-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, RCKXVAAQZ3cPMYCCDGONXVhGYrQARj9oHhshqNdMpPE1M8JS7+pwmeVWJ4f8pAJI Bfsl3gwsGc3fh7Gwmh/HfQ== 0001193125-07-095071.txt : 20070430 0001193125-07-095071.hdr.sgml : 20070430 20070430105329 ACCESSION NUMBER: 0001193125-07-095071 CONFORMED SUBMISSION TYPE: 485BPOS PUBLIC DOCUMENT COUNT: 4 FILED AS OF DATE: 20070430 DATE AS OF CHANGE: 20070430 EFFECTIVENESS DATE: 20070501 FILER: COMPANY DATA: COMPANY CONFORMED NAME: JOHN HANCOCK LIFE INSURANCE CO (USA) SEPARATE ACCOUNT N CENTRAL INDEX KEY: 0000813572 IRS NUMBER: 232030787 STATE OF INCORPORATION: MI FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 485BPOS SEC ACT: 1933 Act SEC FILE NUMBER: 333-126668 FILM NUMBER: 07798339 BUSINESS ADDRESS: STREET 1: 200 BLOOR STREET EAST ST 10 STREET 2: TORONTO M4W 1EF CITY: ONTARIO CANADA STATE: A6 ZIP: 48304 BUSINESS PHONE: 4169266302 MAIL ADDRESS: STREET 1: P O BOX 600 CITY: BUFFALO STATE: NY ZIP: 14201-0600 FORMER COMPANY: FORMER CONFORMED NAME: MANUFACTURERS LIFE INS CO USA SEPARATE ACCOUNT N DATE OF NAME CHANGE: 20020411 FORMER COMPANY: FORMER CONFORMED NAME: SEPARATE ACCOUNT FOUR OF THE MANUFACTURERS LIFE INS CO OF AM DATE OF NAME CHANGE: 19920703 FILER: COMPANY DATA: COMPANY CONFORMED NAME: JOHN HANCOCK LIFE INSURANCE CO (USA) SEPARATE ACCOUNT N CENTRAL INDEX KEY: 0000813572 IRS NUMBER: 232030787 STATE OF INCORPORATION: MI FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 485BPOS SEC ACT: 1940 Act SEC FILE NUMBER: 811-05130 FILM NUMBER: 07798340 BUSINESS ADDRESS: STREET 1: 200 BLOOR STREET EAST ST 10 STREET 2: TORONTO M4W 1EF CITY: ONTARIO CANADA STATE: A6 ZIP: 48304 BUSINESS PHONE: 4169266302 MAIL ADDRESS: STREET 1: P O BOX 600 CITY: BUFFALO STATE: NY ZIP: 14201-0600 FORMER COMPANY: FORMER CONFORMED NAME: MANUFACTURERS LIFE INS CO USA SEPARATE ACCOUNT N DATE OF NAME CHANGE: 20020411 FORMER COMPANY: FORMER CONFORMED NAME: SEPARATE ACCOUNT FOUR OF THE MANUFACTURERS LIFE INS CO OF AM DATE OF NAME CHANGE: 19920703 0000813572 S000009940 JOHN HANCOCK LIFE INSURANCE CO (USA) SEPARATE ACCOUNT N C000027520 CVUL 05 485BPOS 1 d485bpos.txt JOHN HANCOCK LIFE USA ACCOUNT N As filed with the U.S. Securities and Exchange Commission on April 25, 2007 Registration No. 333-126668 ---------------------------------------------- U.S. SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ------------------ FORM N-6 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 POST EFFECTIVE AMENDMENT NO.2 [X] REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 AMENDMENT NO. 8 [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, 2007 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, 2007 for interests in Separate Account N Interests are made available under CORPORATE VUL a flexible premium variable universal life insurance policy issued by JOHN HANCOCK LIFE INSURANCE COMPANY (U.S.A.) ("John Hancock USA") The policy provides fixed account options with fixed rates of return declared by John Hancock USA and the following investment accounts: Science & Technology U.S. Global Leaders Growth Equity-Income Emerging Markets Value Quantitative All Cap American Blue Chip Income and Growth Pacific Rim All Cap Core Income & Value Health Sciences Total Stock Market Index Managed Emerging Growth Blue Chip Growth PIMCO VIT All Asset Small Cap Growth U.S. Large Cap Global Allocation Emerging Small Company Core Equity High Yield Small Cap Large Cap Value U.S. High Yield Bond Small Cap Index Classic Value Strategic Bond Dynamic Growth Utilities Strategic Income Mid Cap Stock Real Estate Securities Global Bond Natural Resources Small Cap Opportunities Investment Quality Bond All Cap Growth Small Cap Value Total Return Financial Services Small Company Value American Bond International Opportunities Special Value Real Return Bond International Small Cap Mid Value Bond Index B International Equity Index B Mid Cap Value Core Bond Overseas Equity Value Active Bond American International All Cap Value U.S. Government Securities International Value Growth & Income Short-Term Bond International Core 500 Index B Money Market B Quantitative Mid Cap Fundamental Value Lifestyle Aggressive Mid Cap Index U.S. Core Lifestyle Growth Mid Cap Intersection Large Cap Lifestyle Balanced Global Quantitative Value Lifestyle Moderate Capital Appreciation American Growth-Income Lifestyle Conservative American Growth ************ Please note that the Securities and Exchange Commission ("SEC") has not approved or disapproved these securities, or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense. GUIDE TO THIS PROSPECTUS This prospectus is arranged in the following way: . Starting on the next page is a Table of Contents for this prospectus. . The section after the Table of Contents is called "Summary of Benefits and Risks". It contains a summary of the benefits available under the policy and of the principal risks of purchasing the policy. You should read this section before reading any other section of this prospectus. . Behind the Summary of Benefits and Risks section is a section called "Fee Tables" that describes the fees and expenses you will pay when buying, owning and surrendering the policy. . Behind the Fee Tables section is a section called "Detailed Information". This section gives more details about the policy. It may repeat certain information contained in the Summary of Benefits and Risks section in order to put the more detailed information in proper context. . Finally, on the back cover of this prospectus is information concerning the Statement of Additional Information (the "SAI") and how the SAI, personalized illustrations and other information can be obtained. Prior to making any investment decisions, you should carefully review this product prospectus and all applicable supplements. In addition, you will receive the prospectuses for the underlying funds that we make available as investment options under the policies. The funds' prospectuses describe the investment objectives, policies and restrictions of, and the risks relating to, investment in the funds. In the case of any of the portfolios that are operated as "feeder funds", the prospectus for the corresponding "master fund" is also provided. If you need to obtain additional copies of any of these documents, please contact your John Hancock USA representative or contact our Service Office at the address and telephone number on the back page of this product prospectus. 2 TABLE OF CONTENTS Page No. -------- SUMMARY OF BENEFITS AND RISKS......................................... 4 The nature of the policy.............................................. 4 Summary of policy benefits............................................ 4 Death benefit...................................................... 4 Surrender of the policy............................................ 4 Withdrawals........................................................ 4 Policy loans....................................................... 4 Optional supplementary benefit riders.............................. 5 Investment options................................................. 5 Summary of policy risks............................................... 5 Lapse risk......................................................... 5 Investment risk.................................................... 5 Transfer risk...................................................... 5 Early surrender risk............................................... 5 Market timing risk................................................. 5 Tax risks.......................................................... 6 FEE TABLES............................................................ 7 DETAILED INFORMATION.................................................. 13 Table of Investment Options and Investment Subadvisers................ 13 Description of John Hancock USA....................................... 22 Description of Separate Account N..................................... 23 The fixed account..................................................... 23 The death benefit..................................................... 24 Limitations on payment of death benefit............................ 24 Base Face Amount vs. Supplemental Face Amount...................... 24 The minimum death benefit.......................................... 24 When the insured person reaches 100................................ 25 Requesting an increase in coverage................................. 25 Requesting a decrease in coverage.................................. 25 Change of death benefit option..................................... 26 Tax consequences of coverage changes............................... 26 Your beneficiary................................................... 26 Ways in which we pay out policy proceeds........................... 26 Changing a payment option.......................................... 26 Tax impact of payment option chosen................................ 26 Premiums.............................................................. 26 Planned premiums................................................... 26 Minimum initial premium............................................ 27 Maximum premium payments........................................... 27 Processing premium payments........................................ 27 Ways to pay premiums............................................... 27 Lapse and reinstatement............................................... 28 Lapse.............................................................. 28 Death during grace period.......................................... 28 Reinstatement...................................................... 28 The policy value...................................................... 28 Allocation of future premium payments.............................. 29 Transfers of existing policy value................................. 29 Surrender and withdrawals............................................. 30 Surrender.......................................................... 30 Withdrawals........................................................ 30 Policy loans.......................................................... 31 Repayment of policy loans.......................................... 31 Effects of policy loans............................................ 31 Description of charges at the policy level............................ 31 Deduction from premium payments.................................... 31 Deductions from policy value....................................... 32 Additional information about how certain policy charges work....... 32 Sales expenses and related charges................................. 32 Method of deduction................................................ 32 Reduced charges for eligible classes............................... 33 Other charges we could impose in the future........................ 33 Description of charges at the portfolio level......................... 33 Other policy benefits, rights and limitations......................... 33 Optional supplementary benefit riders you can add.................. 33 Variations in policy terms......................................... 34 Procedures for issuance of a policy................................ 34 Commencement of insurance coverage................................. 34 Backdating......................................................... 35 Temporary coverage prior to policy delivery........................ 35 Monthly deduction dates............................................ 35 Changes that we can make as to your policy......................... 35 The owner of the policy............................................ 35 Policy cancellation right.......................................... 36 Reports that you will receive...................................... 36 Assigning your policy.............................................. 36 When we pay policy proceeds........................................ 36 General............................................................ 36 Delay to challenge coverage........................................ 36 Delay for check clearance.......................................... 37 Delay of separate account proceeds................................. 37 Delay of general account surrender proceeds........................ 37 How you communicate with us........................................ 37 General rules...................................................... 37 Telephone, facsimile and internet transactions..................... 38 Distribution of policies.............................................. 38 Compensation....................................................... 38 Tax considerations.................................................... 39 General............................................................ 39 Death benefit proceeds and other policy distributions.............. 40 Policy loans....................................................... 41 Diversification rules and ownership of the Account................. 41 7-pay premium limit and modified endowment contract status......... 41 Corporate and H.R. 10 retirement plans............................. 42 Withholding........................................................ 42 Life insurance purchases by residents of Puerto Rico............... 42 Life insurance purchases by non-resident aliens ................... 43 Financial statements reference........................................ 43 Registration statement filed with the SEC............................. 43 Independent registered public accounting firm......................... 43 3 SUMMARY OF BENEFITS AND RISKS The nature of the policy The policy's primary purpose is to provide lifetime protection against economic loss due to the death of the insured person. The policy is unsuitable as a short-term savings vehicle because of the substantial policy-level charges. We are obligated to pay all amounts promised under the policy. The value of the amount you have invested under the policy may increase or decrease daily based upon the investment results of the investment accounts that you choose. The amount we pay to the policy's beneficiary upon the death of the insured person (we call this the "death benefit") may be similarly affected. That's why the policy is referred to as a "variable" life insurance policy. We call the investments you make in the policy "premiums" or "premium payments". The amount we require as your first premium depends upon the specifics on your policy and the insured person. Except as noted in the "Detailed Information" section of this prospectus, you can make any other premium payments you wish at any time. That's why the policy is called a "flexible premium" policy. Summary of policy benefits Death benefit When the insured person dies, we will pay the death benefit minus any policy debt and unpaid fees and charges. There are two ways of calculating the death benefit (Option 1 and Option 2). You choose which one you want in the application. The two death benefit options are: . Option 1 - The death benefit will equal the greater of (1) the Total Face Amount, or (2) the minimum death benefit (as described under "The minimum death benefit" provision in the "Detailed Information" section of this prospectus). . Option 2 - The death benefit will equal the greater of (1) the Total Face Amount plus the policy value on the date of death, or (2) the minimum death benefit. Surrender of the policy You may surrender the policy in full at any time. If you do, we will pay you the policy value less any outstanding policy debt. This is called your "net cash surrender value". You must return your policy when you request a surrender. If you have not taken a loan on your policy, the "policy value" of your policy will, on any given date, be equal to: . the amount you invested, . gain or loss of the investment experience of the investment options you've chosen, . minus all charges we deduct, and . minus all withdrawals you have made. If you take a loan on your policy, your policy value will be computed somewhat differently. See "Effects of policy loans". Withdrawals After the first policy year, you may make a withdrawal of part of your surrender value. Generally, each withdrawal must be at least $500. We reserve the right to charge a fee of up to the lesser of 2% of the withdrawal amount or $25 for each withdrawal. Your policy value is automatically reduced by the amount of the withdrawal and the fee. We reserve the right to refuse a withdrawal if it would reduce the net cash surrender value or the Total Face Amount below certain minimum amounts. Policy loans If your policy is in full force and has sufficient policy value, you may borrow from it at any time by completing the appropriate form. Generally, the minimum amount of each loan is $500. The maximum amount you can borrow is determined by a formula as described in your policy. Interest is charged on each loan. You can pay the interest or allow it to become part of the outstanding loan balance. You can repay all or part of a loan at any time. If there is an outstanding loan when the insured person dies, it will be deducted from the death benefit. Policy loans permanently affect the calculation of your policy value, and may also result in adverse tax consequences. 4 Optional supplementary benefit riders When you apply for the policy, you can request any of the optional supplementary benefit riders that we make available. Availability of riders varies from state to state. Charges for most riders will be deducted monthly from the policy value. Investment options The policy offers a number of investment options, as listed on page 1 of this prospectus. These investment options are subaccounts of Separate Account N (the "Account" or "Separate Account"), a separate account operated by us under Michigan law. There is also a "fixed account" option that provides a fixed rate of return. The investment options have returns that vary depending upon the investment results of underlying portfolios. These options are referred to in this prospectus as "investment accounts". The fixed account and the investment accounts are sometimes collectively referred to in this prospectus as the "accounts". The investment accounts cover a broad spectrum of investment styles and strategies. Although the portfolios of the series funds that underlie those investment accounts operate like publicly traded mutual funds, there are important differences between the investment accounts and publicly-traded mutual funds. On the plus side, you can transfer money from one investment account to another without tax liability. Moreover, any dividends and capital gains distributed by each underlying portfolio are automatically reinvested and reflected in the portfolio's value and create no taxable event for you. On the negative side, if and when policy earnings are distributed (generally as a result of a surrender or withdrawal), they will be treated as ordinary income instead of as capital gains. Also, you must keep in mind that you are purchasing an insurance policy and you will be assessed charges at the policy level as well as at the fund level. Such policy level charges, in aggregate, are significant and will reduce the investment performance of your policy. Summary of policy risks Lapse risk If the net cash surrender value is insufficient to pay the charges when due, your policy can terminate (i.e. "lapse"). This can happen because you haven't paid enough premiums or because the investment performance of the investment accounts you've chosen has been poor or because of a combination of both factors. You'll be given a "grace period" within which to make additional premium payments to keep the policy in effect. If lapse occurs, you'll be given the opportunity to reinstate the policy by making the required premium payments and satisfying certain other conditions. Since withdrawals reduce your policy value, withdrawals increase the risk of lapse. Policy loans also increase the risk of lapse. Investment risk As mentioned above, the investment performance of any investment account may be good or bad. Your policy value will rise or fall based on the investment performance of the investment accounts you've chosen. Some investment accounts are riskier than others. These risks (and potential rewards) are discussed in detail in the prospectuses of the underlying portfolios. Transfer risk There is a risk that you will not be able to transfer your policy value from one investment account to another because of limitations on the dollar amount or frequency of transfers you can make. The limitations on transfers out of the fixed account options are more restrictive than those that apply to transfers out of investment accounts. Early surrender risk Depending on the policy value at the time you are considering surrender, there may be little or no surrender value payable to you. Market timing risk Investment accounts in variable life insurance products can be a prime target for abusive transfer activity because these products value their investment accounts on a daily basis and allow transfers among investment accounts without immediate tax consequences. As a result, some investors may seek to frequently transfer into and out of investment accounts in reaction to market news or to exploit a perceived pricing inefficiency. Whatever the reason, long-term investors in an investment account can be harmed by frequent transfer activity since such activity may expose the investment account's underlying 5 portfolio to increased portfolio transaction costs and/or disrupt the portfolio manager's ability to effectively manage the portfolio's investments in accordance with the portfolio's investment objectives and policies, both of which may result in dilution with respect to interests held for long-term investment. To discourage disruptive frequent trading activity, we impose restrictions on transfers (see "Transfers of existing policy value") and reserve the right to change, suspend or terminate telephone, facsimile and internet transaction privileges (see "How you communicate with us"). In addition, we reserve the right to take other actions at any time to restrict trading, including, but not limited to: (i) restricting the number of transfers made during a defined period, (ii) restricting the dollar amount of transfers, and (iii) restricting transfers into and out of certain investment accounts. We also reserve the right to defer a transfer at any time we are unable to purchase or redeem shares of the underlying portfolio. While we seek to identify and prevent disruptive frequent trading activity, it may not always be possible to do so. Therefore, no assurance can be given that the restrictions we impose will be successful in preventing all disruptive frequent trading and avoiding harm to long-term investors. Tax risks Life insurance death benefits are ordinarily not subject to income tax. In general, you will be taxed on the amount of lifetime distributions that exceed the premiums paid under the policy. Any taxable distribution will be treated as ordinary income (rather than as capital gains) for tax purposes. In order for you to receive the tax benefits extended to life insurance under the Internal Revenue Code, your policy must comply with certain requirements of the Code. We will monitor your policy for compliance with these requirements, but a policy might fail to qualify as life insurance in spite of our monitoring. If this were to occur, you would be subject to income tax on the income credited to your policy for the period of disqualification and all subsequent periods. The tax laws also contain a so-called "7 pay limit" that limits the amount of premium that can be paid in relation to the policy's death benefit. If the limit is violated, the policy will be treated as a "modified endowment contract", which can have adverse tax consequences. There are also certain Treasury Department rules referred to as the "investor control rules" that determine whether you would be treated as the "owner" of the assets underlying your policy. If that were determined to be the case, you would be taxed on any income or gains those assets generate. In other words, you would lose the value of the so-called "inside build-up" that is a major benefit of life insurance. There is a tax risk associated with policy loans. Although no part of a loan is treated as income to you when the loan is made (unless your policy is a "modified endowment contract"), surrender or lapse of the policy would result in the loan being treated as a distribution at the time of lapse or surrender. This could result in a considerable tax bill. Under certain circumstances involving large amounts of outstanding loans and an insured person of advanced age, you might find yourself having to choose between high premium requirements to keep your policy from lapsing and a significant tax burden if you allow the lapse to occur. Tax consequences of ownership or receipt of policy proceeds under Federal, state and local estate, inheritance, gift and other tax laws can vary greatly depending upon the circumstances of each owner or beneficiary. There can also be unfavorable tax consequences on such things as the change of policy ownership or assignment of ownership interests. For these and all the other reasons mentioned above, we recommend you consult with a qualified tax adviser before buying the policy and before exercising certain rights under the policy. 6 FEE TABLES This section contains five tables that describe all of the fees and expenses that you will pay when buying and owning the policy. In the first three tables, certain entries show the minimum charge, the maximum charge and the charge for a representative insured person. Other entries show only the maximum charge we can assess and are labeled as such. Except where necessary to show a rate greater than zero, all rates shown in the tables have been rounded to two decimal places as required by prospectus disclosure rules. Consequently, the actual rates charged may be slightly higher or lower than those shown in the tables. The first table below describes the fees and expenses that you will pay at the time that you pay a premium, withdraw policy value, surrender the policy, lapse the policy or transfer policy value between investment accounts. We reserve the right to increase the premium charge beyond the level indicated on the Transaction Fees table in order to correspond with changes in state premium tax levels or in the Federal income tax treatment of the deferred acquisition costs for this type of policy. Currently, state premium tax levels range from 0% to 3.5%. Transaction Fees ---------------------------------------------------------------------------- Charge When Charge is Deducted Amount Deducted ------ ------------------------- ------------------------- Maximum premium charge Upon payment of premium 7% of each premium paid (currently, 1.5%) Maximum withdrawal fee Upon making a withdrawal The lesser of 2% of the withdrawal amount or $ 25 Maximum transfer fee Upon each transfer into $ 25 (currently $ 0)/(1)/ or out of an investment account beyond an annual limit of not less than 12 - -------- (1) This charge is not currently imposed, but we reserve the right to do so in the policy. 7 The next two tables describe the charges and expenses that you will pay periodically during the time you own the policy. These tables do not include fees and expenses paid at the portfolio level. Except for the policy loan interest rate, all of the charges shown in the tables are deducted from your policy value. The second table is devoted only to optional supplementary rider benefits.
