index*. All Cap Value Lord, Abbett & Co Seeks capital appreciation by investing in equity securities of U.S. and multinational companies in all capitalization ranges that the subadviser believes are undervalued.
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Portfolio Portfolio Manager Investment Description --------------------------- ---------------------------------------- --------------------------------------------------- 500 Index MFC Global Investment Management Seeks to approximate the aggregate total return of (U.S.A.) Limited a broad U.S. domestic equity market index by attempting to track the performance of the S&P 500 Composite Stock Price Index*. 500 Index B MFC Global Investment Management Seeks to approximate the aggregate total return of (U.S.A.) Limited a broad U.S. domestic equity market index investing, under normal market conditions, at least 80% of its net assets (plus any borrowings for investment purposes) in (a) the common stocks that are included in the S&P 500 Index* and (b) securities (which may or may not be included in the S&P 500 Index) that MFC Global (U.S.A.) believes as a group will behave in a manner similar to the index. Fundamental Value Davis Advisors Seeks growth of capital by investing, under normal market conditions, primarily in common stocks of U.S. companies with market capitalizations of at least $5 billion that the subadviser believes are undervalued. The portfolio may also invest in U.S. companies with smaller capitalizations. U.S. Core Grantham, Mayo, Van Otterloo & Co. LLC 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 UBS Global Asset Management Seeks to maximize total return, consisting of capital appreciation and current income by investing, under normal circumstances, at least 80% of its net assets (plus borrowings for investment purposes, if any) in equity securities of U.S. large capitalization companies. Quantitative Value MFC Global Investment Management Seeks long-term capital appreciation by investing (U.S.A.) Limited primarily in large-cap U.S. securities with the potential for long-term growth of capital. American Growth-Income Capital Research Management Company 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 T. Rowe Price Associates, Inc. Seeks to provide substantial dividend income and also long-term capital appreciation by investing primarily in dividend-paying common stocks, particularly of established companies with favorable prospects for both increasing dividends and capital appreciation. American Blue Chip Income Capital Research Management Company Invests all of its assets in Class 2 shares of the and Growth Blue Chip Income and Growth Fund, a series of American Fund Insurance Series. The Blue Chip Income and Growth Fund invests primarily in common stocks of larger, more established companies based in the U.S. with market capitalizations of $4 billion and above. Income & Value Capital Guardian Trust Company Seeks the balanced accomplishment of (a) conservation of principal and (b) long-term growth of capital and income by investing the portfolio's assets in both equity and fixed-income securities. The subadviser has full discretion to determine the allocation between equity and fixed income securities. PIMCO VIT All Asset Pacific Investment Management Company The portfolio invests primarily in a diversified Portfolio mix of: (a) common stocks of large and mid sized (a series of the PIMCO U.S. companies, and (b) bonds with an overall Variable Insurance Trust) intermediate term average maturity. (only Class M is available for sale) Global Allocation UBS Global Asset Management Seeks total return, consisting of long-term capital appreciation and current income, by investing in equity and fixed income securities of issuers located within and outside the U.S. High Yield Salomon Brothers Asset Management Inc. 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 Wells Fargo Fund Management, LLC 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 Salomon Brothers Asset Management Inc. 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. Strategic Income Sovereign Asset Management, LLC Seeks a high level of current income by investing, under normal market conditions, primarily in foreign government and corporate debt securities from developed and emerging markets; U.S. Government and agency securities; and U.S. high yield bonds. Global Bond Pacific Investment Management Company 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.
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Portfolio Portfolio Manager Investment Description --------------------------- ---------------------------------------- --------------------------------------------------- Investment Quality Bond Wellington Management Company, LLP 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 Pacific Investment Management Company 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 Capital Research Management Co LLC Seeks to maximize current income and preserve capital. Real Return Bond Pacific Investment Management Company 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. Core Bond Wells Fargo Fund Management, LLC 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 Declaration Management & Research LLC Seeks income and capital appreciation by investing Sovereign Asset Management, LLC at least 80% of its assets in a diversified mix of debt securities and instruments. U.S. Government Securities Salomon Brothers Asset Management Inc. 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. Money Market MFC Global Investment Management Seeks maximum current income consistent with (U.S.A.) Limited 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 MFC Global Investment Management Seeks to provide long-term growth of capital (U.S.A.) Limited (current income is not a consideration) by investing 100% of the Lifestyle Trust's assets in Deutsche Asset Management Inc. other portfolios of the Trust which invest primarily in equity securities. Lifestyle Growth MFC Global Investment Management Seeks to provide long-term growth of capital with (U.S.A.) Limited consideration also given to current income by investing approximately 20% of the Lifestyle Deutsche Asset Management Inc. 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 MFC Global Investment Management Seeks to provide a balance between a high level of (U.S.A.) Limited current income and growth of capital with a greater emphasis given to capital growth by investing Deutsche Asset Management Inc. 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 MFC Global Investment Management Seeks to provide a balance between a high level of (U.S.A.) Limited current income and growth of capital with a greater emphasis given to current income by investing Deutsche Asset Management Inc. 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 MFC Global Investment Management Seeks to provide a high level of current income (U.S.A.) Limited with some consideration also given to growth of capital by investing approximately 80% of the Deutsche Asset Management Inc. 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.
12 * "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 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 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 POLICY SUMMARY General The policy is a flexible premium variable universal life insurance policy. This summary provides a general description of the important features of the policy. It is not comprehensive and is qualified in its entirety by the more detailed information contained in this prospectus. Unless otherwise stated or implied by the context, the discussions in this prospectus assume that the policy has not gone into default, there is no outstanding Policy Debt and the death benefit is not determined by the Minimum Death Benefit percentage. The policy's provisions may vary in some states. The terms of the policy and any endorsements or riders will supersede the disclosure in this prospectus. Death Benefits The policy provides a death benefit in the event of the death of the Life Insured while the policy is in force. The basic death benefit amount is the Face Amount, which is provided for the lifetime of the Life Insured with no maturity or expiration date. There may be other amounts added to the death benefit as described below. Flexible Term Insurance Option. You may add a flexible term insurance option rider (the "FTIO Rider") to the policy to provide additional term life insurance coverage on the Life Insured. Cost of insurance rates are less than or equal to those of the policy and no Sales Loads or surrender charge will apply. However, unlike the Face Amount of the policy, the FTIO Rider will terminate at the Life Insured's Attained Age 100. The FTIO Rider also offers the flexibility to schedule varying death benefit amounts on future dates (the "Scheduled Death Benefits"). Death Benefit Options. There are two death benefit Options. Option 1 provides a death benefit equal to the Face Amount of the policy and the Scheduled Death Benefits of the FTIO Rider or, if greater, the Minimum Death Benefit. Option 2 provides a death benefit equal to the Face Amount and the Scheduled Death Benefits, plus the Policy Value or, if greater, the Minimum Death Benefit. You may change the death benefit Option and increase or decrease the Face Amount and Scheduled Death Benefits. Age 100 Advantage. If the Life Insured is alive on the Policy Anniversary when the Life Insured reaches Attained Age 100, the policy will continue in force subject to the following unless the policy owner chooses to surrender the policy for its Net Cash Surrender Value: . the policy will be continued until the earlier of the death of the Life Insured or the date the policy owner surrenders the policy; . no additional premium payments will be accepted although loan repayments will be accepted; 13 . no additional charges or deductions (described under "Charges and Deductions") will be assessed; . interest on any Policy Debt will continue to accrue; . the policy owner may continue to transfer portions of the Policy Value among the Investment Accounts and the Fixed Accounts as described in this prospectus. Premiums Premium payments may be made at any time prior to Attained Age 100 and in any amount, subject to certain limitations (see "Premium Payments -- Premium Limitations"). Net Premiums will be allocated to one or more of the Fixed Account and the sub-accounts of the Separate Account. You may change allocations and make transfers among the accounts subject to limitations described below. Policy Value The Policy Value is the accumulation of premiums paid, less charges and deductions we take for expenses and cost of insurance, plus or minus the investment returns of the accounts to which the Policy Value has been allocated. You may obtain a portion of the Policy Value by taking a policy loan or a partial withdrawal or by full surrender of the policy. Policy Loans You may borrow against the Net Cash Surrender Value of the policy. Loan interest will accrue daily and be payable in arrears on each Policy Anniversary. The Policy Debt will be deducted from amounts payable at the Life Insured's death or upon surrender. Surrender and Partial Withdrawals You may make a partial withdrawal of Policy Value. It may result in a decrease in the Face Amount and Scheduled Death Benefits and assessment of a portion of the surrender charge. You may surrender the policy for its Net Cash Surrender Value at any time. Lapse and Reinstatement A policy will lapse and terminate without value when the Net Cash Surrender Value is insufficient to pay the next monthly deduction and a grace period of 61 days expires without an adequate premium payment from you. You may reinstate a lapsed policy within five years following lapse if the policy was not surrendered for its Net Cash Surrender Value. Evidence of insurability is required, along with a premium payment described under "Reinstatement." The policy differs in two important ways from a conventional life insurance policy. First, failure to make planned premium payments will not itself cause the policy to lapse. Second, the policy can lapse even if planned premiums have been paid. Charges and Deductions We assess charges and deductions in connection with the policy, in the form of monthly deductions for the cost of insurance and administrative expenses, charges assessed daily against amounts in the Investment Accounts and loads deducted from premiums paid. See the Fee Tables. Sales Load or Surrender Charge. You may choose Coverage Amounts with one of two alternative charge structures representing different ways to cover a portion of our marketing and distribution costs. Generally, policy benefits will be approximately equal in present value under either alternative. However, there is no guarantee each alternative will perform the same in all circumstances. Therefore, you should obtain individualized illustrations for both charge structures. Sales Load coverage features a load deducted immediately from premiums paid and no surrender charge. Surrender Charge coverage features no added sales load with surrender charges assessed upon early surrender, lapse, partial withdrawal or coverage decrease. Current cost of insurance charges in early years are higher for Surrender Charge coverage. Reduction in Charges and Enhancement of Surrender Values. The policy is designed for employers and other sponsoring organizations that may purchases multiple policies as a Case. The size or nature of the Case may result in expected savings of sales, underwriting, administrative or other costs. If so, we may offer reductions of policy charges and enhancements of surrender value. We may change the nature and amount of reductions and enhancements available from time to time. They will be determined in a way that is not unfairly discriminatory to policyholders. 14 Investment Options and Investment Subadvisers You may allocate Net Premiums to the Fixed Account or to one or more of the sub-accounts of the Separate Account. Each of the sub-accounts invests in the shares of one of the portfolios described in the Table of Investment Options and Investment Subadvisers. The portfolios also employ subadvisers. The Table of Investment Options and Investment Subadvisers shows the subadvisers that provide investment subadvisory services to the indicated portfolios. Allocating Net Premiums only to one or a small number of the investment options (other than the Lifestyle Trusts) should not be considered a balanced investment strategy. In particular, allocating Net Premiums to a small number of investment options that concentrate their investments in a particular business or market sector will increase the risk that the value of your policy will be more volatile since these investment options may react similarly to business or market specific events. Examples of business or market sectors where this risk historically has been and may continue to be particularly high include: (a) technology related businesses, including internet related businesses, (b) small cap securities and (c) foreign securities. The Company does not provide advice regarding appropriate investment allocations. Please discuss this matter with your financial adviser. Investment Management Fees and Expenses Each sub-account of the Separate Account purchases shares of one of the portfolios at net asset value. The net asset value of those shares reflects investment management fees and certain expenses of the portfolios. The fees and expenses for each portfolio are described in detail in the portfolio prospectuses. GENERAL INFORMATION ABOUT JOHN HANCOCK USA, RATINGS AND THE SEPARATE ACCOUNT John Hancock USA John Hancock Life Insurance Company (U.S.A.) ("John Hancock USA" or " Company") (formerly, The Manufacturers Life Insurance Company (U.S.A.)) is a stock life insurance company incorporated in Maine on August 20, 1955 by a special act of the Maine legislature and redomesticated under the laws of Michigan. We are a licensed life insurance company in the District of Columbia and all states of the United States except New York. Our ultimate parent is Manulife Financial Corporation ("MFC"), a publicly traded company, based in Toronto, Canada. MFC is the holding company of The Manufacturers Life Insurance Company ("Manufacturers Life") and its subsidiaries, collectively known as Manulife Financial. Ratings John Hancock USA has received the following ratings from independent rating agencies: A++ A.M. Best Superior companies have a very strong ability to meet their obligations; 1st category of 16 AA+ Fitch Very strong capacity to meet policyholder and contract obligations; 2nd category of 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 John Hancock USA's ability to honor any guarantees provided by the policy and any applicable optional riders, but do not specifically relate to its products, the performance (return) of these products, the value of any investment in these products upon withdrawal or to individual securities held in any portfolio. 15 The Separate Account The Separate Account has been established under Michigan law as a Separate Account of John Hancock USA. The Separate Account holds assets that are segregated from all of John Hancock USA's other assets. The Separate Account is currently used only to support variable life insurance policies. Assets of the Separate Account. John Hancock USA is the legal owner of the assets in the Separate Account. The income, gains, and losses of the Separate Account, whether or not realized, are, in accordance with applicable contracts, credited to or charged against the Separate Account without regard to the other income, gains, or losses of John Hancock USA. We will at all times maintain assets in the Separate Account with a total market value at least equal to the reserves and other liabilities relating to variable benefits under all policies participating in the Separate Account. These assets may not be charged with liabilities that arise from any other business we conduct. However, all obligations under the variable life insurance policies are general corporate obligations of John Hancock USA. Registration. The Separate Account is registered with the SEC under the 1940 Act as a unit investment trust. A unit investment trust is a type of investment company that invests its assets in specified securities, such as the shares of one or more investment companies, rather than in a portfolio of unspecified securities. Registration under the 1940 Act does not involve any supervision by the SEC of the management or investment policies or practices of the Separate Account. For state law purposes the Separate Account is treated as a part or division of John Hancock USA. ISSUING A POLICY Use of the Policy The policy is designed to provide employers or other organizations with life insurance coverage on employees or other individuals in whose lives they have an insurable interest. The policy may be owned by an individual or a corporation, trust, association, or similar entity. The policy may be used for such purposes as funding non-qualified executive deferred compensation or salary continuation liabilities or death benefit liabilities of executive retirement plans, or as a source for funding cash flow obligations under such plans. Requirements To purchase a policy, an applicant must submit a completed application. A policy will not be issued until the underwriting process is completed to our satisfaction and we approve issuance of the policy. Policies may be issued on a basis that does not distinguish between the Life Insured's sex and/or smoking status, with prior approval from us. A policy will only be issued on the lives of insureds from Issue Ages 20 through 80. Each policy has a Policy Date, an Effective Date and an Issue Date. The Policy Date is the date from which the first monthly deductions are calculated and from which Policy Years, Policy Months and Policy Anniversaries are measured. The Policy Date is also the effective date of the initial Coverage Amount. The Policy Date is the same date as the Effective Date unless the policy is backdated (see "Backdating a Policy"). The Effective Date is the date we become obligated under the policy and when the first monthly deductions are taken. It is the later of the date we approve issuance of the policy and the date we receive at least the Minimum Initial Premium. The Issue Date is the date from which the Suicide and Incontestability provisions of the policy are measured. If we approve issuance of a policy before we receive the Minimum Initial Premium then the Effective Date will be later than the Issue Date. The Minimum Initial Premium must be received by us within 60 days after the Issue Date and the Life Insured must be in good health on the Effective Date. If the Minimum Initial Premium is not paid or if the application is rejected, the policy will be canceled and any premiums paid will be returned to the applicant. Net Premiums received prior to the Effective Date will be credited with interest at the rate of return earned on amounts allocated to the Money Market portfolio. On the Effective Date, Net Premiums received plus any interest credited will be allocated to Investment Accounts and the Fixed Account according to your instructions, unless first allocated to the Money Market Trust for the duration of the right to examine period (see "Right to Examine the Policy"). Minimum Face Amount and Scheduled Death Benefit. The minimum Face Amount is $50,000 unless the FTIO Rider is added to the policy. With an FTIO Rider, the minimum Face Amount is $25,000 and the minimum Scheduled Death Benefit is $50,000 at all times. Backdating a Policy. You may request that we backdate the policy by assigning a Policy Date earlier than the date the application is signed. We will not backdate the policy to a date earlier than that allowed by state law, which is generally three 16 months to one year prior to the date of application for the policy. Monthly deductions will be made for the period the Policy Date is backdated. Temporary Insurance Agreement Temporary insurance coverage may be provided under the terms of a Temporary Insurance Agreement, subject to our underwriting practices. Generally, temporary life insurance may not exceed $1,000,000 and may not be in effect for more than 90 days. It is issued on a conditional receipt basis, which means that benefits would only be paid if the Life Insured met our usual and customary underwriting standards for the coverage applied for. Underwriting The policies are offered on three underwriting classes that require different types and amounts of information from the applicant and prospective Life Insured. Current cost of insurance charges in early Policy Years will vary by the type of underwriting and charges will generally be lower where underwriting information is more extensive. Under any of the underwriting bases, the acceptance of an application is subject to our underwriting rules and we may request additional information or reject an application for any reason. Short Form Underwriting. The proposed Life Insured must answer qualifying questions in the application but is not required to provide detailed medical history, submit records or undergo examinations or tests unless requested to do so by us. Availability of Short Form underwriting depends on characteristics of the Case, such as the number of lives to be insured, the amounts of insurance and other factors, and it is generally available only up to Issue Age 65. Simplified Underwriting. The proposed Life Insured must satisfactorily answer certain health questions in the application and may be required to submit existing medical records, but requirements to undergo examinations and tests are minimized. Availability of Simplified underwriting and the nature of the requirements will depend on characteristics of the Case and the proposed lives to be insured. Regular (Medical) Underwriting. Where Short Form or Simplified underwriting is unavailable we require satisfactory evidence of insurability under our regular underwriting guidelines for individual applicants. This may include medical exams and other information. A proposed Life Insured who fails to qualify for a standard risk classification may be eligible to be insured with an additional substandard rating. Right to Examine the Policy A policy may be returned for a refund within 10 days after you receive it. Some states provide a longer period of time for this right, which will be stated in the policy if applicable. The policy can be mailed or delivered to the John Hancock USA agent who sold it or to the Service Office. Immediately upon such delivery or mailing, the policy shall be deemed void from the beginning. Within seven days after receipt of the returned policy at the Service Office we will refund an amount equal to the value of amounts in the Investment Accounts and the Fixed Account on the date we receive the returned policy, plus all charges deducted prior to that date, not including fees and expenses of the portfolios, minus any partial withdrawals and policy loans. Some state laws require the refund of premiums paid without adjustment for investment gains and losses of the Separate Account. In these states, all Net Premiums will be allocated to the Money Market Trust during the right to examine period and the refund amount will be equal to all premiums received less any partial withdrawals and policy loans. If you request a Face Amount increase that results in new surrender charge or sales loads, you will have the same rights described above to cancel the increase. If canceled, the premiums paid during this right to examine period will be refunded, and the Policy Value and surrender charge or sales loads will be recalculated to be as they would have been had the premiums not been paid. We reserve the right to delay the refund of any premium paid by check until the check has cleared. (Applicable to Residents of California Only) Residents in California age 60 and greater may return the policy for a refund at any time within 30 days after receiving it. The policy can be mailed or delivered to the Company's agent who sold it or to the Service Office. If you cancel the policy during this 30 day period and your premiums were allocated to a Fixed Account or the Money-Market investment option, we will refund you the amount of all premiums paid. If your premiums were allocated to one or more of the Investment Accounts (other than the Money Market portfolio), we will refund you the value of amounts in the Investment Accounts and the Fixed 17 Account on the date we receive the returned policy plus all charges deducted prior to that date, not including fees and expenses of the portfolios; minus any partial withdrawals and policy loans. Your premiums will be placed in either (a) the Fixed Account, (b) the Money Market investment option or (c) in one or more of the Investment Accounts, based upon your instructions. If no instructions are given, your premiums will be placed in the Money Market investment option. Life Insurance Qualification A policy must satisfy either of two tests to qualify as a life insurance contract as defined in Section 7702 of the Internal Revenue Code of 1986, as amended (the "Code"). At the time of application, you must choose either the Cash Value Accumulation Test ("CVA Test") or the Guideline Premium Test ("GP Test") and the test cannot be changed once the policy is issued. Cash Value Accumulation Test. The CVA Test requires the death benefit at any time to be at least a certain ratio of the Policy Value, based on prescribed calculations. The Minimum Death Benefit provision described below will ensure that the CVA Test is met. There is no restriction on the amount of premiums you may pay, but we will require you to provide satisfactory evidence of insurability before we accept an amount of premium that would increase the death benefit by more than the increase in Policy Value. Guideline Premium Test. The GP Test limits the amount of premiums you may pay into the policy, given its death benefit, based on prescribed calculations. In addition, the GP Test requires the death benefit at any time to be at least a prescribed ratio of the Policy Value. These prescribed multiples are generally lower than those calculated under the CVA Test. The Minimum Death Benefit provision described below will ensure that this second requirement is met. Changes to the policy or FTIO Rider, such as changes in Face Amount, Scheduled Death Benefit, death benefit Option or partial withdrawals, may affect the premium limits under the GP Test. Some changes will reduce future premium limits and may cause premiums already paid to exceed the new limits and force you to make a partial withdrawal. DEATH BENEFITS If the policy is in force at the time of the Life Insured's death we will pay an insurance benefit to the beneficiary. The policy may remain in force for the Life Insured's entire lifetime and there is no specified maturity or expiration date. Insurance benefits are only payable when we receive due proof of death at the Service Office, in the form of either a certified copy of the death certificate, a certified copy of a decree of a court of competent jurisdiction as to the finding of death or other proof satisfactory to us. The amount of the insurance benefit payable will be the death benefit on the date of death, as described below, less any Policy Debt and outstanding monthly deductions on the date of death. The insurance benefit will be paid in one lump sum unless another form of settlement is agreed to by the beneficiary and us. If the insurance benefit is paid in one sum, we will pay interest from the date of death to the date of payment. If the Life Insured should die after our receipt of a request for surrender, no insurance benefit will be payable, and we will pay only the Net Cash Surrender Value. Minimum Death Benefit. Both the CVA Test and the GP Test require the death benefit to be at least a prescribed ratio of the Policy Value at all times. The Policy's Minimum Death Benefit ensures that these requirements are met by providing that the death benefit shall be at least equal to the Policy Value multiplied by the applicable Minimum Death Benefit Percentage for the Attained Age of the Life Insured. Tables of Minimum Death Benefit Percentages appear below. 18 Table of Minimum Death Benefit Percentages.