Periodic Charges Other Than Fund Operating Expenses - -------------------------------------------------------------------------------------------- Amount Deducted -------------------------------------------------------- When Charge is Charge Deducted Guaranteed Rate Current Rate - ------ -------------- ------------------------ ----------------------------- Cost of insurance Monthly charge:/(1)/ Minimum charge $0.07 per $ 1,000 of NAR $0.05 per $ 1,000 of NAR Maximum charge $83.33 per $1,000 of NAR $83.33 per $1,000 of NAR Charge for $0.38 per $ 1,000 of NAR $0.13 per $ 1,000 of NAR representative insured person Face Amount Monthly for 10 charge:/(2)/ policy years from the Policy Date Minimum charge $0.09 per $ 1,000 of $0.09 per $ 1,000 of Base Base Face Amount in Face Amount in policy years policy years 1-10 1-3 $ 0.06 per $ 1,000 of Base Face Amount in policy years 4-6 $0.03 per $ 1,000 of Base Face Amount in policy years 7-10 Maximum charge $1.08 per $ 1,000 of $1.08 per $ 1,000 of Base Base Face Amount in Face Amount in policy years policy years 1-10 1-3 $ 0.72 per $ 1,000 of Base Face Amount in policy years 4-6 $ 0.36 per $ 1,000 of Base Face Amount in policy years 7-10 Charge for $ 0.28 per $ 1,000 of $ 0.28 per $ 1,000 of Base representative Base Face Amount Face Amount in policy years insured person 1-3 $0.19 per $ 1,000 of Base Face Amount in policy years 4-6 $ 0.09 per $ 1,000 of Base Face Amount in policy years 7-10 Administrative Monthly $ 12 $ 9 charge Asset-based risk Monthly 0.08% of policy value in 0.03% of policy value in charge/(3)/ policy years 1-10 0.03% policy years 1-10 0.004% of of policy value in policy value in policy year policy year 11 and 11 and thereafter thereafter Maximum policy loan Accrues daily 3.75% 3.75% interest rate/(4)/ Payable annually
- -------- (1) The cost of insurance charge is determined by multiplying the amount of insurance for which we are at risk (the net amount at risk or "NAR") by the applicable cost of insurance rate. The rates vary widely depending upon the length of time the policy has been in effect, the insurance risk characteristics of the insured person and (generally) the gender of the insured person. The "minimum" rate shown in the table is the rate in the first policy year for a policy issued to cover a 15 year old female preferred underwriting risk. The "maximum" rate shown in the table at both guaranteed and current rates is the rate in the first policy year for a policy issued to cover a 90 year old male substandard smoker underwriting risk. This includes the so-called "extra mortality charge". The "representative insured person" referred to in the table is a 45 year old male standard non-smoker underwriting risk with a policy in the first policy year. The charges shown in the table may not be particularly relevant to your current situation. For more information about cost of insurance rates, talk to your John Hancock USA representative. (2) This charge is determined by multiplying the Base Face Amount at issue by the applicable rate. The rates vary by the sex, issue age and death benefit option of the insured person. The "minimum" rate shown in the table is for a 15 year old female. The "maximum" rate shown in the table is for a 90 year old male. The "representative insured person" referred to in the table is a 45 year old male. (3) This charge only applies to that portion of policy value held in the investment accounts. The charge determined does not apply to any fixed account. 8 (4) 3.75% is the maximum effective annual interest rate we can charge and applies only during policy years 1-10. The effective annual interest rate is 3.0% thereafter (although we reserve the right to increase the rate after the tenth policy year to as much as 3.25%). The amount of any loan is transferred from the accounts to a special loan account which earns interest at an effective annual rate of 3.0%. Therefore, the cost of a loan is the difference between the loan interest we charge and the interest we credit to the special loan account.
Rider Charges - --------------------------------------------------------------------------------------------------- Charge When Charge is Deducted Amount Deducted - ------ ----------------------- ------------------------------------------- Enhanced Cash Value Rider Upon payment of premium 0.5% of premium paid in the first 7 policy years, up to the Limiting Premium /(1) /for each policy year stated in the Policy Specifications page of the policy. Change of Life Insured Rider At exercise of benefit $250 Overloan Protection Rider /(2)/ At exercise of benefit Minimum charge 0.08% Maximum charge 6.75%
- -------- (1) The "Limiting Premium" is an amount determined by multiplying the Base Face Amount at issue by an applicable rate which varies by the sex and issue age of the insured person. The "minimum" rate is for a 15-year old female and is $17.90 per $1000 of Base Face Amount. The "maximum" rate is for a 90-year old male and is $216.26 per $1000 of Base Face Amount. The rate for a "representative insured person" is for a 45 year old male and is $56.49 per $1000 of Base Face Amount. Thus, for the representative 45 year old male with $100,000 of Base Face Amount, the Limiting Premium for the policy year would be $5,649.00. (2) The charge for this rider is determined as a percentage of unloaned account value. The rates vary by the attained age of the insured person at the time of exercise. The minimum rate shown is for an insured person who has reached attained age 99. The maximum rate shown is for an insured person who has reached attained age 75. The next table describes the minimum and maximum portfolio level fees and expenses charged by any of the portfolios underlying a variable investment option offered through this prospectus, expressed as a percentage of average net assets (rounded to two decimal places). These expenses are deducted from portfolio assets. Total Annual Portfolio Operating Expenses Minimum Maximum ----------------------------------------- ------- ------- Range of expenses, including management fees, distribution and/ or service (12b-1) fees, and other expenses 0.49% 1.49% The next table describes the fees and expenses for each class of shares of each portfolio underlying a variable investment option offered through this prospectus. None of the portfolios charge a sales load or surrender fee. The fees and expenses do not reflect the fees and expenses of any variable insurance contract or qualified plan which may use the portfolio as its underlying investment medium. Except for the American International, American Growth, American Growth-Income, American Blue Chip Income and Growth, American Bond and PIMCO VIT All Asset portfolios, all of the portfolios shown in the table are NAV class shares that are not subject to Rule 12b-1 fees. Except as indicated in the footnotes appearing at the end of the table, the expense ratios are based upon the portfolio's actual expenses for the year ended December 31, 2006. Portfolio Annual Expenses (as a percentage of portfolio average net assets, rounded to two decimal places) Management 12b-1 Other Total Portfolio Fees Fees Expenses Annual Expenses - --------- ---------- ----- -------- --------------- Science & Technology/A/.............. 1.05% 0.00% 0.10% 1.15% Emerging Markets Value/C/............ 0.96% 0.00% 0.16% 1.12% Pacific Rim.......................... 0.80% 0.00% 0.21% 1.01% Health Sciences/A/................... 1.05% 0.00% 0.09% 1.14% Emerging Growth/B/................... 0.80% 0.00% 0.69% 1.49% Small Cap Growth..................... 1.07% 0.00% 0.08% 1.15% Emerging Small Company/D/............ 0.97% 0.00% 0.06% 1.03% Small Cap............................ 0.85% 0.00% 0.05% 0.90% Small Cap Index...................... 0.48% 0.00% 0.04% 0.52% 9 Management 12b-1 Other Total Portfolio Fees Fees Expenses Annual Expenses - --------- ---------- ----- -------- --------------- Dynamic Growth/D/.................... 0.90% 0.00% 0.06% 0.96% Mid Cap Stock........................ 0.84% 0.00% 0.04% 0.88% Natural Resources.................... 1.00% 0.00% 0.06% 1.06% All Cap Growth....................... 0.85% 0.00% 0.05% 0.90% Financial Services................... 0.82% 0.00% 0.04% 0.86% International Opportunities.......... 0.89% 0.00% 0.11% 1.00% International Small Cap.............. 0.92% 0.00% 0.19% 1.11% International Equity Index B/B/E/.... 0.54% 0.00% 0.04% 0.58% Overseas Equity/D/................... 0.99% 0.00% 0.13% 1.12% American International/F/............ 0.50% 0.60% 0.08% 1.18% International Value.................. 0.82% 0.00% 0.11% 0.93% International Core................... 0.89% 0.00% 0.10% 0.99% Quantitative Mid Cap................. 0.74% 0.00% 0.13% 0.87% Mid Cap Index........................ 0.48% 0.00% 0.04% 0.52% Mid Cap Intersection/C/.............. 0.87% 0.00% 0.07% 0.94% Global/B/............................ 0.82% 0.00% 0.14% 0.96% Capital Appreciation................. 0.75% 0.00% 0.03% 0.78% American Growth/F/................... 0.32% 0.60% 0.05% 0.97% U.S. Global Leaders Growth........... 0.69% 0.00% 0.03% 0.72% Quantitative All Cap................. 0.71% 0.00% 0.05% 0.76% All Cap Core......................... 0.78% 0.00% 0.05% 0.83% Total Stock Market Index............. 0.49% 0.00% 0.03% 0.52% Blue Chip Growth/A/.................. 0.81% 0.00% 0.02% 0.83% U.S. Large Cap....................... 0.83% 0.00% 0.04% 0.87% Core Equity.......................... 0.78% 0.00% 0.05% 0.83% Large Cap Value/D/................... 0.82% 0.00% 0.06% 0.88% Classic Value........................ 0.80% 0.00% 0.11% 0.91% Utilities............................ 0.83% 0.00% 0.12% 0.95% Real Estate Securities............... 0.70% 0.00% 0.03% 0.73% Small Cap Opportunities.............. 0.99% 0.00% 0.03% 1.02% Small Cap Value...................... 1.06% 0.00% 0.05% 1.11% Small Company Value/A/............... 1.02% 0.00% 0.04% 1.06% Special Value/D/E/................... 0.97% 0.00% 0.07% 1.04% Mid Value/A/......................... 0.98% 0.00% 0.08% 1.06% Mid Cap Value........................ 0.86% 0.00% 0.04% 0.90% Value................................ 0.74% 0.00% 0.05% 0.79% All Cap Value........................ 0.82% 0.00% 0.05% 0.87% Growth & Income...................... 0.67% 0.00% 0.01% 0.68% 500 Index B/B/....................... 0.46% 0.00% 0.03% 0.49% Fundamental Value.................... 0.77% 0.00% 0.04% 0.81% U.S. Core............................ 0.76% 0.00% 0.06% 0.82% Large Cap/D/......................... 0.72% 0.00% 0.04% 0.76% Quantitative Value................... 0.68% 0.00% 0.05% 0.73% American Growth-Income/F/............ 0.27% 0.60% 0.04% 0.91% Equity-Income/A/..................... 0.81% 0.00% 0.03% 0.84% American Blue Chip Income & Growth/F/ 0.42% 0.60% 0.05% 1.07% Income & Value....................... 0.79% 0.00% 0.07% 0.86% Managed.............................. 0.69% 0.00% 0.03% 0.72% PIMCO VIT All Asset/G/............... 0.79% 0.25% 0.45% 1.49% 10 Management 12b-1 Other Total Portfolio Fees Fees Expenses Annual Expenses - --------- ---------- ----- -------- --------------- Global Allocation.................... 0.85% 0.00% 0.13% 0.98% High Yield........................... 0.66% 0.00% 0.05% 0.71% U.S. High Yield Bond................. 0.73% 0.00% 0.06% 0.79% Strategic Bond....................... 0.68% 0.00% 0.07% 0.75% Strategic Income..................... 0.71% 0.00% 0.10% 0.81% Global Bond.......................... 0.70% 0.00% 0.10% 0.80% Investment Quality Bond.............. 0.60% 0.00% 0.07% 0.67% Total Return......................... 0.70% 0.00% 0.06% 0.76% American Bond/F/..................... 0.41% 0.60% 0.04% 1.05% Real Return Bond/H/.................. 0.70% 0.00% 0.07% 0.77% Bond Index B/B/...................... 0.47% 0.00% 0.06% 0.53% Core Bond............................ 0.67% 0.00% 0.12% 0.79% Active Bond.......................... 0.60% 0.00% 0.04% 0.64% U.S. Government Securities/D/........ 0.61% 0.00% 0.08% 0.69% Short-Term Bond...................... 0.58% 0.00% 0.04% 0.62% Money Market B/B/.................... 0.50% 0.00% 0.01% 0.51% Lifestyle Aggressive/E/.............. 0.94% 0.00% 0.02% 0.96% Lifestyle Growth/E/.................. 0.91% 0.00% 0.01% 0.92% Lifestyle Balanced/E/................ 0.88% 0.00% 0.01% 0.89% Lifestyle Moderate/E/................ 0.85% 0.00% 0.02% 0.87% Lifestyle Conservative/E/............ 0.82% 0.00% 0.02% 0.84% - -------- /A/ The portfolio manager has voluntarily agreed to waive a portion of its management fee for the Health Sciences, Blue Chip Growth, Mid Value, Small Company Value, Science & Technology, and Equity-Income portfolios. This waiver is based on the combined average daily net assets of these portfolios and the following funds of John Hancock Funds II: Health Sciences, Blue Chip Growth, Mid Value, Small Company Value, Science & Technology and Equity-Income Fund (collectively, the "T. Rowe Portfolios"). The fees shown do not reflect the waiver. For more information, please refer to the prospectus for the underlying portfolios. The percentage reduction will be as follows: Fee Reduction Combined Average Daily Net Assets of (as a percentage of the the T. Rowe Portfolios management fee) ------------------------------------ ----------------------- First $750 million...................... 0.00% Next $750 million....................... 5.0% Next $1.5 billion....................... 7.5% Over $3 billion......................... 10.0% This voluntary fee waiver may be terminated at any time by T. Rowe Price. /B/ The portfolio manager for these portfolios has agreed with the John Hancock Trust to waive its management fee (or, if necessary, to reimburse expenses of the portfolio) to the extent necessary to limit the portfolio's "Total Annual Expenses". A portfolio's "Total Annual Expenses" includes all of its operating expenses including management fees and Rule 12b-1 fees, but excludes taxes, brokerage commissions, interest, litigation and indemnification expenses and extraordinary expenses of the portfolio not incurred in the ordinary course of the portfolio's business. Under the agreement, the portfolio manager's obligation will remain in effect until May 1, 2008 and will terminate after that date only if the John Hancock Trust, without the prior consent of the portfolio manager, sells shares of the portfolio to (or has shares of the portfolio held by) any person or entity other than the variable life insurance or variably annuity separate accounts of John Hancock Life Insurance Company or any of its affiliates that are specified in the agreement. The fees shown do not reflect this waiver. If this fee waiver had been reflected, the management fee shown for the International Equity Index B, 500 Index B, Bond Index B, Emerging Growth, Money Market B, and Global portfolios would be 0.31%, 0.22%, 0.19%, 0.36%, 0.27%, and 0.82% respectively, and the Total Annual Expenses shown would be 0.35%, 0.25%, 0.25%, 1.05%, 0.28%, and 0.96% respectively. /C/ For portfolios that had not started operations or had operations of less than six months as of December 31, 2006, expenses are based on estimates of expenses that are expected to be incurred over the next year. /D/ The management fees were changed during the fiscal year ending in 2006. The rates shown reflect what the management fees and total annual expenses would have been during fiscal year 2006 had the new rates been in effect for the entire year. /E/ The "Management Fees" include fees and expenses incurred indirectly by a portfolio as a result of its investment in another investment company (each, an "Acquired Fund"). The "Total Annual Expenses" shown may not correlate to the portfolio's ratio of expenses to average 11 net assets shown in the "Financial Highlights" section of the John Hancock Trust prospectus, which does not include Acquired Fund fees and expenses. Acquired Fund fees and expenses are estimated, not actual, amounts based on the portfolio's current fiscal year. If these expenses had not been reflected, the "Management Fees" for the International Equity Index B and Special Value portfolios would be 0.53% and 0.95%, respectively, the "Management Fees" for each of the Lifestyle Aggressive, Lifestyle Balanced, Lifestyle Conservative, Lifestyle Growth, and Lifestyle Moderate portfolios would be 0.04%, and "Total Annual Expenses" shown for the portfolios would be 0.57%, 1.02%, 0.06, 0.05%, 0.06%, 0.05%, and 0.06%, respectively. /F/ The portfolio manager for these portfolios is waiving a portion of its management fee. The fees shown do not reflect the waiver. For more information please refer to the prospectus for the underlying portfolios. /G/ "Other Expenses" for the PIMCO VIT All Asset portfolio reflect an administrative fee of 0.25% and a service fee of 0.20%. "Management Fees" include fees and expenses incurred indirectly by the portfolio as a result of its investment in another investment management company (each an "Acquired Fund"). For more information please refer to the prospectus for the underlying portfolio. /H/ The portfolio manager has voluntarily agreed to waive a portion of its management fee. This waiver is based on the combined average daily net assets of the Real Return Bond series of the John Hancock Trust and the Real Return Bond series of John Hancock Funds II. The reduced management fee would be 0.65% of aggregate net assets over $1 billion. This voluntary fee waiver may be terminated at any time. The fees shown do not reflect this waiver. For more information, please refer to the prospectus for the underlying portfolio. 12 DETAILED INFORMATION This section of the prospectus provides additional detailed information that is not contained in the Summary of Benefits and Risks section. Table of Investment Options and Investment Subadvisers When you select a Separate Account investment option, we invest your money in shares of a corresponding portfolio of the John Hancock Trust (the "Trust") (or the PIMCO Variable Insurance Trust (the "PIMCO Trust") with respect to the All Asset portfolio) and hold the shares in a subaccount 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 2006, 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") 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 and indirectly benefit from any investment management fees JHIMS retains. The All Asset portfolio of the PIMCO Trust receives investment advisory services from Pacific Investment Management Company LLC ("PIMCO") and pays investment management fees to PIMCO. Each of the American Blue Chip Income and Growth, American Bond, American Growth-Income, American Growth, and American International portfolios invests in Series 1 shares of the corresponding investment portfolio of the Trust and are subject to a 0.60% 12b-1 fee. The American Growth, American International, American Growth-Income, American Blue Chip Income and Growth and American Bond portfolios operate as "feeder funds", which means that the portfolio does not buy investment securities directly. Instead, it invests in a "master fund" which in turn purchases investment securities. Each of the American feeder fund portfolios has the same investment objective and limitations as its master fund. The prospectus for the American Fund master fund is included with the prospectuses for the underlying funds. The portfolios pay us or certain of our affiliates compensation for some of the distribution, administrative, shareholder support, marketing and other services we or our affiliates provide to the portfolios. The amount of this compensation is based on a percentage of the assets of the portfolios attributable to the variable insurance products that we and our affiliates issue. These percentages may differ from portfolio to portfolio and among classes of shares within a portfolio. In some cases, the compensation is derived from the Rule 12b-1 fees that are deducted from a portfolio's assets for the services we or our affiliates provide to that portfolio. In addition, compensation payments of up to 0.45% of assets may be made by a portfolio's investment advisers or its affiliates. We pay American Funds Distributors, Inc., the principal underwriter for the American Funds Insurance Series, a percentage of some or all of the amounts allocated to the "American" portfolios of the Trust for the marketing support services it provides. Any of these compensation payments do not, however, result in any charge to you in addition to what is shown in the Fee Tables. The following table provides a general description of the portfolios that underlie the variable investment options we make available under the policy. You bear the investment risk of any portfolio you choose as an investment option for your policy. You can find a full description of each portfolio, including the investment objectives, policies and restrictions of, and the risks relating to investment in the portfolio in the prospectus for that portfolio. You should read the portfolio's prospectus carefully before investing in the corresponding variable investment option. The investment options in the Separate Account are not publicly traded mutual funds. The investment options are only available to you as investment options in the policies, or in some cases through other variable annuity contracts or variable life insurance policies issued by us or by other life insurance companies. In some cases, the investment options also may be available through participation in certain qualified pension or retirement plans. The portfolios' investment advisers and managers (i.e. subadvisers) may manage publicly traded mutual funds with similar names and investment objectives. However, the portfolios are not directly related to any publicly traded mutual fund. You should not compare the performance of any investment option described in this prospectus with the performance of a publicly traded mutual fund. The performance of any publicly traded mutual fund could differ substantially from that of any of the investment options of our Separate Account. 13 The portfolios available under the policies are as follows: Portfolio Portfolio Manager Investment Description - --------- ------------------- ------------------------------------- Science & Technology T. Rowe Price Seeks long-term growth of capital by Associates, Inc. investing, under normal market and RCM Capital conditions, at least 80% of its net Management LLC 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. Emerging Markets Dimensional Fund Seeks long-term capital appreciation Value Advisors by investing at least 80% of its net assets in companies associated with emerging markets. Pacific Rim MFC Global Seeks long-term growth of capital by Investment investing in a diversified portfolio Management (U.S.A.) that is comprised primarily of Limited common stocks and equity-related securities of corporations domiciled in countries in the Pacific Rim region. Health Sciences T. Rowe Price Seeks long-term capital appreciation Associates, Inc. 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 Seeks superior long-term rates of Investment return through capital appreciation Management (U.S.), by investing, under normal LLC circumstances, primarily in high quality securities and convertible instruments of small-cap U.S. companies. Small Cap Growth Wellington Seeks long-term capital appreciation Management Company, by investing, under normal market LLP conditions, primarily in small-cap companies that are believed to offer above average potential for growth in revenues and earnings. Emerging Small RCM Capital Seeks long-term growth of capital by Company Management LLC 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 Index* at the time of purchase. Small Cap Independence Seeks maximum capital appreciation Investments LLC 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 Seeks to approximate the aggregate Investment total return of a small- cap U.S. Management (U.S.A.) domestic equity market index by Limited attempting to track the performance of the Russell 2000 Index.* Dynamic Growth Deutsche Investment Seeks long-term growth of capital by Management investing in stocks and other equity Americas, Inc. securities of medium-sized U.S. companies with strong growth potential. Mid Cap Stock Wellington Seeks long-term growth of capital by Management Company, investing primarily in equity LLP securities of mid-size companies with significant capital appreciation potential. Natural Resources Wellington Seeks long-term total return by Management Company, investing, under normal market LLP conditions, primarily in equity and equity-related securities of natural resource-related companies worldwide. 14 Portfolio Portfolio Manager Investment Description --------- ------------------- ------------------------------------- All Cap Growth AIM Capital Seeks long-term capital appreciation Management, Inc. 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. Financial Services Davis Selected Seeks growth of capital by investing Advisers, L.P. 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. International Marsico Capital Seeks long-term growth of capital by Opportunities Management, LLC 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 Templeton Seeks capital appreciation by Small Cap Investment Counsel, investing primarily in the common LLC stock of companies located outside the U.S., which have total stock market capitalization or annual revenues of $4 billion or less. International SSgA Funds Seeks to track the performance of Equity Index B Management, Inc. broad-based equity indices of foreign companies in developed and emerging markets by attempting to track the performance of the MSCI All Country World ex-US Index*. (Series I shares are available for sale to contracts purchased prior to May 13, 2002; Series II shares are available for sale to contracts purchased on or after May 13, 2002). Overseas Equity Capital Guardian Seeks long-term capital appreciation Trust Company by investing, under normal conditions, at least 80% of its assets in equity securities of a diversified mix of large established and medium-sized foreign companies located primarily in developed countries and, to a lesser extent, in emerging markets. American Capital Research Seeks to make the shareholders' International Management Company investment grow by investing all of (adviser to the its assets in the master fund, Class American Funds 2 shares of the International Fund, a Insurance Series) series of American Funds Insurance Series. The International Fund invests primarily in common stocks of companies located outside the United States. International Templeton Seeks long-term growth of capital by Value Investment Counsel, investing, under normal market LLC conditions, primarily in equity securities of companies located outside the U.S., including emerging markets. International Core Grantham, Mayo, Van Seeks high total return by investing Otterloo & Co. LLC typically in a diversified portfolio of equity investments from developed markets other than the U.S. 15 Portfolio Portfolio Manager Investment Description --------- ----------------------- ------------------------------------ Quantitative Mid MFC Global Investment Seeks long-term growth of capital by Cap Management (U.S.A.) investing, under normal market Limited conditions, at least 80% of its total assets (plus any borrowings for investment purposes) in U.S. mid- cap stocks, convertible preferred stocks, convertible bonds and warrants. Mid Cap Index MFC Global Investment Seeks to approximate the aggregate Management (U.S.A.) total return of a mid- cap U.S. Limited domestic equity market index by attempting to track the performance of the S&P Mid Cap 400 Index*. Mid Cap Wellington Management Seeks long-term growth of capital by Intersection Company, LLP investing in equity securities of medium size companies with significant capital appreciation potential. Global Templeton Global Seeks long-term capital appreciation Advisors Limited 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 Jennison Associates LLC Seeks long-term capital growth by Appreciation 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 Capital Research Seeks to make the shareholders' Growth Management Company investment grow by investing all of (adviser to the its assets in the master fund, Class American Funds 2 shares of the Growth Fund, a Insurance Series) series of American Funds Insurance Series. The Growth Fund invests primarily in common stocks of companies that appear to offer superior opportunities for growth of capital. The Growth Fund may also invest up to 15% of its assets in equity securities of issuers domiciled outside the U.S. and Canada and not included in the S&P 500 Index*. U.S. Global Sustainable Growth Seeks long-term growth of capital by Leaders Advisers, L.P. investing, under normal market Growth conditions, primarily in common stocks of "U.S. Global Leaders". Quantitative All MFC Global Investment Seeks long-term growth of capital by Cap Management (U.S.A.) investing, under normal 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 Investment Seeks long-term growth of capital by Management Americas investing primarily in common stocks Inc. and other equity securities within all asset classes (small, mid and large cap) of those within the Russell 3000 Index*. Total Stock MFC Global Investment Seeks to approximate the aggregate Market Index Management (U.S.A.) total return of a broad U.S. Limited domestic equity market index by attempting to track the performance of the Dow Jones Wilshire 5000 Index*. Blue Chip T. Rowe Price Seeks to achieve long-term growth of Growth Associates, Inc. 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. 16 Portfolio Portfolio Manager Investment Description - --------- ---------------------- --------------------------------------- U.S. Large Capital Guardian Trust Seeks long-term growth of capital and Cap Company 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 Capital Seeks long-term capital growth by Management, Inc. 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. Large Cap Blackrock Investment Seeks long-term growth of capital by Value Management, LLC investing, under normal market conditions, primarily in a diversified portfolio of equity securities of large-cap companies located in the U.S. Classic Pzena Investment Seeks long-term growth of capital by Value Management, LLC investing, under normal market conditions, at least 80% of its net assets in domestic equity securities. Utilities Massachusetts Seeks capital growth and current Financial Services income (income above that available Company 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 Deutsche Investment Seeks to achieve a combination of Securities Management Americas, long-term capital appreciation and Inc. 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 and real estate companies. Small Cap Munder Capital Seeks long-term capital appreciation Opportunities Management by investing, under normal circumstances, at least 80% of its assets in equity securities of companies with market capitalizations within the range of the companies in the Russell 2000 Index*. Small Cap Wellington Management Seeks long-term capital appreciation Value Company, LLP by investing, under normal market conditions, at least 80% of its assets in small-cap companies that are believed to be undervalued by various measures and offer good prospects for capital appreciation. Small T. Rowe Price Seeks long-term growth of capital by Company Associates, Inc. investing, under normal market Value 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 market capitalizations that do not exceed the maximum market capitalization of any security in the Russell 2000 Index* at the time of purchase. Special ClearBridge Advisors, Seeks long-term capital growth by Value LLC investing, under 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 not greater than the market capitalization of companies in the Russell 2000 Value Index*. 17 Portfolio Portfolio Manager Investment Description - --------- ------------------------ --------------------------------------- Mid Value T. Rowe Price Seeks long-term capital appreciation by Associates, Inc. investing, under normal market conditions, primarily in a diversified mix of common stocks of mid-size U.S. companies that are believed to be undervalued by various measures and offer good prospects for capital appreciation. Mid Cap Lord, Abbett & Co. LLC Seeks capital appreciation by Value investing, under normal market conditions, at least 80% of the portfolio's net assets (plus any borrowings for investment purposes) in mid-sized companies. 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 Lord, Abbett & Co. LLC Seeks capital appreciation by investing Value in equity securities of U.S. and multinational companies in all capitalization ranges that the subadviser believes are undervalued. Growth & Independence Investments Seeks income and long-term capital Income LLC appreciation by investing, under normal market conditions, primarily in a diversified mix of common stocks of large U.S. companies. 500 Index B MFC Global Investment Seeks to approximate the aggregate Management (U.S.A.) total return of a broad U.S. domestic Limited equity market index by attempting to track the performance of the S&P 500 Composite Stock Price Index.* Fundamental Davis Selected Advisers, Seeks growth of capital by investing, Value L.P. under normal market conditions, primarily in common stocks of U.S. companies with market capitalizations of at least $10 billion. The portfolio may also invest in U.S. companies with smaller capitalizations. U.S. Core Grantham, Mayo, Van Seeks a high total return by investing Otterloo & Co. LLC primarily in investments tied economically to the U.S., including equity investments in U.S. companies whose stocks are included in the S&P 500 Index* or in companies with size and growth characteristics similar to companies that issue stocks included in the Index. Large Cap UBS Global Asset Seeks to maximize total return, Management (Americas) consisting of capital appreciation and Inc. 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-cap companies. Quantitative MFC Global Investment Seeks long-term capital appreciation by Value Management (U.S.A.) investing primarily in large-cap U.S. Limited securities with the potential for long-term growth of capital. American Capital Research and Seeks to make the shareholders' Growth- Management Company investment grow and provide the Income (adviser to the American shareholder with income over time by Funds Insurance Series) investing all of its assets in the master fund, Class 2 shares of the Growth-Income Fund, a series of American Funds Insurance Series. The Growth-Income Fund invests primarily in common stocks or other securities which demonstrate the potential for appreciation and/or dividends 18 Portfolio Portfolio Manager Investment Description - --------- ------------------------ ------------------------------ Equity-Income T. Rowe Price Seeks to provide substantial Associates, Inc. dividend income and also long-term capital appreciation by investing primarily in dividend-paying common stocks, particularly of established companies with favorable prospects for both increasing dividends and capital appreciation. American Blue Chip Capital Research and Seeks to produce income Income and Growth Management Company exceeding the average yield (adviser to the American on U.S. stocks generally and Funds Insurance Series) to provide an opportunity for growth of principal by investing all of its assets in Class 2 shares of the Blue Chip Income and Growth Fund, a series of American Funds 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 Seeks the balanced Company accomplishment of (a) conservation of principal and (b) long-term growth of capital and income by investing the portfolio's assets in both equity and fixed-income securities. The subadviser has full discretion to determine the allocation between equity and fixed income securities. Managed Grantham, Mayo, Van Seeks income and long-term Otterloo & Co. LLC and capital appreciation by Declaration Management & investing primarily in a Research LLC diversified mix of common stocks of large U.S. companies and bonds with an overall intermediate term average maturity. PIMCO VIT All Asset Pacific Investment The portfolio invests Portfolio (a series Management Company, LLC primarily in a diversified of the PIMCO mix of (a) common stocks of Variable Insurance large and mid-sized U.S. Trust) (only Class companies, and (b) bonds with M is available for an overall intermediate term sale) average maturity. Global Allocation UBS Global Asset Seeks total return, Management (Americas) consisting of long-term Inc. capital appreciation and current income, by investing in equity and fixed income securities of issuers located within and outside the U.S. High Yield Western Asset Management Seeks to realize an Company 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 Capital Seeks total return with a Management, Incorporated 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 Western Asset Management Seeks a high level of total Company return consistent with preservation of capital by investing at least 80% of its net assets in fixed income securities. Strategic Income MFC Global Investment Seeks a high level of current Management (U.S.) LLC 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. 19 Portfolio Portfolio Manager Investment Description - --------- ------------------------ ---------------------------------------- Global Bond Pacific Investment Seeks to realize maximum total return, Management Company, LLC consistent with preservation of capital and prudent investment management, by investing the portfolio's assets primarily in fixed income securities. These fixed income instruments may be denominated in non-U.S. currencies or in U.S. dollars. Investment Wellington Management Seeks a high level of current income Quality Company, LLP consistent with the maintenance of Bond 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. Total Return Pacific Investment Seeks to realize maximum total return, Management Company, LLC 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. American Capital Research and Seeks to maximize current income and Bond Management Company preserve capital by investing all of (adviser to the American its assets in the master fund, Class 2 Funds Insurance Series) Shares of the Bond Fund, a series of the American Funds Insurance Series. The Bond Fund normally invests at least 80% of its assets in bonds. Real Return Pacific Investment Seeks maximum return, consistent with Bond Management Company, LLC preservation of capital and prudent investment management, by investing, under normal market conditions, at least 80% of its net assets in inflation-indexed bonds of varying maturities issued by the U.S. and non-U.S. governments and by corporations. Bond Index Declaration Management & Seeks to track the performance of the B Research LLC Lehman Brothers Aggregate Index** (which represents the U.S. investment grade bond market) by investing at least 80% of its assets in securities listed in the Lehman Brothers Aggregate Index. Core Bond Wells Capital Seeks total return consisting of income Management, Incorporated and capital appreciation by investing, under normal market conditions, in a broad range of investment-grade debt securities including U.S. Government obligations, corporate bonds, mortgage-backed and other asset backed securities and money market instruments. Active Bond Declaration Management & Seeks income and capital appreciation Research LLC and MFC by investing at least 80% of its assets Global Investment in a diversified mix of debt securities Management (U.S.), LLC and instruments. U.S. Western Asset Management Seeks a high level of current income Government Company consistent with preservation of capital Securities and maintenance of liquidity, by investing in debt obligations and mortgage-backed securities issued or guaranteed by the U.S. Government, its agencies or instrumentalities, and derivative securities such as collateralized mortgage obligations backed by such securities. Short-Term Declaration Management & Seeks income and capital appreciation Bond Research LLC by investing at least 80% of its assets in a diversified mix of debt securities and instruments. 20 Portfolio Portfolio Manager Investment Description - --------- ---------------------- --------------------------------------- Money Market MFC Global Investment Seeks maximum current income consistent B Management (U.S.A.) with preservation of principal and Limited liquidity by investing in high quality money market instruments. Lifestyle MFC Global Investment Seeks to provide long-term growth of Aggressive Management (U.S.A.) capital (current income is not a Limited consideration) by investing 100% of the Lifestyle Trust's assets in other portfolios of the Trust which invest primarily in equity securities. Lifestyle MFC Global Investment Seeks to provide long-term growth of Growth Management (U.S.A.) capital with consideration also given Limited 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 MFC Global Investment Seeks to provide a balance between a Balanced Management (U.S.A.) high level of current income and growth Limited of capital with a greater emphasis given to capital growth by investing approximately 40% of the Lifestyle Trust's assets in other portfolios of the Trust which invest primarily in fixed income securities and approximately 60% of its assets in other portfolios of the Trust which invest primarily in equity securities. Lifestyle MFC Global Investment Seeks to provide a balance between a Moderate Management (U.S.A.) high level of current income and growth Limited 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 MFC Global Investment Seeks to provide a high level of Conservative Management (U.S.A.) current income with some consideration Limited 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. - -------- * "S&P 500 (R)" and "S&P Mid Cap 400 (R)" are trademarks of The McGraw-Hill Companies, Inc. "Russell 2000 (R)," "Russell 2000 Value (R)," "Russell 3000 (R)" and "Russell Midcap Value (R)" are trademarks of Frank Russell Company. "Dow Jones Wilshire 5000 Index (R)" is a trademark of Wilshire Associates. "MSCI All Country World ex US Index" is a trademark of Morgan Stanley & Co. Incorporated. None of the portfolios are sponsored, endorsed, managed, advised, sold or promoted by any of these companies, and none of these companies make any representation regarding the advisability of investing in the portfolios. ** The Lehman Brothers Aggregate Index is a bond index. A bond index relies on indicators such as quality, liquidity, term and duration as relevant measures of performance. The indexes referred to in the portfolio descriptions track companies having the ranges of market capitalization, as of February 28, 2007, set out below: MSCI All Country World ex US Index -- $200 million to $244 billion Russell 2000 Index -- $38.40 million to $3.72 billion Russell 3000 Index -- $38.40 million to $411 billion Russell 2000 Value Index -- $39 million to $3.1 billion Russell Midcap Value Index -- $1.327 million to $21 billion S&P Mid Cap 400 Index -- $590 million to $12.5 billion S&P 500 Index -- $1.415 million to $411 billion Dow Jones Wilshire 5000 Index -- $38.49 million to $411 billion 21 You bear the investment risk of any portfolio you choose as an investment option for your policy. A full description of each portfolio, including the investment objectives, policies and restrictions of, and the risks relating to investments in, each portfolio is contained in the portfolio prospectuses. The portfolio prospectuses should be read carefully before allocating purchase payments to a subaccount. If the shares of a portfolio are no longer available for investment or in our judgment investment in a portfolio becomes inappropriate, we may eliminate the shares of a portfolio and substitute shares of another portfolio of the Trust or another open-end registered investment company. Substitution may be made with respect to both existing investments and the investment of future purchase payments. However, we will make no such substitution without first notifying you and obtaining approval of the appropriate insurance regulatory authorities and the SEC (to the extent required by the 1940 Act). We will purchase and redeem series fund shares for the Account at their net asset value without any sales or redemption charges. Shares of a series fund represent an interest in one of the funds of the series fund which corresponds to a subaccount of the Account. Any dividend or capital gains distributions received by the Account will be reinvested in shares of that same fund at their net asset value as of the dates paid. On each business day, shares of each fund are purchased or redeemed by us for each subaccount based on, among other things, the amount of net premiums allocated to the subaccount, distributions reinvested, and transfers to, from and among subaccounts, all to be effected as of that date. Such purchases and redemptions are effected at each fund's net asset value per share determined for that same date. A "business day" is any date on which the New York Stock Exchange is open for trading. We compute policy values for each business day as of the close of that day (usually 4:00 p.m. Eastern time). We will vote shares of the portfolios held in the Account at the shareholder meetings according to voting instructions received from persons having the voting interest under the policies. We will determine the number of portfolio shares for which voting instructions may be given not more than 90 days prior to the meeting. Proxy material will be distributed to each person having the voting interest under the contract together with appropriate forms for giving voting instructions. We will vote all portfolio shares that we hold (including our own shares and those we hold in the Account of policy owners) in proportion to the instructions so received. We determine the number of a fund's shares held in a subaccount attributable to each owner by dividing the amount of a policy's account value held in the subaccount by the net asset value of one share in the fund. Fractional votes will be counted. We determine the number of shares as to which the owner may give instructions as of the record date for a series fund's meeting. Owners of policies may give instructions regarding the election of the Board of Trustees or Board of Directors of a series fund, ratification of the selection of independent auditors, approval of series fund investment advisory agreements and other matters requiring a shareholder vote. We will furnish owners with information and forms to enable owners to give voting instructions. However, we may, in certain limited circumstances permitted by the SEC's rules, disregard voting instructions. If we do disregard voting instructions, you will receive a summary of that action and the reasons for it in the next semi-annual report to owners. The voting privileges described above reflect our understanding of applicable Federal securities law requirements. To the extent that applicable law, regulations or interpretations change to eliminate or restrict the need for such voting privileges, we reserve the right to proceed in accordance with any such revised requirements. We also reserve the right, subject to compliance with applicable law, including approval of owners if so required, (1) to transfer assets determined by John Hancock USA to be associated with the class of policies to which your policy belongs from the Account to another separate account or subaccount, (2) to deregister the Account under the 1940 Act, (3) to substitute for the fund shares held by a subaccount any other investment permitted by law, and (4) to take any action necessary to comply with or obtain any exemptions from the 1940 Act. Any such change will be made only if, in our judgment, the change would best serve the interests of owners of policies in your policy class or would be appropriate in carrying out the purposes of such policies. We would notify owners of any of the forgoing changes and to the extent legally required, obtain approval of affected owners and any regulatory body prior thereto. Such notice and approval, however, may not be legally required in all cases. Description of John Hancock USA We are a stock life insurance company incorporated in Maine on August 20, 1955 by a special act of the Maine legislature and redomesticated under the laws of Michigan. We are a licensed life insurance company in the District of Columbia and all states of the United States except New York. Our ultimate parent is Manulife Financial Corporation 22 ("MFC"), a publicly traded company, based in Toronto, Canada. MFC is the holding company of John Hancock USA and its subsidiaries. However, neither John Hancock USA nor any of its affiliated companies guarantees the investment performance of the Account. We have received the following ratings from independent rating agencies: A++ A.M. Best Superior Companies have a very strong ability to meet their obligations; 1st category of 15 AA+ Fitch Ratings Very strong capacity to meet policyholder and contract obligations; 2nd category of 9 AAA Standard & Poor's Extremely strong financial security characteristics; 1st category of 8 Aa2 Moody's Excellent in financial strength; 2nd category of 9 These ratings, which are current as of the date of this prospectus and are subject to change, are assigned as a measure of our ability to honor any guarantees provided by the policy and any applicable optional riders, but do not specifically relate to our products, the performance (return) of these products, the value of any investment in these products upon withdrawal or to individual securities held in any portfolio. These ratings do not apply to the safety and performance of the Separate Account. Description of Separate Account N The investment accounts shown on page 1 are in fact subaccounts of Separate Account N, a separate account operated by us under Michigan law. The Account meets the definition of "separate account" under the Federal securities laws and is registered as a unit investment trust under the 1940 Act. Such registration does not involve supervision by the SEC of the management of the Account or of us. The Account's assets are our property. Each policy provides that amounts we hold in the Account pursuant to the policies cannot be reached by any other persons who may have claims against us and can't be used to pay any indebtedness of John Hancock USA other than those arising out of policies that use the Account. Income, gains and losses credited to, or charged against, the Account reflect the Account's own investment experience and not the investment experience of the John Hancock USA's other assets. New subaccounts may be added and made available to policy owners from time to time. Existing subaccounts may be modified or deleted at any time. The fixed account Our obligations under any fixed account are backed by our general account assets. Our general account consists of assets owned by us other than those in the Account and in other separate accounts that we may establish. Subject to applicable law, we have sole discretion over the investment of assets of the general account and policy owners do not share in the investment experience of, or have any preferential claim on, those assets. Instead, we guarantee that the policy value allocated to any fixed account will accrue interest daily at an effective annual rate that we determine without regard to the actual investment experience of the general account. We currently offer only one fixed account -- the standard fixed account. The effective annual rate we declare for the fixed account will never be less than 3%. We reserve the right to offer one or more additional fixed accounts with characteristics that differ from those of the current fixed account, but we are under no obligation to do so. Because of exemptive and exclusionary provisions, interests in our fixed account have not been and will not be registered under the Securities Act of 1933 ("1933 Act") and our general account has not been registered as an investment company under the 1940 Act. Accordingly, neither the general account nor any interests therein are subject to the provisions of these acts, and we have been advised that the staff of the SEC has not reviewed the disclosure in this prospectus relating to any fixed account. Disclosure regarding fixed accounts may, however, be subject to certain generally-applicable provisions of the Federal securities laws relating to accuracy and completeness of statements made in prospectuses. 