GP Test CVA Test GP Test CVA Test Age Percent Male Female Unisex Age Percent Male Female Unisex --- ------- ---- -------- ------ --- ------- ---- -------- ------ 20 250% 653% 779% 674% 60 130% 192% 221% 197% 21 250% 634% 754% 654% 61 128% 187% 214% 192% 22 250% 615% 730% 635% 62 126% 182% 208% 187% 23 250% 597% 706% 616% 63 124% 178% 203% 183% 24 250% 580% 684% 598% 64 122% 174% 197% 178% 25 250% 562% 662% 579% 65 120% 170% 192% 174% 26 250% 545% 640% 561% 66 119% 166% 187% 170% 27 250% 528% 619% 544% 67 118% 162% 182% 166% 28 250% 511% 599% 526% 68 117% 159% 177% 162% 29 250% 494% 580% 509% 69 116% 155% 173% 159% 30 250% 479% 561% 493% 70 115% 152% 169% 156% 31 250% 463% 542% 477% 71 113% 149% 164% 152% 32 250% 448% 525% 461% 72 111% 146% 160% 149% 33 250% 433% 507% 446% 73 109% 144% 156% 146% 34 250% 419% 491% 432% 74 107% 141% 153% 144% 35 250% 406% 475% 418% 75 105% 139% 149% 141% 36 250% 392% 459% 404% 76 105% 136% 146% 139% 37 250% 380% 444% 391% 77 105% 134% 143% 136% 38 250% 367% 430% 378% 78 105% 132% 140% 134% 39 250% 356% 416% 366% 79 105% 130% 138% 132% 40 250% 344% 403% 355% 80 105% 129% 135% 130% 41 243% 333% 390% 343% 81 105% 127% 133% 128% 42 236% 323% 378% 333% 82 105% 125% 130% 127% 43 229% 313% 366% 322% 83 105% 124% 128% 125% 44 222% 303% 355% 312% 84 105% 122% 126% 123% 45 215% 294% 344% 303% 85 105% 121% 124% 122% 46 209% 285% 333% 294% 86 105% 120% 123% 121% 47 203% 277% 323% 285% 87 105% 119% 121% 119% 48 197% 268% 313% 276% 88 105% 118% 119% 118% 49 191% 260% 304% 268% 89 105% 116% 118% 117% 50 185% 253% 295% 260% 90 105% 116% 117% 116% 51 178% 245% 286% 253% 91 104% 115% 115% 115% 52 171% 238% 278% 245% 92 103% 114% 114% 114% 53 164% 232% 270% 238% 93 102% 112% 113% 113% 54 157% 225% 262% 232% 94 101% 111% 112% 111% 55 150% 219% 254% 225% 95 100% 110% 110% 110% 56 146% 213% 247% 219% 96 100% 109% 109% 109% 57 142% 207% 240% 213% 97 100% 107% 107% 107% 58 138% 202% 233% 208% 98 100% 106% 106% 106% 59 134% 197% 227% 202% 99 100% 105% 105% 105% 100 + 100% 100% 100% 100%
Flexible Term Insurance Option Rider You may add the FTIO Rider to the policy to provide additional death benefit coverage on the Life Insured. The FTIO Rider provides flexible term life insurance to Attained Age 100 with cost of insurance charges less than or equal to those of the policy. The Rider will terminate at the earlier of Attained Age 100, the date the policy lapses or is surrendered, and your request to cancel the FTIO Rider. You may schedule the death benefit amounts that will apply at specified times (the "Scheduled Death Benefits"). Scheduled Death Benefits may be constant or varying from time to time. The Death Benefit Schedule will be shown in the policy. The Term Insurance Benefit of the FTIO Rider is equal to (a) minus (b) but not less than zero where: (a) the Scheduled Death Benefit for the Policy Month, and 19 (b) the Face Amount of the policy or, if greater, the policy's Minimum Death Benefit Even if the Term Insurance Benefit may be zero in a Policy Month, the Rider will not terminate. Example. A policy is purchased for an executive as part of an employee benefit plan. The death benefit provided by the policy is to be equal to the executive's salary of $100,000 increasing at 5% per year through age 64. Assuming the executive is currently 55, the policy will be issued with a death benefit Schedule as follows: Policy Scheduled Policy Scheduled Year Death Benefit Year Death Benefit ------ ------------- ------ ------------- 1 100,000 6 127,628 2 105,000 7 134,010 3 110,250 8 140,710 4 115,763 9 147,746 5 121,551 10+ 155,133 The FTIO Rider amount will change each year as necessary to provide the benefits shown in the schedule, as follows: Policy Total Face Flexible Term Year Death Benefit Amount Insurance Amount ------ ------------- ------ ---------------- 1 100,000 100000 0 2 105,000 100000 5,000 3 110,250 100000 10,250 4 115,763 100000 15,763 5 121,551 100000 21,551 6 127,628 100000 27,628 7 134,010 100000 34,010 8 140,710 100000 40,710 9 147,746 100000 47,746 10 155,133 100000 55,133 Death Benefit Options You may choose either of two death benefit Options: Death Benefit Option 1. The death benefit on any date is the Face Amount of the policy or, if greater, the Minimum Death Benefit, plus the Term Insurance Benefit of the FTIO Rider. Death Benefit Option 2. The death benefit on any date is the Face Amount plus the Policy Value or, if greater, the Minimum Death Benefit, plus the Term Insurance Benefit of the FTIO Rider. Changing the Death Benefit Option You may change the death benefit Option at any time. The change will take effect at the beginning of the next Policy Month that is at least 30 days after your written request is received at the Service Office. We reserve the right to limit changes that could cause the policy to fail to qualify as life insurance for tax purposes. A change in the death benefit Option will result in a change in the Face Amount and Scheduled Death Benefits to avoid any change in the amount of death benefit, as follows: Change from Option 1 to Option 2. The new Face Amount will be the Face Amount prior to the change less the Policy Value on the date of the change. The Scheduled Death benefit amounts for dates on or after the date of the change will be the amounts scheduled prior to the change less the Policy Value on the date of the change. Coverage Amounts will be reduced or eliminated in the order that they are listed in the policy until the total decrease in Coverage Amounts equals the decrease in Face Amount. surrender charge will not be assessed for reductions that are solely due to a change in the death benefit Option. 20 Example. A policy is issued with a Face amount of $100,000, death benefit Option 1, and the following schedule: Policy Scheduled Year Death Benefit ------ ------------- 1 100,000 2 125,000 3 150,000 4 175,000 5+ 200,000 The death benefit Option is changed to Option 2 at the beginning of Policy Year 3. If the Policy Value at the time of the change is $10,000, then the Face Amount after the change will be $90,000 (the Face Amount prior to the change less the Policy Value) and the Death Benefit Schedule after the change will become: Policy Scheduled Year Death Benefit ------ ------------- 3 140,000 4 165,000 5+ 190,000 Change from Option 2 to Option 1. The new Face Amount will be the Face Amount prior to the change plus the Policy Value on the date of the change (but the new Face Amount will be no greater than the Scheduled Death Benefit on the date of the change.) The resulting Face Amount increase will be added to the first Coverage Amount listed in the policy. The Annual Premium Target for this Coverage Amount will not be increased and new surrender charge or Sales Loads will not apply, however, for an increase solely due to a change in the death benefit Option. Example. A policy is issued with a Face amount of $100,000, death benefit Option 2, and the following schedule: Policy Scheduled Year Death Benefit ------ ------------- 1 100,000 2 125,000 3 150,000 4 175,000 5+ 200,000 The death benefit Option is changed to Option 1 at the beginning of Policy Year 3. If the Policy Value at the time of the change is $10,000, then the Face Amount after the change will be $110,000 (the Face Amount prior to the change plus the Policy Value), and the Death Benefit Schedule after the change will become: Policy Scheduled Year Death Benefit ------ ------------- 3 160,000 4 185,000 5+ 210,000 Changing the Face Amount and Scheduled Death Benefits At any time, you may request an increase or decrease to the Face Amount or any Scheduled Death Benefits effective on or after the date of change. We reserve the right to limit changes that could cause the policy to fail to qualify as life insurance for tax purposes. Increases in Face Amount and Scheduled Death Benefits. Increases in Face Amount and Scheduled Death Benefits are subject to the following conditions: . Increases in Face Amount and Scheduled Death Benefits will require satisfactory evidence of the Life Insured's insurability. . Increases will take effect at the beginning of the next Policy Month after we approve the request. 21 . We may refuse a requested increase that would not meet our requirements for new policy issues at the time due to the Life Insured's Attained Age or other factors. . If the Face Amount is increased (other than as required by a death benefit Option change) then all Scheduled Death Benefits effective on or after the date of the change will be increased by the amount of the Face Amount increase. New Surrender Charges or Sales Loads for a Face Amount Increase. Coverage Amounts equal to the amount of the increase will be added to the policy as follows: . First, Coverage Amounts that were reduced or eliminated by a prior Face Amount decrease will be restored. . Second, if needed, a new Coverage Amount will be added to the policy with an Annual Premium Target and new surrender charge or Sales Loads. Any new Coverage Amount will be based on the Life Insured's Attained Age and other relevant factors on the effective date of the increase. Premiums paid on or after the increase may be attributed to the new Coverage Amount and result in surrender charge or Sales Loads (see "Charges and Deductions -- Attribution of Premiums"). Decreases in Face Amount and Scheduled Death Benefits. Decreases in Face Amount and Scheduled Death Benefits are subject to the following conditions: . Decreases in Face Amount and Scheduled Death Benefits will take effect at the beginning of the next policy Month which is at least 30 days after your written request is received at the Service Office. . If the Face Amount is decreased then all Scheduled Death Benefits effective on or after the date of the change will be decreased by the same amount. . If at any time the Scheduled Death Benefit decreases to less than the Face Amount, the Face Amount will be decreased to be equal to the Scheduled Death Benefit at that time. . Coverage Amounts equal to the amount of the Face Amount decrease will be reduced or eliminated in the reverse order that they are listed in the policy. surrender charge may be assessed (see "Charges and Deductions -- Sales Load or Surrender Charge"). Decreases in Face Amount under Death Benefit Option 1 due to a Partial Withdrawal. If death benefit Option 1 is in effect when a partial withdrawal is made, the Face Amount will be decreased by an amount equal to (a) minus (b) but not less than zero, where: (a) is the partial withdrawal amount plus any applicable Surrender Charge and (b) is the excess, if any, of the policy's Minimum Death Benefit over its Face Amount, immediately prior to the partial withdrawal. Decreases in Face Amount under death benefit Option 1 due to a Partial Withdrawal are subject to the following conditions: . Coverage Amounts equal to the amount of the Face Amount decrease will be reduced or eliminated in the reverse order that they are listed in the policy. . All Scheduled Death Benefits effective on or after the date of the partial withdrawal will be decreased by the amount of the Face Amount decrease, unless you request otherwise and we approve. . A Face Amount decrease due to a partial withdrawal will not incur any Surrender Charge in addition to that applicable to the partial withdrawal (see "Charges and Deductions -- Sales Load or Surrender Charge"). 22 Example for Face Increases and Decreases. A policy is issued with a Face Amount of $100,000, death benefit Option 1, and a Death Benefit Schedule as follows: Policy Scheduled Year Death Benefit ------ ------------- 1 100,000 2 125,000 3 150,000 4 175,000 5+ 200,000 Assume the following policy activity: Activity Effect on Policy Change in Benefit Schedule In Policy Year 2, the Face The initial Coverage amount is reduced to $80,000. Scheduled Amount is reduced to $80,000. Policy Year Death Benefit 2 105,000 3 130,000 4 155,000 5+ 180,000 Activity Effect on Policy Change in Benefit Schedule In Policy Year 3, the Face The initial Coverage Amount (which earlier was Scheduled Amount is increased to $120,000 reduced to $80,000) is restored to its original level Policy Year Death Benefit of $100,000. A new Coverage Amount for $20,000 is 3 170,000 added to the policy. This new coverage amount will 4 195,000 have its own Annual Premium Target, and if 5+ 220,000 applicable, its own Sales Load or surrender charge. A portion of the future premiums paid will be attributed to this Coverage Amount to determine the amount of the Sales Load or Surrender Charge. In Policy Year 4, a Partial The Face Amount is reduced to $90,000. The most Scheduled Withdrawal of $30,000 is made. recent Coverage Amount of $20,000 is reduced to $0, Policy Year Death Benefit and the initial Coverage Amount is reduced to $90,000. 4 165,000 5 190,000
Factors that Affect the Death Benefit. In the case of death benefit Option 2 where the death benefit is the Face Amount plus the Policy Value, changes in the Policy Value will affect the amount of death benefit. Factors that affect the Policy Value are the investment performance of the variable investment options chosen and the charges deducted. For a discussion of how these factors affect Policy Value see the "Risks/Benefits Summary." These factors do not affect the Face Amount of the policy. Therefore, the amount of death benefit under Option 1 will not be less than the Face Amount as long as the policy does not lapse. PREMIUM PAYMENTS Initial Premiums No premiums will be accepted prior to receipt of a completed application by us. All premiums received prior to the Effective Date of the policy will be held in the general account and credited with interest from the date of receipt at the rate of return earned on amounts allocated to the Money Market Trust. On the Effective Date, the Net Premiums paid plus interest credited will be allocated among the Investment Accounts or the Fixed Account in accordance with your instructions, unless first allocated to the Money Market Trust for the duration of the right to examine period (see "Right to Examine the Policy"). Subsequent Premiums After the payment of the initial premium, premiums may be paid at any time during the lifetime of the Life Insured prior to Attained Age 100 and in any amount subject to the premium limitations described below. A policy will be issued with a planned premium, which is based on the amount of premium you wish to pay. We will send you notices of your planned premium at the payment interval you select. However, you are under no obligation to make the planned premium payment. 23 Payment of premiums will not guarantee that the policy will stay in force and failure to pay premiums will not necessarily cause the policy to lapse. The policy will remain in force so long as the Net Cash Surrender Value is sufficient to cover policy charges. Premium Limitations If the policy is issued under the GP Test, the total of all premiums paid may not exceed the then-current maximum premium limitations established by federal income tax law for the policy to qualify as life insurance. The GP Test premium limits are stated in the policy. If a premium is received which would result in total premiums exceeding the applicable GP Test limit, we will only accept that portion of the premium that will not exceed the limit. Any premium in excess of that amount will be returned. If the policy is issued under the CVA Test, there is no restriction on the amount of premiums that may be paid into a policy, but you must provide satisfactory evidence of insurability before we accept any premium that would increase the death benefit by an amount greater than the increase in Policy Value. Premium Allocation You may allocate premiums to the Fixed Account and Investment Accounts. Allocations may be made as percentages that are between zero and 100% that sum to exactly 100%. Alternatively, you may allocate a premium in dollar amounts that sum to exactly the Net Premium amount. You may change premium allocations at any time and the change will take effect on the date a request for change satisfactory to us is received at the Service Office. CHARGES AND DEDUCTIONS Premium Load We will deduct a Premium Load as a percentage of each premium payment that is guaranteed never to exceed 2.0%. Currently, we waive this load in Policy Years 11 and later and charge 0%. The charge is intended to cover a portion of the aggregate amount of various taxes and fees we pay to federal, state and local governments. It is not based on the actual premium tax rate of your state of residence or any other specific tax. Sales Load or Surrender Charge Each Coverage Amount listed in the policy is designated as having either a Sales Load or Surrender Charge. One or the other of these charges will apply to a Coverage Amount, but not both. This designation cannot be changed after a Coverage Amount is effective and, currently, the same alternative must apply to all Coverage Amounts. Generally, policy benefits will be approximately equal in present value under either alternative. However, there is no guarantee each alternative will perform the same in all circumstances. Therefore, you should obtain individualized illustrations for both charge structures. Current cost of insurance rates in early Policy Years will be higher for the Surrender Charge alternative. The Sales Load or Surrender Charge is intended to cover a portion of our costs of marketing and distributing the policies. Attribution of Premiums. An Annual Premium Target is associated with each Coverage Amount. Annual Premium Targets are based on the Coverage Amount and the Life Insured's Attained Age, sex and smoking status on the effective date of the Coverage Amount. The Annual Premium Targets are listed with the Coverage Amounts in the policy. Premium payments will be attributed to Coverage Amounts that have been in effect for less than 5 years. Attribution will begin with the first applicable Coverage Amount that is listed in the policy. The sum of all premium amounts attributed to a Coverage Amount in a Coverage Year is limited to the Annual Premium Target shown in the policy. Premium amounts that exceed the Annual Premium Target will be attributed to the next listed Coverage Amount, up to its own Annual Premium Target. Attribution will continue in this manner until either the entire premium is attributed to Coverage Amounts or the Annual Premium Target is exceeded for all applicable Coverage Amounts. Sales Load. We deduct a Sales Load from all premium amounts attributed to a Coverage Amount designated as having a Sales Load. The Sales Load is a percentage of premiums guaranteed never to exceed the percentages below. Currently we are charging these percentages. 24 Coverage Year Percentage Coverage Year Percentage ------------- ---------- ------------- ---------- 1 8% 4 2% 2 6% 5 1% 3 3% 6+ 0% Surrender Charge. We will deduct a Surrender Charge from the Net Policy Value upon elimination or reduction of a Coverage Amount designated as having a Surrender Charge during the first 9 Coverage Years. Coverage Amounts may be eliminated or reduced and a Surrender Charge assessed due to: . surrender of the policy for its Net Cash Surrender Value, . a partial withdrawal which exceeds the Free Partial Withdrawal Amount, . a Face Amount decrease that is not solely due to a death benefit Option change, or . lapse of the policy. The Surrender Charge for an applicable Coverage Amount is a percentage of the sum of all premiums attributed to it since its effective date. Surrender Charge percentages are guaranteed never to exceed those below. Currently, we are charging these percentages: Coverage Year Percentage Coverage Year Percentage ------------- ---------- ------------- ---------- 1 5.0% 6 1.5% 2 4.0% 7 1.0% 3 3.0% 8 1.0% 4 2.5% 9 0.5% 5 2.0% 10+ 0.0% Although the Surrender Charge percentages remain level or decrease as the Coverage Year increases, the total dollar amount of surrender charge may increase, as the total premium paid increases. Premiums paid in any Coverage Year in excess of the Annual Premium Target and premiums paid after the fifth Coverage Year may not add to the Surrender Charge, so the timing of premium payments may affect the amount of the Surrender Charge. Depending upon circumstances such as premiums paid and performance of the underlying investment options, there may be a Policy Value but no Cash Surrender Value available due to the existence of the Surrender Charge. Unless otherwise allowed by us and specified by you, surrender charge will be allocated among the Investment Accounts and the Fixed Account in the same proportion as the Policy Value in each Account bears to the Net Policy Value. Surrender Charges on a Partial Withdrawal. We will assess a portion of the Surrender Charge if you take a partial withdrawal that exceeds the Free Withdrawal Amount. The Free Withdrawal Amount is 10% of the Net Cash Surrender Value at the time of the withdrawal less the amount of any partial withdrawals already taken in the same Policy Year. The portion of the policy's total Surrender Charge that will be assessed is the ratio of (a) to (b), where (a) is the amount being withdrawn in excess of the Free Withdrawal Amount and (b) is the Net Cash Surrender Value immediately prior to the withdrawal. The remaining surrender charge for all Coverage Amounts will be reduced in the same proportion that the Surrender Charge assessed bears to the policy's total Surrender Charge immediately prior to the partial withdrawal. Surrender Charges on a Face Amount Decrease. We will assess a portion of the Surrender Charge upon a Face Amount decrease that is not required due to a death benefit Option change or partial withdrawal. For each Coverage Amount that is reduced or eliminated as a result of the decrease, we will assess a portion of any applicable Surrender Charge. The proportion of the Surrender Charge that is assessed will be the ratio of amount by which the Coverage Amount is reduced to the Coverage Amount prior to reduction. The remaining surrender charge for affected Coverage Amounts will be reduced by the same ratio. Monthly Deductions On the Policy Date and at the beginning of each Policy Month prior to Attained Age 100, a deduction is due from the Net Policy Value to cover certain charges described below. Monthly deductions due prior to the policy's Effective Date will be taken on the Effective Date. Unless otherwise allowed by us and specified by you, the monthly deduction will be allocated among the Investment Accounts and the Fixed Account in the same proportion as the Policy Value in each of the Investment Accounts and the Fixed Account bears to the Net Policy Value. 25 Administration Charge. Currently we deduct a charge of $12 per Policy Month, which is guaranteed never to be exceeded. This charge is intended to cover certain administrative expenses associated with the policy, including maintaining policy records, collecting premiums and processing death claims, surrender and withdrawal requests and various changes permitted under a policy. Cost of Insurance Charge. A monthly charge for the cost of insurance is paid to the Company and is determined by multiplying a cost of insurance rate by the net amount at risk at the beginning of each Policy Month. Death Benefit Option 1. The net amount at risk is equal to the greater of zero, or (a) minus (b), where (a) is the applicable death benefit amount on the first day of the Policy Month, divided by 1.0024663; and (b) is the Policy Value attributed to that death benefit amount on the first day of the Policy Month. Death Benefit Option 2. The net amount at risk is equal to the Face Amount of insurance. Cost of insurance rates and net amounts at risk are determined separately for each Coverage Amount and for the excess of the death benefit over the Face Amount (the Face Amount is the sum of the Coverage Amounts). Attribution of Policy Value to Net Amounts at Risk. To determine the net amounts at risk, the Policy Value will be attributed to Coverage Amounts in the order listed in the policy. The amount of Policy Value attributed to a Coverage Amount will be limited to the amount that results in zero net amount at risk, and any excess Policy Value will then be attributed to the next listed Coverage Amount. Attribution will continue in this manner until either the entire Policy Value is attributed or the end of the list of Coverage Amounts is reached. Any remaining Policy Value will then be attributed to the excess of the death benefit over the Face Amount. Current Cost of Insurance Rates. Cost of insurance rates are determined separately for each Coverage Amount and the excess of the death benefit over the Face Amount. There are different current cost of insurance rate bases for: . Coverage Amounts having Sales Loads, . Coverage Amounts having surrender charge, and . The excess of the death benefit over the Face Amount, including any Term Insurance Benefit under the FTIO Rider. The cost of insurance rate in a specific Policy Month for an applicable death benefit amount will depend on: . the cost of insurance rate basis for the applicable death benefit amount, . the Life Insured's Attained Age, sex (unless unisex rates are required by law) and smoking status on the effective date of the applicable death benefit amount, . the underwriting class of the applicable death benefit amount, . the Coverage Year, or Policy Year for the excess of the death benefit over the Face Amount, . any extra charges for substandard ratings, as stated in the policy. Since the net amount at risk for death benefit Option 1 is based on a formula that includes as factors the Policy Value, the net amount at risk is affected by the investment performance of the underlying investment options chosen, payment of premiums and charges assessed. Cost of insurance rates will generally increase with the Life Insured's age and the Coverage Year. Cost of insurance rates reflect our expectation as to future mortality experience. They are also intended to cover our general costs of providing the policy, to the extent that these costs are not covered by other charges. Current cost of insurance rates may be changed by us on a basis that does not unfairly discriminate within the class of lives insured. Guaranteed Maximum Cost of Insurance Rates. In no event will the cost of insurance rates we charge exceed the guaranteed maximum rates set forth in the policy, except to the extent that an extra charge is imposed for a substandard rating. The guaranteed rates are the based on 1980 Commissioners Standard Ordinary Sex Distinct (unless unisex rates are 26 required by law) ANB Aggregate Ultimate Mortality Tables. Current cost of insurance rates may be less than the guaranteed rates. Asset Based Risk Charge Deducted from Investment Accounts We assess a daily charge against amounts in the Investment Accounts. This charge is intended to compensate us for insurance risks we assume under the policy, such as benefit payments and expenses that are higher than we expected. We will realize a gain from this charge to the extent it is not needed to provide benefits and pay expenses under the policy. The charge is a percentage of amounts in the Investment Accounts, which will reduce Unit Values of the sub-accounts. The charge is guaranteed never to exceed an annual rate of 0.50%. Currently, we charge the following rates: Policy Year Annual Rate ----------- ----------- 1-10 0.50% 11+ 0.25% Investment Management Fees and Expenses The investment management fees and expenses of the portfolios, the underlying variable investment options for the policy, are set forth in the Fee Tables above and in the portfolio prospectuses. Reduction in Charges and Enhanced Surrender Values The policy is designed for employers and other sponsoring organizations that may purchase multiple policies as a Case. The size or nature of the Case may result in expected savings of sales, underwriting, administrative or other costs. If so, we expect to offer reductions of policy charges and enhancements of surrender value. Eligibility for reductions and enhancements and the amounts available will be determined by a number of factors, including the number of lives to be insured, the total premiums expected to be paid, total assets under management for the policy owner, the nature of the relationship among the lives insured, the purpose for which the policies are being purchased, expected persistency of the individual policies, and any other circumstances which we believe to be relevant to the expected reduction of our expenses. Some of reductions and enhancements may be guaranteed and others may be subject to restrictions or to withdrawal or modification, on a uniform case basis. We may change the nature and amount of reductions and enhancements available from time to time. Reductions and enhancements will be determined in a way that is not unfairly discriminatory to policy owners. COMPANY TAX CONSIDERATIONS Currently, we make no specific charge for any federal, state, or local taxes that we incur that may be attributable to such Account or to the policy. We reserve the right in the future to make a charge for any such tax or other economic burden resulting from the application of tax laws that we determines to be attributable to the Separate Account or to the policy. POLICY VALUE Determination of the Policy Value A policy has a Policy Value, a portion of which is available to you by making a policy loan or partial withdrawal, or upon surrender of the policy. The Policy Value may also affect the amount of the death benefit. The Policy Value at any time is equal to the sum of the values in the Investment Accounts, the Fixed Account, and the Loan Account. The Policy Value is affected by the investment performance of the Investment Account chosen and the rate of interest credited if amounts are allocated to the Fixed Account. The Policy Value is also affected by the charges deducted. For a discussion of how these factors affect Policy Value see the "Risks/Benefits Summary." Investment Accounts. An Investment Account is established under each policy for each sub-account of the Separate Account to which Net Premiums or transfer amounts have been allocated. Each Investment Account under a policy measures the interest of the policy in the corresponding sub-account. The value of the Investment Account established for a particular sub-account is equal to the number of units of that sub-account credited to the policy times the value of such units. Fixed Account. Amounts in the Fixed Account do not vary with the investment performance of any sub-account. Instead, these amounts are credited with interest at a rate determined by John Hancock USA. See "The General Account -- Fixed Account". Loan Account. Amounts borrowed from the policy are transferred to the Loan Account. Amounts in the Loan Account do not vary with the investment performance of any sub-account. Instead, these amounts are credited with interest at 27 a rate determined by John Hancock USA that is lower than the loan interest rate charged on Policy Debt. See "Policy Loans -- Loan Account". Units and Unit Values Crediting and Canceling Units. Units of a particular sub-account are credited to a policy when Net Premiums are allocated to that sub-account or amounts are transferred to that sub-account. Units of a sub-account are cancelled whenever amounts are deducted, transferred or withdrawn from the sub-account. The number of units credited or cancelled for a specific transaction is based on the dollar amount of the transaction divided by the value of the unit on the Business Day on which the transaction occurs. The number of units credited with respect to a premium payment will be based on the applicable unit values for the Business Day on which the premium is received at the Service Office, except for any premiums received before the Effective Date. For premiums received before the Effective Date, the values will be determined on the Effective Date. Units are valued at the end of each Business Day. When an order involving the crediting or canceling of units is received after the end of a Business Day, or on a day that is not a Business Day, the order will be processed on the basis of unit values determined on the next Business Day. Similarly, any determination of Policy Value, Investment Account value or death benefit to be made on a day that is not a Business Day will be made on the next Business Day. Unit Values. For each Business Day the unit value for a sub-account is determined by multiplying the unit value for the immediately preceding Business Day by the net investment factor for that sub-account on such subsequent Business Day. The net investment factor for a sub-account on any Business Day is equal to (a) divided by (b) minus (c), where: (a) is the net asset value of the underlying portfolio shares held by that sub-account as of the end of such Business Day before any policy transactions are made on that day; (b) is the net asset value of the underlying portfolio shares held by that sub-account as of the end of the immediately preceding Business Day after all policy transactions were made for that day; and (c) is a charge not exceeding the daily mortality and expense risk charge shown in the "Charges and Deductions -- Asset Based Risk Charge Deducted from Investment Accounts" section. The value of a unit may increase, decrease, or remain the same, depending on the investment performance of a sub-account from one Business Day to the next. Transfers of Policy Value Subject to the restrictions set forth below, the policy owner may transfer Policy Value from one sub-account to another or to the Fixed Account. Transfers involving the Fixed Account are subject to certain limitations noted below under "Transfers Involving Fixed Account." Variable investment options in variable annuity and variable life insurance products can be a prime target for abusive transfer activity because these products value their investment options on a daily basis and allow transfers among investment options without immediate tax consequences. As a result, some investors may seek to frequently transfer into and out of variable investment options in reaction to market news or to exploit a perceived pricing inefficiency. Whatever the reason, long-term investors in a variable investment option can be harmed by frequent transfer activity since such activity may expose a portfolio to increased portfolio transaction costs (affecting the value of the shares), disruption to management of a portfolio (affecting a subadviser's ability to effectively manage a portfolio's investments in accordance with the portfolio's investment objective and policies) and dilution with respect to interests held for long-term investment. To discourage disruptive frequent trading activity, we impose restrictions on transfers and reserve the right to change, suspend or terminate telephone and facsimile transaction privileges. 