23 The death benefit In your application for the policy, you will tell us how much life insurance coverage you want on the life of the insured person. This is called the "Total Face Amount". Total Face Amount is composed of the Base Face Amount and any Supplemental Face Amount you elect. The Supplemental Face Amount you can have generally cannot exceed 900% of the Base Face Amount at the Issue Date. Thereafter, increases to the Supplemental Face Amount cannot exceed 400% of the Total Face Amount at the Issue Date. There are a number of factors you should consider in determining whether to elect coverage in the form of Base Face Amount or in the form of Supplemental Face Amount. These factors are discussed under "Base Face Amount vs. Supplemental Face Amount" below. When the insured person dies, we will pay the death benefit minus any outstanding policy debt and unpaid fees and charges. There are two ways of calculating the death benefit. You must choose which one you want in the application. The two death benefit options are: . Option 1 - The death benefit will equal the greater of (1) the Total Face Amount, or (2) the minimum death benefit (as described below). . Option 2 - The death benefit will equal the greater of (1) the Total Face Amount plus the policy value on the date of death, or (2) the minimum death benefit. For the same premium payments, the death benefit under Option 2 will tend to be higher than the death benefit under Option 1. On the other hand, the monthly insurance charge will be higher under Option 2 to compensate us for the additional insurance risk. Because of that, the policy value will tend to be higher under Option 1 than under Option 2 for the same premium payments. Limitations on payment of death benefit If the insured person commits suicide within certain time periods, the amount payable will be limited as described in the policy. Also, if an application misstated the age or gender of the insured person, we will adjust the amount of any death benefit as described in the policy. Base Face Amount vs. Supplemental Face Amount As noted above, you should consider a number of factors in determining whether to elect coverage in the form of Base Face Amount or in the form of Supplemental Face Amount. For the same amount of premiums paid, the amount of the Face Amount charge deducted from policy value and the amount of compensation paid to the selling insurance agent will generally be less if coverage is included as Supplemental Face Amount, rather than as Base Face Amount. On the other hand, the amount of any Supplemental Face Amount included in the calculation of the death benefit at and after the policy anniversary nearest the insured person's 100/th /birthday will be limited to the lesser of the current Supplemental Face Amount or the policy value. If your priority is to reduce your Face Amount charges, you may wish to maximize the proportion of the Supplemental Face Amount. However, if your priority is to maximize the death benefit when the insured person reaches age 100, then you may wish to maximize the proportion of the Base Face Amount. The minimum death benefit In order for a policy to qualify as life insurance under Federal tax law, there has to be a minimum amount of insurance in relation to policy value. There are two tests that can be applied under Federal tax law -- the "guideline premium test" and the "cash value accumulation test". When you elect the death benefit option, you must also elect which test you wish to have applied. Once elected, the test cannot be changed without our approval. Under the guideline premium test, we compute the minimum death benefit each business day by multiplying the policy value and any enhanced cash value, if applicable, on that date by the death benefit factor applicable on that date. In this case, the factors are derived by applying the guideline premium test. Factors for some ages are shown in the table below: 24 Applicable Attained Age Factor ------------ ---------- 40 and under............................ 250% 45...................................... 215% 50...................................... 185% 55...................................... 150% 60...................................... 130% 65...................................... 120% 70...................................... 115% 75...................................... 105% 90...................................... 105% 95 and above............................ 100% A table showing the factor for each age will appear in the policy. Under the cash value accumulation test, we compute the minimum death benefit each business day by multiplying the policy value (and any benefit under the Enhanced Cash Value Rider) on that date by the death benefit factor applicable on that date. In this case, the factors are derived by applying the cash value accumulation test. The factor decreases as attained age increases. A table showing the factor for each age will appear in the policy. As noted above, you have to elect which test will be applied when you elect the death benefit option. The cash value accumulation test may be preferable if you want an increasing death benefit in later policy years and/or want to fund the policy at the "7 pay" limit for the full 7 years (see "Tax considerations"). The guideline premium test may be preferable if you want the policy value under the policy to increase without increasing the death benefit as quickly as might otherwise be required. To the extent that the calculation of the minimum death benefit under the selected life insurance qualification test causes the death benefit to exceed our limits, we reserve the right to return premiums or distribute a portion of the policy value so that the resulting amount of insurance is maintained within our limits. Alternatively, if we should decide to accept the additional amount of insurance, we may require additional evidence of insurability. When the insured person reaches 100 At and after the policy anniversary nearest the insured person's 100th birthday, the following will occur: . Any Supplemental Face Amount will be limited (see "Base Face Amount vs. Supplemental Face Amount"). . We will stop deducting any monthly deductions. . We will stop accepting any premium payments. Requesting an increase in coverage After the first policy year, we may approve an unscheduled increase in the Supplemental Face Amount at any time, subject to the maximum limit stated in the policy. Generally, each such increase must be at least $50,000. However, you will have to provide us with evidence that the insured person still meets our requirements for issuing insurance coverage. An approved increase will take effect on the policy anniversary on or next following the date we approve the request. Requesting a decrease in coverage After the first policy year, we may approve a reduction in the Base Face Amount or the Supplemental Face Amount, but only if: . the remaining Total Face Amount will be at least $100,000, . the remaining Base Face Amount will be at least $50,000, and . the remaining Total Face Amount will at least equal the minimum required by the tax laws to maintain the policy's life insurance status. An approved decrease will take effect on the monthly deduction date on or next following the date we approve the request. We reserve the right to require that the Supplemental Face Amount be fully depleted before the Base Face Amount can be reduced. 25 Change of death benefit option The death benefit option may be changed from Option 2 to Option 1 after the first policy year. We reserve the right to limit a request for a change if the change would cause the policy to fail to qualify as life insurance for tax purposes. We will not allow a change in death benefit option if it would cause the Total Face Amount to decrease below $100,000. A change in the death benefit option from Option 2 to Option 1 will result in a change in the policy's Total Face Amount, in order to avoid any change in the amount of the death benefit. The new Total Face Amount will be equal to the Total Face Amount prior to the change plus the policy value as of the date of the change. The change will take effect on the monthly deduction date on or next following the date the written request for the change is received at our Service Office. If you change the death benefit option, the Federal tax law test ("guideline premium test" or "cash value accumulation test") that you elected at issue will continue to apply. Please read "The minimum death benefit" for more information about these Federal tax laws tests. Tax consequences of coverage changes A change in the death benefit option or Total Face Amount will often change the policy's limits under the Federal tax law test that you elected. To avoid having the policy cease to qualify as life insurance for tax purposes, we reserve the right to (i) refuse or limit a change in the death benefit option or Total Face Amount and (ii) change the Guideline Single Premium or Guideline Level Premium, as applicable. Please read "Tax considerations" to learn about possible tax consequences of changing your insurance coverage under the policy. Your beneficiary You name your beneficiary when you apply for the policy. The beneficiary is entitled to the proceeds we pay following the insured person's death. You may change the beneficiary during the insured person's lifetime. Such a change requires the consent of any named irrevocable beneficiary. A new beneficiary designation will not affect any payments we make before we receive it. If no beneficiary is living when the insured person dies, we will pay the insurance proceeds to the owner or the owner's estate. Ways in which we pay out policy proceeds You may choose to receive proceeds from the policy as a single sum. This includes proceeds that become payable because of death or surrender. Alternatively, you can select to have proceeds of $1,000 or more applied to any of the other payment options we may offer at the time. You cannot choose an option if the monthly payments under the option would be less than $50. We will issue a supplementary agreement when the proceeds are applied to any alternative payment option. That agreement will spell out the terms of the option in full. If no alternative payment option is chosen, proceeds may be paid as a single sum. Changing a payment option You can change the payment option at any time before the proceeds are payable. If you haven't made a choice, the payee of the proceeds has a prescribed period in which he or she can make that choice. Tax impact of payment option chosen There may be tax consequences to you or your beneficiary depending upon which payment option is chosen. You should consult with a qualified tax adviser before making that choice. Premiums Planned premiums The Policy Specifications page of your policy will show the "Planned Premium" for the policy. You choose this amount in the policy application. You will also choose how often to pay premiums -- annually, semi-annually, quarterly or monthly. The premium reminder notice we send you is based on the amount and period you choose. However, payment of Planned Premiums is not necessarily required. You need only pay enough premium to keep the policy in force (see "Lapse and reinstatement"). 26 Minimum initial premium The Minimum Initial Premium is set forth in the Policy Specifications page of your policy. After the payment of the initial premium, premiums may be paid at any time and in any amount until the insured person's attained age 100, subject to the limitations on premium amount described below. Maximum premium payments Federal tax law limits the amount of premium payments you can make relative to the amount of your policy's insurance coverage. We will not knowingly accept any amount by which a premium payment exceeds this limit. If you exceed certain other limits, the law may impose a penalty on amounts you take out of your policy. More discussion of these tax law requirements is provided under "Tax considerations". Large premium payments may expose us to unanticipated investment risk, and we will generally refuse to accept premiums in excess of the Maximum Annual Premium limit set forth in the Policy Specifications. In addition, in order to limit our investment risk exposure under certain market conditions, we may refuse to accept additional premium payments that are not in excess of the Maximum Annual Premium limit. This may be the case, for example, in an environment of decreasing interest rates, where we may not be able to acquire investments for our general account that will sufficiently match the liabilities we are incurring under our fixed account guarantees. Excessive allocations may also interfere with the effective management of our variable investment account portfolios, if we are unable to make an orderly investment of the additional premium into the portfolios. Also, we may refuse to accept an amount of additional premium if the amount of the additional premium would increase our insurance risk exposure, and the insured person doesn't provide us with adequate evidence that he or she continues to meet our requirements for issuing insurance. We will notify you in writing of our refusal to accept additional premium under these provisions within three days following the date that it is received by us, and will promptly thereafter take the necessary steps to return the premium to you. Notwithstanding the foregoing limits on the additional premium that we will accept, we will not refuse to accept any premium necessary to prevent the policy from terminating. Processing premium payments No premiums will be accepted prior to our receipt of a completed application at our Service Office. All premiums received prior to the Issue Date of the policy will be held in the general account and credited with interest from the date of receipt at the rate then being earned on amounts allocated to the Money Market B investment account. All premiums received on or after the Issue Date, but prior to the Allocation Date, will be held in the Money Market B investment account. The "Allocation Date" of the policy is the 10th day after the Issue Date. The Issue Date is shown on the Policy Specifications page of the policy. On the Allocation Date, the Net Premiums paid plus interest credited, if any, will be allocated among the investment accounts or the fixed account in accordance with the policy owner's instructions. The "Net Premium" is the premium paid less the premium charge we deduct from it. Any Net Premium received on or after the Allocation Date will be allocated among investment accounts or the fixed account as of the business day on or next following the date the premium is received at the Service Office. Monthly deductions are normally due on the Policy Date and at the beginning of each policy month thereafter. However, if the monthly deductions are due prior to the Contract Completion Date, they will be deducted from policy value on the Contract Completion Date instead of the dates they were due (see "Procedures for issuance of a policy" for the definition of "Contract Completion Date"). Payment of premiums will not guarantee that the policy will stay in force. Conversely, failure to pay premiums will not necessarily cause the policy to lapse. Ways to pay premiums If you pay premiums by check or money order, they must be drawn on a U.S. bank in U.S. dollars and made payable to "John Hancock". We will not accept credit card checks. We will not accept starter or third party checks if they fail to satisfy our administrative requirements. Premiums after the first must be sent to the John Hancock USA Service Office at the appropriate address shown on the back cover of this prospectus. We will also accept premiums by wire or by exchange from another insurance company. 27 Lapse and reinstatement Lapse A policy will go into default if at the beginning of any policy month the policy's net cash surrender value would be zero or below after deducting the monthly deductions then due. Therefore, a policy could lapse eventually if increases in policy value (prior to deduction of policy charges) are not sufficient to cover policy charges. A lapse could have adverse tax consequences as described under "Tax considerations". We will notify you of the default and will allow a 61 day grace period in which you may make a premium payment sufficient to bring the policy out of default. The required payment will be equal to the amount necessary to bring the net cash surrender value to zero, if it was less than zero on the date of default, plus the monthly deductions due at the date of default and payable at the beginning of each of the two policy months thereafter, plus any applicable premium charge. If the required payment is not received by the end of the grace period, the policy will terminate (i.e., "lapse") with no value. Death during grace period If the insured person should die during the grace period, the policy value used in the calculation of the death benefit will be the policy value as of the date of default and the insurance benefit will be reduced by any outstanding monthly deductions due at the time of death. Reinstatement You can reinstate a policy that has gone into default and terminated at any time within 21 days following the date of termination without furnishing evidence of insurability, subject to the following conditions: (a) The insured person's risk classification is standard or preferred, and (b) The insured person's attained age is less than 46. By making a written request, you can reinstate a policy that has gone into default and terminated at any time within the three-year period following the date of termination subject to the following conditions: (a) You must provide to us evidence of the insured person's insurability that is satisfactory to us; and (b) You must pay a premium equal to the amount that was required to bring the policy out of default immediately prior to termination, plus the amount needed to keep the policy in force to the next scheduled date for payment of the Planned Premium. If the reinstatement is approved, the date of reinstatement will be the later of the date we approve your request or the date the required payment is received at our Service Office. The policy value on the date of reinstatement, prior to the crediting of any Net Premium paid in connection with the reinstatement, will be equal to the policy value on the date the policy terminated. Any policy debt not paid upon termination of a policy will be reinstated if the policy is reinstated. Generally, the suicide exclusion and incontestability provision will apply from the effective date of the reinstatement. Your policy will indicate if this is not the case. A surrendered policy cannot be reinstated. The policy value From each premium payment you make, we deduct the premium charge described under "Deduction from premium payments". We invest the rest (known as the "Net Premium") in the accounts (fixed or investment) you've elected. Special investment rules apply to premiums processed prior to the Allocation Date. (See "Processing premium payments".) Over time, the amount you've invested in any investment account will increase or decrease the same as if you had invested the same amount directly in the corresponding underlying portfolio and had reinvested all portfolios' dividends and distributions in additional portfolio shares; except that we will deduct certain additional charges which will reduce your policy value. We describe these charges under "Description of charges at the policy level". We calculate the unit values for each investment account once every business day as of the close of trading on the New York Stock Exchange, usually 4:00 p.m. Eastern time. Sales and redemptions within any investment account will be transacted using the unit value next calculated after we receive your request either in writing or other form that we specify. If we receive your request before the close of our business day, we'll use the unit value calculated as of the end of that business 28 day. If we receive your request at or after the close of our business day, we'll use the unit value calculated as of the end of the next business day. If a scheduled transaction falls on a day that is not a business day, we'll process it as of the end of the next business day. The amount you've invested in any fixed account will earn interest at the rates we declare from time to time. For the fixed account, we guarantee that this rate will be at least 3%. If you want to know what the current declared rate is for the fixed account, just call or write to us. Amounts you invest in the fixed account will not be subject to the asset-based risk charge described under "Deductions from policy value". Otherwise, the policy level charges applicable to the fixed account are the same as those applicable to the investment accounts. We reserve the right to offer one or more additional fixed accounts with characteristics that differ from those of the current fixed account, but we are under no obligation to do so. Allocation of future premium payments At any time, you may change the accounts (fixed or investment) in which future premium payments will be invested. You make the original allocation in the application for the policy. The percentages you select must be in whole numbers and must total 100%. Transfers of existing policy value You may also transfer your existing policy value from one account (fixed or investment) to another. To do so, you must tell us how much to transfer, either as a whole number percentage or as a specific dollar amount. A confirmation of each transfer will be sent to you. Without our approval, the maximum amount you may transfer to or from any account in any policy year is $1,000,000. The policies are not designed for professional market timing organizations or other persons or entities that use programmed or frequent transfers among investment accounts. As a consequence, we have reserved the right to impose limits on the number and frequency of transfers into and out of investment accounts and to impose a fee of up to $25 for any transfer beyond an annual limit (which will not be less than 12). No transfer fee will be imposed on any transfer from an investment account into a fixed account if the transfer occurs during the following periods: . within 18 months after the policy's Issue Date, or . within 60 days after the later of the effective date of a material change in the investment objectives of any investment account or the date you are notified of the change. Subject to the restrictions set forth below, you may transfer existing policy value into or out of investment accounts. Transfers out of a fixed account are subject to additional limitations noted below. Our current practice is to restrict transfers into or out of investment accounts to two per calendar month (except with respect to those policies described in the following paragraph). For purposes of this restriction, and in applying the limitation on the number of free transfers, transfers made during the period from the opening of a business day (usually 9:00 a.m. Eastern time) to the close of that business day (usually 4:00 p.m. Eastern time) are considered one transfer. You may, however, transfer to the Money Market B investment account even if the two transfer per month limit has been reached, but only if 100% of the account value in all investment accounts is transferred to the Money Market B investment account. If such a transfer to the Money Market B investment account is made, then for the 30 calendar day period after such transfer no transfers from the Money Market B investment account to any other accounts (fixed or investment) may be made. If your policy offers a dollar cost averaging or automatic asset allocation rebalancing program, any transfers pursuant to such program are not considered transfers subject to these restrictions on frequent trading. The restrictions described in this paragraph will be applied uniformly to all policy owners subject to the restrictions. Policies such as yours may be purchased by a corporation or other entity as a means to informally finance the liabilities created by an employee benefit plan, and to this end the entity may aggregately manage the policies purchased to match its liabilities under the plan. Policies sold under these circumstances are subject to special transfer restrictions. In lieu of the two transfers per month restriction, we will allow the policy owner under these circumstances to rebalance the investment options in its policies within the following limits: (i) during the 10 calendar day period after any policy values are transferred from one investment account into a second investment account, the values can only be transferred out of the second investment account if they are transferred into the Money Market B investment account; and (ii) any policy values that would otherwise not be transferable by application of the 10 day limit described above and that are transferred into the Money Market B investment account may not be transferred out of the Money Market B investment account into any other accounts (fixed or 29 investment) for 30 calendar days. The restrictions described in this paragraph will be applied uniformly to all policy owners subject to the restrictions. Rule 22c-2 under the 1940 Act requires us to provide tax identification numbers and other policy owner transaction information to John Hancock Trust or to other investment companies in which the Separate Account invests, at their request. An investment company will use this information to identify any pattern or frequency of investment account transfers that may violate their frequent trading policy. An investment company may require us to impose trading restrictions in addition to those described above if violations of their frequent trading policy are discovered. The most you can transfer at any one time out of a fixed account is the greater of (i) the fixed account maximum transfer amount of $2,000, or (ii) the fixed account maximum transfer percentage of 25% multiplied by the amount of the fixed account on the immediately preceding policy anniversary. Any transfer which involves a transfer out of the fixed account may not involve a transfer to the Money Market B investment account. We reserve the right to impose a minimum amount limit on transfers out of any fixed account. We also reserve the right to impose different restrictions on any additional fixed account that we may offer in the future. Dollar cost averaging. We may offer policy owners a dollar cost averaging ("DCA") program. Under the DCA program, the policy owner will designate an amount which will be transferred monthly from one investment account into any other investment account(s) or the fixed account. If insufficient funds exist to effect a DCA transfer, the transfer will not be effected and you will be so notified. No fee is charged for this program. We reserve the right to cease to offer this program as of 90 days after written notice is sent to you. Asset allocation balancer transfers. Under the asset allocation balancer program the policy owner will designate an allocation of policy value among investment accounts. At six month intervals beginning six months after the Policy Date, we will move amounts among the investment accounts as necessary to maintain your chosen allocation. A change to your premium allocation instructions will automatically result in a change in asset allocation balancer instructions so that the two are identical unless you either instruct us otherwise or have elected the dollar cost averaging program. No fee is charged for this program. We reserve the right to cease to offer this program as of 90 days after written notice is sent to you. Surrender and withdrawals Surrender You may surrender your policy in full at any time. If you do, we will pay you the policy value less any policy debt. This is called your "net cash surrender value". You must return your policy when you request a surrender. We will process surrenders on the day we receive the surrender request (unless such day is not a business day, in which case we will process surrenders as of the business day next following the date of the receipt). Withdrawals After the first policy year, you may make a withdrawal of part of your net cash surrender value once in each policy month. Generally, each withdrawal must be at least $500. There is a withdrawal fee for each withdrawal of the lesser of 2% of the withdrawal amount or $25. We will automatically reduce the policy value of your policy by the amount of the withdrawal fee. Unless otherwise specified by you, each account (fixed and investment) will be reduced in the same proportion as the policy value is then allocated among them. We will not permit a withdrawal if it would cause your net cash surrender value to fall below 3 months' worth of monthly deductions (see "Deductions from policy value"). We also reserve the right to refuse any withdrawal that would cause the policy's Total Face Amount to fall below $100,000 or the Base Face Amount to fall below $50,000. Because it reduces the policy value, any withdrawal will reduce your death benefit under either Option 1 or Option 2 (see "The death benefit"). Under Option 1, such a withdrawal may also reduce the Total Face Amount. Generally, any such reduction in the Total Face Amount will be implemented by first reducing any Supplemental Face Amount then in effect. We may approve reductions in the Base Face Amount prior to eliminating the Supplemental Face Amount. You should consider a number of factors in determining whether to continue coverage in the form of Base Face Amount or Supplemental Face Amount. (see "Base Face Amount vs. Supplemental Face Amount"). If such a reduction in Total Face Amount would cause the policy to fail the Internal Revenue Code's definition of life insurance, we will not permit the withdrawal. 30 Policy loans You may borrow from your policy at any time by completing a form satisfactory to us. The amount available for loan will not be less than 75% of the net cash surrender value. The maximum amount you can borrow is the amount determined as follows: . We first determine the net cash surrender value of your policy. . We then subtract an amount equal to 12 times the monthly deductions then being deducted from policy value. . We then multiply the resulting amount by 0.75% in policy years 1 through 10 and 0% thereafter (although we reserve the right to increase the percentage after the tenth policy year to as much as .25%). . We then subtract the third item above from the second item above. The minimum amount of each loan is $500. The interest charged on any loan is an effective annual rate of 3.75% in the first 10 policy years and 3.00% thereafter. However, we reserve the right to increase the percentage after the tenth policy year to as much as 3.25%. Accrued interest will be added to the loan daily and will bear interest at the same rate as the original loan amount. Unless otherwise specified by you, the amount of the loan is deducted from the accounts (fixed and investment) in the same proportion as the policy value is then allocated among them. The amount of the loan is then placed in a special loan account. This special loan account will earn interest at an effective annual rate of 3.00%. The tax consequences of a loan interest credited differential of 0% are unclear. You should consult a tax adviser before effecting a loan to evaluate possible tax consequences. If we determine that a loan will be treated as a taxable distribution because of the differential between the loan interest rate and the rate being credited on the special loan account, we reserve the right to increase the rate charged on the loan to a rate that would, in our reasonable judgment, result in the transaction being treated as a loan under Federal tax law. The right to increase the rate charged on the loan is restricted in some states. Please see your John Hancock USA representative for details. We process policy loans as of the business day on or next following the day we receive the loan request. Repayment of policy loans You can repay all or part of a loan at any time. Each repayment will be allocated among the accounts as follows: . The same proportionate part of the loan as was borrowed from any fixed account will be repaid to that fixed account. . The remainder of the repayment will be allocated among the accounts in the same way a new premium payment would be allocated (unless otherwise specified by you). If you want a payment to be used as a loan repayment, you must include instructions to that effect. Otherwise, all payments will be assumed to be premium payments. We process loan repayments as of the day we receive the repayment. Effects of policy loans The policy value, the net cash surrender value, and any death benefit are permanently affected by any loan, whether or not it is repaid in whole or in part. This is because the amount of the loan is deducted from the accounts and placed in a special loan account. The accounts and the special loan account will generally have different rates of investment return. The amount of the outstanding loan (which includes accrued and unpaid interest) is subtracted from the amount otherwise payable when the policy proceeds become payable. Taking out a loan on the policy increases the risk that the policy may lapse because of the difference between the interest rate charged on the loan and the interest rate credited to the special loan account. Also, whenever the outstanding loan equals or exceeds your policy value after the insured person reaches age 100, the policy will terminate 31 days after we have mailed notice of termination to you (and to any assignee of record at such assignee's last known address) specifying the amount that must be paid to avoid termination, unless a repayment of at least the amount specified is made within that period. Policy loans may also result in adverse tax consequences under certain circumstances (see "Tax considerations"). Description of charges at the policy level Deduction from premium payments . Premium charge - A charge to help defray our sales costs and related taxes. The current charge is 1.5% of each premium paid, although we reserve the right to increase the percentage to as high as 7%. 31 Deductions from policy value . Administrative charge - A monthly charge to help cover our administrative costs. This is a flat dollar charge of up to $12. . Face Amount charge - A monthly charge for the first ten policy years to primarily help cover sales costs. To determine the charge we multiply the amount of Base Face Amount by a rate which varies by the insured person's sex, age and risk classification at issue. . Cost of insurance charge - A monthly charge for the cost of insurance. To determine the charge, we multiply the net amount of insurance for which we are then at risk by a cost of insurance rate. The rate is derived from an actuarial table. The table in your policy will show the maximum cost of insurance rates. The cost of insurance rates that we currently apply are generally less than the maximum rates. The current rates will never be more than the maximum rates shown in the policy. The cost of insurance we use will depend on age of the insured person at issue, the insurance risk characteristics and (usually) gender of the insured person, the and the length of time the policy has been in effect. Regardless of the table used, cost of insurance rates generally increase each year that you own your policy, as the insured person's age increases. (The insured person's "age" on any date is his or her age on the birthday nearest that date.) For death benefit Option 1, the net amount at risk is equal to the greater of zero, or the result of (a) minus (b) where: (a) is the death benefit as of the first day of the policy month, divided by 1.0024663; and (b) is the policy value as of the first day of the policy month after the deduction of all other monthly deductions. Since the net amount at risk for death benefit Option 1 is based on a formula that includes as factors the death benefit and the policy value, the net amount at risk is affected by the investment performance of the investment accounts chosen, payment of premiums and charges assessed. If the minimum death benefit is greater than the Total Face Amount, the cost of insurance charge will reflect the amount of that additional benefit. For death benefit Option 2, the net amount at risk is equal to the Total Face Amount of insurance divided by 1.0024663. . Asset-based risk charge - A monthly charge to help cover sales, administrative and other costs. The charge is a percentage of that portion of your policy value allocated to investment accounts. This charge does not apply to the current fixed account. . Supplementary benefits charges - Monthly charges for any supplementary insurance benefits added to the policy by means of a rider. . Withdrawal fee - A fee for each withdrawal of policy value to compensate us for the administrative expenses of processing the withdrawal. The fee is the lesser of 2% of the withdrawal amount or $25. This fee is not currently imposed, but we reserve the right to do so. Additional information about how certain policy charges work Sales expenses and related charges The premium charges help to compensate us for the cost of selling our policies. (See "Description of charges at the policy level".) The amount of the charges in any policy year does not specifically correspond to sales expenses for that year. We expect to recover our total sales expenses over the life of the policies. To the extent that the premium charges do not cover total sales expenses, the sales expenses may be recovered from other sources, including gains from the asset-based risk charge and other gains with respect to the policies, or from our general assets. Similarly, administrative expenses not fully recovered by the administrative charge may also be recovered from such other sources. Method of deduction We deduct the monthly deductions described in the Fee Tables section from your policy's accounts (fixed and investment) in proportion to the amount of policy value you have in each, unless otherwise specified by you. 32 Reduced charges for eligible classes The charges otherwise applicable may be reduced with respect to policies issued to a class of associated individuals or to a trustee, employer or similar entity where we anticipate that the sales to the members of the class will result in lower than normal sales or administrative expenses, lower taxes or lower risks to us. We will make these reductions in accordance with our rules in effect at the time of the application for a policy. The factors we consider in determining the eligibility of a particular group for reduced charges, and the level of the reduction, are as follows: the nature of the association and its organizational framework; the method by which sales will be made to the members of the class; the facility with which premiums will be collected from the associated individuals and the association's capabilities with respect to administrative tasks; the anticipated lapse and surrender rates of the policies; the size of the class of associated individuals and the number of years it has been in existence; the aggregate amount of premiums paid; and any other such circumstances which result in a reduction in sales or administrative expenses, lower taxes or lower risks. Any reduction in charges will be reasonable and will apply uniformly to all prospective policy purchasers in the class and will not unfairly discriminate against any owner. Other charges we could impose in the future Except for a portion of the premium charge, we currently make no charge for our Federal income taxes. However, if we incur, or expect to incur, income taxes attributable to any subaccount of the Account or this class of policies in future years, we reserve the right to make a charge for such taxes. Any such charge would reduce what you earn on any affected investment accounts. However, we expect that no such charge will be necessary. We also reserve the right to increase the premium charge in order to correspond with changes in the state premium tax levels or in the Federal income tax treatment of the deferred acquisition costs for this type of policy. Currently, state premium tax levels range from 0% to 3.5%. Under current laws, we may incur state and local taxes (in addition to premium taxes) in several states. At present, these taxes are not significant. If there is a material change in applicable state or local tax laws, we may make charges for such taxes. Description of charges at the portfolio level The portfolios must pay investment management fees and other operating expenses. These fees and expenses (shown in the tables of portfolio annual expenses under "Fee Tables") are different for each portfolio and reduce the investment return of each portfolio. Therefore, they also indirectly reduce the return you will earn on any investment accounts you select. We may also receive payments from a Series Fund or its affiliates at an annual rate of up to approximately 0.45% of the average net assets that holders of our variable life insurance policies and other products have invested in that portfolio. Any such payments do not, however, result in any charge to you in addition to what is shown in the tables. Expenses of the portfolios are not fixed or specified under the terms of the policy, and those expenses may vary from year to year. Other policy benefits, rights and limitations Optional supplementary benefit riders you can add When you apply for a policy, you can request any of the optional supplementary benefit riders that we then make available. Availability of any rider, the benefits it provides and the charges for it may vary by state. Our rules and procedures will govern eligibility for any rider and, in some cases, the configuration of the actual rider benefits. Each rider contains specific details that you should review before you decide to choose the rider. Charges for most riders will be deducted from the policy value. We may change these charges (or the rates that determine them), but not above any applicable maximum amount stated in the Policy Specifications page of your policy. We may add to, delete from or modify the list of optional supplementary benefit riders. . Enhanced Cash Value Rider - This rider provides for payment of an additional benefit to the policy owner upon surrender of the policy in the first seven policy years. The Enhanced Cash Value Rider benefit is calculated as a percentage of the lesser of (i) cumulative premiums paid to date or (ii) the "Limiting Premium" shown in the Policy Specifications page of your policy, minus any withdrawals and policy debt. The percentage starts at 11% and reduces to 0% in the eighth policy year. The cumulative premiums for any policy year are equal to the lesser of the actual premium paid in that policy year and the Limiting Premium. The Enhanced Cash Value Rider is only available if: (i) notice of surrender is received at our Service Office prior to the death of the insured person, (ii) such surrender is not 33 the result of an exchange under section 1035 of the Internal Revenue Code, and (iii) the rider has not terminated pursuant to its terms. This rider does not increase the available loan value of the policy. . Change of Life Insured Rider - This rider is only available to certain owners purchasing the policy in connection with the financing of employee benefit plan obligations. If you elect this rider, you may change the life insured on or after the second policy anniversary. You must have an insurable interest in the new life insured, and the new life insured must consent in writing to the change. We will require evidence which satisfies us of the new life insured's insurability, and the premiums and charges after the change date will reflect the new life insured's age, sex, risk classification and any additional rating which applies. Supplementary benefit riders on the old life insured will be canceled as of the change date. Supplementary benefits riders may be added on the new life insured as of the change date, subject to our normal requirements and restrictions for such benefits. The incontestability and suicide provisions of the policy will apply to the entire Face Amount beginning anew as of the change date. . Overloan Protection Rider - This rider will prevent your policy from lapsing on any date if policy debt exceeds the death benefit. The benefit is subject to a number of eligibility requirements relating to, among other things, the life insurance qualification test selected, the number of years the policy has been in force, the attained age of the life insured, the death benefit option elected and the tax status of the policy. When the overloan protection benefit in this rider is invoked, all values in the investment accounts are immediately transferred to the fixed account and will continue to grow at the current fixed account interest rate. Transfer fees do not apply to these transfers. Thereafter, policy changes and transactions are limited as set forth in the rider; for example, death benefit increases or decreases, additional premium payments, policy loans, withdrawals, surrender and transfers are no longer allowed. Any outstanding policy debt will remain. Interest will continue to be charged at the policy's specified loan interest rate, and the policy's loan account will continue to be credited with the policy's loan interest credited rate. Any supplementary benefit rider requiring a monthly deduction will automatically be terminated. Variations in policy terms Insurance laws and regulations apply to us in every state in which our policies are sold. As a result, various terms and conditions of your insurance coverage may vary from the terms and conditions described in this prospectus, depending upon where you reside. These variations will be reflected in your policy or in endorsements attached to your policy. We may vary the charges and other terms of our policies where special circumstances result in sales or administrative expenses, mortality risks or other risks that are different from those normally associated with the policies. These include the type of variations discussed under "Reduced charges for eligible classes". No variation in any charge will exceed any maximum stated in this prospectus with respect to that charge. Any variation discussed above will be made only in accordance with uniform rules that we adopt and that we apply fairly to our customers. Procedures for issuance of a policy Generally, the policy is available with a minimum Total Face Amount at issue of $100,000 and a minimum Base Face Amount at issue of $50,000. At the time of issue, the insured person must have an attained age of no more than 90. All insured persons must meet certain health and other insurance risk criteria called "underwriting standards". Policies issued in Montana or in connection with certain employee plans will not directly reflect the sex of the insured person in either the premium rates or the charges or values under the policy. Commencement of insurance coverage After you apply for a policy, it can sometimes take up to several weeks for us to gather and evaluate all the information we need to decide whether to issue a policy to you and, if so, what the insured person's risk classification should be. After we approve an application for a policy and assign an