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 options. 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. The Company's current practice is to restrict transfers into or out of variable investment options to two per calendar month (except with respect to those policies described in the following paragraph). In applying this restriction any transfer 28 request involving the transfer of account value into or out of multiple variable investment options will still count as only one request. No more than one transfer request made be made on any day. The policy owner may, however, transfer to the Money Market investment option even if the two transfer per month limit has been reached, but only if 100% of the value in all variable investment options is transferred to the Money Market investment option. If such a transfer to the Money Market investment option is made, then, for the 30 calendar day period after such transfer, no transfers from the Money Market investment option to any other variable investment options or to the Fixed Account may be made. If a 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 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 account values are transferred from one variable investment option into a second variable investment option, the values can only be transferred out of the second investment option if they are transferred into the Money Market investment option; and (ii) any account values that would otherwise not be transferable by application of the 10 day limit described above and that are transferred into the Money Market investment option may not be transferred out of the Money Market investment option into any other investment options (variable or fixed) for 30 calendar days. The restrictions described in this paragraph will be applied uniformly to all policy owners subject to the restrictions. The Company also reserves the right to modify or terminate the transfer privilege at any time in accordance with applicable law. Transfers may also be delayed when any of the events described in "Payment of Proceeds" occurs. Transfer privileges are also subject to any restrictions that may be imposed by the portfolios. In addition, the Company reserves the right to defer the transfer privilege at any time that the Company is unable to purchase or redeem shares of a portfolio. Transfer Requests. Transfer requests may be made in writing in a format satisfactory to us. From time to time we may offer you alternate means of communicating transfer requests to us, such as electronic mail, the Internet or telephone. We will use reasonable procedures to confirm that instructions received by alternate means are genuine and we will not be liable for following instructions we have reasonably determined to be genuine. Limitations on Transfers From the Fixed Account. The maximum amount that may be transferred from the Fixed Account in any Policy Year is 25% of the Fixed Account Value at the previous Policy Anniversary. Any transfer that involves a transfer out of the Fixed Account may not involve a transfer to the Investment Account for the Money Market Trust. We may allow greater amounts to be transferred from the Fixed Account if a systematic plan of withdrawals is agreed to in advance. For example, we will allow the transfer of 20%, 25%, 33%, 50% and 100% of the remaining balance in the Fixed Account in five successive years provided we agree in advance in writing and that no amounts are transferred into the Fixed Account during the 5 year period. POLICY LOANS At any time while the policy is in force, you may borrow against the Policy Value. The policy is the only security for the loan. policy loans may have tax consequences. See "Tax Treatment of Policy Benefits -- Policy Loan Interest." A policy loan will affect future Policy Values, since the portion of the Policy Value in the Loan Account will receive the loan interest credited rate rather than varying with the performance of the underlying portfolios or increasing at the Fixed Account interest credited rate. A policy loan may cause a policy to be more susceptible to lapse since it reduces the Net Cash Surrender Value from which monthly deductions are taken. A policy loan causes the amount payable upon death of the Life Insured to be reduced by the amount of outstanding Policy Debt. Maximum Loan. The amount of any loan cannot exceed the amount that would cause the Policy Debt to equal the Policy's Cash Surrender Value less the monthly deductions due from the date of the loan to the next Policy Anniversary. Interest Charged on Policy Loans Interest on the Policy Debt will accrue daily and be payable annually on the Policy Anniversary. The rate of interest charged will be an effective annual rate of 4%. 29 Loan Account When a loan is made, an amount equal to the loan will be deducted from the Investment Accounts or the Fixed Account and transferred to the Loan Account. You may designate how this amount is allocated among the Accounts. If you give no instructions, the amount transferred will be allocated among the Investment Accounts and the Fixed Account in the same proportion as the Policy Value in each Investment Account and the Fixed Account bears to the Net Policy Value. A transfer from an Investment Account will result in the cancellation of units of the underlying sub-account equal in value to the amount transferred from the Investment Account. However, since the Loan Account is part of the Policy Value, transfers made in connection with a loan will not change the Policy Value. Interest Credited to the Loan Account. Policy Value in the Loan Account will earn interest at an effective annual rate guaranteed to be at least 3.25%. We may declare a current interest rate that is greater than this, subject to change at any time. The excess of the loan interest charged rate (4%) over the loan interest credited rates will result in a net charge against the Policy Value with respect to any Policy Debt. Currently we credit loan interest rates which vary by Policy Year as follows: Current Loan Interest Excess of Loan Interest Policy Years Credited Rates Charged Rate ------------ --------------------- ----------------------- 1-10 3.25% 0.75% 11+ 3.75% 0.25% Loan Account Adjustments. On the first day of each Policy Month the difference between the Loan Account and the Policy Debt is transferred to the Loan Account from the Investment Accounts or the Fixed Account. The amount transferred will be allocated to the Investment Accounts and the Fixed Account in the same proportion as the Policy Value in each Investment Account or the Fixed Account bears to the Net Policy Value. Loan Repayments. Policy Debt may be repaid, in whole or in part, at any time prior to the death of the Life Insured while the policy is in force. A loan repayment amount will be credited to the Loan Account and transferred to the Fixed Account or the Investment Accounts in the same proportion as the Policy Value in each Account bears to the Net Policy Value. Amounts paid to us not specifically designated in writing as loan repayments will be treated as premiums. POLICY SURRENDER AND PARTIAL WITHDRAWALS Policy Surrender A policy may be surrendered for its Net Cash Surrender Value at any time while the Life Insured is living. The Net Cash Surrender Value is equal to the Policy Value less any surrender charge, monthly deductions due and Policy Debt. The Net Cash Surrender Value will be determined at the end of the Business Day on which we receive the policy and a written request for surrender at the Service Office. When a policy is surrendered, the insurance coverage and all other benefits under the policy will terminate. Partial Withdrawals You may make a partial withdrawal of the Net Cash Surrender Value at any time. You may designate how the withdrawal amount is allocated among the Investment Account and the Fixed Account. If you give no instructions, the withdrawal amount will be allocated among the Accounts in the same proportion as the Policy Value in each Account bears to the Net Policy Value. Surrender Charges may be assessed on a Partial Withdrawal. See "Charges and Deductions -- Surrender Charges." The death benefit may be reduced as a result of a Partial Withdrawal. See "Death Benefits -- Decreases in Face Amount under death benefit Option 1 due to a Partial Withdrawal". LAPSE AND REINSTATEMENT Lapse A policy will go into default at the beginning of a Policy Month if the Net Cash Surrender Value would go below zero after deducting the monthly deduction then due. A lapse could have adverse tax consequences as described under "Tax Treatment of the Policy -- Tax Treatment of Policy Benefits -- Surrender or Lapse." We will notify you of the default and 30 will allow you a 61-day grace period in which to make a premium payment sufficient to bring the policy out of default. The required payment will be equal to the amount necessary to bring the Net Cash Surrender Value to zero, if it was less than zero on the date of default, plus the monthly deductions due at the date of default and payable at the beginning of each of the two Policy Months thereafter, plus any applicable premium load charge. If the required payment is not received by the end of the grace period, the policy will terminate with no value. Death During Grace Period. If the Life Insured should die during the grace period, the Policy Value used in the calculation of the death benefit will be the Policy Value on the date of default and the insurance benefit will be reduced by any outstanding monthly deductions due at the time of death. Reinstatement You may reinstate a policy that has terminated after going into default at any time within the five-year period following the date of termination subject to the following conditions: . The policy must not have been surrendered for its Net Cash Surrender Value; . Evidence of the Life Insured's insurability satisfactory to us must be provided; and . A premium equal to the payment required during the grace period following default to keep the policy in force is paid. THE GENERAL ACCOUNT The general account of John Hancock USA consists of all assets owned by us other than those in the Separate Account and other Separate Accounts of the Company. Subject to applicable law, we have sole discretion over investment of the assets of the general account. By virtue of exclusionary provisions, interests in the general account of John Hancock USA have not been registered under the Securities Act of 1933 and the general account has not been registered as an investment company under the Investment Company Act of 1940. Accordingly, neither the general account nor any interests therein are subject to the provisions of these acts, and as a result the staff of the SEC has not reviewed the disclosures in this prospectus relating to the general account. Disclosures regarding the general account may, however, be subject to certain generally applicable provisions of the federal securities laws relating to the accuracy and completeness of statements made in a prospectus. Fixed Account You may allocate Net Premiums to the Fixed Account or transfer all or a portion of the Policy Value to the Fixed Account from the Investment Accounts. John Hancock USA will hold the reserves required for any portion of the policy Value allocated to the Fixed Account in our general account. Transfers from the Fixed Account to the Investment Accounts are subject to restrictions. Policy Value in the Fixed Account. The Policy Value in the Fixed Account is equal to: . the portion of the Net Premiums allocated to it; plus . any amounts transferred to it; plus . interest credited to it; less . any charges deducted from it; less . any partial withdrawals from it; less . any amounts transferred from it. Interest on the Fixed Account. An allocation of Policy Value to the Fixed Account does not entitle you to share in the investment experience of the general account. Instead, we guarantee that the Policy Value in the Fixed Account will accrue interest daily at an effective annual rate of at least 3%, without regard to the actual investment experience of the general account. We may declare a current interest rate in excess of the guaranteed rate, subject to change at any time. 31 OTHER PROVISIONS OF THE POLICY Policy owner Rights Unless otherwise restricted by a separate agreement, you may: . Vary the premiums paid under the policy. . Change the death benefit Option. . Change the premium allocation for future premiums. . Transfer amounts between sub-accounts. . Take loans and/or partial withdrawals. . Surrender the contract. . Transfer ownership to a new owner. . Name a contingent owner that will automatically become owner if you die before the Life Insured. . Change or revoke a contingent owner. . Change or revoke a beneficiary. Assignment of Rights. We will not be bound by an assignment until we receive a copy of the assignment at the Service Office. We assume no responsibility for the validity or effects of any assignment. Beneficiary You may appoint one or more beneficiaries of the policy by naming them in the application. Beneficiaries may be appointed in three classes -- primary, secondary, and final. Beneficiaries may also be revocable or irrevocable. Unless an irrevocable designation has been elected, you may change the beneficiary during the Life Insured's lifetime by giving written notice in a form satisfactory to us. If the Life Insured dies and there is no surviving beneficiary, you, or your estate if you are the Life Insured, will be the beneficiary. If a beneficiary dies before the seventh day after the death of the Life Insured, we will pay the insurance benefit as if the beneficiary had died before the Life Insured. Incontestability We will not contest the validity of a policy after it has been in force during the Life Insured's lifetime for two years from the Issue Date stated in the policy, nor will we contest the validity of an increase in Face Amount after it has been in force during the Life Insured's lifetime for two years. If a policy has been reinstated, we can contest any misrepresentation of a fact material to the reinstatement for a period of two years after the reinstatement date. Misstatement of Age or Sex If the Life Insured's stated age or sex or both in the policy are incorrect, we will change the Face Amount so that the death benefit will be that which the most recent monthly charge for the cost of insurance would have purchased for the correct age and sex. Suicide Exclusion If the Life Insured, whether sane or insane, dies by suicide within two years from the Issue Date stated in the policy (or within the maximum period permitted by the state in which the policy was delivered, if less than two years), we will pay only the premiums paid less any partial withdrawals and any Policy Debt. If the Life Insured should die by suicide within two years after a Face Amount increase, the death benefit for the increase will be limited to the monthly deductions for the increase. At our discretion, this provision may be waived. Supplementary Benefits Subject to certain requirements, one or more supplementary benefits may be added to a policy, including the FTIO Rider (see "Death Benefits -- Flexible Term Insurance Option Rider") and, in the case of a policy owned by a corporation 32 or other similar entity, a benefit permitting a change in the Life Insured (a taxable event). More detailed information concerning these supplementary benefits may be obtained from us. There is no cost for any supplementary benefit currently offered by us, with the exception of FTIO Rider (see "Charges and Deductions -- Monthly Deductions"). TAX TREATMENT OF THE POLICY This description of federal income tax consequences is only a brief summary and is not intended as tax advice. Tax consequences will vary based on your own particular circumstances, and for further information you should consult a qualified tax advisor. Federal, state and local tax laws, regulations and interpretations can change from time to time. As a result, the tax consequences to you and the beneficiary may be altered, in some cases retroactively. 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 adviser should be consulted. General Generally, death benefits paid under policies such as yours are not subject to income tax. Earnings on your account 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 account 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.) 33 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 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 portfolios failed to meet certain investment diversification or other requirements of the Code. If this were to occur, you would be subject to income tax on the income credited to the policy 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 revocable 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 poilcy will be includible in the owner's estate upon his or her death. Even if ownership has been transferred, the death proceeds or the account value may be includible in the fomrer 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 regardin 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 premium requirements to keep your policy from lapsing and a significant tax burden if you allow the lapse to occur. 34 Diversification Rules and Ownership of the Separate Account Your policy will not qualify for the tax benefits of a life insurance contract unless the Separate 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 sub-accounts. 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 Separate Account. We do not know what future Treasury Department regulations or other guidance may require. We cannot guarantee that the portfolios will be able to operate as currently described in the Series Funds' prospectuses, or that a Series Fund will not have to change any portfolio's investment objectives or policies. We have reserved the right to modify your policy if we believe doing so will prevent you from being considered the owner of your policy's proportionate share of the assets of the Separate 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; 35 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 adviser if you have questions regarding the possible impact of the 7-pay limit on your policy. 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. 36 OTHER INFORMATION Payment of Proceeds As long as the policy is in force, we will ordinarily pay any policy loans, surrenders, partial withdrawals or insurance benefit within seven days after receipt at the Service Office of all the documents required for such a payment. We may delay the payment of any policy loans, surrenders, partial withdrawals, or insurance benefit that depends on Fixed Account values for up to six months or in the case of any Investment Account for any period during which (i) the New York Stock Exchange is closed for trading (except for normal weekend and holiday closings), (ii) trading on the New York Stock Exchange is restricted (iii) an emergency exists as a result of which disposal of securities held in the Separate Account is not reasonably practicable or it is not reasonably practicable to determine the value of the Separate Account's net assets or (iv) the SEC, by order, so permits for the protection of security holders; provided that applicable rules and regulations of the SEC shall govern as to whether the conditions described in (ii) and (iii) exist. Reports to Policyholders Within 30 days after each Policy Anniversary, we will send you a statement showing, among other things: . the amount of death benefit; . the Policy Value and its allocation among the Investment Accounts, the Fixed Account and the Loan Account; . the value of the units in each Investment Account to which the Policy Value is allocated; . the Policy Debt and any loan interest charged since the last report; . the premiums paid and other policy transactions made during the period since the last report; and . any other information required by law. You will also be sent an annual and a semi-annual report for the portfolios, which will include a list of the securities, held in each portfolio as required by the 1940 Act. Distribution of Policies John Hancock Distributors, LLC ("JH Distributors"), a Delaware limited liability company that we control, is the principal distributor of the policies and the principal underwriter of the securities offered through this prospectus and of other annuity and life insurance products we and our affiliates offer. JH Distributors also acts as the principal underwriter of the John Hancock Trust, whose securities are used to fund certain variable investment options under the policies and under other annuity and life insurance products we offer. JH Distributors' principal address is 200 Bloor Street East, Toronto, Canada M4W 1E5 and it also maintains offices with us at 601 Congress Street, Boston, Massachusetts 02210. JH Distributors is a broker-dealer registered under the Securities Exchange Act of 1934 (the "1934 Act") and is a member of the National Association of Securities Dealers, Inc. (the "NASD"). We offer the policies for sale through individuals who are licensed as insurance agents and who are registered representatives of broker-dealers that have entered into selling agreements with JH Distributors. These broker-dealers may include our affiliates Essex National Securities, Inc. and Signator Investors, Inc. Through JH Distributors, John Hancock USA pays compensation to broker-dealers for the promotion and sale of the policies. The registered representative through whom your policy is sold will be compensated pursuant to the registered representative's own arrangement with his or her broker-dealer. Compensation to broker-dealers for the promotion and sale of the policies is not paid directly by policy owners but will be recouped through the fees and charges imposed under the policy. (See "Charges and Deductions.") 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 37 sale of the policies (not including riders) is not expected to exceed 15% of the target premium paid in Policy Year 1, 9.0% of target premium in years 2-5, and 2.5% of the target premium paid in years 6 and after. Compensation on any premium paid in excess of target premium in any year will not exceed 2.5%. The amount and timing of this compensation may differ among broker-dealers, but would not be expected to materially exceed the foregoing schedules on a present value basis. 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 the 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 is affiliates may contribute to, as well as sponsor, various educational programs, sales contests, and/or other promotions in which participating firms and their sales persons may receive prizes such as merchandise, cash or other rewards. These arrangements will not be offered to all firms, and the terms of such arrangements may differ between firms. We provide additional information on special compensation or reimbursement arrangements involving selling firms and other financial institutions in the Statement of Additional Information, which is available upon request. Any such compensation, which may be significant at times, will not result in any additional direct charge to you by us. Differential Compensation. Compensation negotiated and paid by JH Distributors pursuant to a selling agreement with a broker-dealer may differ from compensation levels that the broker-dealer receives for selling other variable policies or contracts. These compensation arrangements may give us benefits such as greater access to registered representatives. In addition, under their own arrangements, broker-dealer firms may pay a portion of any amounts received under standard or additional compensation or revenue sharing arrangements to their registered representatives. As a result, registered representatives may be motivated to sell the policies of one issuer over another issuer, or one product over another product. You should contact your registered representative for more information on compensation arrangements in connection with your purchase of a policy. Responsibilities of John Hancock USA John Hancock USA entered into an agreement with JH Distributors pursuant to which John Hancock USA, on behalf of JH Distributors will pay the sales commissions in respect of the Policies and certain other policies issued by John Hancock USA, prepare and maintain all books and records required to be prepared and maintained by JH Distributors with respect to the Policies and such other policies, and send all confirmations required to be sent by JH Distributors with respect to the Policies and such other policies. JH Distributors will promptly reimburse John Hancock USA for all sales commissions paid by John Hancock USA and will pay John Hancock USA for its other services under the agreement in such amounts and at such times as agreed to by the parties. Finally, John Hancock USA may, from time to time in its sole discretion, enter into one or more reinsurance agreements with other life insurance companies under which policies issued by it may be reinsured, such that its total amount at risk under a policy would be limited for the life of the insured. Voting Rights As stated previously, all of the assets held in each sub-account of the Separate Account will be invested in shares of a particular portfolio. John Hancock USA is the legal owner of those shares and as such has the right to vote upon certain matters that are required by the 1940 Act to be approved or ratified by the shareholders of a mutual fund and to vote upon any other matters that may be voted upon at a shareholders' meeting. However, John Hancock USA will vote shares held in the sub-accounts in accordance with instructions received from policyholders having an interest in such sub-accounts. Shares held in each sub-account for which no timely instructions from policyholders are received, including shares not attributable to the Policies, will be voted by John Hancock USA in the same proportion as those shares in that sub-account for which instructions are received. Should the applicable federal securities laws or regulations change so as to permit John Hancock USA to vote shares held in the Separate Account in its own right, it may elect to do so. The number of shares in each sub-account for which instructions may be given by a policyholder is determined by dividing the portion of the Policy Value derived from participation in that sub-account, if any, by the value of one share of the corresponding portfolio. The number will be determined as of a date chosen by John Hancock USA, but not more than 90 38 days before the shareholders' meeting. Fractional votes are counted. Voting instructions will be solicited in writing at least 14 days prior to the meeting. John Hancock USA may, if required by state officials, disregard voting instructions if such instructions would require shares to be voted so as to cause a change in the sub-classification or investment policies of one or more of the portfolios, or to approve or disapprove an investment management contract. In addition, we may disregard voting instructions that would require changes in the investment policies or investment adviser, provided that we reasonably disapprove such changes in accordance with applicable federal regulations. If John Hancock USA does disregard voting instructions, it will advise policyholders of that action and its reasons for such action in the next communication to policyholders. Substitution of Portfolio Shares It is possible that in the judgment of the management of John Hancock USA, one or more of the portfolios may become unsuitable for investment by the Separate Account because of a change in investment policy or a change in the applicable laws or regulations, because the shares are no longer available for investment, or for some other reason. In that event, John Hancock USA may seek to substitute the shares of another portfolio or of an entirely different mutual fund. Before this can be done, the approval of the SEC and one or more state insurance departments may be required. John Hancock USA also reserves the right (i) to combine other Separate Accounts with the Separate Account, (ii) to create new Separate Accounts, (iii) to establish additional sub-accounts within the Separate Account to invest in additional portfolios of the Trust or another management investment company, (iv) to eliminate existing sub-accounts and to stop accepting new allocations and transfers into the corresponding portfolio, (v) to combine sub-accounts or to transfer assets in one sub-account to another sub-account or (vi) to transfer assets from the Separate Account to another Separate Account and from another Separate Account to the Separate Account. We also reserve the right to operate the Separate Account as a management investment company or other form permitted by law, and to de-register the Separate Account under the 1940 Act. Any such change would be made only if permissible under applicable federal and state law. Records and Accounts The Service Office is responsible for performing all administrative functions, such as decreases, increases, surrender and partial withdrawals, and fund transfers although certain of these functions may be delegated to McCamish Systems, L.L.C., 6425 Powers Ferry Road, Atlanta, Georgia 30339. All records and accounts relating to the Separate Account and the portfolios will be maintained by us. All financial transactions will be handled by us. All reports required to be made and information required to be given will be provided the Company or by McCamish Systems on behalf of us. State Regulation John Hancock USA is subject to the regulation and supervision by the Michigan Department of Insurance, which periodically examines its financial condition and operations. It is also subject to the insurance laws and regulations of all jurisdictions in which it is authorized to do business. The Policies have been filed with insurance officials, and meet all standards set by law, in each jurisdiction where they are sold. John Hancock USA is required to submit annual statements of its operations, including financial statements, to the insurance departments of the various jurisdictions in which it does business for the purposes of determining solvency and compliance with local insurance laws and regulations. Further Information A registration statement under the Securities Act of 1933 has been filed with the SEC relating to the offering described in this prospectus. This prospectus does not include all the information set forth in the registration statement. The omitted information may be obtained from the SEC's principal office in Washington D.C. upon payment of the prescribed fee. The SEC also maintains a Web site that contains reports, proxy and information statements and other information regarding registrants that file electronically with the SEC which is located at http://www.sec.gov. For further information you may also contact John Hancock USA's Home Office, the address and telephone number of which are on the last page of the prospectus. 