appropriate insurance risk classification, we will prepare the policy for delivery. We will not pay a death benefit under a policy unless the policy is in effect when the insured person dies (except for the circumstances described under "Temporary coverage prior to policy delivery" below). The policy will take effect only if all of the following conditions are satisfied: . The policy is delivered to and received by the applicant. . The minimum initial premium is received by us. 34 . The insured person is living and there has been no deterioration in the insurability of the insured person since the date of the application. The date all of the above conditions are satisfied is referred to in this prospectus as the "Contract Completion Date". If all of the above conditions are satisfied, the policy will take effect on the date shown in the policy as the "Policy Date". That is the date on which we begin to deduct monthly charges. Policy months, policy years and policy anniversaries are all measured from the Policy Date. Backdating Under limited circumstances, we may backdate a policy, upon request, by assigning a Policy Date earlier than the date the application is signed. However, in no event will a policy be backdated earlier than the earliest date allowed by state law, which is generally three months to one year prior to the date of application for the policy. The most common reasons for backdating are to preserve a younger age at issue for the insured person or to retain a common monthly deduction date in certain corporate-owned life insurance cases involving multiple policies issued over time. If used to preserve age, backdating will result in lower insurance charges. However, monthly deductions will begin earlier than would otherwise be the case. Monthly deductions for the period the Policy Date is backdated will actually be deducted from policy value on the Contract Completion Date. Temporary coverage prior to policy delivery If a specified amount of premium is paid with the application for a policy and other conditions are met, we will provide temporary term life insurance coverage on the insured person for a period prior to the time coverage under the policy takes effect. Such temporary term coverage will be subject to the terms and conditions described in the Temporary Life Insurance Agreement and Receipt attached to the application for the policy, including conditions to coverage and limits on amount and duration of coverage. Monthly deduction dates Each charge that we deduct monthly is assessed against your policy value at the close of business on the Policy Date and at the close of the first day in each subsequent Policy Month. Changes that we can make as to your policy We reserve the right to make any changes in the policy necessary to ensure the policy is within the definition of life insurance under the Federal tax laws and is in compliance with any changes in Federal or state tax laws. In our policies, we reserve the right to make certain changes if they would serve the best interests of policy owners or would be appropriate in carrying out the purposes of the policies. Such changes include the following: . Changes necessary to comply with or obtain or continue exemptions under the Federal securities laws . Combining or removing fixed accounts or investment accounts . Changes in the form of organization of any separate account Any such changes will be made only to the extent permitted by applicable laws and only in the manner permitted by such laws. When required by law, we will obtain your approval of the changes and the approval of any appropriate regulatory authority. The owner of the policy Who owns the policy? That's up to the person who applies for the policy. The owner of the policy is the person who can exercise most of the rights under the policy, such as the right to choose the accounts in which to invest or the right to surrender the policy. In many cases, the person buying the policy is also the person who will be the owner. However, the application for a policy can name another person or entity (such as a trust) as owner. Whenever we've used the term "you" in this prospectus, we've assumed that the reader is the person who has whatever right or privilege is being discussed. There may be tax consequences if the owner and the insured person are different, so you should discuss this issue with your tax adviser. While the insured person is alive, you will have a number of options under the policy. Here are some major ones: . Determine when and how much you invest in the various accounts 35 . 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 right You have the right to cancel your policy within 10 days after you receive it (the period may be longer in some states). This is often referred to as the "free look" period. To cancel your policy, simply deliver or mail the policy to: . John Hancock USA at one of the addresses shown on the back cover of this prospectus, or . the John Hancock USA representative who delivered the policy to you. The date of cancellation will be the date of such mailing or delivery. In most states, you will receive a refund of any premiums you've paid. In some states, the refund will be your policy value on the date of cancellation. Reports that you will receive At least annually, we will send you a statement setting forth at least the following information as of the end of the most recent reporting period: the amount of the death benefit, the portion of the policy value in the fixed account and in each investment account, premiums received and charges deducted from premiums since the last report, any outstanding policy loan (and interest charged for the preceding policy year), and any further information required by law. Moreover, you also will receive confirmations of premium payments, transfers among accounts, policy loans, partial withdrawals and certain other policy transactions. Semiannually we will send you a report containing the financial statements of the portfolios, including a list of securities held in each portfolio. Assigning your policy You may assign your rights in the policy to someone else as collateral for a loan or for some other reason. Assignments do not require the consent of any revocable beneficiary. A copy of the assignment must be forwarded to us. We are not responsible for any payment we make or any action we take before we receive a copy of the assignment at our Service Office. Nor are we responsible for the validity of the assignment or its efficacy in meeting your objectives. An absolute assignment is a change of ownership. All collateral assignees of record must usually consent to any surrender, withdrawal or loan from the policy. When we pay policy proceeds General We will ordinarily pay any death benefit, withdrawal, surrender value or loan within 7 days after we receive the last required form or request (and, with respect to the death benefit, any other documentation that may be required). If we don't have information about the desired manner of payment within 7 days after the date we receive documentation of the insured person's death, we will pay the proceeds as a single sum. Delay to challenge coverage We may challenge the validity of your insurance policy based on any material misstatements made to us in the application for the policy. We cannot make such a challenge, however, beyond certain time limits that are specified in the policy. 36 Delay for check clearance We reserve the right to defer payment of that portion of your policy value that is attributable to a premium payment made by check for a reasonable period of time (not to exceed 15 days) to allow the check to clear the banking system. Delay of separate account proceeds We reserve the right to defer payment of any death benefit, loan or other distribution that is derived from an investment account if (1) the New York Stock Exchange is closed (other than customary weekend and holiday closings) or trading on the New York Stock Exchange is restricted; (2) an emergency exists, as a result of which disposal of securities is not reasonably practicable or it is not reasonably practicable to fairly determine the policy value; or (3) the SEC by order permits the delay for the protection of owners. Transfers and allocations of policy value among the investment accounts may also be postponed under these circumstances. If we need to defer calculation of separate account values for any of the foregoing reasons, all delayed transactions will be processed at the next values that we do compute. Delay of general account surrender proceeds State laws allow us to defer payment of any portion of the net cash surrender value derived from any fixed account for up to 6 months. These laws were enacted many years ago to help insurance companies in the event of a liquidity crisis. How you communicate with us General rules You should mail or express all checks and money orders for premium payments and loan repayments to the John Hancock USA Service Office at the appropriate address shown on the back cover. Under our current rules, certain requests must be made in writing and be signed and dated by you. They include the following: . loans . surrenders or withdrawals . change of death benefit option . increase or decrease in Face Amount . change of beneficiary . election of payment option for policy proceeds . tax withholding elections . election of telephone/internet transaction privilege. The following requests may be made either in writing (signed and dated by you) or by telephone or fax or through the Company's secured website, if a special form is completed (see "Telephone, facsimile and internet transactions" below): . transfers of policy value among accounts . change of allocation among accounts for new premium payments You should mail or express all written requests to our Service Office at the appropriate address shown on the back cover. You should also send notice of the insured person's death and related documentation to our Service Office. We do not consider that we've "received" any communication until such time as it has arrived at the proper place and in the proper and complete form. We have special forms that should be used for a number of the requests mentioned above. You can obtain these forms from our Service Office or your John Hancock USA representative. Each communication to us must include your name, your policy number and the name of the insured person. We cannot process any request that doesn't include this required information. Any communication that arrives after the close of our business day, or on a day that is not a business day, will be considered "received" by us on the next following business day. Our business day currently closes at 4:00 p.m. Eastern time, but special circumstances (such as suspension of trading on a major exchange) may dictate an earlier closing time. 37 Telephone, facsimile and internet transactions If you complete a special authorization form, you can request transfers among accounts and changes of allocation among accounts simply by telephoning us at 1-800-521-1234 or by faxing us at 617-572-7008 or through the Company's secured website. Any fax or internet request should include your name, daytime telephone number, policy number and, in the case of transfers and changes of allocation, the names of the accounts involved. We will honor telephone and internet instructions from anyone who provides the correct identifying information, so there is a risk of loss to you if this service is used by an unauthorized person. However, you will receive written confirmation of all telephone/internet transactions. There is also a risk that you will be unable to place your request due to equipment malfunction or heavy phone line or internet usage. If this occurs, you should submit your request in writing. If you authorize telephone or internet transactions, you will be liable for any loss, expense or cost arising out of any unauthorized or fraudulent telephone or internet instructions which we reasonably believe to be genuine, unless such loss, expense or cost is the result of our mistake or negligence. We employ procedures which provide safeguards against the execution of unauthorized transactions which are reasonably designed to confirm that instructions received by telephone or internet are genuine. These procedures include requiring personal identification, the use of a unique password for internet authorization, recording of telephone calls, and providing written confirmation to the owner. If we do not employ reasonable procedures to confirm that instructions communicated by telephone or internet are genuine, we may be liable for any loss due to unauthorized or fraudulent instructions. As stated earlier in this prospectus, the policies are not designed for professional market timing organizations or other persons or entities that use programmed or frequent transfers among investment options. To discourage disruptive frequent trading, we have imposed certain transfer restrictions (see "Transfers of existing policy value"). In addition, we also reserve the right to change our telephone, facsimile and internet transaction privileges outlined in this section at any time, and to suspend or terminate any or all of those privileges with respect to any owners who we feel are abusing the privileges to the detriment of other owners. Distribution of policies John Hancock Distributors LLC ("JH Distributors"), a Delaware limited liability company affiliated with us, is the principal distributor and underwriter of the securities offered through this prospectus and of other annuity and life insurance products we and our affiliates offer. JH Distributors also acts as the principal underwriter of the John Hancock Trust, whose securities are used to fund certain investment accounts under the policies and under other annuity and life insurance products we offer. JH Distributors' principal address is 200 Bloor Street East, Toronto, Canada M4W 1E5 and it also maintains offices with us at 197 Clarendon Street, Boston, Massachusetts 02116. JH Distributors is a broker-dealer registered under the Securities Exchange Act of 1934 (the "1934 Act") and is a member of the National Association of Securities Dealers, Inc. (the "NASD"). We offer the policies for sale through individuals who are licensed as insurance agents and who are registered representatives of broker-dealers that have entered into selling agreements with JH Distributors. These broker-dealers may include our affiliate Signator Investors, Inc. In addition, we, either directly or through JH Distributors, have entered into agreements with other financial intermediaries that provide marketing, sales support and certain administrative services to help promote the policies ("financial intermediaries"). In a limited number of cases, we have entered into loans, leases or other financial agreements with these broker-dealers or financial intermediaries or their affiliates. Compensation The broker-dealers and other financial intermediaries that distribute or support the marketing of our policies may be compensated by means of various compensation and revenue sharing arrangements. A general description of these arrangements is set out below under "Standard compensation" and "Additional compensation and revenue sharing". These arrangements may differ between firms, and not all broker-dealers or financial intermediaries will receive the same compensation and revenue sharing benefits for distributing our policies. Also, a broker-dealer may receive more or less compensation or other benefits for the promotion and sale of our policy than it would expect to receive from another issuer. Under their own arrangements, broker-dealers determine how much of any amounts received from us is to be paid to their registered representatives. Our affiliated broker-dealer may pay its registered representatives additional compensation and benefits, such as bonus payments, expense payments, health and retirement benefits or the waiver of overhead costs or 38 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. Policy owners do not pay any compensation or revenue sharing benefits directly. These payments are made from JH Distributors' and our own revenues, profits or retained earnings, which may be derived from a number of sources, such as fees received from an underlying fund's distribution plan ("12b-1 fees"), the fees and charges imposed under the policy and other sources. You should contact your registered representative for more information on compensation arrangements in connection with your purchase of a policy. We provide additional information on special compensation or reimbursement arrangements involving broker-dealers and other financial intermediaries in the Statement of Additional Information, which is available upon request. Standard compensation. Through JH Distributors, John Hancock USA pays compensation to broker-dealers for the promotion and sale of the policies, and for providing ongoing service in relation to policies that have already been purchased. We may also pay a limited number of broker-dealers 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. The compensation JH Distributors pays to broker-dealers may vary depending on the selling agreement, but compensation (exclusive of additional compensation and revenue sharing) paid to broker-dealers for sale of the policies (not including riders) is not expected to exceed 35% of target commissionable premium, and 4% of premium in excess of target, paid in the first policy year, 9% of commissionable premium paid in years 2-5, and 6% of commissionable premium paid in years 6-10. Additional compensation and revenue sharing. To the extent permitted by SEC and NASD rules and other applicable laws and regulations, we may enter into special compensation or reimbursement arrangements ("revenue sharing"), either directly or through JH Distributors, with selected broker-dealers and other financial intermediaries . In consideration of these arrangements, a firm may feature our policy in its sales system, give us preferential access to sales staff, or allow JH Distributors or its affiliates to participate in conferences, seminars or other programs attended by the firm's sales force. We hope to benefit from these revenue sharing and other arrangements through increased sales of our policies. Selling broker-dealers and other financial intermediaries may receive, directly or indirectly, additional payments in the form of cash, other compensation or reimbursement. These additional compensation or reimbursement arrangements may include, for example, payments in connection with the firm's "due diligence" examination of the policies, payments for providing conferences or seminars, sales or training programs for invited registered representatives and other employees, payment for travel expenses, including lodging, incurred by registered representatives and other employees for such seminars or training programs, seminars for public, advertising and sales campaigns regarding the policies, payments to assist a firm in connection with its systems, operations and marketing expenses and/or other events or activities sponsored by the firms. We may contribute to, as well as sponsor, various educational programs, sales promotions, and/or other contests in which participating firms and their sales persons may receive gifts and prizes such as merchandise, cash or other rewards as may be permitted under NASD rules and other applicable laws and regulations. Tax considerations This description of Federal income tax consequences is only a brief summary and is neither exhaustive nor authoritative. It was written to support the promotion of our products. It does not constitute legal or tax advice, and it is not intended to be used and cannot be used to avoid any penalties that may be imposed on you. Tax consequences will vary based on your own particular circumstances, and for further information you should consult a qualified tax adviser. Federal, state and local tax laws, regulations and interpretations can change from time to time. As a result, the tax consequences to you and the beneficiary may be altered, in some cases retroactively. The policy may be used in various arrangements, including non-qualified deferred compensation or salary continuation plans, split dollar insurance plans, executive bonus plans, retiree medical benefit plans and others. The tax consequences of such plans may vary depending on the particular facts and circumstances of each individual arrangement. Therefore, if the value of using the policy in any such arrangement depends in part on the tax consequences, a qualified tax adviser should be consulted for advice. General We are taxed as a life insurance company. Under current tax law rules, we include the investment income (exclusive of capital gains) of the Separate Account in our taxable income and take deductions for investment income credited to our 39 "policy holder reserves". We are also required to capitalize and amortize certain costs instead of deducting those costs when they are incurred. We do not currently charge the Separate Account for any resulting income tax costs, other than a "DAC tax" charge we may impose against the Separate Account to compensate us for the finance costs attributable to the acceleration of our income tax liabilities by reason of a "DAC tax adjustment". We also claim certain tax credits or deductions relating to foreign taxes paid and dividends received by the series funds. These benefits can be material. We do not pass these benefits through to the Separate Account, principally because: (i) the deductions and credits are allowed to us and not the policy owners under applicable tax law; and (ii) the deductions and credits do not represent investment return on the Separate Account assets that are passed through to policy owners. The policies permit us to deduct a charge for any taxes we incur that are attributable to the operation or existence of the policies or the Separate Account. Currently, we do not anticipate making any specific charge for such taxes other than any DAC tax charge and state and local premium taxes. If the level of the current taxes increases, however, or is expected to increase in the future, we reserve the right to make a charge in the future. Death benefit proceeds and other policy distributions Generally, death benefits paid under policies such as yours are not subject to income tax. Earnings on your policy value are ordinarily not subject to income tax as long as we don't pay them out to you. If we do pay out any amount of your policy value upon surrender or partial withdrawal, all or part of that distribution would generally be treated as a return of the premiums you've paid and not subjected to income tax. However certain distributions associated with a reduction in death benefit or other policy benefits within the first 15 years after issuance of the policy are ordinarily taxable in whole or in part. 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.) 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. 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. Changes that reduce benefits include partial withdrawals, death benefit option changes, and distributions required to keep the policy in compliance with section 7702. For purposes of this rule any distribution within the two years immediately before a reduction in benefits will also be treated as if it caused the reduction. A cash distribution that reduces policy benefits will be taxed in whole or in part (to the extent of any gain in the policy) under rules prescribed in section 7702. The taxable amount is subject to limits prescribed in section 7702(f)(7). Any taxable distribution will be ordinary income to the owner (rather than capital gain). Distributions for tax purposes include amounts received upon surrender or partial withdrawals. You may also be deemed to have received a distribution for tax purposes if you assign all or part of your policy rights or change your policy's ownership. It is possible that, despite our monitoring, a policy might fail to qualify as a life insurance contract under section 7702 of the Code. This could happen, for example, if we inadvertently failed to return to you any premium payments that were in excess of permitted amounts, or if any of the funds failed to meet certain investment diversification or other requirements of the Code. If this were to occur, you would be subject to income tax on the income credited to the policy from the date of issue to the date of the disqualification and for subsequent periods. Tax consequences of ownership or receipt of policy proceeds under Federal, state and local estate, inheritance, gift and other tax laws will depend on the circumstances of each owner or beneficiary. If the person insured by the policy is also its 40 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 or the policy value may be includible in the former owner's estate if the transfer occurred less than three years before the former owner's death or if the former owner retained certain kinds of control over the policy. You should consult your tax adviser regarding these possible tax consequences. Because there may be unfavorable tax consequences (including recognition of taxable income and the loss of income tax-free treatment for any death benefit payable to the beneficiary), you should consult a qualified tax adviser prior to changing the policy's ownership or making any assignment of ownership interests. Policy loans We expect that, except as noted below (see "7-pay premium limit and modified endowment contract status"), loans received under the policy will be treated as indebtedness of an owner and that no part of any loan will constitute income to the owner. However, if the policy terminates for any reason, the amount of any outstanding loan that was not previously considered income will be treated as if it had been distributed to the owner upon such termination. This could result in a considerable tax bill. Under certain circumstances involving large amounts of outstanding loans, you might find yourself having to choose between high premiums required to keep your policy from lapsing and a significant tax burden if you allow the lapse to occur. Diversification rules and ownership of the Account Your policy will not qualify for the tax benefits of a life insurance contract unless the Account follows certain rules requiring diversification of investments underlying the policy. In addition, the rules require that the policy owner not have "investment control" over the underlying assets. In certain circumstances, the owner of a variable life insurance policy may be considered the owner, for Federal income tax purposes, of the assets of the separate account used to support the policy. In those circumstances, income and gains from the separate account assets would be includible in the policy owner's gross income. The Internal Revenue Service ("IRS") has stated in published rulings that a variable policy owner will be considered the owner of separate account assets if the policy owner possesses incidents of ownership in those assets, such as the ability to exercise investment control over the assets. A Treasury Decision issued in 1986 stated that guidance would be issued in the form of regulations or rulings on the "extent to which Policyholders may direct their investments to particular sub-accounts of a separate account without being treated as owners of the underlying assets". As of the date of this prospectus, no comprehensive guidance on this point has been issued. In Rev. Rul. 2003-91, however, the IRS ruled that a contract holder would not be treated as the owner of assets underlying a variable life insurance or annuity contract despite the owner's ability to allocate funds among as many as twenty subaccounts. The ownership rights under your policy are similar to, but different in certain respects from, those described in IRS rulings in which it was determined that policyholders were not owners of separate account assets. Since you have greater flexibility in allocating premiums and policy values than was the case in those rulings, it is possible that you would be treated as the owner of your policy's proportionate share of the assets of the Account. We do not know what future Treasury Department regulations or other guidance may require. We cannot guarantee that the funds will be able to operate as currently described in the series funds' prospectuses, or that a series fund will not have to change any fund's investment objectives or policies. We have reserved the right to modify your policy if we believe doing so will prevent you from being considered the owner of your policy's proportionate share of the assets of the Account, but we are under no obligation to do so. 7-pay premium limit and modified endowment contract status At the time of policy issuance, we will determine whether the Planned Premium schedule will exceed the 7-pay limit discussed below. If so, our standard procedures prohibit issuance of the policy unless you sign a form acknowledging that fact. The 7-pay limit is the total of net level premiums that would have been payable at any time for a comparable fixed policy to be fully "paid-up" after the payment of 7 equal annual premiums. "Paid-up" means that no further premiums would be required to continue the coverage in force until maturity, based on certain prescribed assumptions. If the total premiums paid 41 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 there is a reduction in benefits under a policy (such as a reduction in the death benefit or the reduction or cancellation of certain rider benefits) during a 7-pay testing period, the 7-pay limit will generally be recalculated based on the reduced benefits and the policy will be re-tested from the beginning of the 7-pay testing period using the lower limit. If the premiums paid to date at any point duirng the 7-pay testing period 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 a life insurance policy issued by a United States company is U.S.-source income that is subject to United States Federal income tax. 42 Life insurance purchases by non-resident aliens If you are not a U.S. citizen or resident, you will generally be subject to U.S. Federal withholding tax on taxable distributions from life insurance policies at a 30% rate, unless a lower treaty rate applies. In addition, you may be subject to state and/or municipal taxes and taxes imposed by your country of citizenship or residence. You should consult with a qualified tax adviser before purchasing a policy. Financial statements reference The financial statements of John Hancock USA and the Account can be found in the Statement of Additional Information. The financial statements of John Hancock USA should be distinguished from the financial statements of the Account and should be considered only as bearing upon the ability of John Hancock USA to meet its obligations under the policies. Registration statement filed with the SEC This prospectus omits certain information contained in the Registration Statement which has been filed with the SEC. More details may be obtained from the SEC upon payment of the prescribed fee. Independent registered public accounting firm The consolidated financial statements of John Hancock Life Insurance Company (U.S.A.) at December 31, 2006 and 2005, and for each of the three years in the period ended December 31, 2006, and the financial statements of Separate Account N of John Hancock Life Insurance Company (U.S.A.) at December 31, 2006, and for each of the two years in the period ended December 31, 2006, appearing in the Statement of Additional Information of the Registration Statement have been audited by Ernst & Young LLP, independent registered public accounting firm, as set forth in their reports thereon appearing elsewhere herein, and are included in reliance upon such reports given on the authority of such firm as experts in accounting and auditing. 43 In addition to this prospectus, John Hancock USA has filed with the SEC a Statement of Additional Information (the "SAI") which contains additional information about John Hancock USA and the Account, including information on our history, services provided to the Account and legal and regulatory matters. The SAI and personalized illustrations of death benefits, policy values and surrender values are available, without charge, upon request. You may obtain the personalized illustrations from your John Hancock USA representative. The SAI may be obtained by contacting the John Hancock USA Service Office. You should also contact the John Hancock USA Service Office to request any other information about your policy or to make any inquiries about its operation. SERVICE OFFICE Express Delivery Mail Delivery ---------------- --------------------------------- Specialty Products Specialty Products & Distribution 197 Clarendon Street, C-6 P.O. Box 192 Boston, MA 02117 Boston, MA 02117 Phone: Fax: ------ --------------------------------- 1-800-521-1234 617-572-7008 Information about the Account (including the SAI) can be reviewed and copied at the SEC's Public Reference Branch, 100 F Street, NE, Room 1580, Washington, DC, 20549. Information on the operation of the Public Reference Room may be obtained by calling the SEC at 202-551-5850. Reports and other information about the Account are available on the SEC's Internet website at http://www.sec.gov. Copies of such information may be obtained, upon payment of a duplicating fee, by writing the Public Reference Section of the SEC at 100 F Street, NE, Washington, DC 20549-0102. 1940 Act File No. 811-5130 1933 Act File No. 333-126668 44 Statement of Additional Information dated May 1, 2007 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 Specialty Products, 197 Clarendon Street, C-6, 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 Legal and Regulatory Matters ........................ 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, 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.) at December 31, 2006 and 2005, and for each of the three years in the period ended December 31, 2006, and the financial statements of Separate Account N of John Hancock Life Insurance Company (U.S.A.) at December 31, 2006, and for each of the two years in the period ended December 31, 2006, 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. Legal and Regulatory Matters There are no legal proceedings to which the Depositor, the Account or the principal underwriter is a party or to which the assets of the Account are subject that are likely to have a material adverse effect on the Account or the ability of the principal underwriter to perform its contract with the Account or of the Depositor to meet its obligations under the policies. 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. Effective May 1, 2006, JH Distributors became the underwriter and distributor for variable life and annuity products issued by our affiliates, John 2 Hancock Life Insurance Company and John Hancock Variable Life Insurance Company. 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"). 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 connection with the sale of variable life products in 2006, 2005, and 2004 was $140,721,141, $38,389,385, and $39,069,123, 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 pays to broker-dealers may vary depending on the selling agreement, but compensation (exclusive of additional compensation and revenue sharing) paid to broker-dealers for sale of the policies (not including riders) is not expected to exceed 35% of target commissionable premium, and 4% of premium in excess of target, paid in the first policy year, 9% of commissionable premium paid in years 2-5, and 6% of commissionable premium paid in years 6-10. The registered representative through whom your policy is sold will be compensated pursuant to the registered representative's own arrangement with his or her broker-dealer. Compensation to broker-dealers for the promotion and sale of the policies is not paid directly by policy owners 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 or other financial intermediaries. The terms of such arrangements may differ among firms we select based on various factors. In general, the arrangements involve three types of payments or any combination thereof: o 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. o 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. o 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. Our affiliated broker-dealer may pay their respective registered representatives additional cash incentives, such as bonus payments, expense payments, health and retirement 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. Additional Information About Charges A policy will not be issued until the underwriting process has been completed to the Depositor'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, 3 underwriting, administrative, commissions or other costs. Eligibility for these reductions and the amount of reductions will be determined by a number of factors, including the number of lives to be insured, the total premiums expected to be paid, total assets under management for the policyowner, the nature of the relationship among the insured individuals, the purpose for which the policies are being purchased, expected persistency of the individual policies, and any other circumstances which John Hancock USA believes to be relevant to the expected reduction of its expenses. Some of these reductions may be guaranteed and others may be subject to withdrawal or 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 AUDITED CONSOLIDATED FINANCIAL STATEMENTS John Hancock Life Insurance Company (U.S.A.) Years Ended December 31, 2006, 2005, and 2004 JOHN HANCOCK LIFE INSURANCE COMPANY (U.S.A.) INDEX TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS Report of Independent Registered Public Accounting Firm.................... F-2 Audited Consolidated Financial Statements: Consolidated Balance Sheets as of December 31, 2006 and 2005............... F-3 Consolidated Statements of Income for the years ended December 31, 2006, 2005, and 2004........................................................... F-4 Consolidated Statements of Changes in Shareholder's Equity and Comprehensive Income for the years ended December 31, 2006, 2005, and 2004..................................................................... F-5 Consolidated Statements of Cash Flows for the years ended December 31, 2006, 2005, and 2004..................................................... F-6 Notes to Consolidated Financial Statements................................. F-7 Report of Independent Registered Public Accounting Firm The Board of Directors John Hancock 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") as of December 31, 2006 and 2005, and the related consolidated statements of income, changes in shareholder's equity and other comprehensive income, and cash flows for each of the three years in the period ended December 31, 2006. 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 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, 2006 and 2005 and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 2006 in conformity with U.S. generally accepted accounting principles. As discussed in Note 1 to the consolidated financial statements, in 2006 the Company changed its method of accounting for defined benefit pension and other post retirement plans. Also as discussed in Note 1 to the consolidated 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 Boston, Massachusetts April 20, 2007 F-2 JOHN HANCOCK LIFE INSURANCE COMPANY (U.S.A.) CONSOLIDATED BALANCE SHEETS December 31, ----------------- 2006 2005 -------- -------- (in millions) Assets Investments Fixed maturities: Available-for-sale - at fair value (cost: 2006 - $11,231; 2005 - $11,215)......................................... $ 11,629 $ 11,770 Equity securities: Available-for-sale - at fair value (cost: 2006 - $857; 2005 - $478)............................................ 1,034 584 Mortgage loans on real estate................................ 2,446 2,410 Real estate.................................................. 1,401 1,449 Policy loans................................................. 2,340 2,187 Short term investments....................................... 645 549 Other invested assets........................................ 132 61 -------- -------- Total Investments......................................... 19,627 19,010 Cash and cash equivalents.................................... 4,112 2,591 Accrued investment income.................................... 247 246 Deferred acquisition costs................................... 4,701 4,112 Deferred sales inducements................................... 235 231 Amounts due from affiliates.................................. 2,657 2,520 Reinsurance recoverable...................................... 1,295 1,201 Other assets (Goodwill: 2006-$54; 2005-$54).................. 1,276 1,184 Separate account assets...................................... 90,462 70,565 -------- -------- Total Assets.............................................. $124,612 $101,660 ======== ======== Liabilities and Shareholder's Equity Liabilities: Future policy benefits....................................... $ 22,379 $ 20,930 Policyholders' funds......................................... 226 161 Unearned revenue............................................. 766 811 Unpaid claims and claim expense reserves..................... 776 579 Dividends payable to policyholders........................... 200 203 Amounts due to affiliates.................................... 2,767 2,396 Deferred income tax liability................................ 762 610 Other liabilities............................................ 1,492 1,278 Separate account liabilities................................. 90,462 70,565 -------- -------- Total Liabilities......................................... 119,830 97,533 Shareholder's Equity: Capital stock................................................ 76 5 Additional paid in capital................................... 2,145 2,045 Retained earnings............................................ 1,922 1,410 Accumulated other comprehensive income....................... 639 667 -------- -------- Total Shareholder's Equity................................ 4,782 4,127 -------- -------- Total Liabilities and Shareholder's Equity................ $124,612 $101,660 ======== ======== The accompanying notes are an integral part of these consolidated financial statements. F-3 JOHN HANCOCK LIFE INSURANCE COMPANY (U.S.A.) CONSOLIDATED STATEMENTS OF INCOME For the years ended December 31, -------------------- 2006 2005 2004 ------ ------ ------ (in millions) Revenues Premiums............................................... $1,014 $ 870 $ 943 Fee income............................................. 2,483 1,769 1,374 Net investment income.................................. 1,163 1,169 1,148 Net realized investment gains.......................... 5 209 285 ------ ------ ------ Total revenues..................................... 4,665 4,017 3,750 Benefits and expenses Benefits to policyholders.............................. 1,889 1,579 1,687 Other operating costs and expenses..................... 1,117 921 737 Amortization of deferred acquisition costs and deferred sales inducements........................... 529 322 358 Dividends to policyholders............................. 395 400 389 ------ ------ ------ Total benefits and expenses........................ 3,930 3,222 3,171 Income before income taxes and cumulative effect of accounting change....................................... 735 795 579 Income taxes.............................................. 223 247 168 ------ ------ ------ Income before cumulative effect of accounting change...... 512 548 411 Cumulative effect of accounting change, net of tax........ -- -- 48 ------ ------ ------ Net income................................................ $ 512 $ 548 $ 459 ====== ====== ====== The accompanying notes are an integral part of these consolidated financial statements. F-4 JOHN HANCOCK LIFE INSURANCE COMPANY (U.S.A.) CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDER'S EQUITY AND COMPREHENSIVE INCOME
Accumulated Additional Other Total Capital Paid In Retained Comprehensive Shareholder's Outstanding Stock Capital Earnings Income Equity Shares ------- ---------- -------- ------------- ------------- ----------- (in millions, except for shares outstanding) (thousands) Balance at January 1, 2004................. $ 5 $2,024 $ 753 $ 793 $3,575 4,829 Comprehensive income: Net income.......................... 459 459 Other comprehensive income, net of tax: Net unrealized losses............ (25) (25) Net gains on cash flow hedges......................... 6 6 Minimum pension liability........ (1) (1) Foreign currency translation adjustment......... 55 55 ------ Comprehensive income.................... 494 Dividend paid to parent.................... (150) (150) --- ------ ------ ----- ------ ----- Balance at December 31, 2004............... $ 5 $2,024 $1,062 $ 828 $3,919 4,829 === ====== ====== ===== ====== ===== Balance at January 1, 2005................. $ 5 $2,024 $1,062 $ 828 $3,919 4,829 Comprehensive income: Net income.......................... 548 548 Other comprehensive income, net of tax: Net unrealized losses............ (139) (139) Net losses on cash flow hedges......................... (1) (1) Minimum pension liability........ (21) (21) ------ Comprehensive income.................... 387 Capital contribution from parent........... 13 13 Transactions with affiliates............... 8 8 Dividend paid to parent.................... (200) (200) --- ------ ------ ----- ------ ----- Balance at December 31, 2005............... $ 5 $2,045 $1,410 $ 667 $4,127 4,829 === ====== ====== ===== ====== ===== Balance at January 1, 2006................. $ 5 $2,045 $1,410 $ 667 $4,127 4,829 Comprehensive income: Net income.......................... 512 512 Other comprehensive income, net of tax:....................... Net unrealized losses............ (38) (38) Minimum pension liability........ 5 5 Foreign currency translation adjustment......... 7 7 ------ Comprehensive income.................... 486 SFAS 158 transition adjustment............. (2) (2) Common stock issued to parent.............. 71 71 Transaction with affiliate................. 87 87 Stock options.............................. 13 13 --- ------ ------ ----- ------ ----- Balance at December 31, 2006............... $76 $2,145 $1,922 $ 639 $4,782 4,829 === ====== ====== ===== ====== =====
The accompanying notes are an integral part of these consolidated financial statements. F-5 JOHN HANCOCK LIFE INSURANCE COMPANY (U.S.A.) CONSOLIDATED STATEMENTS OF CASH FLOWS
For the years ended December 31, ------------------------------- 2006 2005 2004 -------- ------- ------- (in millions) Cash flows provided by (used in) operating activities: Net income............................................................. $ 512 $ 548 $ 459 Adjustments to reconcile net income to net cash provided by operating activities: Net realized investment gains...................................... (5) (209) (285) Change in accounting principle..................................... -- -- (48) Amortization of premium/discount - fixed maturities................ 13 27 (18) Deferral of acquisition costs and sales inducements................ (1,154) (976) (901) Amortization of deferred acquisition costs and deferred sales inducements...................................................... 529 322 358 Depreciation and amortization...................................... 26 27 21 (Increase) decrease in accrued investment income................... (1) 58 7 Decrease (increase) in other assets and other liabilities, net..... 104 (378) 145 Increase (decrease) in policyholder liabilities and accruals, net.............................................................. 479 (397) 432 Increase in deferred income tax liability.......................... 122 118 128 -------- ------- ------- Net cash provided by (used in) operating activities................ 625 (860) 298 Cash flows used in investing activities: Sales, maturities, prepayments and scheduled redemptions of: Fixed maturities available-for-sale................................ 10,315 8,523 9,218 Equity securities available-for-sale............................... 355 153 209 Mortgage loans on real estate...................................... 1,105 508 335 Real estate........................................................ 27 9 3 Other invested assets.............................................. 1 1 -- Purchases of: Fixed maturities available-for-sale................................ (10,327) (9,294) (9,277) Equity securities available-for-sale............................... (690) (261) (159) Real estate........................................................ (16) (35) (212) Other invested assets.............................................. (75) (7) -- Mortgage loans on real estate issued................................... (1,128) (529) (481) Net purchases of short-term investments................................ (162) (112) (170) Policy loans (advanced) repaid, net.................................... (154) 480 (149) -------- ------- ------- Net cash used in investing activities.............................. (749) (564) (683) Cash flows provided by financing activities: Common stock issued to parent.......................................... 71 -- -- Capital contribution from parent....................................... -- 13 -- Cash received on sale of real estate to affiliate...................... 150 -- -- Net cash transferred related to Taiwan operations...................... -- (24) -- Universal life and investment-type contract deposits................... 2,832 2,144 $ 2,250 Universal life and investment-type contract maturities and withdrawals.......................................................... (1,266) (938) (1,327) Net transfers to separate accounts from policyholders funds............ (433) (341) (414) Unearned revenue on financial reinsurance.............................. (49) 49 120 Increase in amounts due to/from affiliates, net........................ 289 1,810 155 Excess tax benefits related to share based payments.................... 2 -- -- Net reinsurance recoverable............................................ 49 20 261 Dividend paid to parent................................................ -- (200) (150) -------- ------- ------- Net cash provided by financing activities.............................. 1,645 2,533 895 Net increase in cash and cash equivalents.............................. 1,521 1,109 510 Cash and cash equivalents at beginning of year............................ 2,591 1,482 972 -------- ------- ------- Cash and cash equivalents at end of year.................................. $ 4,112 $ 2,591 $ 1,482 ======== ======= =======