39 Financial Statements The financial statements of the Company and the Separate Account are set forth in the Statement of Additional Information. 40 APPENDIX A: DEFINITIONS Annual Premium Target: is an amount set forth in the policy that limits the amount of premium attributable to a Coverage Amount in Surrender Charge or Sales Load calculations. Attained Age: is the Issue Age of the Life Insured plus the number of completed Policy Years. Business Day: is any day that the New York Stock Exchange is open for business. A Business Day ends at the close of regularly scheduled trading of the New York Stock Exchange (currently 4:00 p.m. Eastern Time) on that day. Case: is a group of Policies insuring individual lives with common employment or other relationship, independent of the Policies. Cash Surrender Value: is the Policy Value less the Surrender Charge and any outstanding monthly deductions due. Coverage Amount: is an amount of insurance coverage under the policy with a distinct effective date. The Face Amount of the policy at any time is the sum of the Coverage Amounts in effect. Coverage Year: is a one-year period beginning on a Coverage Amount's effective date and on each anniversary of this date. For Coverage Amounts in effect on the policy's Effective Date, the Coverage Year is the same as the Policy Year. Fixed Account: is the part of the Policy Value that reflects the value you have in our general account. Investment Account: is the part of the Policy Value that reflects the value you have in one of the sub-accounts of the Separate Account. Issue Age: is the Life Insured's age on the birthday closest to the Policy Date. Loan Account: is the part of the Policy Value that reflects policy loans and interest credited to the Policy Value in connection with such loans. Minimum Initial Premium: is the sum of the monthly deductions due for the first 3 Policy Months plus the Premium Charges deductible from this amount. Net Cash Surrender Value: is the Cash Surrender Value less the Policy Debt. Net Policy Value: is the Policy Value less the value in the Loan Account. Net Premium: is the premium paid less the Premium Load and Sales Load. Policy Date, Policy Anniversary, Policy Month and Policy Year: Policy Date is the date from which the first monthly deductions are calculated and from which Policy Years, Policy Months, and Policy Anniversaries are measured. Policy Debt: on any date is the aggregate amount of policy loans, including borrowed and accrued interest, less any loan repayments. Policy Value: is the sum of the values in the Loan Account, the Fixed Account, and the Investment Accounts. Service Office: is 200 Bloor Street East, Toronto, Ontario, Canada M4W 1E5, or such other address as we specify to you by written notice. 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 200 Bloor Street East P.O. Box 40 Toronto, Ontario, Canada M4W 1E5 Buffalo, NY 14201 Phone: Fax: 1-800-387-2747 1-416-926-5656 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 No. 811-5130 1933 Act File No. 333-100567 42 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 15% of the target premium paid in the first policy year 1, 9.0% of the target premium in years 2-5, and 2.5% of the target premium paid in years 6 and after. Compensation on any premium paid in excess of target premium in any year will not exceed 2.5%. The amount and timing of this compensation may differ among broker-dealers, but would not be expected to materially exceed the foregoing schedules on a present value basis. The registered representative through whom your policy is sold will be compensated pursuant to the registered representative's own arrangement with his or her broker-dealer. Compensation to broker-dealers for the promotion and sale of the policies is not paid directly by policyowners but will be recouped through the fees and charges imposed under the policy. Additional compensation and revenue sharing arrangements may be offered to certain broker-dealer firms. The terms of such arrangements may differ among broker-dealer firms we select based on various factors. In general, the arrangements involve three types of payments or any combination thereof: . Fixed dollar payments: The amount of these payments varies widely. JH Distributors may, for example, make one or more payments in connection with a firm's conferences, seminars or training programs, seminars for the public, advertising and sales campaigns regarding the policies, to assist a firm in connection with its systems, operations and marketing expenses, or for other activities of a selling firm or wholesaler. JH Distributors may make these payments upon the initiation of a relationship with a firm, and at any time thereafter. . Payments based upon sales: These payments are based upon a percentage of the total amount of money received, or anticipated to be received, for sales through a firm of some or all of the insurance products that we and/or our affiliates offer. JH Distributors makes these payments on a periodic basis. . Payments based upon "assets under management": These payments are based upon a percentage of the policy value of some or all of our (and/or our affiliates') insurance products that were sold through the firm. JH Distributors makes these payments on a periodic basis. Signator Investors, Inc. and Essex National Securities, Inc. may pay their respective registered representatives additional cash incentives in the form of bonus payments, expense payments, employment benefits or the waiver of overhead costs or expenses in connection with the sale of the policies that they would not receive in connection with the sale of policies issued by unaffiliated companies. Certain unaffiliated financial institutions such as banks may also receive compensation in connection with the sale of our policies sold by registered representatives of Essex National Securities, Inc. on bank premises. Additional Information About Charges A Policy will not be issued until the underwriting process has been completed to the Company's satisfaction. The underwriting process generally includes the obtaining of information concerning your age, medical history, occupation and other personal information. This information is then used to determine the cost of insurance charge. Reduction In Charges The Policy is available for purchase by corporations and other groups or sponsoring organizations. Group or sponsored arrangements may include reduction or elimination of withdrawal charges and deductions for employees, officers, directors, agents and immediate family members of the foregoing. John Hancock USA reserves the right to reduce any of the Policy's charges on certain cases where it is expected that the amount or nature of such cases will result in savings of sales, underwriting, administrative, commissions or other costs. Eligibility for these reductions and the amount of reductions will be determined by a number of factors, including the number of lives to be insured, the total premiums expected to be paid, total assets under management for the policyowner, the nature of the relationship among the insured individuals, the purpose for which the policies are being purchased, expected persistency of the individual policies, and any other circumstances which 3 John Hancock USA believes to be relevant to the expected reduction of its expenses. Some of these reductions may be guaranteed and others may be subject to withdrawal or 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 Prospectus dated May 1, 2006 John Hancock Life Insurance Company (U.S.A.) Separate Account N Corporate VUL A Flexible Premium Variable Life Insurance Policy Science & Technology U.S. Global Leaders Growth Equity-Income Pacific Rim Quantitative All Cap American Blue Chip Income and Growth Health Sciences All Cap Core Income & Value Emerging Growth Total Stock Market Index PIMCO VIT All Asset Emerging Small Company Blue Chip Growth Global Allocation Small Cap U.S. Large Cap High Yield Small Cap Index Core Equity U.S. High Yield Bond Dynamic Growth Strategic Value Strategic Bond Mid Cap Stock Large Cap Value Strategic Income Natural Resources Classic Value Global Bond All Cap Growth Utilities Investment Quality Bond Strategic Opportunities Real Estate Securities Total Return Financial Services Small Cap Opportunities American Bond International Opportunities Small Company Value Real Return Bond International Small Cap Special Value Core Bond International Equity Index A Mid Cap Value Active Bond American International Value U.S. Government Securities International Value All Cap Value Money Market International Core 500 Index Lifestyle Aggressive Quantitative Mid Cap 500 Index B Lifestyle Growth Mid Cap Index Fundamental Value Lifestyle Balanced Mid Cap Core U.S. Core Lifestyle Moderate Global Large Cap Lifestyle Conservative Capital Appreciation Quantitative Value American Growth American Growth-Income
* * * * * * * * * * * * The Securities and Exchange Commission ("SEC") has not approved or disapproved these securities or passed upon the accuracy or adequacy of this prospectus. Any representation to the contrary is a criminal offense. CVUL04 5/2006 TABLE OF CONTENTS SUMMARY OF BENEFITS AND RISKS................................ 4 Benefits.................................................. 4 Risks..................................................... 4 FEE TABLES................................................... 5 TABLE OF INVESTMENT OPTIONS AND INVESTMENT SUBADVISERS....... 10 POLICY SUMMARY............................................... 18 General................................................... 18 Death Benefits............................................ 18 Premiums.................................................. 18 Policy Value.............................................. 18 Policy Loans.............................................. 19 Surrender and Partial Withdrawals......................... 19 Lapse and Reinstatement................................... 19 Charges and Deductions.................................... 19 Investment Options and Investment Subadvisers............. 19 Investment Management Fees and Expenses................... 20 GENERAL INFORMATION ABOUT JOHN HANCOCK USA, RATINGS, AND THE SEPARATE ACCOUNT........................................... 20 Description of John Hancock USA........................... 20 Ratings................................................... 20 Description of Separate Account N......................... 20 ISSUING A POLICY............................................. 21 Use of the Policy......................................... 21 Requirements.............................................. 21 Temporary Insurance Agreement............................. 21 Underwriting.............................................. 22 Right to Examine the Policy............................... 22 Life Insurance Qualification.............................. 23 DEATH BENEFITS............................................... 23 Flexible Term Insurance Option Rider...................... 24 Death Benefit Options..................................... 25 Changing the Death Benefit Option......................... 25 Changing the Face Amount and Scheduled Death Benefits..... 26 PREMIUM PAYMENTS............................................. 28 Initial Premiums.......................................... 28 Subsequent Premiums....................................... 28 Premium Limitations....................................... 29 Premium Allocation........................................ 29 CHARGES AND DEDUCTIONS....................................... 29 Premium Charge............................................ 29 Sales Charge.............................................. 29 Monthly Deductions........................................ 30 Asset Based Risk Charge Deducted from Investment Accounts. 31 Investment Management Fees and Expenses................... 31 Reduction in Charges and Enhanced Surrender Values........ 31 COMPANY TAX CONSIDERATIONS................................... 32 POLICY VALUE................................................. 32 Determination of the Policy Value......................... 32 Units and Unit Values..................................... 32 Transfers of Policy Value................................. 33
2 POLICY LOANS.................................................. 34 Interest Charged on Policy Loans........................... 34 Loan Account............................................... 34 POLICY SURRENDER AND PARTIAL WITHDRAWALS...................... 35 Policy Surrender........................................... 35 Partial Withdrawals........................................ 35 LAPSE AND REINSTATEMENT....................................... 36 Lapse...................................................... 36 Reinstatement.............................................. 36 THE GENERAL ACCOUNT........................................... 36 Fixed Account.............................................. 36 OTHER PROVISIONS OF THE POLICY................................ 37 Policy Owner Rights........................................ 37 Beneficiary................................................ 38 Incontestability........................................... 38 Misstatement of Age or Sex................................. 38 Suicide Exclusion.......................................... 38 Supplementary Benefits..................................... 38 TAX TREATMENT OF THE POLICY................................... 38 General.................................................... 39 Policy Death Benefit Proceeds.............................. 39 Other Policy Distributions................................. 39 Policy Loans............................................... 40 Diversification Rules and Ownership of the Account......... 40 7-Pay Premium Limit and Modified Endowment Contract Status. 41 Corporate and H.R. 10 Retirement Plans..................... 41 Withholding................................................ 42 Life Insurance Purchases by Residents of Puerto Rico....... 42 Life Insurance Purchases by Non-Resident Aliens............ 42 OTHER INFORMATION............................................. 42 Payment of Proceeds........................................ 42 Reports to Policy Owners................................... 42 Distribution of Policies................................... 43 Responsibilities of John Hancock USA....................... 44 Voting Rights.............................................. 44 Substitution of Portfolio Shares........................... 45 Records and Accounts....................................... 45 State Regulation........................................... 45 Further Information........................................ 45 Financial Statements....................................... 45 APPENDIX A: DEFINITIONS....................................... A-1
The purpose of this variable life insurance policy is to provide insurance protection for the beneficiary named therein. No claim is made that this variable life insurance policy is in any way similar or comparable to a systematic investment plan of a mutual fund. Examine this prospectus carefully. The Policy Summary will briefly describe the policy. More detailed information will be found further in the prospectus. You should rely on the information contained in this prospectus, the portfolio prospectuses, and the corresponding Statements of Additional Information. The portfolio prospectuses describe the investment objectives, policies and restrictions of, and the risks relating to, investment in the investment options. In the case of any of the portfolios that are operated as "feeder funds," the prospectus for the corresponding "master fund" is also provided. We have not authorized anyone to provide you with information that is different from the information contained in the aforementioned documents. 3 SUMMARY OF BENEFITS AND RISKS Benefits Some of the benefits of purchasing the policy are described below. Death Benefit Protection: This prospectus describes a flexible premium variable life insurance policy, which provides for a death benefit payable to the beneficiary of the policy upon the death of the insured person. Variable life insurance is a flexible tool for financial and investment planning for persons needing death benefit protection. You should consider other forms of investments if death benefit protection is not one of your financial planning objectives, as there are additional costs and expenses in providing the insurance. Access To Your Policy Values: Your variable life insurance policy offers access to your Policy Value through policy loans, policy surrender and partial withdrawal. There are limitations on partial withdrawals. See "Policy Surrender and Partial Withdrawals" for further information. Policy loans permanently affect the Policy Value, and may also result in adverse tax consequences. Tax Deferred Accumulation: Variable life insurance has several tax advantages under current tax laws. For example, Policy Value accumulates on a tax-deferred basis and a transfer of values from one sub-account to another within the policy does not generate a taxable gain or loss. Any investment income and realized capital gains within a sub-account or interest from the Fixed Account are automatically reinvested without current income taxation to the policy owner. Investment Options: In addition to the Fixed Account, the policy provides for access to a number of variable investment options, which permit you to reallocate your Policy Value to meet your changing personal objectives, goals, and investment conditions. Information regarding each investment option may be found in the portfolio prospectuses. Flexibility: The policy is a flexible premium variable life insurance policy in which varying premium payments are permitted. You may select death benefit options and policy riders. You may increase or decrease the amount of death benefit. You are able to select, monitor, and change investment choices within your policy. Risks Some of the risks of purchasing the policy are described below. Fluctuating Investment Performance: Policy Values invested in a sub-account are not guaranteed. Policy Values will increase and decrease according to investment performance. You assume the investment risk of Policy Value allocated to the sub-accounts. A comprehensive discussion of each sub-account's objective and risk is found in the portfolio prospectuses. You should review the prospectuses carefully before allocating Policy Values to any sub-accounts. Unsuitable for Short-Term Investment: The policy is intended for long-term financial planning, and is unsuitable for short-term goals. The policy is not designed to serve as a vehicle for frequent trading. Policy Lapse: Sufficient premiums must be paid to keep the policy in force. There is a risk of lapse if the Policy Value is too low in relation to the insurance amount, if investment results are less favorable than anticipated or if extensive policy loans are taken. A policy lapse could have adverse tax consequences since the amount received (including any loans) less the investment in the policy may be treated as ordinary income subject to tax. Withdrawals reduce your Policy Value and increase the risk of lapse. Decreasing Death Benefit: Any outstanding policy loans and any amount that you have surrendered or withdrawn will reduce your policy's death benefit. Adverse Consequences of Early Surrender: Depending on the Policy Value at the time of surrender, there may be little or no Net Cash Surrender Value paid to you when the policy is surrendered. In addition, there are adverse consequences associated with partial withdrawals including potential policy lapse and adverse tax consequences. There may also be adverse consequences associated with full surrender of the policy. 4 Adverse Tax Consequences: You should always consult a tax adviser about the application of federal and state tax law to your individual situation. The federal income tax treatment of life insurance is complex and current tax treatment of life insurance may change. FEE TABLES The following tables describe the fees and expenses (on a guaranteed basis) that you will pay when buying, owning, and surrendering the policy. 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 the prospectus disclosure rules. Consequently, the actual rates charged may be slightly higher or lower than those shown. The first table describes the fees and expenses that you will pay at the time that you buy the policy, surrender the policy, or transfer cash value between investment options.
------------------------------------------------------------------------------------ Transaction Fees ------------------------------------------------------------------------------------ Charge When Charge is Deducted Amount Deducted ------------------------------------------------------------------------------------ Premium Charge Upon receipt of premium 2.5% of each premium paid ------------------------------------------------------------------------------------ Sales Charge Upon receipt of premium 13% (Coverage Year 1)/1/ ------------------------------------------------------------------------------------ Transfer Fees Upon transfer $25 (only applies to transfers in excess of 12 in a Policy Year) ------------------------------------------------------------------------------------ Dollar Cost Averaging Upon transfer Guaranteed $5.00 ---------- ------ Current $0.00 ------------------------------------------------------------------------------------ Asset Allocation Balancer Upon transfer Guaranteed $15.00 ---------- ------ Current $0.00 ------------------------------------------------------------------------------------
1 The sales charge declines in subsequent Coverage Years as noted below:
------------------------------------------------- Coverage Year Percentage Coverage Year Percentage ------------------------------------------------- ------------------------------------------------- 1 13.00% 4 2.50% ------------------------------------------------- ------------------------------------------------- 2 6.25% 5 0.50% ------------------------------------------------- ------------------------------------------------- 3 3.50% 6 0.50% ------------------------------------------------- ------------------------------------------------- 7+ 0.00% -------------------------------------------------
The next table describes the fees and expenses (on a guaranteed basis) that you will pay periodically during the time that you own the policy. These fees and expenses do not include fees and expenses of the portfolios, which are the underlying variable investment options for your policy.
------------------------------------------------------------------------------------------------------------ Charges Other Than Those of the Portfolios ------------------------------------------------------------------------------------------------------------ ------------------------------------------------------------------------------------------------------------ When Charge is Charge Deducted Amount Deducted ------------------------------------------------------------------------------------------------------------ ------------------------------------------------------------------------ Cost of Insurance/1/ Monthly Minimum and Maximum Charge The possible range of the cost of insurance is from $0.00 to $83.33 per month per $1,000 of the net amount at risk. ------------------------------------------------------------------------ ------------------------------------------------------------------------ Charge for a Representative The cost of insurance rate is $0.08 Policy Owner (a 45 year old non- per month per $1,000 of the net smoking male) (rating classification amount at risk. is for short form underwriting) ------------------------------------------------------------------------------------------------------------
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--------------------------------------------------------------------------------------------------------------- Charges Other Than Those of the Portfolios --------------------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------------- When Charge is Charge Deducted Amount Deducted --------------------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------------- Cost of Insurance - Monthly Minimum and Maximum Charges The possible range of the cost of Optional FTIO Rider insurance is from $0.00 to $83.33 (Flexible Term per month per $1,000 of the net Insurance Option)/1/ amount at risk. ----------------------------------------------------------------------- Charge for a Representative The cost of insurance rate is $0.38 Policy Owner (a 45 year old non- per month per $1,000 of the net smoking male) rating classification amount at risk. is for short form underwriting) --------------------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------------- Mortality and Expense Monthly 0.50% annually/2/ Risk Charge ----------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------------- Administration Charge Monthly $12 per Policy Month ----------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------------- Loan Interest Rate (Net) Annually 0.75%/3/ ---------------------------------------------------------------------------------------------------------------
1 The cost of insurance varies based on individual characteristics and the charges shown in the table may not be representative of the charge a particular policy owner will pay. A policy owner may obtain additional information regarding cost of insurance charge by contacting the Company. The election (or failure to elect) the optional FTIO rider will impact the total cost of insurance charges. 2 Currently the Company is charging the following rates:
------------------------ Policy Years Annual Rate ------------------------ ------------------------ 1-10 0.45% ------------------------ ------------------------ 11+ 0.20% ------------------------
3 The Loan Interest Rate (Net) is equal to the rate of interest charged on the policy loan less the interest credited to the Loan Account. Currently this rate is 0.75% for Policy Years 1-10 and 0.25% for Policy Years 11 and higher. The maximum loan rate is 4%. The next table describes the minimum and maximum annual operating expenses of the portfolios that you will pay during the time that you own the policy. The table shows the minimum and maximum fees and expenses charged by any of the portfolios, as a percentage of the portfolio's average net assets for 2005. More detail concerning each portfolio's fees and expenses is contained in the prospectus for the portfolio.
Annual Operating Expense of the Portfolios (Expenses that are Deducted from Portfolio Assets) -------------------------------------------------------------------------------------------------------------- Minimum Maximum -------------------------------------------------------------------------------------------------------------- Expenses that are deducted from the portfolio assets, including advisory fees, Rule 12b-1 fees and other expenses 0.50%. 1.53%.
The next table describes fees and expenses for each of the portfolios, as a percentage of the portfolio's average net assets for the fiscal year ending December 31, 2005. More detail concerning each portfolio's fees and expenses is contained in the prospectus for the portfolio. Portfolio Annual Expenses
----------------------------------------------------------------------- Management Total Annual Portfolios Fees 12b-1 Fees Other Expenses Expenses ----------------------------------------------------------------------- Science & Technology 1.05%/A/ 0.05% 0.07% 1.17% ----------------------------------------------------------------------- Pacific Rim 0.80% 0.05% 0.24% 1.09% ----------------------------------------------------------------------- Health Sciences 1.05%/A/ 0.05% 0.12% 1.22% -----------------------------------------------------------------------
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------------------------------------------------------------------------------------ Management Total Annual Trust Portfolios Fees 12b-1 Fees Other Expenses Expenses ------------------------------------------------------------------------------------ Emerging Growth 0.80% 0.05% 0.08% 0.93% ------------------------------------------------------------------------------------ Emerging Small Company 0.97% 0.05% 0.07% 1.09% ------------------------------------------------------------------------------------ Small Cap/B/ 0.85% 0.05% 0.03% 0.93% ------------------------------------------------------------------------------------ Small Cap Index 0.49% 0.05% 0.04% 0.58% ------------------------------------------------------------------------------------ Dynamic Growth 0.95% 0.05% 0.07% 1.07% ------------------------------------------------------------------------------------ Mid Cap Stock 0.84% 0.05% 0.08% 0.97% ------------------------------------------------------------------------------------ Natural Resources 1.00% 0.05% 0.07% 1.12% ------------------------------------------------------------------------------------ All Cap Growth 0.85% 0.05% 0.06% 0.96% ------------------------------------------------------------------------------------ Strategic Opportunities 0.80% 0.05% 0.08% 0.93% ------------------------------------------------------------------------------------ Financial Services 0.82%/C/ 0.05% 0.09% 0.96% ------------------------------------------------------------------------------------ International Opportunities 0.90% 0.05% 0.06% 1.01% ------------------------------------------------------------------------------------ International Small Cap 0.92% 0.05% 0.21% 1.18% ------------------------------------------------------------------------------------ International Equity Index A/B/D/ 0.54% 0.05% 0.09% 0.68% ------------------------------------------------------------------------------------ American International/E/ 0.52% 0.60% 0.08% 1.20% ------------------------------------------------------------------------------------ International Value 0.82%/F/ 0.05% 0.19% 1.06% ------------------------------------------------------------------------------------ International Core 0.89% 0.05% 0.07% 1.01% ------------------------------------------------------------------------------------ Quantitative Mid Cap 0.74% 0.05% 0.10% 0.89% ------------------------------------------------------------------------------------ Mid Cap Index 0.49% 0.05% 0.04% 0.58% ------------------------------------------------------------------------------------ Mid Cap Core 0.87% 0.05% 0.08% 1.00% ------------------------------------------------------------------------------------ Global 0.82%/F/ 0.05% 0.16% 1.03% ------------------------------------------------------------------------------------ Capital Appreciation 0.81% 0.05% 0.05% 0.91% ------------------------------------------------------------------------------------ American Growth/E/ 0.33% 0.60% 0.04% 0.97% ------------------------------------------------------------------------------------ U.S. Global Leaders Growth 0.70% 0.05% 0.06% 0.81% ------------------------------------------------------------------------------------ Quantitative All Cap 0.71% 0.05% 0.06% 0.82% ------------------------------------------------------------------------------------ All Cap Core 0.80% 0.05% 0.07% 0.92% ------------------------------------------------------------------------------------ Total Stock Market Index 0.49% 0.05% 0.04% 0.58% ------------------------------------------------------------------------------------ Blue Chip Growth 0.81%/A/ 0.05% 0.07% 0.93% ------------------------------------------------------------------------------------ U.S. Large Cap 0.83% 0.05% 0.06% 0.94% ------------------------------------------------------------------------------------ Core Equity 0.79% 0.05% 0.06% 0.90% ------------------------------------------------------------------------------------ Strategic Value 0.85% 0.05% 0.08% 0.98% ------------------------------------------------------------------------------------ Large Cap Value 0.84% 0.05% 0.08% 0.97% ------------------------------------------------------------------------------------ Classic Value 0.80% 0.05% 0.24% 1.09% ------------------------------------------------------------------------------------ Utilities 0.85% 0.05% 0.19% 1.09% ------------------------------------------------------------------------------------ Real Estate Securities 0.70% 0.05% 0.06% 0.81% ------------------------------------------------------------------------------------ Small Cap Opportunities 0.99% 0.05% 0.08% 1.12% ------------------------------------------------------------------------------------ Small Company Value/D/ 1.03%/A/ 0.05% 0.05% 1.13% ------------------------------------------------------------------------------------ Special Value 1.00% 0.05% 0.21% 1.26% ------------------------------------------------------------------------------------ Mid Cap Value 0.85% 0.05% 0.05% 0.95% ------------------------------------------------------------------------------------ Value 0.74% 0.05% 0.06% 0.85% ------------------------------------------------------------------------------------ All Cap Value 0.83% 0.05% 0.07% 0.95% ------------------------------------------------------------------------------------ 500 Index 0.46% 0.05% 0.05% 0.56% ------------------------------------------------------------------------------------ 500 Index B/B/D/H/ 0.47% N/A 0.03% 0.50% ------------------------------------------------------------------------------------ Fundamental Value 0.77%/C/ 0.05% 0.05% 0.87% ------------------------------------------------------------------------------------
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------------------------------------------------------------------------------------------ Management Total Annual Trust Portfolios Fees 12b-1 Fees Other Expenses Expenses ------------------------------------------------------------------------------------------ U.S. Core 0.76% 0.05% 0.05% 0.86% ------------------------------------------------------------------------------------------ Large Cap/B/ 0.84% 0.05% 0.05% 0.94% ------------------------------------------------------------------------------------------ Quantitative Value 0.70% 0.05% 0.06% 0.81% ------------------------------------------------------------------------------------------ American Growth-Income/E/ 0.28% 0.60% 0.05% 0.93% ------------------------------------------------------------------------------------------ Equity-Income 0.81%/A/ 0.05% 0.05% 0.91% ------------------------------------------------------------------------------------------ American Blue Chip Income and Growth/E/ 0.44% 0.60% 0.04% 1.08% ------------------------------------------------------------------------------------------ Income & Value 0.79% 0.05% 0.08% 0.92% ------------------------------------------------------------------------------------------ PIMCO VIT All Asset 0.20% 0.25% 1.08%/F/ 1.53% ------------------------------------------------------------------------------------------ Global Allocation 0.85% 0.05% 0.19% 1.09% ------------------------------------------------------------------------------------------ High Yield 0.66% 0.05% 0.07% 0.78% ------------------------------------------------------------------------------------------ U.S. High Yield Bond/B/D// 0.74% 0.05% 0.21% 1.00% ------------------------------------------------------------------------------------------ Strategic Bond 0.67% 0.05% 0.08% 0.80% ------------------------------------------------------------------------------------------ Strategic Income 0.73% 0.05% 0.30% 1.08% ------------------------------------------------------------------------------------------ Global Bond 0.70% 0.05% 0.12% 0.87% ------------------------------------------------------------------------------------------ Investment Quality Bond 0.60% 0.05% 0.09% 0.74% ------------------------------------------------------------------------------------------ Total Return 0.70% 0.05% 0.07% 0.82% ------------------------------------------------------------------------------------------ American Bond/E/ 0.43% 0.60% 0.04% 1.07% ------------------------------------------------------------------------------------------ Real Return Bond 0.70% 0.05% 0.07% 0.82% ------------------------------------------------------------------------------------------ Core Bond/B/ 0.67% 0.05% 0.07% 0.79% ------------------------------------------------------------------------------------------ Active Bond/B/ 0.60% 0.05% 0.07% 0.72% ------------------------------------------------------------------------------------------ U.S. Government Securities 0.59% 0.05% 0.07% 0.71% ------------------------------------------------------------------------------------------ Money Market/B/D/ 0.49% N/A 0.04% 0.53% ------------------------------------------------------------------------------------------ Lifestyle Aggressive 0.05% 0.05% 0.95%/G/ 1.05% ------------------------------------------------------------------------------------------ Lifestyle Growth 0.05% 0.05% 0.89%/G/ 0.99% ------------------------------------------------------------------------------------------ Lifestyle Balanced 0.05% 0.05% 0.86%/G/ 0.96% ------------------------------------------------------------------------------------------ Lifestyle Moderate 0.05% 0.05% 0.81%/G/ 0.91% ------------------------------------------------------------------------------------------ Lifestyle Conservative 0.05% 0.05% 0.78%/G/ 0.88% ------------------------------------------------------------------------------------------
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 Assets of the T. Rowe Portfolios Fee Reduction ------------------------------------------------------------ ------------------------------------------------------------ (As a Percentage of the Management Fee) ------------------------------------------------------------ First $750 million 0.00% ------------------------------------------------------------ Over $750 million 5.0% ------------------------------------------------------------
8 Effective November 1, 2006, the percentage reduction will be as follows:
------------------------------------------------------------ Combined Average Daily Net Assets of the T. Rowe Portfolios Fee Reduction ------------------------------------------------------------ ------------------------------------------------------------ (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 First and Excess Over Portfolio $50 million $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. 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 advisory 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 "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. G 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, 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%. 9 H 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 USA 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 would be 0.22% and the Total Annual Expenses would be 0.25%. 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. 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 10 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. The portfolios available under the policies are as follows:
---------------------------------------------------------------------------------------------------------------------- Portfolio Portfolio Manager Investment Description ---------------------------------------------------------------------------------------------------------------------- Science & Technology T. Rowe Price Associates, Inc. Seeks long-term growth of capital by investing, under normal market conditions, at least 80% of its net assets (plus any borrowings for investment purposes) in common 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 MFC Global Investment Seeks long-term growth of capital by investing in a diversified Management (U.S.A.) Limited portfolio that is comprised primarily of common stocks and equity-related securities of corporations domiciled in countries in the Pacific Rim region. ---------------------------------------------------------------------------------------------------------------------- Health Sciences T. Rowe Price Associates, Inc. Seeks long-term capital appreciation by investing, under normal market conditions, at least 80% of its net assets (plus any borrowings for investment purposes) in common stocks of companies engaged in the research, development, production, or distribution of products or services related to health care, medicine, or the life sciences. ---------------------------------------------------------------------------------------------------------------------- Emerging Growth MFC Global Investment Seeks superior long-term rates of return through capital Management (U.S.A.) Limited appreciation by investing, under normal circumstances, primarily in high quality securities and convertible instruments of small-cap U.S. companies. ---------------------------------------------------------------------------------------------------------------------- Emerging Small Company Franklin Advisers, Inc. Seeks long-term growth of capital by investing, under normal market conditions, at least 80% of its net assets (plus any borrowings for investment purposes) in common stock equity securities of companies with market capitalizations that approximately match the range of capitalization of the Russell 2000 Growth Index* at the time of purchase. ---------------------------------------------------------------------------------------------------------------------- Small Cap Independence Investment LLC Seeks maximum capital appreciation consistent with reasonable risk to principal by investing, under normal market conditions, at least 80% of its net assets in equity securities of companies whose market capitalization is under $2 billion. ---------------------------------------------------------------------------------------------------------------------- Small Cap Index MFC Global Investment Seeks to approximate the aggregate total return of a small cap Management (U.S.A.) Limited U.S. domestic equity market index by attempting to track the performance of the Russell 2000 Index.* ---------------------------------------------------------------------------------------------------------------------- Dynamic Growth Deutsche Asset Management Inc. Seeks long-term growth of capital by investing in stocks and other equity securities of medium-sized U.S. companies with strong growth potential. ----------------------------------------------------------------------------------------------------------------------
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------------------------------------------------------------------------------------------------------------------------------ Portfolio Portfolio Manager Investment Description ------------------------------------------------------------------------------------------------------------------------------ Mid Cap Stock Wellington Management Seeks long-term growth of capital by investing primarily in Company, LLP equity securities of mid-size companies with significant capital appreciation potential. ------------------------------------------------------------------------------------------------------------------------------ Natural Resources Wellington Management Seeks long-term total return by investing, under normal market Company, LLP conditions, primarily in equity and equity-related securities of natural resource-related companies worldwide. ------------------------------------------------------------------------------------------------------------------------------ All Cap Growth AIM Capital Management, Inc. Seeks long-term capital appreciation by investing the portfolio's assets, under normal market conditions, principally in common stocks of companies that are likely to benefit from new or innovative products, services or processes, as well as those that have experienced above average, long-term growth in earnings and have excellent prospects for future growth. ------------------------------------------------------------------------------------------------------------------------------ Strategic Opportunities Fidelity Management & Research Seeks growth of capital by investing primarily in common Company stocks. Investments may include securities of domestic and foreign issuers, and growth or value stocks or a combination of both. ------------------------------------------------------------------------------------------------------------------------------ Financial Services Davis Advisors Seeks growth of capital by investing primarily in common stocks of financial companies. During normal market conditions, at least 80% of the portfolio's net assets (plus any borrowings for investment purposes) are invested in companies that are principally engaged in financial services. A company is "principally engaged" in financial services if it owns financial services-related assets constituting at least 50% of the value of its total assets, or if at least 50% of its revenues are derived from its provision of financial services. ------------------------------------------------------------------------------------------------------------------------------ International Opportunities Marisco Capital Management, Seeks long-term growth of capital by investing, under normal LLC 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 Templeton Investment Counsel, Seeks capital appreciation by investing primarily in the Inc. 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 A SSgA Funds Management, Inc. 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.) ------------------------------------------------------------------------------------------------------------------------------ American International Capital Research Management Invests all of its assets in Class 2 shares of the International Company 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 Templeton Investment Counsel, Seeks long-term growth of capital by investing, under normal Inc. market conditions, primarily in equity securities of companies located outside the U.S., including emerging markets. ------------------------------------------------------------------------------------------------------------------------------ International Core Grantham, Mayo, Van Otterloo & Seeks to outperform the MSCI EAFA Index* by investing Co. LLC typically in a diversified portfolio of equity investments from developed markets other than the U.S. ------------------------------------------------------------------------------------------------------------------------------ Quantitative Mid Cap MFC Global Investment Seeks long-term growth of capital by investing, under normal Management (U.S.A.) Limited 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. ------------------------------------------------------------------------------------------------------------------------------
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------------------------------------------------------------------------------------------------------------------------------- Portfolio Portfolio Manager Investment Description ------------------------------------------------------------------------------------------------------------------------------- Mid Cap Index MFC Global Investment Seeks to approximate the aggregate total return of a mid-cap Management (U.S.A.) Limited U.S. domestic equity market index by attempting to track the performance of the S&P Mid Cap 400 Index*. ------------------------------------------------------------------------------------------------------------------------------- Mid Cap Core AIM Capital Management, Inc. Seeks long-term growth of capital by investing, under normal market conditions, at least 80% of its assets in equity securities, including convertible securities, of mid-capitalization companies. ------------------------------------------------------------------------------------------------------------------------------- Global Templeton Global Advisors Seeks long-term capital appreciation by investing, under normal Limited market conditions, at least 80% of its net assets (plus any borrowings for investment purposes) in equity securities of companies located anywhere in the world, including emerging markets. ------------------------------------------------------------------------------------------------------------------------------- Capital Appreciation Jennison Associates LLC Seeks long-term capital growth by investing at least 65% of its total assets in equity-related securities of companies that exceed $1 billion in market capitalization and that the subadviser believes have above-average growth prospects. These companies are generally medium-to-large capitalization companies. ------------------------------------------------------------------------------------------------------------------------------- American Growth Capital Research Management Invests all of its assets in Class 2 shares of the Growth Fund, a Company 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 Sustainable Growth Advisers, Seeks long-term growth of capital by investing, under normal L.P. market conditions, primarily in common stocks of "U.S. Global Leaders." ------------------------------------------------------------------------------------------------------------------------------- Quantitative All Cap MFC Global Investment Seeks long-term growth of capital by investing, under normal Management (U.S.A.) Limited circumstances, primarily in equity securities of U.S. companies. The portfolio will generally focus on equity securities of U.S. companies across the three market capitalization ranges of large, mid and small. ------------------------------------------------------------------------------------------------------------------------------- All Cap Core Deutsche Asset Management Inc. 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 MFC Global Investment Seeks to approximate the aggregate total return of a broad U.S. Management (U.S.A.) Limited domestic equity market index by attempting to track the performance of the Wilshire 5000 Equity Index*. ------------------------------------------------------------------------------------------------------------------------------- Blue Chip Growth T. Rowe Price Associates, Inc. Seeks to achieve long-term growth of capital (current income is a secondary objective) by investing, under normal market conditions, at least 80% of the portfolio's total assets in the common stocks of large and medium-sized blue chip growth companies. Many of the stocks in the portfolio are expected to pay dividends. ------------------------------------------------------------------------------------------------------------------------------- U.S. Large Cap Capital Guardian Trust Company Seeks long-term growth of capital and income by investing the portfolio's assets, under normal market conditions, primarily in equity and equity-related securities of companies with market capitalization greater than $500 million. ------------------------------------------------------------------------------------------------------------------------------- Core Equity Legg Mason Funds Management, Seeks long-term capital growth by investing, under normal Inc. market conditions, primarily in equity securities that, in the subadviser's opinion, offer the potential for capital growth. The subadviser seeks to purchase securities at large discounts to the subadviser's assessment of their intrinsic value. ------------------------------------------------------------------------------------------------------------------------------- Strategic Value Massachusetts Financial Services Seeks capital appreciation by investing, under normal market Company 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. -------------------------------------------------------------------------------------------------------------------------------
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-------------------------------------------------------------------------------------------------------------------------------- Portfolio Portfolio Manager Investment Description -------------------------------------------------------------------------------------------------------------------------------- Large Cap Value Mercury Advisors Seeks long-term growth of capital by investing, under normal market conditions, primarily in a diversified portfolio of equity securities of large cap companies located in the U.S. -------------------------------------------------------------------------------------------------------------------------------- Classic Value Pzena Investment Management, Seeks long-term growth of capital by investing, under normal LLC market conditions, at least 80% of its net assets in domestic equity securities. -------------------------------------------------------------------------------------------------------------------------------- Utilities Massachusetts Financial Services Seeks capital growth and current income (income above that Company available from a portfolio invested entirely in equity securities) by investing, under normal market conditions, at least 80% of the portfolio's net assets (plus any borrowings for investment purposes) in equity and debt securities of domestic and foreign companies in the utilities industry. -------------------------------------------------------------------------------------------------------------------------------- Real Estate Securities Deutsche Asset Management Inc. Seeks to achieve a combination of long-term capital appreciation and current income by investing, under normal market conditions, at least 80% of its net assets (plus any borrowings for investment purposes) in equity securities of real estate investment trusts ("REITS") and real estate companies. -------------------------------------------------------------------------------------------------------------------------------- Small Cap Opportunities Munder Capital Management 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 Company Value T. Rowe Price Associates, Inc. Seeks long-term growth of capital by investing, under normal market conditions, primarily in small companies whose common stocks are believed to be undervalued. Under normal market conditions, the portfolio will invest at least 80% of its net assets (plus any borrowings for investment purposes) in companies with a market capitalization that do not exceed the maximum market capitalization of any security in the Russell 2000 Index* at the time of purchase. -------------------------------------------------------------------------------------------------------------------------------- Special Value Salomon Brothers Asset Seeks long-term capital growth by investing, under normal (only Series II available) Management Inc. 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 Cap Value Lord, Abbett & Co Seeks capital appreciation by investing, under normal market conditions, at least 80% of the portfolio's net assets (plus any borrowings for investment purposes) in mid-sized companies, with market capitalization of roughly $500 million to $10 billion. -------------------------------------------------------------------------------------------------------------------------------- Value Van Kampen Seeks to realize an above-average total return over a market cycle of three to five years, consistent with reasonable risk, by investing primarily in equity securities of companies with capitalizations similar to the market capitalization of companies in the Russell Midcap Value Index*. -------------------------------------------------------------------------------------------------------------------------------- All Cap Value Lord, Abbett & Co Seeks capital appreciation by investing in equity securities of U.S. and multinational companies in all capitalization ranges that the subadviser believes are undervalued. -------------------------------------------------------------------------------------------------------------------------------- 500 Index MFC Global Investment Seeks to approximate the aggregate total return of a broad U.S. Management (U.S.A.) Limited domestic equity market index by attempting to track the performance of the S&P 500 Composite Stock Price Index*. -------------------------------------------------------------------------------------------------------------------------------- 500 Index B MFC Global Investment Seeks to approximate the aggregate total return of a broad U.S. Management (U.S.A.) Limited 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. --------------------------------------------------------------------------------------------------------------------------------
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-------------------------------------------------------------------------------------------------------------------------------- Portfolio Portfolio Manager Investment Description -------------------------------------------------------------------------------------------------------------------------------- Fundamental Value Davis Advisors Seeks growth of capital by investing, under normal market conditions, primarily in common stocks of U.S. companies with market capitalizations of at least $5 billion that the subadviser believes are undervalued. The portfolio may also invest in U.S. companies with smaller capitalizations. -------------------------------------------------------------------------------------------------------------------------------- U.S. Core Grantham, Mayo, Van Otterloo & Seeks long-term growth of capital and income, consistent with Co. LLC 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 UBS Global Asset Management Seeks to maximize total return, consisting of capital appreciation and current income by investing, under normal circumstances, at least 80% of its net assets (plus borrowings for investment purposes, if any) in equity securities of U.S. large capitalization companies. -------------------------------------------------------------------------------------------------------------------------------- Quantitative Value MFC Global Investment Seeks long-term capital appreciation by investing primarily in Management (U.S.A.) Limited large-cap U.S. securities with the potential for long-term growth of capital. -------------------------------------------------------------------------------------------------------------------------------- American Growth-Income Capital Research Management Invests all of its assets in Class 2 shares of the Growth-Income Company Fund, a series of American Fund Insurance Series. The Growth- Income Fund invests primarily in common stocks or other securities which demonstrate the potential for appreciation and/ or dividends. -------------------------------------------------------------------------------------------------------------------------------- Equity-Income T. Rowe Price Associates, Inc. Seeks to provide substantial dividend income and also long- term capital appreciation by investing primarily in dividend- paying common stocks, particularly of established companies with favorable prospects for both increasing dividends and capital appreciation. -------------------------------------------------------------------------------------------------------------------------------- American Blue Chip Income Capital Research Management Invests all of its assets in Class 2 shares of the Blue Chip and Growth Company Income and Growth Fund, a series of American Fund Insurance Series. The Blue Chip Income and Growth Fund invests primarily in common stocks of larger, more established companies based in the U.S. with market capitalizations of $4 billion and above. -------------------------------------------------------------------------------------------------------------------------------- Income & Value Capital Guardian Trust Company Seeks the balanced accomplishment of (a) conservation of principal and (b) long-term growth of capital and income by investing the portfolio's assets in both equity and fixed-income securities. The subadviser has full discretion to determine the allocation between equity and fixed income securities. -------------------------------------------------------------------------------------------------------------------------------- PIMCO VIT All Asset Portfolio Pacific Investment Management The portfolio invests primarily in a diversified mix of: (a) (a series of the PIMCO Variable Company common stocks of large and mid sized U.S. companies, and (b) Insurance Trust) (only Class M bonds with an overall intermediate term average maturity. is available for sale) -------------------------------------------------------------------------------------------------------------------------------- Global Allocation UBS Global Asset Management Seeks total return, consisting of long-term capital appreciation and current income, by investing in equity and fixed income securities of issuers located within and outside the U.S. -------------------------------------------------------------------------------------------------------------------------------- High Yield Salomon Brothers Asset Seeks to realize an above-average total return over a market Management Inc. cycle of three to five years, consistent with reasonable risk, by investing primarily in high yield debt securities, including corporate bonds and other fixed-income securities. -------------------------------------------------------------------------------------------------------------------------------- U.S. High Yield Bond Wells Fargo Fund Management, Seeks total return with a high level of current income by LLC 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. --------------------------------------------------------------------------------------------------------------------------------
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---------------------------------------------------------------------------------------------------------------------------- Portfolio Portfolio Manager Investment Description ---------------------------------------------------------------------------------------------------------------------------- Strategic Bond Salomon Brothers Asset Seeks a high level of total return consistent with preservation of Management Inc. capital by giving its subadviser broad discretion to deploy the portfolio's assets among certain segments of the fixed income market as the subadviser believes will best contribute to achievement of the portfolio's investment objective. ---------------------------------------------------------------------------------------------------------------------------- Strategic Income Sovereign Asset Management, Seeks a high level of current income by investing, under normal LLC, LLC market conditions, primarily in foreign government and corporate debt securities from developed and emerging markets; U.S. Government and agency securities; and U.S. high yield bonds. ---------------------------------------------------------------------------------------------------------------------------- Global Bond Pacific Investment Management Seeks to realize maximum total return, consistent with Company 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 Wellington Management Seeks a high level of current income consistent with the Company, LLP 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 Pacific Investment Management Seeks to realize maximum total return, consistent with Company 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 Capital Research Management Co Seeks to maximize current income and preserve capital. LLC ---------------------------------------------------------------------------------------------------------------------------- Real Return Bond Pacific Investment Management Seeks maximum return, consistent with preservation of capital Company 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. ---------------------------------------------------------------------------------------------------------------------------- Core Bond Wells Fargo Fund Management, Seeks total return consisting of income and capital appreciation LLC 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 Declaration Management & Seeks income and capital appreciation by investing at least 80% Research LLC Sovereign Asset of its assets in a diversified mix of debt securities and Management, LLC instruments. ---------------------------------------------------------------------------------------------------------------------------- U.S. Government Securities Salomon Brothers Asset Seeks a high level of current income consistent with Management Inc. 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. ----------------------------------------------------------------------------------------------------------------------------
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------------------------------------------------------------------------------------------------------------------------- Portfolio Portfolio Manager Investment Description ------------------------------------------------------------------------------------------------------------------------- Money Market MFC Global Investment Seeks maximum current income consistent with preservation of Management (U.S.A.) Limited 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 MFC Global Investment Seeks to provide long-term growth of capital (current income is Management (U.S.A.) Limited not a consideration) by investing 100% of the Lifestyle Trust's assets in other portfolios of the Trust which invest primarily in Deutsche Asset Management Inc. equity securities. ------------------------------------------------------------------------------------------------------------------------- Lifestyle Growth MFC Global Investment Seeks to provide long-term growth of capital with consideration Management (U.S.A.) Limited also given to current income by investing approximately 20% of the Lifestyle Trust's assets in other portfolios of the Trust which Deutsche Asset Management Inc. 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 MFC Global Investment Seeks to provide a balance between a high level of current Management (U.S.A.) Limited income and growth of capital with a greater emphasis given to capital growth by investing approximately 40% of the Lifestyle Deutsche Asset Management Inc. 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 MFC Global Investment Seeks to provide a balance between a high level of current Management (U.S.A.) Limited income and growth of capital with a greater emphasis given to current income by investing approximately 60% of the Lifestyle Deutsche Asset Management Inc. 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 MFC Global Investment Seeks to provide a high level of current income with some Management (U.S.A.) Limited consideration also given to growth of capital by investing approximately 80% of the Lifestyle Trust's assets in other Deutsche Asset Management Inc. 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 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 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 Worldex 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
17 POLICY SUMMARY General The policy is a flexible premium variable universal life insurance policy. This summary provides a general description of the important features of the policy. It is not comprehensive and is qualified in its entirety by the more detailed information contained in this prospectus. Unless otherwise stated or implied by the context, the discussions in this prospectus assume that the policy is not in default, that there is no outstanding Policy Debt and the death benefit is not determined by the Minimum Death Benefit Percentage. Your policy's provisions may vary in some states and the terms of the policy, and any endorsements or riders, supersede the disclosure in this prospectus. Death Benefits The policy provides a death benefit in the event of the death of the Life Insured while the policy is in force. The basic death benefit amount is the Face Amount, which is provided for the lifetime of the Life Insured with no maturity or expiration date. There may be other amounts added to the death benefit as described below. Flexible Term Insurance Option. You may add a Flexible Term Insurance Option rider (the "FTIO Rider") to the policy to provide additional term life insurance coverage on the Life Insured. Cost of insurance rates are less than or equal to those of the policy and no sales charge will apply. However, unlike the Face Amount of the policy, the FTIO Rider will terminate at the Life Insured's Attained Age 100. The FTIO Rider also offers the flexibility to schedule varying death benefit amounts on future dates (the "Scheduled Death Benefits"). Death Benefit Options. There are two death benefit options. Option 1 provides a death benefit equal to the Face Amount of the policy or the Scheduled Death Benefits of the FTIO Rider or, if greater, the Minimum Death Benefit. Option 2 provides a death benefit equal to the Face Amount or the Scheduled Death Benefits, plus the Policy Value or, if greater, the Minimum Death Benefit. You may change the death benefit option and increase or decrease the Face Amount and Scheduled Death Benefits. Age 100 Advantage. If the Life Insured is alive on the Policy Anniversary when the Life Insured reaches Attained Age 100, the policy will continue in force subject to the following unless the policy owner chooses to surrender the policy for its Net Cash Surrender Value: . the policy will be continued until the earlier of the death of the Life Insured or the date the policy owner surrenders the policy; . no additional premium payments will be accepted although loan repayments will be accepted; . no additional charges or deductions (described under "Charges and Deductions") will be assessed; . interest on any Policy Debt will continue to accrue; . the policy owner may continue to transfer portions of the Policy Value among the Investment Accounts and the Fixed Accounts as described in this prospectus. Premiums Premium payments may be made at any time prior to Attained Age 100 and in any amount, subject to certain limitations (see "Premium Payments -- Premium Limitations"). Net Premiums will be allocated to one or more of the Fixed Account and the sub-accounts of the Separate Account. You may change allocations and make transfers among the accounts subject to limitations described below. Policy Value The Policy Value is the accumulation of premiums paid, less charges and deductions we take for expenses and cost of insurance, plus or minus the investment returns of the accounts to which the Policy Value has been allocated. You may obtain a portion of the Policy Value by taking a policy loan or a partial withdrawal or by full surrender of the policy. 18 Policy Loans You may borrow against the Net Cash Surrender Value of the policy. Loan interest will accrue daily and be payable in arrears on each Policy Anniversary. The Policy Debt will be deducted from amounts payable at the Life Insured's death or upon surrender of the policy. Surrender and Partial Withdrawals You may make a partial withdrawal of the Policy Value. It may result in a decrease in the Face Amount and Scheduled Death Benefits. You may surrender the policy for its Net Cash Surrender Value at any time. Lapse and Reinstatement Your policy will lapse and terminate without value when the Net Cash Surrender Value is insufficient to pay the next monthly deduction and a grace period of 61 days expires without an adequate premium payment from you. You may reinstate a lapsed policy within five years following lapse if the policy was not surrendered for its Net Cash Surrender Value. Evidence of insurability is required, along with a premium payment described under "Lapse and Reinstatement--Reinstatement." The policy differs in two important ways from conventional life insurance policies. First, failure to make planned premium payments will not in itself cause the policy to lapse. Second, a policy can lapse even if planned premiums have been paid. Charges and Deductions We assess certain charges and deductions in connection with the policy. These include: (i) charges in the form of monthly deductions for the cost of insurance and administrative expenses, (ii) charges assessed daily against amounts in the Investment Account and (iii) charges deducted from premiums paid. These charges are summarized in the Fee Tables. In addition, there are charges deducted from each portfolio. These charges are also summarized in the Fee Tables. Reduction in Charges and Enhancement of Surrender Values: The policy is designed for employers and other sponsoring organizations that may purchase multiple policies as a case. The size or nature of the case may result in expected savings of sales, underwriting, administrative or other costs. If so, we expect to offer reductions of policy charges and enhancements of surrender value. We may change the nature and amount of reductions and enhancements available from time to time. They will be determined in a way that is not unfairly discriminatory to policy owners. Investment Options and Investment Subadvisers You may allocate Net Premiums to the Fixed Account or to one or more of the sub-accounts of the Separate Account. Each of the sub-accounts invests in the shares of one of the portfolios described in the Table of Investment Options and Investment Subadvisers. The Table of Investment Options and Investment Subadvisers describes the portfolios and shows the subadvisers that provide investment subadvisory services. Allocating Net Premiums only to one or a small number of the investment options (other than the Lifestyle Trusts) should not be considered a balanced investment strategy. In particular, allocating Net Premiums to a small number of investment options that concentrate their investments in a particular business or market sector will increase the risk that the value of your policy will be more volatile since these investment options may react similarly to business or market specific events. Examples of business or market sectors where this risk historically has been and may continue to be particularly high include: (a) technology related businesses, including internet related businesses, (b) small cap securities, and (c) foreign securities. The Company does not provide advice regarding appropriate investment allocations. Please discuss this matter with your financial adviser. 19 Investment Management Fees and Expenses Each sub-account of the Separate Account purchases shares of one of the portfolios at net asset value. The net asset value of those shares reflects investment management fees and certain expenses of the portfolios. The fees and expenses for each portfolio are described in the Fee Tables and in the portfolio prospectuses. GENERAL INFORMATION ABOUT JOHN HANCOCK USA, RATINGS AND THE SEPARATE ACCOUNT Description of John Hancock USA John Hancock Life Insurance Company (U.S.A.) ("John Hancock USA") is a stock life insurance company incorporated in Maine on August 20, 1955 by a special act of the Maine legislature and redomesticated under the laws of Michigan. We are a licensed life insurance company in the District of Columbia and all states of the United States except New York. Our ultimate parent is Manulife Financial Corporation ("MFC"), a publicly traded company, based in Toronto, Canada. MFC is the holding company of The Manufacturers Life Insurance Company. Ratings 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 its products, the performance (return) of these products, the value of any investment in these products upon withdrawal or to individual securities held in any portfolio. 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 sub-accounts of Separate Account N (the "Separate Account"), a separate account operated by us under Michigan law. The Separate Account is registered with the SEC under the 1940 Act as a unit investment trust. A unit investment trust is a type of investment company that invests its assets in specified securities, such as the shares of one or more investment companies, rather than in a portfolio of unspecified securities. Registration under the 1940 Act does not involve any supervision by the SEC of the management or investment policies or practices of the Separate Account. For state law purposes the Separate Account is treated as a part or division of John Hancock USA. The Separate Account's assets are our property. Each policy provides that amounts we hold in the Separate 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 Separate Account. However, the obligations under the policies are corporate obligations of the Company. New sub-accounts may be added and made available to policy owners from time to time. Existing sub-accounts may be modified or deleted at any time. 20 ISSUING A POLICY Use of the Policy The policy is designed to provide employers or other organizations with life insurance coverage on employees or other individuals in whose lives they have an insurable interest. The policy may be owned by an individual or a corporation, trust, association, or similar entity. The policy may be used for such purposes as funding non-qualified executive deferred compensation or salary continuation liabilities or death benefit liabilities of executive retirement plans, or as a source for funding cash flow obligations under such plans. Requirements To purchase a policy, you must submit a completed application. Your policy will not be issued until the underwriting process is completed to our satisfaction. With our prior approval, the policy may be issued on a basis that does not distinguish between the Life Insured's sex and/or smoking status. A policy will only be issued on the lives of insureds from Issue Ages 20 through 80. Each policy has a Policy Date, an Effective Date and an Issue Date (see "Definitions" in Appendix A). The Policy Date is the date from which the first monthly deductions are calculated and from which Policy Years, Policy Months and Policy Anniversaries are determined. The Policy Date is also the effective date of the initial Coverage Amount. The Policy Date is the same date as the Effective Date unless the policy is backdated (see "Backdating a Policy"). The Effective Date is the date we become obligated under the policy and when the first monthly deductions are taken. It is the later of the date we approve issuance of the policy and the date we receive at least the Minimum Initial Premium. The Issue Date is the date from which the Suicide and Incontestability provisions of the policy are determined. If we approve issuance of a policy before we receive the Minimum Initial Premium then the Effective Date will be later than the Issue Date. The Minimum Initial Premium must be received by us within 60 days after the Issue Date and the Life Insured must be in good health on the Effective Date. If the Minimum Initial Premium is not paid or if the application is rejected, the policy will be canceled and any premiums paid will be returned to the applicant. Net Premiums received prior to the Effective Date will be credited with interest at the rate of return earned on amounts allocated to the Money Market portfolio. On the Effective Date, Net Premiums received plus any interest credited will be allocated to Investment Accounts and the Fixed Account according to your instructions, unless first allocated to the Money Market portfolio for the duration of the right to examine period (see "Right to Examine the Policy"). Minimum Face Amount and Scheduled Death Benefit. The minimum Face Amount is $50,000 unless the FTIO Rider is added to the policy. With an FTIO Rider, the minimum Face Amount is $25,000 and the minimum Scheduled Death Benefit is $50,000. Backdating a Policy. You may request that we backdate the policy by assigning a Policy Date earlier than the date the application is signed. We will not backdate the policy to a date earlier than that allowed by state law, which is generally three months to one year prior to the date of application for the policy. Monthly deductions will be made for the period the Policy Date is backdated. Temporary Insurance Agreement Temporary insurance coverage may be provided under the terms of a Temporary Insurance Agreement, subject to our underwriting practices. Generally, temporary life insurance may not exceed $1,000,000 and may not be in effect for more than 90 days. It is issued on a conditional receipt basis, which means that benefits would only be paid if the Life Insured met our usual and customary underwriting standards for the coverage applied for. 21 Underwriting The policies are offered on three underwriting classes that require different types and amounts of information from the applicant and prospective Life Insured. Current cost of insurance charges in early Policy Years will vary by the type of underwriting, and charges will generally be lower where underwriting information is more extensive. Under any of the underwriting bases, the acceptance of an application is subject to our underwriting rules and we may request additional information or reject an application for any reason. Short Form Underwriting. The proposed Life Insured must answer qualifying questions in the application but is not required to provide detailed medical history, submit records or undergo examinations or tests unless requested to do so by us. Availability of short form underwriting depends on characteristics of the case, such as the number of lives to be insured, the amounts of insurance and other factors, and it is generally available only up to Issue Age 65. Simplified Underwriting. The proposed Life Insured must satisfactorily answer certain health questions in the application and may be required to submit existing medical records, but requirements to undergo examinations and tests are minimized. Availability of simplified underwriting and the nature of the requirements will depend on characteristics of the case and the proposed lives to be insured. Regular (Medical) Underwriting. Where short form or simplified underwriting is unavailable we require satisfactory evidence of insurability under our regular underwriting guidelines for individual applicants. This may include medical exams and other information. A proposed Life Insured who fails to qualify for a standard risk classification may be eligible to be insured with an additional substandard rating. Right to Examine the Policy You may return your policy for a refund within 10 days after you receive it. Some states provide a longer period of time for this right, which will be stated in the policy if applicable. The policy can be mailed or delivered to the Company agent who sold it to you or to our Service Office. Immediately upon such delivery or mailing, the policy shall be deemed void from the beginning. Within seven days after receipt of the returned policy at our Service Office we will refund an amount equal to the value of amounts in the Investment Accounts and the Fixed Account on the date we receive the returned policy, plus all charges deducted prior to that date, not including the fees and expenses of the portfolios, minus any partial withdrawals and policy loans. Some state laws require the refund of premiums paid without adjustment for investment gains and losses of the Separate Account. In these states, all Net Premiums will be allocated to the Money Market portfolio during the Right to Examine period and the refund amount will be equal to all premiums received less any partial withdrawals and policy loans. If you request a Face Amount increase that results in new sales charge, you will have the same rights described above to cancel the increase. If canceled the Policy Value and sales charge will be recalculated to be as they would have been had the premiums not been paid. We reserve the right to delay the refund of any premium paid by check until the check has cleared. (Applicable to Residents of California Only) Residents of California, age 60 and greater, may return the policy for a refund at any time within 30 days after receiving it. The policy can be mailed or delivered to the Company's agent who sold it, or to our Service Office. If you cancel the policy during this 30 day period and your premiums were allocated to a Fixed Account or the Money Market portfolio, we will refund you the amount of all premiums paid. If your premiums were allocated to one or more of the Investment Accounts (other than the Money Market portfolio), we will refund you the value of amounts in the Investment Accounts and the Fixed Account on the date we receive the returned policy plus all charges deducted prior to that date, not including the fees and expenses of the portfolios, minus any partial withdrawals and policy loans. Your premiums will be placed in either (a) the Fixed Account, (b) the Money Market portfolio or (c) in one or more of the Investment Accounts, based upon your instructions. If no instructions are given, your premiums will be placed in the Money Market portfolio. 22 Life Insurance Qualification A policy must satisfy either of two tests to qualify as a life insurance contract as defined in Section 7702 of the Internal Revenue Code of 1986, as amended (the "Code"). At the time of application, you must choose either the Cash Value Accumulation Test ("CVA Test") or the Guideline Premium Test ("GP Test") and the test cannot be changed once the policy is issued. Cash Value Accumulation Test. The CVA Test requires the death benefit at any time to be at least a certain ratio of the Policy Value, based on prescribed calculations. The Minimum Death Benefit provision described below will ensure that the CVA Test is met. There is no restriction on the amount of premiums you may pay, but we will require you to provide satisfactory evidence of insurability before we accept an amount of premium that would increase the death benefit by more than the increase in Policy Value. Guideline Premium Test. The GP Test limits the amount of premiums you may pay into the policy, given its death benefit, based on prescribed calculations. In addition, the GP Test requires the death benefit at any time to be at least a prescribed ratio of the Policy Value. These prescribed multiples are generally lower than those calculated under the CVA Test. The Minimum Death Benefit provision described below will ensure that this second requirement is met. Changes to the policy or FTIO Rider, such as changes in Face Amount, Scheduled Death Benefit, death benefit option or partial withdrawals, may affect the premium limits under the GP Test. Some changes will reduce future premium limits and may cause premiums already paid to exceed the new limits and force you to make a partial withdrawal. DEATH BENEFITS If the policy is in force at the time of the Life Insured's death we will pay an insurance benefit to the beneficiary. The policy may remain in force for the Life Insured's entire lifetime and there is no specified maturity or expiration date. Insurance benefits are only payable when we receive due proof of death at our Service Office, in the form of either a certified copy of the death certificate, a certified copy of a decree of a court of competent jurisdiction as to the finding of death or other proof satisfactory to us. The amount of the insurance benefit payable will be the death benefit on the date of death, as described below, less any Policy Debt, accrued interest, and outstanding monthly deductions on the date of death. The insurance benefit will be paid in one lump sum unless another form of settlement is agreed to by the beneficiary and us. If the insurance benefit is paid in one sum, we will pay interest from the date of death to the date of payment. If the Life Insured should die after our receipt of a request for surrender, no insurance benefit will be payable, and we will pay only the Net Cash Surrender Value. Minimum Death Benefit. Both the CVA Test and the GP Test require the death benefit to be at least a prescribed ratio of the Policy Value at all times. The policy's Minimum Death Benefit ensures that these requirements are met by providing that the death benefit shall be at least equal to the Policy Value multiplied by the applicable Minimum Death Benefit Percentage for the Attained Age of the Life Insured. Tables of Minimum Death Benefit Percentages appear below. Table of Minimum Death Benefit Percentages.
------------------------------------------------------------- GP Test CVA Test GP Test CVA Test ------------------------------------------------------------- ------------------------------------------------------------- Age Percent Male Female Unisex Age Percent Male Female Unisex ------------------------------------------------------------- 20 250% 644% 768% 665% 42 236% 319% 372% 328% 21 250% 625% 743% 645% 43 229% 309% 361% 318% 22 250% 607% 720% 626% 44 222% 299% 350% 308% 23 250% 589% 697% 608% 45 215% 290% 339% 299% -------------------------------------------------------------
23
-------------------------------------------------------------- GP Test CVA Test GP Test CVA Test -------------------------------------------------------------- -------------------------------------------------------------- Age Percent Male Female Unisex Age Percent Male Female Unisex -------------------------------------------------------------- 24 250% 572% 674% 589% 46 209% 281% 329% 290% 25 250% 554% 652% 571% 47 203% 273% 319% 281% 26 250% 537% 631% 554% 48 197% 265% 309% 272% 27 250% 520% 611% 536% 49 191% 257% 300% 264% 28 250% 504% 591% 519% 50 185% 249% 291% 257% 29 250% 488% 572% 502% 51 178% 242% 282% 249% 30 250% 472% 553% 486% 52 171% 235% 274% 242% 31 250% 457% 535% 470% 53 164% 228% 266% 235% 32 250% 442% 517% 455% 54 157% 222% 258% 229% 33 250% 428% 500% 440% 55 150% 216% 251% 222% 34 250% 414% 484% 426% 56 146% 210% 244% 216% 35 250% 400% 468% 412% 57 142% 205% 237% 210% 36 250% 387% 453% 399% 58 138% 199% 230% 205% 37 250% 375% 438% 386% 59 134% 194% 224% 199% 38 250% 362% 424% 373% 60 130% 189% 218% 194% 39 250% 351% 410% 361% 61 128% 184% 211% 189% 40 250% 340% 397% 350% 62 126% 180% 206% 185% 41 243% 329% 384% 339% 63 124% 175% 200% 180% 64 122% 171% 194% 176% 83 105% 122% 127% 124% 65 120% 167% 189% 172% 84 105% 121% 125% 122% 66 119% 164% 184% 168% 85 105% 120% 123% 121% 67 118% 160% 180% 164% 86 105% 118% 121% 119% 68 117% 157% 175% 160% 87 105% 117% 120% 118% 69 116% 153% 171% 157% 88 105% 116% 118% 117% 70 115% 150% 166% 154% 89 105% 115% 117% 116% 71 113% 147% 162% 151% 90 105% 114% 115% 115% 72 111% 145% 158% 147% 91 104% 113% 114% 114% 73 109% 142% 154% 145% 92 103% 112% 113% 112% 74 107% 139% 151% 142% 93 102% 111% 112% 111% 75 105% 137% 147% 139% 94 101% 110% 110% 110% 76 105% 135% 144% 137% 95 100% 109% 109% 109% 77 105% 133% 141% 135% 96 100% 107% 107% 107% 78 105% 131% 139% 133% 97 100% 106% 106% 106% 79 105% 129% 136% 131% 98 100% 104% 104% 104% 80 105% 127% 133% 129% 99 100% 103% 103% 103% 81 105% 125% 131% 127% 100+ 100% 100% 100% 100% 82 105% 124% 129% 125% --------------------------------------------------------------
Flexible Term Insurance Option Rider You may add an FTIO Rider to the policy to provide additional death benefit coverage on the Life Insured. The FTIO Rider provides flexible term life insurance to Attained Age 100 with cost of insurance charges less than or equal to those of the policy. The election of (or failure to elect) the FTIO Rider will impact the total cost of insurance charges. The FTIO Rider will terminate at the earlier of Attained Age 100, the date the policy lapses or is surrendered, and your request to cancel the FTIO Rider. You may schedule the death benefit amounts that will apply at specified times (the "Scheduled Death Benefits"). Scheduled Death Benefits may be constant or varying from time to time. The Scheduled Death Benefits will be shown in the policy . The term insurance benefit of the FTIO Rider is equal to (a) minus (b) but not less than zero where: (a)is the Scheduled Death Benefit for the Policy Month, and (b)is the Face Amount of the policy or, if greater, the policy's Minimum Death Benefit. Even if the term insurance benefit may be zero in a Policy Month, the FTIO Rider will not terminate. 24 Example. A policy is purchased for an executive as part of an employee benefit plan. The death benefit provided by the policy is to be equal to the executive's salary of $100,000 increasing at 5% per year through age 64. Assuming the executive is currently 55, the policy will be issued with a Scheduled Death Benefit as follows:
--------------------------------------------------- Scheduled Scheduled Policy Year Death Benefit Policy Year Death Benefit --------------------------------------------------- 1 100,000 6 127,628 --------------------------------------------------- 2 105,000 7 134,010 --------------------------------------------------- 3 110,250 8 140,710 --------------------------------------------------- 4 115,763 9 147,746 --------------------------------------------------- 5 121,551 10+ 155,133 ---------------------------------------------------
The FTIO Rider amount will change each year as necessary to provide the benefits shown in the schedule, as follows:
Policy Total Face Flexible Term Year Death Benefit Amount Insurance Amount --------------------------------------------- 1 100,000 100,000 0 --------------------------------------------- 2 105,000 100,000 5,000 --------------------------------------------- 3 110,250 100,000 10,250 --------------------------------------------- 4 115,763 100,000 15,763 --------------------------------------------- 5 121,551 100,000 21,551 --------------------------------------------- 6 127,628 100,000 27,628 --------------------------------------------- 7 134,010 100,000 34,010 --------------------------------------------- 8 140,710 100,000 40,710 --------------------------------------------- 9 147,746 100,000 47,746 --------------------------------------------- 10 155,133 100,000 55,133
Death Benefit Options You may choose either of two death benefit options: Death Benefit Option 1. The death benefit on any date is the Face Amount of the policy or, if greater, the Minimum Death Benefit, plus the term insurance benefit of the FTIO Rider. Death Benefit Option 2. The death benefit on any date is the Face Amount plus the Policy Value or, if greater, the Minimum Death Benefit, plus the term insurance benefit of the FTIO Rider. Changing the Death Benefit Option You may change the death benefit option at any time. The change will take effect at the beginning of the next Policy Month at least 30 days after your written request is received at our Service Office. We reserve the right to limit changes that could cause the policy to fail to qualify as life insurance for tax purposes. A change in the death benefit option will result in a change in the Face Amount and Scheduled Death Benefits to avoid any change in the amount of death benefit, as follows: Change from Option 1 to Option 2. The new Face Amount will be equal to the Face Amount prior to the change less the Policy Value on the date of the change. The Scheduled Death Benefit amounts for dates on or after the date of the change will be the amounts scheduled prior to the change less the Policy Value on the date of the change. Coverage Amounts will be reduced or eliminated in the order that they are listed in the policy until the total decrease in coverage amounts equals the decrease in Face Amount. 25 Example. A policy is issued with a Face Amount of $100,000, death benefit Option 1, and the following schedule:
------------------------- Scheduled Policy Year Death Benefit ------------------------- ------------------------- 1 100,000 ------------------------- ------------------------- 2 125,000 ------------------------- ------------------------- 3 150,000 ------------------------- ------------------------- 4 175,000 ------------------------- ------------------------- 5+ 200,000 -------------------------
The death benefit option is changed to Option 2 at the beginning of Policy Year 3. If the Policy Value at the time of the change is $10,000, then the Face Amount after the change will be $90,000 (the Face Amount prior to the change less the Policy Value), and the Scheduled Death Benefit after the change will become:
------------------------- Scheduled Policy Year Death Benefit ------------------------- ------------------------- 3 140,000 ------------------------- ------------------------- 4 165,000 ------------------------- ------------------------- 5+ 190,000 -------------------------
Change from Option 2 to Option 1. The new Face Amount will be the Face Amount prior to the change plus the Policy Value on the date of the change (but the new Face Amount will be no greater than the Scheduled Death Benefit on the date of the change). The resulting Face Amount increase amount will be added to the first Coverage Amount listed in the policy. The Annual Premium Target for this Coverage Amount will not be increased and new sales charges will not apply, however, for an increase solely due to a change in the death benefit option. Example. A policy is issued with a Face amount of $100,000, death benefit Option 2, and the following schedule:
------------------------- Scheduled Policy Year Death Benefit ------------------------- ------------------------- 1 100,000 ------------------------- ------------------------- 2 125,000 ------------------------- ------------------------- 3 150,000 ------------------------- ------------------------- 4 175,000 ------------------------- ------------------------- 5+ 200,000 -------------------------
The death benefit option is changed to Option 1 at the beginning of Policy Year 3. If the Policy Value at the time of the change is $10,000, then the Face Amount after the change will be $110,000 (the Face Amount prior to the change plus the Policy Value), and the Scheduled Death Benefit after the change will become:
Scheduled Policy Year Death Benefit ------------------------- 3 160,000 ------------------------- 4 185,000 ------------------------- 5+ 210,000
Changing the Face Amount and Scheduled Death Benefits At any time, you may request an increase or decrease to the Face Amount or any Scheduled Death Benefits effective on or after the date of change. We reserve the right to limit changes that could cause the policy to fail to qualify as life insurance for tax purposes. 26 Increases in Face Amount and Scheduled Death Benefits. Increases in Face Amount and Scheduled Death Benefits are subject to the following conditions: . Increases in Face Amount and Scheduled Death Benefits will require satisfactory evidence of the Life Insured's insurability. . Increases will take effect at the beginning of the next Policy Month after we approve the request. . We may refuse a requested increase that would not meet our requirements for new policy issues at the time due to the Life Insured's Attained Age or other factors. . If the Face Amount is increased (other than as required by a death benefit option change) then all Scheduled Death Benefits effective on or after the date of the change will be increased by the amount of the Face Amount increase. New Sales Loads for a Face Amount Increase. Coverage Amounts equal to the amount of the increase will be added to the policy as follows: . First, Coverage Amounts that were reduced or eliminated by a prior Face Amount decrease will be restored. . Second, if needed, a new Coverage Amount will be added to the policy with an Annual Premium Target and new sales charges. Any new Coverage Amount will be based on the Life Insured's Attained Age and other relevant factors on the effective date of the increase. Premiums paid on or after the increase may be attributed to the new Coverage Amount and result in sales charges (see "Charges and Deductions -- Attribution of Premiums"). Decreases in Face Amount and Scheduled Death Benefits. Decreases in Face Amount and Scheduled Death Benefits are subject to the following conditions: . Decreases in Face Amount and Scheduled Death Benefits will take effect at the beginning of the next Policy Month which is 30 days after your written request is received at our Service Office. . If the Face Amount is decreased then all Scheduled Death Benefits effective on or after the date of the change will be decreased by the same amount. . If at any time the Scheduled Death Benefit decreases to less than the Face Amount, the Face Amount will be decreased to be equal to the Scheduled Death Benefit at that time. . Coverage Amounts equal to the amount of the Face Amount decrease will be reduced or eliminated in the reverse order that they are listed in the policy. Decreases in Face Amount under death benefit Option 1 due to a Partial Withdrawal. If death benefit Option 1 is in effect when a partial withdrawal is made, the Face Amount will be decreased by an amount equal to (a) minus (b) but not less than zero, where: (a)is the partial withdrawal amount and (b)is the excess, if any, of the policy's Minimum Death Benefit over its Face Amount, immediately prior to the partial withdrawal. Decreases in Face Amount under death benefit Option 1 due to a partial withdrawal are subject to the following conditions: . Coverage Amounts equal to the amount of the Face Amount decrease will be reduced or eliminated in the reverse order that they are listed in the policy. . All Scheduled Death Benefits effective on or after the date of the partial withdrawal will be decreased by the amount of the Face Amount decrease, unless you request otherwise and we approve. 27 Example for Face Increases and Decreases. A policy is issued with a Face Amount of $100,000, death benefit Option 1, and a Scheduled Death Benefit as follows:
------------------------- Scheduled Policy Year Death Benefit ------------------------- ------------------------- 1 100,000 ------------------------- ------------------------- 2 125,000 ------------------------- ------------------------- 3 150,000 ------------------------- ------------------------- 4 175,000 ------------------------- ------------------------- 5+ 200,000 -------------------------
Assume the following policy activity:
------------------------------------------------------------------------------------------------------------------- Activity Effect on Policy Change in Benefit Schedule ------------------------------------------------------------------------------------------------------------------- ------------------------------------------------------------------------------------------------------------------- In Policy Year 2, The initial Coverage Amount is reduced to $80,000. Scheduled the Face Amount Policy Year Death Benefit is reduced to -------------------------- $80,000. 2 105,000 3 130,000 4 155,000 5+ 180,000 - - ------------------------------------------------------------------------------------------------------------------- In Policy Year 3, The initial Coverage Amount (which earlier was reduced to $80,000) Scheduled the Face Amount is restored to its original level of $100,000. A new Coverage Amount Death Benefit is increased to for $20,000 is added to the policy. This new Coverage Amount will have Policy Year. $120,000 its own Annual Premium Target, and its own sales charges. A portion of -------------------------- the future premiums paid will be attributed to this Coverage Amount to 3 170,000 determine the amount of the sales charges. 4 195,000 5+ 220,000 - - ------------------------------------------------------------------------------------------------------------------- In Policy Year 4, The Face Amount is reduced to $90,000. The most recent Scheduled a partial Coverage Amount of $20,000 is reduced to $0, and the initial Death Benefit withdrawal Coverage Amount is reduced to $90,000. Policy Year. of $30,000 is -------------------------- made. 4 165,000 5 190,000 - - --------------------------
Factors that Affect the Death Benefit. In the case of death benefit Option 2 where the death benefit is the Face Amount plus the Policy Value, changes in the Policy Value will affect the amount of death benefit. Factors that affect the Policy Value are the investment performance of the variable investment options chosen and the charges deducted. For a discussion of how these factors affect Policy Value see the "Summary of Benefits and Risks." These factors do not affect the Face Amount of the policy. Therefore, the amount of death benefit under Option 1 will not be less than the Face Amount as long as the policy does not lapse. PREMIUM PAYMENTS Initial Premiums No premiums will be accepted prior to receipt of a completed application by us. All premiums received prior to the Effective Date of the policy will be held in our general account and credited with interest from the date of receipt at the rate of return earned on amounts allocated to the Money Market portfolio. On the Effective Date, the Net Premiums paid plus interest credited will be allocated among the Investment Accounts or the Fixed Account in accordance with your instructions, unless first allocated to the Money Market portfolio for the duration of the Right to Examine period (see "Right to Examine the Policy"). Subsequent Premiums After the payment of the initial premium, premiums may be paid at any time during the lifetime of the Life Insured prior to Attained Age 100 and in any amount subject to the premium limitations described below. 28 A policy will be issued with a planned premium, which is based on the amount of premium you wish to pay. We will send you notices of your planned premium at the payment interval you select. However, you are under no obligation to make the planned premium payment. Payment of premiums will not guarantee that the policy will stay in force and failure to pay premiums will not necessarily cause the policy to lapse. The policy will remain in force so long as the Net Cash Surrender Value is sufficient to cover policy charges. Premium Limitations If the policy is issued under the GP Test, the total of all premiums paid may not exceed the then-current maximum premium limitations established by federal income tax law for the policy to qualify as life insurance. The GP Test premium limits are stated in the policy. If a premium is received which would result in total premiums exceeding the applicable GP Test limit, we will only accept that portion of the premium that will not exceed the limit. Any premium in excess of that amount will be returned to you. If the policy is issued under the CVA Test, there is no restriction on the amount of premiums that may be paid into a policy, but you must provide satisfactory evidence of insurability before we accept any premium that would increase the death benefit by an amount greater than the increase in Policy Value. Premium Allocation You may allocate premiums to the Fixed Account and Investment Accounts. Allocations may be made as percentages that are between zero and 100% that sum to exactly 100%. Alternatively, you may allocate a premium in dollar amounts that sum to exactly the Net Premium amount. You may change premium allocations at any time and the change will take effect on the date a request for change satisfactory to us is received at our Service Office. CHARGES AND DEDUCTIONS Premium Charge We will deduct a premium charge as a percentage of each premium payment that is guaranteed never to exceed 2.5%. Currently, we waive this charge in Policy Years 4 and later and charge 0%. The charge is intended to cover a portion of the aggregate amount of various taxes and fees we pay to federal, state and local governments. It is not based on the actual premium tax rate of your state of residence or any other specific tax. Sales Charge The sales charge is intended to cover a portion of our costs of marketing and distributing the policies. Attribution of Premiums. An Annual Premium Target is associated with each Coverage Amount. Annual Premium Targets are based on the Coverage Amount and the Life Insured's Attained Age, sex and smoking status on the effective date of the Coverage Amount. The Annual Premium Targets are listed with the Coverage Amounts in the policy. Premium payments will be attributed to Coverage Amounts that have been in effect for less than 5 years. Attribution will begin with the first applicable Coverage Amount that is listed in the policy. The sum of all premium amounts attributed to a Coverage Amount in a Coverage Year is limited to the Annual Premium Target shown in the policy. Premium amounts that exceed the Annual Premium Target will be attributed to the next listed Coverage Amount, up to its own Annual Premium Target. Attribution will continue in this manner until either the entire premium is attributed to Coverage Amounts or the Annual Premium Target is exceeded for all applicable Coverage Amounts. 29 Sales Charge. We deduct a sales charge from all premium amounts attributed to a Coverage Amount designated as having a sales charge. The sales charge is a percentage of premiums guaranteed never to exceed the percentages below. Currently we are charging these percentages.
------------------------------------------------- Coverage Year Percentage Coverage Year Percentage ------------------------------------------------- ------------------------------------------------- 1 13.00% 4 2.50% ------------------------------------------------- ------------------------------------------------- 2 6.25% 5 0.50% ------------------------------------------------- ------------------------------------------------- 3 3.50% 6 0.50% ------------------------------------------------- ------------------------------------------------- 7+ 0.00% -------------------------------------------------
Monthly Deductions On the Policy Date and at the beginning of each Policy Month prior to Attained Age 100, a deduction is due from the Net Policy Value to cover certain charges described below. Monthly deductions due prior to the policy's Effective Date will be taken on the Effective Date. Unless otherwise allowed by us and specified by you, the monthly deduction will be allocated among the Investment Accounts and the Fixed Account in the same proportion as the Policy Value in each of the Investment Accounts and the Fixed Account bears to the Net Policy Value. Administration Charge. Currently we deduct a charge of $12 per Policy Month, which is guaranteed never to be exceeded. This charge is intended to cover certain administrative expenses associated with the policy, including maintaining policy records, collecting premiums and processing death claims, surrender and withdrawal requests and various changes permitted under a policy. Cost of Insurance Charge. A monthly charge for the cost of insurance is paid to us and is determined by multiplying a cost of insurance rate by the net amount at risk at the beginning of each Policy Month. Death Benefit Option 1. The net amount at risk is equal to the greater of zero, or (a) minus (b), where (a)is the applicable death benefit amount on the first day of the month, divided by 1.0024663; and (b)is the Policy Value attributed to that death benefit amount on the first day of the month. Death Benefit Option 2. The net amount at risk is equal to the Face Amount of insurance. Cost of insurance rates and net amounts at risk are determined separately for each Coverage Amount and for the excess of the death benefit over the Face Amount (the Face Amount is the sum of the Coverage Amounts). Attribution of Policy Value for Net Amounts at Risk. To determine the net amounts at risk, the Policy Value will be attributed to Coverage Amounts in the order listed in the policy. The amount of Policy Value attributed to a Coverage Amount will be limited to the amount that results in zero net amount at risk, and any excess Policy Value will then be attributed to the next listed Coverage Amount. Attribution will continue in this manner until either the entire Policy Value is attributed or the end of the list of Coverage Amounts is reached. Any remaining Policy Value will then be attributed to the excess of the death benefit over the Face Amount. Current Cost of Insurance Rates. Cost of insurance rates are determined separately for each Coverage Amount and the excess of the death benefit over the Face Amount. There are different current cost of insurance rate bases for: . Coverage Amounts having sales charges, and . The excess of the death benefit over the Face Amount, including any term insurance benefit under the FTIO Rider. The cost of insurance rate in a specific Policy Month for an applicable death benefit amount will depend on: . the cost of insurance rate basis for the applicable death benefit amount, . the Life Insured's Attained Age, sex (unless unisex rates are required by law) and smoking status on the effective date of the applicable death benefit amount, 30 . the underwriting class of the applicable death benefit amount, . the Coverage Year, or Policy Year for the excess of the death benefit over the Face Amount, . any extra charges for substandard ratings, as stated in the policy. Since the net amount of risk for death benefit Option 1 is based on a formula that includes as factors the Policy Value, the net amount at risk is affected by the investment performance of the underlying investment options chosen, payment of premiums and charges assessed. Cost of insurance rates will generally increase with the Life Insured's age and the Coverage Year. Cost of insurance rates reflect our expectation as to future mortality experience. They are also intended to cover our general costs of providing the policy, to the extent that these costs are not covered by other charges. Current cost of insurance rates may be changed by us on a basis that does not unfairly discriminate within the class of lives insured. Guaranteed Maximum Cost of Insurance Rates. In no event will the cost of insurance rates we charge exceed the guaranteed maximum rates set forth in the policy, except to the extent that an extra charge is imposed for a substandard rating. The guaranteed rates are based on the 1980 Commissioners Standard Ordinary Sex Distinct (unless unisex rates are required by law) ANB Aggregate Ultimate Mortality Tables. Current cost of insurance rates may be less than the guaranteed rates. Asset Based Risk Charge Deducted from Investment Accounts We assess a daily charge against amounts in the Investment Accounts. This charge is intended to compensate us for insurance risks we assume under the policy, such as benefit payments and expenses that are higher than we expected. We will realize a gain from this charge to the extent it is not needed to provide benefits and pay expenses under the policy. The charge is a percentage of amounts in the Investment Accounts, which will reduce unit values of the sub-accounts. The charge is guaranteed never to exceed an annual rate of 0.50%. Currently, we charge the following rates:
----------------------- Policy Year Annual Rate ----------------------- ----------------------- 1-10 0.45% ----------------------- ----------------------- 11+ 0.25% -----------------------
Investment Management Fees and Expenses The investment management fees and expenses of the portfolios, the underlying variable investment options for the policy, are set forth in the Fee Tables and in the portfolio prospectuses. Reduction in Charges and Enhanced Surrender Values The policy is designed for employers and other sponsoring organizations that may purchase multiple policies as a case. The size or nature of the case may result in expected savings of sales, underwriting, administrative or other costs. If so, we expect to offer reductions of policy charges and enhancements of surrender value. Eligibility for reductions and enhancements and the amounts available will be determined by a number of factors, including the number of lives to be insured, the total premiums expected to be paid, total assets under management for the policy owner, the nature of the relationship among the lives insured, the purpose for which the policies are being purchased, expected persistency of the individual policies, and any other circumstances which we believe to be relevant to the expected reduction of our expenses. Some of reductions and enhancements may be guaranteed and others may be subject to restrictions or to withdrawal or modification, on a uniform case basis. We may change the nature and amount of reductions and enhancements available from time to time. Reductions and enhancements will be determined in a way that is not unfairly discriminatory to policy owners. 31 COMPANY TAX CONSIDERATIONS Currently, we make no specific charge for any federal, state, or local taxes that we incur that may be attributable to the Separate Account or to the policy. We reserve the right in the future, however, to make a charge for any such tax or other economic burden resulting from the application of tax laws that we determine to be properly attributable to the Separate Account or to the policy. POLICY VALUE Determination of the Policy Value A policy has a Policy Value, a portion of which is available to you by making a policy loan or partial withdrawal, or upon surrender of the policy. The Policy Value may also affect the amount of the death benefit. The Policy Value at any time is equal to the sum of the values in the Investment Accounts, the Fixed Account, and the Loan Account. The Policy Value is affected by the investment performance of the Investment Account chosen and the rate of interest credited if amounts are allocated to the Fixed Account. The Policy Value is also affected by the charges deducted. For a discussion of how these factors affect Policy Value see the "Summary of Benefits and Risks." Investment Accounts. An Investment Account is established under each policy for each sub-account of the Separate Account to which Net Premiums or transfer amounts have been allocated. Each Investment Account under a policy measures the interest of the policy in the corresponding sub-account. The value of the Investment Account established for a particular sub-account is equal to the number of units of that sub-account credited to the policy multiplied by the value of such units. Fixed Account. Amounts in the Fixed Account do not vary with the investment performance of any sub-account. Instead, these amounts are credited with interest at a rate determined by us. See "The General Account -- Fixed Account." Loan Account. Amounts borrowed from the policy are transferred to the Loan Account. Amounts in the Loan Account do not vary with the investment performance of any sub-account. Instead, these amounts are credited with interest at a rate determined by us that is lower than the loan interest rate charged on Policy Debt. See "Policy Loans -- Loan Account." Units and Unit Values Crediting and Canceling Units. Units of a particular sub-account are credited to a policy when Net Premiums are allocated to that sub-account or amounts are transferred to that sub-account. Units of a sub-account are cancelled whenever amounts are deducted, transferred or withdrawn from the sub-account. The number of units credited or cancelled for a specific transaction is based on the dollar amount of the transaction divided by the value of the unit on the Business Day on which the transaction occurs. The number of units credited with respect to a premium payment will be based on the applicable unit values for the Business Day on which the premium is received at our Service Office, except for any premiums received before the Effective Date. For premiums received before the Effective Date, the values will be determined on the Effective Date. Units are valued at the end of each Business Day. When an order involving the crediting or canceling of units is received after the end of a Business Day, or on a day that is not a Business Day, the order will be processed on the basis of unit values determined on the next Business Day. Similarly, any determination of Policy Value, Investment Account value or death benefit to be made on a day that is not a Business Day will be made on the next Business Day. Unit Values. For each Business Day the unit value for each sub-account is determined by multiplying the net investment factor for the that sub-account by the unit value for the immediately preceding Business Day. 32 The net investment factor for a sub-account on any Business Day is equal to (a) divided by (b) minus (c), where: (a)is the net asset value of the underlying portfolio shares held by that sub-account as of the end of such Business Day before any policy transactions are made on that day; (b)is the net asset value of the underlying portfolio shares held by that sub-account as of the end of the immediately preceding Business Day after all policy transactions were made for that day; and (c)is a charge not exceeding the daily mortality and expense risk charge shown in the "Charges and Deductions -- Asset Based Risk Charge Deducted from Investment Accounts" section. The value of a unit may increase, decrease, or remain the same, depending on the investment performance of a sub-account from one Business Day to the next. Transfers of Policy Value Subject to the restrictions set forth below, you may transfer Policy Value from one sub-account to another or to the Fixed Account. Transfers involving the Fixed Account are subject to certain limitations noted below under "Transfers Involving Fixed Accounts." Variable investment options in variable life insurance products can be a prime target for abusive transfer activity because these products value their investment options on a daily basis and allow transfers among investment options without immediate tax consequences. As a result, some investors may seek to frequently transfer into and out of variable investment options in reaction to market news or to exploit a perceived pricing inefficiency. Whatever the reason, long-term investors in a variable investment option can be harmed by frequent transfer activity since such activity may expose a portfolio to increased portfolio transaction costs (affecting the value of the shares), disruption to management of a portfolio (affecting a subadviser's ability to effectively manage a portfolio's investments in accordance with the portfolio's investment objective and policies) and dilution with respect to interests held for long-term investment. To discourage disruptive frequent trading activity, we impose restrictions on transfers and reserve the right to change, suspend or terminate telephone and facsimile transaction privileges. 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 options. 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. Our current practice is to restrict transfers into or out of variable investment options to two per calendar month (except with respect to those policies described in the following paragraph). In applying this restriction any transfer request involving the transfer of account value into or out of multiple variable investment options will still count as only one request. No more than one transfer request may be made on any day. You may, however, transfer to the Money Market portfolio even if the two transfer per month limit has been reached, but only if 100% of the Policy Value is transferred to the Money Market portfolio. If such a transfer to the Money Market portfolio is made then, for the 30 calendar day period after such transfer, no transfers from the Money Market portfolio to any other variable investment options or to the Fixed Account may be made. If a 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 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 33 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 account values are transferred from one portfolio into a second portfolio, the values can only be transferred out of the second investment option if they are transferred into the Money Market portfolio; and (ii) any account values that would otherwise not be transferable by application of the 10 day limit described above and that are transferred into the Money Market portfolio may not be transferred out of the Money Market portfolio into any other investment options (variable or fixed) for 30 calendar days. The restrictions described in this paragraph will be applied uniformly to all policy owners subject to the restrictions. We also reserve the right to modify or terminate the transfer privilege at any time in accordance with applicable law. Transfers may also be delayed when any of the events described in "Other Information -- Payment of Proceeds" occurs. Transfer privileges are also subject to any restrictions that may be imposed by the portfolios. In addition, we reserve the right to defer the transfer privilege at any time that we are unable to purchase or redeem shares of a portfolio. Transfer Requests. Transfer requests may be made in writing in a format satisfactory to us. From time to time we may offer you alternate means of communicating transfer requests to us, such as electronic mail, the Internet or telephone. We will use reasonable procedures to confirm that instructions received by alternate means are genuine and we will not be liable for following instructions we have reasonably determined to be genuine. Limitations on Transfers From the Fixed Account. The maximum amount that may be transferred from the Fixed Account in any Policy Year is 25% of the Fixed Account Value at the previous Policy Anniversary. Any transfer that involves a transfer out of the Fixed Account may not involve a transfer to the Investment Account for the Money Market portfolio. We may allow greater amounts to be transferred from the Fixed Account if a systematic plan of withdrawals is agreed to in advance. For example, we will allow the transfer of 20%, 25%, 33%, 50% and 100% of the remaining balance in the Fixed Account in five successive years provided we agree in advance in writing and that no amounts are transferred into the Fixed Account during the 5 year period. POLICY LOANS At any time while this policy is in force, you may borrow against the Policy Value. This policy is the only security for the loan. Policy loans may have tax consequences, see "Tax Treatment of Policy Benefits -- Policy Loans." A policy loan will affect future Policy Values, since the portion of the Policy Value in the Loan Account will receive the loan interest credited rate rather than varying with the performance of the underlying portfolios or increasing at the Fixed Account interest credited rate. A policy loan may cause a policy to be more susceptible to lapse since it reduces the Net Cash Surrender Value from which monthly deductions are taken. A policy loan causes the amount payable upon death of the Life Insured to be reduced by the amount of outstanding Policy Debt. Maximum Loan. The amount of any loan cannot exceed the amount that would cause the Policy Debt to equal the policy's Cash Surrender Value less the monthly deductions due from the date of the loan to the next Policy Anniversary. Interest Charged on Policy Loans Interest on the Policy Debt will accrue daily and be payable annually on the Policy Anniversary. The rate of interest charged will be an effective annual rate of 4%. Loan Account When a loan is made, an amount equal to the loan will be deducted from the Investment Accounts or the Fixed Account and transferred to the Loan Account. You may designate how this amount is allocated among the 34 accounts. If you give no instructions, the amount transferred will be allocated among the Investment Accounts and the Fixed Account in the same proportion as the Policy Value in each Investment Account and the Fixed Account bears to the Net Policy Value. A transfer from an Investment Account will result in the cancellation of units of the underlying sub-account equal in value to the amount transferred from the Investment Account. However, since the Loan Account is part of the Policy Value, transfers made in connection with a loan will not change the Policy Value. Interest Credited to the Loan Account. Policy Value in the Loan Account will earn interest at an effective annual rate guaranteed to be at least 3.25%. We may declare a current interest rate that is greater than this, subject to change at any time. The excess of the loan interest charged rate (4%) over the loan interest credited rates will result in a net charge against the Policy Value with respect to any Policy Debt. Currently we credit loan interest rates which vary by Policy Year as follows:
------------------------------------------------------- Current Loan Interest Excess Loan Interest Policy Years Credited Rates Charged Rate ------------------------------------------------------- ------------------------------------------------------- 1-10 3.25% 0.75% ------------------------------------------------------- ------------------------------------------------------- 11+ 3.75% 0.25% -------------------------------------------------------
Loan Account Adjustments. On the first day of each Policy Month the difference between the Loan Account and the Policy Debt is transferred to the Loan Account from the Investment Accounts or the Fixed Account. The amount transferred will be allocated to the Investment Accounts and the Fixed Account in the same proportion as the Policy Value in each Investment Account or the Fixed Account bears to the Net Policy Value. Loan Repayments. Policy Debt may be repaid, in whole or in part, at any time prior to the death of the Life Insured while the policy is in force. A loan repayment amount will be credited to the Loan Account and transferred to the Fixed Account or the Investment Accounts in the same proportion as the Policy Value in each account bears to the Net Policy Value. Amounts paid to us not specifically designated in writing as loan repayments will be treated as premiums. POLICY SURRENDER AND PARTIAL WITHDRAWALS Policy Surrender A policy may be surrendered for its Net Cash Surrender Value at any time while the Life Insured is living. The Net Cash Surrender Value is equal to the Policy Value less any outstanding monthly deductions due minus the Policy Debt. The Net Cash Surrender Value will be determined at the end of the Business Day on which we receive the policy and a written request for surrender at our our Service Office. After a policy is surrendered, the insurance coverage and all other benefits under the policy will terminate. Partial Withdrawals You may make a partial withdrawal of the Net Cash Surrender Value at any time. You may designate how the withdrawal amount is allocated among the Investment Account and the Fixed Account. If you give no instructions, the withdrawal amount will be allocated among the accounts in the same proportion as the Policy Value in each account bears to the Net Policy Value. The death benefit may be reduced as a result of a Partial Withdrawal. (See "Death Benefits -- Decreases in Face Amount under Death Benefit Option 1 due to a Partial Withdrawal"). 35 LAPSE AND REINSTATEMENT Lapse A policy will go into default at the beginning of a Policy Month if the Net Cash Surrender Value would be zero and below after deducting the monthly deduction then due. A lapse could have adverse tax consequences as described under "Tax Treatment of the Policy -- Other Policy Distributions." We will notify you of the default and will allow you 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 with no value. Death During Grace Period. If the Life Insured should die during the grace period, the Policy Value used in the calculation of the death benefit will be the Policy Value on the date of default and the insurance benefit will be reduced by any outstanding monthly deductions due at the time of death. Reinstatement You may reinstate a policy that has terminated after going into default at any time within the five-year period following the date of termination subject to the following conditions: . The policy must not have been surrendered for its Net Cash Surrender Value; . Evidence of the Life Insured's insurability satisfactory to us must be provided; and . A premium equal to the payment required during the grace period following default to keep the policy in force is paid. 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. THE GENERAL ACCOUNT The general account of John Hancock USA consists of all assets owned by us other than those in Separate Account N and other separate accounts of the Company. Subject to applicable law, we have sole discretion over investment of the assets of the general account. By virtue of exclusionary provisions, interests in the general account of John Hancock USA have not been registered under the Securities Act of 1933 ("1933 Act") and the 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 as a result the staff of the SEC has not reviewed the disclosures in this prospectus relating to the general account. Disclosures regarding the general account may, however, be subject to certain generally applicable provisions of the federal securities laws relating to the accuracy and completeness of statements made in a prospectus. Fixed Account You may elect to allocate Net Premiums to the Fixed Account or transfer all or a portion of the Policy Value to the Fixed Account from the Investment Accounts. We will hold the reserves required for any portion of the Policy Value allocated to the Fixed Account in our general account. Transfers from the Fixed Account to the Investment Accounts are subject to restrictions. Policy Value in the Fixed Account. The Policy Value in the Fixed Account is equal to: . the portion of the Net Premiums allocated to it; plus . any amounts transferred to it; plus 36 . interest credited to it; less . any charges deducted from it; less . any partial withdrawals from it; less . any amounts transferred from it. Interest on the Fixed Account. An allocation of Policy Value to the Fixed Account does not entitle you to share in the investment experience of the general account. Instead, we guarantee that the Policy Value in the Fixed Account will accrue interest daily at an effective annual rate of at least 3%, without regard to the actual investment experience of the general account. We may declare a current interest rate in excess of the guaranteed rate, subject to change at any time. OTHER PROVISIONS OF THE POLICY Policy Owner Rights 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 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 Unless otherwise restricted by a separate agreement, you may: . Vary the premiums paid under the policy. . Change the death benefit option. . Change the premium allocation for future premiums. . Take loans and/or partial withdrawals. . Surrender the policy. . Transfer ownership to a new owner. . Name a contingent owner that will automatically become owner if you die before the Life Insured. . Change or revoke a contingent owner. . Change or revoke a beneficiary. 37 Assignment of Rights. We will not be bound by an assignment until we receive a copy of the assignment at our Service Office. We assume no responsibility for the validity or effects of any assignment. Beneficiary You may appoint one or more beneficiaries of the policy by naming them in the application. Beneficiaries may be appointed in three classes -- primary, secondary, and final. Beneficiaries may also be revocable or irrevocable. Unless an irrevocable designation has been elected, you may change the beneficiary during the Life Insured's lifetime by giving written notice in a form satisfactory to us. If the Life Insured dies and there is no surviving beneficiary, you, or your estate if you are the Life Insured, will be the beneficiary. If a beneficiary dies before the seventh day after the death of the Life Insured, we will pay the insurance benefit as if the beneficiary had died before the Life Insured. Incontestability We will not contest the validity of a policy after it has been in force during the Life Insured's lifetime for two years from the Issue Date stated in the policy, nor will we contest the validity of an increase in Face Amount after it has been in force during the Life Insured's lifetime for two years. If a policy has been reinstated, we can contest any misrepresentation of a fact material to the reinstatement for a period of two years after the reinstatement date. Misstatement of Age or Sex If the Life Insured's stated age or sex or both in the policy are incorrect, we will change the Face Amount so that the death benefit will be that which the most recent monthly charge for the cost of insurance would have purchased for the correct age and sex. Suicide Exclusion If the Life Insured, whether sane or insane, dies by suicide within two years from the Issue Date stated in the policy (or within the maximum period permitted by the state in which the policy was delivered, if less than two years), we will pay only the premiums paid less any partial withdrawals and any Policy Debt. If the Life Insured should die by suicide within two years after a Face Amount increase, the death benefit for the increase will be limited to the monthly deductions for the increase. At our discretion, this provision may be waived; for example, with policies purchased in conjunction with certain existing benefit plans. Supplementary Benefits Subject to certain requirements, one or more supplementary benefits may be added to a policy, including the FTIO Rider (see "Death Benefits -- Flexible Term Insurance Option Rider") and, in the case of a policy owned by a corporation or other similar entity, a benefit permitting a change in the Life Insured (a taxable event). More detailed information concerning this supplementary benefit may be obtained from us. There is no cost for any supplementary benefit currently offered by us, with the exception of the FTIO Rider (see "Charges and Deductions -- Monthly Deductions"). TAX TREATMENT OF THE POLICY This description of federal income tax consequences is only a brief summary and is not intended as tax advice. Tax consequences will vary based on your own particular circumstances, and for further information you should consult a qualified tax advisor. Federal, state and local tax laws, regulations and interpretations can change from time to time. As a result, the tax consequences to you and the beneficiary may be altered, in some cases retroactively. 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. 38 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 adviser should be consulted. General Generally, death benefits paid under policies such as yours are not subject to income tax. Earnings on your account 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 account 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 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 portfolios failed to meet certain investment diversification or other requirements of the Code. If this were to occur, you would be subject to income tax on the income credited to the policy from the date of issue to the date of the disqualification and for subsequent periods. 39 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 revocable 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 of the account 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 advisor 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 premium 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 Separate Account Your policy will not qualify for the tax benefits of a life insurance contract unless the Separate 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 sub-accounts. 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 Separate Account. We do not know what future Treasury Department regulations or other guidance may require. We cannot guarantee that the portfolios will be able to operate as currently described in the Series Funds' prospectuses, or that a Series Fund will not have to change any portfolio's investment objectives or policies. We have reserved the right to modify your policy if we believe doing so will prevent you from being considered the owner of your policy's proportionate share of the assets of the Separate Account, but we are under no obligation to do so. 40 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 adviser if you have questions regarding the possible impact of the 7-pay limit on your policy. 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 41 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. OTHER INFORMATION Payment of Proceeds As long as the policy is in force, we will ordinarily pay any policy loans, surrenders, partial withdrawals or insurance benefit within seven days after receipt at our Service Office of all the documents required for such a payment. We may delay the payment of any policy loans, surrenders, partial withdrawals, or insurance benefit that depends on Fixed Account values for up to six months or in the case of any Investment Account for any period during which: (i)the New York Stock Exchange is closed for trading (except for normal weekend and holiday closings), (ii)trading on the New York Stock Exchange is restricted (iii)an emergency exists as a result of which disposal of securities held in the Separate Account is not reasonably practicable or it is not reasonably practicable to determine the value of the Separate Account's net assets or (iv)the SEC, by order, so permits for the protection of security holders; provided that applicable rules and regulations of the SEC shall govern as to whether the conditions described in (ii) and (iii) exist. Reports to Policy Owners Within 30 days after each Policy Anniversary, we will send you a statement showing, among other things: . the amount of death benefit; . the Policy Value and its allocation among the Investment Accounts, the Fixed Account and the Loan Account; . the value of the units in each Investment Account to which the Policy Value is allocated; . the Policy Debt and any loan interest charged since the last report; . the premiums paid and other policy transactions made during the period since the last report; and 42 . any other information required by law. You will also be sent an annual and a semi-annual report for each portfolio, which will include a list of the securities, held in each portfolio as required by the 1940 Act. Distribution of Policies John Hancock Distributors, LLC ("JH Distributors"), a Delaware limited liability company affiliated with us, is the principal distributor of the policies and the principal underwriter of the securities offered through this prospectus and of other annuity and life insurance products we and our affiliates offer. JH Distributors also acts as the principal underwriter of the John Hancock Trust, whose securities are used to fund certain variable investment options under the policies and under other annuity and life insurance products we offer. JH Distributors' principal address is 200 Bloor Street East, Toronto, Canada M4W 1E5 and it also maintains offices with us at 601 Congress Street, Boston, Massachusetts 02210. JH Distributors is a broker-dealer registered under the Securities 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 policy owners but will be recouped through the fees and charges imposed under the policy. (See "Charges and Deductions.") 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 30% of the target premium paid in policy year 1, 5% of target premium paid in years 2-5, and 2.5% of the target premium paid in years 6 and after. Compensation on any premium paid in excess of target premium in any year will not exceed 2.5%. Broker-dealers may also receive a service fee of up to $100 per policy per year, and an asset trail of up to .10%. The amount and timing of this compensation may differ among broker-dealers, but would not be expected to materially exceed the foregoing schedules on a present value basis. 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 the public, advertising and sales campaigns regarding the policies, payments to assist a firm in connection with its systems, operations and marketing expenses and/or other events or activities sponsored by the firms. Subject to applicable NASD rules and other applicable laws and regulations, JH Distributors and its affiliates may contribute to, as well as sponsor, various educational programs, sales contests, and/or other promotions in which participating firms and their sales persons may receive prizes such as merchandise, cash or other rewards. These arrangements will not be offered to all firms, and the terms of such arrangements may differ between firms. We provide additional information on special compensation or reimbursement arrangements involving 43 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. 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. Responsibilities of John Hancock USA John Hancock USA entered into an agreement with JH Distributors pursuant to which John Hancock USA, on behalf of JH Distributors will pay the sales commissions in respect of the policies and certain other policies issued by John Hancock USA, prepare and maintain all books and records required to be prepared and maintained by JH Distributors with respect to the policies and such other policies, and send all confirmations required to be sent by JH Distributors with respect to the policies and such other policies. JH Distributors will promptly reimburse John Hancock USA for all sales commissions paid by John Hancock USA and will pay John Hancock USA for its other services under the agreement in such amounts and at such times as agreed to by the parties. Finally, John Hancock USA may, from time to time in its sole discretion, enter into one or more reinsurance agreements with other life insurance companies under which policies issued by it may be reinsured, such that its total amount at risk under a policy would be limited for the life of the Life Insured. Voting Rights As stated previously, all of the assets held in each sub-account of the Separate Account will be invested in shares of particular portfolios. John Hancock USA is the legal owner of those shares and as such has the right to vote upon certain matters that are required by the 1940 Act to be approved or ratified by the shareholders of a mutual fund and to vote upon any other matters that may be voted upon at a shareholders' meeting. However, John Hancock USA will vote shares held in the sub-accounts in accordance with instructions received from policy owners having an interest in such sub-accounts. Shares held in each sub-account for which no timely instructions from policy owners are received, including shares not attributable to the policies, will be voted by John Hancock USA in the same proportion as those shares in that sub-account for which instructions are received. Should the applicable federal securities laws or regulations change so as to permit John Hancock USA to vote shares held in the Separate Account in its own right, it may elect to do so. The number of shares in each sub-account for which instructions may be given by a policy owner is determined by dividing the portion of the Policy Value derived from participation in that sub-account, if any, by the value of one share of the corresponding portfolio. The number will be determined as of a date chosen by John Hancock USA, but not more than 90 days before the shareholders' meeting. Fractional votes are counted. Voting instructions will be solicited in writing at least 14 days prior to the meeting. John Hancock USA may, if required by state officials, disregard voting instructions if such instructions would require shares to be voted so as to cause a change in the sub-classification or investment policies of one or more of the portfolios, or to approve or disapprove an investment management contract. In addition, we may disregard voting instructions that would require changes in the investment policies or investment adviser, provided that we reasonably disapprove such changes in accordance with applicable federal regulations. If John Hancock USA does disregard voting instructions, it will advise policy owners of that action and its reasons for such action in the next communication to policy owners. 44 Substitution of Portfolio Shares It is possible that in the judgment of the management of John Hancock USA, one or more of the portfolios may become unsuitable for investment by the Separate Account because of a change in investment policy or a change in the applicable laws or regulations, because the shares are no longer available for investment, or for some other reason. In that event, John Hancock USA may seek to substitute the shares of another portfolio or of an entirely different mutual fund. Before this can be done, the approval of the SEC and one or more state insurance departments may be required. John Hancock USA also reserves the right (i) to combine other separate accounts with the Separate Account, (ii) to create new separate accounts, (iii) to establish additional sub-accounts within the separate account to invest in additional portfolios of the Trust or another management investment company, (iv) to eliminate existing sub-accounts and to stop accepting new allocations and transfers into the corresponding portfolio, (v) to combine sub-accounts or to transfer assets in one sub-account to another sub-account or (vi) to transfer assets from the separate account to another separate account and from another Separate Account to the separate account. We also reserve the right to operate the Separate Account as a management investment company or other form permitted by law, and to de-register the Separate Account under the 1940 Act. Any such change would be made only if permissible under applicable federal and state law. Records and Accounts Our Service Office is responsible for performing all administrative functions, such as decreases, increases, surrender and partial withdrawals, and fund transfers although certain of these functions may be delegated to McCamish Systems, L.L.C., 6425 Powers Ferry Road, Atlanta, Georgia 30339. All records and accounts relating to the Separate Account and the portfolios will be maintained by us. All financial transactions will be handled by us. All reports required to be made and information required to be given will be provided by us or by McCamish Systems on behalf of us. State Regulation John Hancock USA is subject to the regulation and supervision by the Michigan Department of Insurance, which periodically examines its financial condition and operations. It is also subject to the insurance laws and regulations of all jurisdictions in which it is authorized to do business. The policies have been filed with insurance officials in each jurisdiction where they are sold. John Hancock USA is required to submit annual statements of its operations, including financial statements, to the insurance departments of the various jurisdictions in which it does business for the purposes of determining solvency and compliance with local insurance laws and regulations. Further Information A registration statement under the 1933 Act has been filed with the SEC relating to the offering described in this prospectus. This prospectus does not include all the information set forth in the registration statement. The omitted information may be obtained from the SEC's principal office in Washington D.C. upon payment of the prescribed fee. The SEC also maintains a Website that contains reports, proxy and information statements and other information regarding registrants that file electronically with the SEC which is located at http://www.sec.gov. For further information you may also contact John Hancock USA's home office, the address and telephone number of which are on the last page of the prospectus. Financial Statements The financial statements of the Company and the Separate Account are set forth in the Statement of Additional Information which is available upon request. 45 APPENDIX A: DEFINITIONS Annual Premium Target: is an amount set forth in the policy that limits the amount of premium attributable to a Coverage Amount in Sales Load calculations. Attained Age: is the Issue Age of the Life Insured plus the number of completed Policy Years. Business Day: is any day that the New York Stock Exchange is open for business. A Business Day ends at the close of regularly scheduled trading of the New York Stock Exchange (currently 4:00 p.m. Eastern Time) on that day. Case: is a group of policies insuring individual lives with common employment or other relationship, independent of the policies. Cash Surrender Value: is the Policy Value less any outstanding monthly deductions due. Coverage Amount: is an amount of insurance coverage under the policy with a distinct effective date. The Face Amount of the policy at any time is the sum of the Coverage Amounts in effect. Coverage Year: is a one-year period beginning on a Coverage Amount's effective date and on each anniversary of this date. For Coverage Amounts in effect on the policy's Effective Date, the Coverage Year is the same as the Policy Year. Fixed Account: is the part of the Policy Value that reflects the value you have in our general account. Investment Account: is the part of the Policy Value that reflects the value you have in one of the sub-accounts of the Separate Account. Issue Age: is the Life Insured's age on the birthday closest to the Policy Date. Loan Account: is the part of the Policy Value that reflects policy loans and interest credited to the Policy Value in connection with such loans. Minimum Initial Premium: is the sum of the monthly deductions due for the first 3 Policy Months plus the Premium Charges deductible from this amount. Net Cash Surrender Value: is the Cash Surrender Value less the Policy Debt. Net Policy Value: is the Policy Value less the value in the Loan Account. Net Premium: is the premium paid less the Premium Load and Sales Load. Policy Date, Policy Anniversary, Policy Month and Policy Year: Policy Date is the date from which the first monthly deductions are calculated and from which Policy Years, Policy Months, and Policy Anniversaries are measured. Policy Debt: on any date is the aggregate amount of policy loans, including borrowed and accrued interest, less any loan repayments. Policy Value: is the sum of the values in the Loan Account, the Fixed Account, and the Investment Accounts. Service Office: is 200 Bloor Street East, Toronto, Ontario, Canada M4W 1E5, or such other address as we specify to you by written notice. A-1 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 200 Bloor Street East P.O. Box 40 Toronto, Ontario, Canada M4W 1E5 Buffalo, NY 14201 Phone: Fax: 1-800-387-2747 1-416-926-5656 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 No. 811-5130 1933 Act File No. 333-100567 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 30% of the target premium paid in the first policy year 1, 5% of target premium paid in years 2-5, and 2.5% of the target premium paid in years 6 and after. Compensation on any premium paid in excess of target premium in any year will not exceed 2.5%. Broker-dealers may also receive a service fee of up to $100 per policy per year, and an asset trail of up to .10%. The amount and timing of this compensation may differ among broker-dealers, but would not be expected to materially exceed the foreging schedules on a present value basis. The registered representative through whom your policy is sold will be compensated pursuant to the registered representative's own arrangement with his or her broker-dealer. Compensation to broker-dealers for the promotion and sale of the policies is not paid directly by policyowners but will be recouped through the fees and charges imposed under the policy. Additional compensation and revenue sharing arrangements may be offered to certain broker-dealer firms. The terms of such arrangements may differ among broker-dealer firms we select based on various factors. In general, the arrangements involve three types of payments or any combination thereof: . Fixed dollar payments: The amount of these payments varies widely. JH Distributors may, for example, make one or more payments in connection with a firm's conferences, seminars or training programs, seminars for the public, advertising and sales campaigns regarding the policies, to assist a firm in connection with its systems, operations and marketing expenses, or for other activities of a selling firm or wholesaler. JH Distributors may make these payments upon the initiation of a relationship with a firm, and at any time thereafter. . Payments based upon sales: These payments are based upon a percentage of the total amount of money received, or anticipated to be received, for sales through a firm of some or all of the insurance products that we and/or our affiliates offer. JH Distributors makes these payments on a periodic basis. . Payments based upon "assets under management": These payments are based upon a percentage of the policy value of some or all of our (and/or our affiliates') insurance products that were sold through the firm. JH Distributors makes these payments on a periodic basis. Signator Investors, Inc. and Essex National Securities, Inc. may pay their respective registered representatives additional cash incentives in the form of bonus payments, expense payments, employment benefits or the waiver of overhead costs or expenses in connection with the sale of the policies that they would not receive in connection with the sale of policies issued by unaffiliated companies. Certain unaffiliated financial institutions such as banks may also receive compensation in connection with the sale of our policies sold by registered representatives of Essex National Securities, Inc. on bank premises. Additional Information About Charges A Policy will not be issued until the underwriting process has been completed to the Company's satisfaction. The underwriting process generally includes the obtaining of information concerning your age, medical history, occupation and other personal information. This information is then used to determine the cost of insurance charge. Reduction In Charges The Policy is available for purchase by corporations and other groups or sponsoring organizations. Group or sponsored arrangements may include reduction or elimination of withdrawal charges and deductions for employees, officers, directors, agents and immediate family members of the foregoing. John Hancock USA reserves the right to reduce any of the Policy's charges on certain cases where it is expected that the amount or nature of such cases will result in savings of sales, underwriting, administrative, commissions or other costs. Eligibility for these reductions and the amount of reductions will be determined by a number of factors, including the number of lives to be insured, the total premiums expected to be paid, total assets under management for the policyowner, the nature of the relationship among the insured individuals, the purpose for 3 which the policies are being purchased, expected persistency of the individual policies, and any other circumstances which John Hancock USA believes to be relevant to the expected reduction of its expenses. Some of these reductions may be guaranteed and others may be subject to withdrawal or 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 Prospectus Supplement Dated May 1, 2006 This prospectus supplement is distributed to policy owners of variable life insurance policies issued by John Hancock Life Insurance Company (U.S.A.) and offering interests in John Hancock Variable Life Account N. This supplement describes the changes that have been made in the product prospectuses pertaining to variable investment options that are available. Please note that certain of the investment options described in this prospectus supplement may not be available to you under your policy. 1. The prospectus for the Corporate VUL product is amended to replace the list of available investment options on page 1 of the product prospectus with the following: Science & Technology Pacific Rim Health Sciences Emerging 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 A 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 Company Value Special Value Mid Cap Value Value All Cap Value 500 Index 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 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 Core Bond Active Bond U.S. Government Securities Money Market Lifestyle Aggressive Lifestyle Growth Lifestyle Balanced Lifestyle Moderate Lifestyle Conservative 1 2. The last two tables appearing in the section entitled "Fee Tables" are deleted and the following substituted in their place. Please note that certain of the investment options described in these tables may not be available to you under your policy. The next table describes the minimum and maximum annual operating expenses of the portfolios that you will pay during the time that you own the policy. The table shows the minimum and maximum fees and expenses charged by any of the portfolios, as a percentage of the portfolio`s average net assets for 2005. More detail concerning each portfolio's fees and expenses is contained in the prospectus for the portfolios.
Annual Operating Expense of the Portfolios (Expenses that are Deducted from Portfolio Assets) Minimum Maximum Expenses that are deducted from the portfolio assets, including advisory fees, Rule 12b-1 fees and other expenses 0.50% 1.53%
The next table describes the fees and expenses for each of the portfolios. Except as indicated in the footnotes at the end of the table, the expenses are expressed as a percentage of the portfolio's average net assets for the fiscal year ending December 31, 2005. More detail concerning each portfolio's fees and expenses is contained in the prospectus for the portfolio. Portfolio Annual Expenses (as a percentage of average net assets)
Management 12b-1 Other Total Portfolios Fees Fees Expenses Annual Expenses ------------------------------------------ ------------ ------- ---------- ---------------- Science & Technology .................... 1.05%A 0.05% 0.07% 1.17% Pacific Rim ............................. 0.80% 0.05% 0.24% 1.09% Health Sciences ......................... 1.05%A 0.05% 0.12% 1.22% Emerging Growth ......................... 0.80% 0.05% 0.08% 0.93% Emerging Small Company .................. 0.97% 0.05% 0.07% 1.09% Small CapB .............................. 0.85% 0.05% 0.03% 0.93% Small Cap Index ......................... 0.49% 0.05% 0.04% 0.58% Dynamic Growth .......................... 0.95% 0.05% 0.07% 1.07% Mid Cap Stock ........................... 0.84% 0.05% 0.08% 0.97% Natural Resources ....................... 1.00% 0.05% 0.07% 1.12% All Cap Growth .......................... 0.85% 0.05% 0.06% 0.96% Strategic Opportunities ................. 0.80% 0.05% 0.08% 0.93% Financial Services ...................... 0.82%C 0.05% 0.09% 0.96% International Opportunities ............. 0.90% 0.05% 0.06% 1.01% International Small Cap ................. 0.92% 0.05% 0.21% 1.18% International Equity Index AB/D ......... 0.54% 0.05% 0.09% 0.68% American InternationalE ................. 0.52% 0.60% 0.08% 1.20% International Value ..................... 0.82%F 0.05% 0.19% 1.06% International Core ...................... 0.89% 0.05% 0.07% 1.01% Quantitative Mid Cap .................... 0.74% 0.05% 0.10% 0.89% Mid Cap Index ........................... 0.49% 0.05% 0.04% 0.58% Mid Cap Core ............................ 0.87% 0.05% 0.08% 1.00% Global .................................. 0.82%F 0.05% 0.16% 1.03% Capital Appreciation .................... 0.81% 0.05% 0.05% 0.91% American GrowthE ........................ 0.33% 0.60% 0.04% 0.97% U.S. Global Leaders Growth .............. 0.70% 0.05% 0.06% 0.81% Quantitative All Cap .................... 0.71% 0.05% 0.06% 0.82% All Cap Core ............................ 0.80% 0.05% 0.07% 0.92% Total Stock Market Index ................ 0.49% 0.05% 0.04% 0.58% Blue Chip Growth ........................ 0.81%A 0.05% 0.07% 0.93%
2
Management 12b-1 Other Total Portfolios Fees Fees Expenses Annual Expenses ------------------------------------------------ ----------- ------- ---------- ---------------- U.S. Large Cap ................................ 0.83% 0.05% 0.06% 0.94% Core Equity ................................... 0.79% 0.05% 0.06% 0.90% Strategic Value ............................... 0.85% 0.05% 0.08% 0.98% Large Cap Value ............................... 0.84% 0.05% 0.08% 0.97% Classic Value ................................. 0.80% 0.05% 0.24% 1.09% Utilities ..................................... 0.85% 0.05% 0.19% 1.09% Real Estate Securities ........................ 0.70% 0.05% 0.06% 0.81% Small Cap Opportunities ....................... 0.99% 0.05% 0.08% 1.12% Small Company ValueD .......................... 1.03%A 0.05% 0.05% 1.13% Special Value ................................. 1.00% 0.05% 0.21% 1.26% Mid Cap Value ................................. 0.85% 0.05% 0.05% 0.95% Value ......................................... 0.74% 0.05% 0.06% 0.85% All Cap Value ................................. 0.83% 0.05% 0.07% 0.95% 500 Index ..................................... 0.46% 0.05% 0.05% 0.56% 500 Index BB/D/H .............................. 0.47% N/A 0.03% 0.50% Fundamental Value ............................. 0.77%C 0.05% 0.05% 0.87% U.S. Core ..................................... 0.76% 0.05% 0.05% 0.86% Large CapB .................................... 0.84% 0.05% 0.05% 0.94% Quantitative Value ............................ 0.70% 0.05% 0.06% 0.81% American Growth-IncomeE ....................... 0.28% 0.60% 0.05% 0.93% Equity-Income ................................. 0.81%A 0.05% 0.05% 0.91% American Blue Chip Income and GrowthE ......... 0.44% 0.60% 0.04% 1.08% Income & Value ................................ 0.79% 0.05% 0.08% 0.92% PIMCO VIT All Asset ........................... 0.20% 0.25% 1.08%F 1.53% Global Allocation ............................. 0.85% 0.05% 0.19% 1.09% High Yield .................................... 0.66% 0.05% 0.07% 0.78% U.S. High Yield BondB/D ....................... 0.74% 0.05% 0.21% 1.00% Strategic Bond ................................ 0.67% 0.05% 0.08% 0.80% Strategic Income .............................. 0.73% 0.05% 0.30% 1.08% Global Bond ................................... 0.70% 0.05% 0.12% 0.87% Investment Quality Bond ....................... 0.60% 0.05% 0.09% 0.74% Total Return .................................. 0.70% 0.05% 0.07% 0.82% American BondE ................................ 0.43% 0.60% 0.04% 1.07% Real Return Bond .............................. 0.70% 0.05% 0.07% 0.82% Core BondB .................................... 0.67% 0.05% 0.07% 0.79% Active BondB .................................. 0.60% 0.05% 0.07% 0.72% U.S. Government Securities .................... 0.59% 0.05% 0.07% 0.71% Money MarketB/D ............................... 0.49% N/A 0.04% 0.53% Lifestyle Aggressive .......................... 0.05% 0.05% 0.95%G 1.05% Lifestyle Growth .............................. 0.05% 0.05% 0.89%G 0.99% Lifestyle Balanced ............................ 0.05% 0.05% 0.86%G 0.96% Lifestyle Moderate ............................ 0.05% 0.05% 0.81%G 0.91% Lifestyle Conservative ........................ 0.05% 0.05% 0.78%G 0.88%
AThe 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"). 3 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 ofthe 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. BCommenced operations April 29, 2005 CFor 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.
First Between $50 Million Excess Over Portfolio $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%
DBased on estimates for the current fiscal year. EReflects 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 advisory 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"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. GEach 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, 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%. HThe 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 portfolio would be 0.22% and the Total Fund Annual Expenses shown would be 0.25%. 4 3. The Table of Investment Options and Investment Subadvisers is deleted and the following is substituted in its place. Please note that certain of the investment options described in this table may not be available to you under your policy. 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. 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. 5 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 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 All Cap Growth AIM Capital Management, Inc. 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. 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. 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.
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Portfolio Portfolio Manager =============================== ===================================== 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 A SSgA Funds Management, Inc. American International Capital Research Management Company International Value Templeton Investment Counsel, Inc. 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 Portfolio Investment Description =============================== ==================================================================== 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 A 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.) 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. 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*.
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Portfolio Portfolio Manager ============================= ==================================== 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. U.S. Large Cap Capital Guardian Trust Company Core Equity Legg Mason Funds Management, Inc. Portfolio Investment Description ============================= ================================================================ 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. 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.
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Portfolio Portfolio Manager ================================ =================================== 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 Company Value T. Rowe Price Associates, Inc. Special Value (only Series II Salomon Brothers Asset available) Management Inc. Mid Cap Value Lord, Abbett & Co Value Van Kampen Portfolio Investment Description ================================ =============================================================== 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 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. Special Value (only Series II Seeks long-term capital growth by investing, under normal 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 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*.
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Portfolio Portfolio Manager ============================ ================================ All Cap Value Lord, Abbett & Co 500 Index MFC Global Investment Management (U.S.A.) Limited 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 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 Portfolio Investment Description ============================ ============================================================== 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. 500 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 S&P 500 Composite Stock Price Index*. 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. 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.
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Portfolio Portfolio Manager ================================== ================================== 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. Strategic Income Sovereign Asset Management, 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 Portfolio Investment Description ================================== =============================================================== 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. 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.
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Portfolio Portfolio Manager ============================= ================================= Real Return Bond Pacific Investment Management Company Core Bond Wells Fargo Fund Management, LLC Active Bond Declaration Management & Research LLC Sovereign Asset Management, LLC U.S. Government Securities Salomon Brothers Asset Management Inc. Money Market 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. Portfolio Investment Description ============================= ============================================================== 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. 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 51/2 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. 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. Money Market 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.
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Portfolio Portfolio Manager ========================= ================================ 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 ========================= =========================================================== 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 (Reg. TM)," "S&P 500 (Reg. TM)," "Standard and Poor's 500 (Reg. TM)" and "S&P Mid Cap 400 (Reg. TM)" are trademarks of The McGraw-Hill Companies, Inc. "Russell 2000 (Reg. TM)," "Russell 2000 (Reg. TM) Growth" and "Russell 3000 (Reg. TM)" are trademarks of Frank Russell Company. "Wilshire 5000 (Reg. TM)" is a trademark of Wilshire Associates. "MSCI All Country World ex US Index" and "EAFE (Reg. TM)" 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 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 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 13 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) Form of Specimen Flexible Premium Variable Life Insurance Policy. Incorporated by reference to Exhibit A(5)(a) to this registration statement on Form S-6 filed on August 20, 2002. (e)(1) Form of Specimen Application for Flexible Premium Variable Life Insurance Policy. Incorporated by reference to Exhibit A(10) to post-effective amendment number 7 file number 33-52310 filed with the Commission on April 26, 1996. (2) Specimen Application Supplement for Flexible Premium Variable Life Insurance Policy. Incorporated by reference to Exhibit A(10) to post-effective amendment number 9 file number 33-52310 filed with the Commission on April 26, 1996. (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