The accompanying notes are an integral part of these consolidated financial statements. F-6 JOHN HANCOCK LIFE INSURANCE COMPANY (U.S.A.) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 1 - Summary of Significant Accounting Policies Business John Hancock Life Insurance Company (U.S.A.) ("JH USA" or "The Company") is a wholly owned subsidiary of The Manufacturers Investment Corporation ("MIC"). MIC is an indirect, wholly owned subsidiary of The Manufacturers Life Insurance Company ("MLI"). MLI, in turn, is a 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. The Company offers and issues individual and group annuity contracts, and individual life insurance and group pension contracts. All of these contracts (collectively, the "contracts") are sold primarily in the United States. Amounts invested in the fixed portion of the contracts are allocated to the general account of the Company. Amounts invested in the variable portion of the contracts are allocated to the separate accounts of the Company. Each of these separate accounts invest in either the shares of various portfolios of the John Hancock Trust ("JHT"), a no-load, open-end investment management company organized as a Massachusetts business trust, or in various portfolios of open-end investment management companies offered and managed by unaffiliated third parties. John Hancock Investment Management Services, LLC ("JHIMS"), a subsidiary of the Company, is the investment advisor to JHT. On November 1, 2005, JHIMS amended its Limited Liability Company Agreement to admit a new member. This amendment decreased the Company's consolidated ownership interest in JHIMS from 100% to 95%. JH USA directly owns 57% of JHIMS, while it's wholly owned subsidiary, John Hancock Life Insurance Company of New York, owns 38%. The remaining 5% of JHIMS is owned by an affiliate, John Hancock Funds, LLC. Basis of Presentation The accompanying consolidated financial statements include the accounts of the Company and its majority owned and or controlled subsidiaries. All significant intercompany transactions and balances have been eliminated. The accompanying consolidated financial statements have been prepared in conformity with U.S. generally accepted accounting principles 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 those estimates. Partnerships, joint venture interests and other equity investments in which the Company does not have a controlling financial interest, but has significant influence, are recorded using the equity method of accounting and are included in other invested assets. Reclassifications Certain prior year balances have been reclassified to conform to the current year's presentation. Investments The Company classifies its fixed maturity securities as available-for-sale and records these securities at fair value. Interest income is generally recognized on the accrual basis. The cost of fixed maturity securities is adjusted for amortization of premiums and accretion of discounts which are calculated using the effective interest method. Such amortization is included in net investment income. The amortized cost of fixed maturity investments is adjusted for impairments in value deemed to be other than temporary, and such adjustments are reported as a component of net realized investment gains. For the mortgage-backed securities, 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 yield is recalculated to reflect actual payments to date and anticipated future payments. F-7 JOHN HANCOCK LIFE INSURANCE COMPANY (U.S.A.) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Note 1 - Summary of Significant Accounting Policies - (continued) Realized gains and losses on sales of securities classified as available-for-sale are recognized in income using the specific identification method. A decline in the value of a specific security that is considered other-than-temporary results in a write-down of the cost basis of the security and a charge to income in the period of recognition. Unrealized gains and losses, other than unrealized losses that are considered to be other-than-temporary, are reflected directly in accumulated other comprehensive income after adjustments for deferred income taxes, deferred acquisition costs, deferred sales inducements, and participating group annuity contracts. Equity securities include common stock and preferred stock. Equity securities that have readily determinable fair values are carried at fair value. For equity securities that the Company classifies as available-for-sale, unrealized gains and losses are reflected in shareholders' equity, as described above for fixed maturity securities. Impairments in value deemed to be other than temporary are reported as a component of net realized investment gains. 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, the intent and ability to hold the security until it recovers in value or matures, and whether the debtor is current on contractually obligated interest and principal payments. Mortgage loans on real estate are carried at unpaid principal balances and are adjusted for amortization of premium or discount, less allowance for probable losses. Premiums or discounts are amortized over the life of the mortgage loan contract in a manner that results in a constant effective yield. Interest income and amortization amounts and other costs that are recognized as an adjustment of yield are included as components of net investment income. When it is probable that the Company will be unable to collect all amounts of principal and interest due according to the contractual terms of the mortgage loan agreement, the loan is deemed to be impaired and a valuation allowance for probable losses is established. The valuation allowance is based on the present value of the expected future cash flows, discounted at the loan's original effective interest rate, or is based on the collateral value of the loan if the loan is collateral dependent. The Company estimates this level to be adequate to absorb estimated probable credit losses that exist at the balance sheet date. Any change to the valuation allowance for mortgage loans on real estate is reported as a component of net realized investment gains. Interest received on impaired mortgage loans on real estate is included in interest income in the period received. If foreclosure becomes probable, the measurement method used is based on the collateral value. Foreclosed real estate is recorded at the collateral's fair value at the date of foreclosure, which establishes a new cost basis. Investment real estate, which the Company has the intent to hold for the production of income, is carried at depreciated cost, using the straight-line method of depreciation, less adjustments for impairments in value. In those cases where it is determined that the carrying amount of investment real estate is not recoverable, an impairment loss is recognized based on the difference between the depreciated cost and fair value of the asset. The Company reports impairment losses as part of net realized investment gains. Policy loans are reported at aggregate unpaid balances, which approximate fair value. Short-term investments, which include investments with maturities greater than 90 days and less than one year, are reported at fair value. Interest on fixed maturity securities and performing mortgage loans is recorded as income when earned and is adjusted for any amortization of premiums or accretion of 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. Derivative Financial Instruments All derivative instruments are reported on the consolidated balance sheets at 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 income. F-8 JOHN HANCOCK LIFE INSURANCE COMPANY (U.S.A.) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Note 1 - Summary of Significant Accounting Policies - (continued) 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 accumulated other comprehensive income and is subsequently reflected into income in the same period or periods during which the hedged transaction affects earnings. Cash and Cash Equivalents Cash and cash equivalents include cash and all highly liquid debt investments with a remaining maturity of three months or less. Cash equivalents are stated at cost plus accrued interest, which approximates fair value. 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 group 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, 2006, the Company's DAC was deemed recoverable. The Company currently offers enhanced crediting rates or bonus payments to contract holders 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 inducements 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. DSI is reviewed annually to determine recoverability from future income, and if not recoverable, is immediately expensed. As of December 31, 2006, the Company's DSI was deemed recoverable. Reinsurance The Company utilizes reinsurance agreements to provide for greater diversification of business, allowing management to control exposure to potential losses arising from large risks and provide additional capacity for growth. Assets and liabilities related to reinsurance ceded contracts are reported on a gross basis. The accompanying statements of income reflect premiums, benefits and settlement expenses net of reinsurance ceded. Reinsurance premiums, commissions, expense reimbursements, benefits and reserves related to reinsured business are accounted for on bases consistent with those used in accounting for the original policies issued and the terms of the reinsurance contracts. The Company remains liable to its policyholders to the extent that counterparties to reinsurance ceded contracts do not meet their contractual obligations. Separate Accounts Separate account assets and liabilities reported in the Company's consolidated balance sheets represent funds that are administered and invested by the Company to meet specific investment objectives of the contract holders. Net investment income and net realized investment gains or losses generally accrue directly to such contract holders who bear the investment risk, subject, in some cases, to principal guarantees and minimum guaranteed rates of income. The assets of each separate account are legally segregated and are not subject to claims that arise out of any other business of the Company. Separate account assets are reported at fair value. Deposits, net investment income and net realized investment gains or losses of separate accounts are not included in the revenues of the Company. Fees charged to contract holders, principally mortality, policy administration and surrender charges, are included in the revenues of the Company. F-9 JOHN HANCOCK LIFE INSURANCE COMPANY (U.S.A.) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Note 1 - Summary of Significant Accounting Policies - (continued) Future Policy Benefits and Policyholders' Funds 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 investment gains associated with the underlying assets. For fixed and variable annuities, group pension contracts, variable life contracts, and universal life insurance 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. Benefits for fixed and variable annuities, variable life contracts, universal life insurance contracts, and group pension contracts include interest credited to policyholder account values and benefit claims incurred during the period in excess of policyholder account values. 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. For the years 2004 through 2006, interest rate assumptions used in the calculation of the liabilities for traditional participating life insurance policies ranged from 2.5% to 7.8%. As of December 31, 2006 and 2005, participating insurance liabilities expressed as a percentage of total actuarial reserves and account values were 39.2% and 41.2%, respectively. Participating Insurance For those participating policies in force as of September 23, 1999 and as a result of the demutualization of MLI, 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, 2006 and 2005, $8,894 million and $8,743 million 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 is calculated based on actual interest, mortality, morbidity and expense experience for the year, and on management's judgment as to the appropriate level of equity to be retained by the Company. The carrying value of the policyholder dividend liability approximated the earned amount and fair value as of December 31, 2006 and 2005. 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 will be recognized in income over the period earned using the same assumptions as those associated with the amortization of DAC. F-10 JOHN HANCOCK LIFE INSURANCE COMPANY (U.S.A.) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Note 1 - Summary of Significant Accounting Policies - (continued) Federal Income Taxes Income taxes have been provided for in accordance with SFAS 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. Share Based Payments The Company adopted SFAS 123(R), "Share Based Payment", on January 1, 2006. This standard requires that the costs resulting from share based payment transactions with employees be recognized in the financial statements using a fair value based measurement method. The Company had previously adopted the fair value recognition provisions of SFAS 123, "Accounting for Stock Options", effective January 1, 2003 prospectively for all options granted to employees on or after January 1, 2002. Certain Company employees are provided compensation in the form of stock options, deferred share units and restricted share units in MFC. Effective January 1, 2002, 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 Company employees is recognized in the accounts of the Company 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 the Company 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 the Company in other operating costs and expenses. Upon adoption of SFAS 123(R), the Company was required to determine the portion of additional paid in capital that was generated from the realization of excess tax benefits prior to the adoption of SFAS 123(R) available to offset deferred tax assets that may need to be written off in future periods had the Company adopted the SFAS 123 fair value recognition provisions in 2001. The Company elected to calculate this "pool" of additional paid in capital using the shortcut method as permitted by FASB Staff Position ("FSP") 123(R)-3, "Transition Election to Accounting for the Tax Effects of Share Based Payment Awards". SFAS 123(R) also requires the benefits of tax deductions in excess of recognized compensation expense to be reported as a financing cash flow, rather than as an operating cash flow. This requirement will reduce net operating cash flows and increase net financing cash flows in periods after adoption. Financing cash flows for 2006 of $2 million related to the benefits of excess tax deductions have been reported in the Consolidated Statements of Cash Flows. 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. Recent Accounting Pronouncements Statement of Financial Accounting Standards No.159, The Fair Value Option for Financial Assets and Financial Liabilities ("SFAS 159") In February 2007, the Financial Accounting Standards Board (the "FASB") issued SFAS 159. SFAS 159's objective is to enable companies to mitigate the earnings volatility caused by measuring related assets and liabilities differently, without having to apply complex hedge accounting provisions. SFAS 159 provides the option to use fair value accounting for most financial assets and financial liabilities, with changes in fair value reported in earnings. Selection of the fair value option is irrevocable, and can be applied on a partial basis, i.e., to some but not all similar financial assets or liabilities. F-11 JOHN HANCOCK LIFE INSURANCE COMPANY (U.S.A.) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Note 1 - Summary of Significant Accounting Policies - (continued) SFAS 159 will be effective for the Company beginning January 1, 2008, and will then be prospectively applicable. The Company is currently evaluating the impact SFAS 159 will have on its consolidated financial statements. Statement of Financial Accounting Standards No.158, Employers' Accounting for Defined Benefit Pension and Other Postretirement Plans, an amendment of FASB Statements No. 87, 88, 106 and 123(R) ("SFAS 158") On December 31, 2006, the Company adopted SFAS 158. SFAS 158 requires the Company on a prospective basis to recognize in its consolidated balance sheet either an asset for a defined benefit postretirement plan's overfunded status or a liability for its underfunded status. Changes in the funded status of a defined benefit postretirement plan are recognized in comprehensive income in the year the changes occur. As a result of the adoption of SFAS 158 as of December 31, 2006, the Company recorded a loss of ($2) million, net of tax benefit of $1 million, to accumulated other comprehensive income to recognize the funded status of its defined benefit pension and other post-retirement benefit plans. Statement of Financial Accounting Standards No. 157, Fair Value Measurements ("SFAS 157") On September 15, 2006, the FASB issued SFAS 157. This standard, which provides guidance on how to measure fair values of assets and liabilities, applies whenever other standards require or permit assets or liabilities to be measured at fair value, but does not discuss when to use fair value accounting. SFAS 157 establishes a fair value measurement hierarchy that gives the highest priority to quoted prices in active markets and the lowest priority to unobservable data, and requires fair value measurements to be separately disclosed by level within the hierarchy. SFAS 157 will be effective for the Company beginning January 1, 2008 and will then be prospectively applicable. The Company is currently evaluating the impact SFAS 157 will have on its consolidated financial statements. FASB Financial Interpretation No. 48, Accounting for Uncertainty in Income Taxes ("FIN 48") The FASB issued FIN 48 in June 2006. FIN 48 prescribes recognition and measurement model for impact of tax positions taken or expected to be taken in a tax return, and provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. FIN 48 requires evaluation of whether a tax position taken on a tax return is more likely than not to be sustained if challenged, and if so, evaluation of the largest benefit that is more than 50% likely of being realized on ultimate settlement. Differences between these benefits and actual tax positions result in either (A) an increase in a liability for income taxes payable or a reduction of an income tax refund receivable, (B) a reduction in a deferred tax asset or an increase in a deferred tax liability, or both A and B. FIN 48 requires recording a cumulative effect of adoption in retained earnings as of beginning of year of adoption. FIN 48 will be effective for the Company's consolidated financial statement beginning January 1, 2007 and will be prospectively applied. Adoption of FIN 48 is not expected to result in a material impact on the Company's consolidated financial statements. Statement of Financial Accounting Standards No. 155, Accounting for Certain Hybrid Instruments ("SFAS 155") On February 16, 2006, the FASB issued SFAS 155, amending FASB Statements 133 and 140, bringing consistency to accounting and reporting for certain hybrid financial instruments by simplifying and eliminating exceptions to the accounting for them. SFAS 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 155 also clarifies which interest-only strips and principal-only strips are not subject to the requirements of SFAS 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 SFAS 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 instrument. SFAS 155 will be effective for the Company's financial statements beginning on January 1, 2007 and will be applied to financial instruments created or modified after that date. Adoption of SFAS 155 is not expected to result in a material impact on the Company's consolidated financial statements. F-12 JOHN HANCOCK LIFE INSURANCE COMPANY (U.S.A.) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Note 1 - Summary of Significant Accounting Policies - (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 ("AcSEC") of the American Institute of Certified Public Accountants ("AICPA") 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 inducement assets from extinguished contracts should no longer be deferred and instead be 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. In connection with the Company's adoption of SOP 05-1 as of January 1, 2007, there was no cumulative effect adjustment recorded to the Company's consolidated financial statements. Emerging Issues Task Force Issue No. 04-5 "Investor's Accounting for an Investment in a Limited Partnership When the Investor Is the Sole General Partner and the Limited Partners Have Certain Rights" ("EITF 04-5") In July 2005, the Emerging Issues Task Force of the FASB issued EITF 04-5. EITF 04-5 mandates a rebuttable presumption that the general partner of a partnership (or managing member of a limited liability company) controls the partnership and should consolidate it, unless limited partners have either substantive kickout rights (defined as the ability to remove the general partner without cause by action of simple majority) or have substantive participating rights (defined as the ability to be actively involved in managing the partnership) or the partnership is a Variable Interest Entity ("VIE"), in which case VIE consolidated accounting rules should instead be followed. The Company's adoption of EITF 04-5 in 2006 resulted in no impact to the Company's consolidated financial statements. Statement of Financial Accounting Standards No. 154 - Accounting Changes and Error Corrections- a replacement of APB Opinion No. 20 and Statement of Financial Accounting Standards No. 3 ("SFAS 154") In May 2005, the FASB issued SFAS 154, which replaces Accounting Principles Board ("APB") Opinion 20, "Accounting Changes", and SFAS 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 154 requires retrospective application to prior periods' financial statements of changes in accounting principle. SFAS 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. The adoption of SFAS 154 on January 1, 2006 had no immediate impact on the Company's consolidated financial statements. SFAS No. 123 (revised 2004) - Share Based Payment ("SFAS 123(R)") In December 2004, the FASB issued SFAS 123R, which is a revision of SFAS 123, "Accounting for Stock-Based Compensation". SFAS 123(R) supersedes APB Opinion No. 25, "Accounting for Stock Issued to Employees", and amends SFAS 95, "Statement of Cash Flows". Generally, the approach in SFAS 123(R) is similar to the approach described in SFAS 123. However, SFAS 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 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 MFC granted to its employees. F-13 JOHN HANCOCK LIFE INSURANCE COMPANY (U.S.A.) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Note 1 - Summary of Significant Accounting Policies - (continued) Because SFAS 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 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 123 will be recognized under SFAS 123(R). However, had the Company adopted SFAS 123(R) in prior periods, the impact of that standard would have been immaterial to its consolidated 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 million 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 Medicare Prescription Drug Improvement and Modernization Act of 2003 (the "Act"). The Act expanded Medicare, primarily by adding a prescription drug benefit for Medicare eligible retirees effective January 1, 2006. 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 meets 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 its other post-retirement benefit plan liability. 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 AcSEC of the AICPA 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 2004 net income and shareholder's equity of $48 million (net of income tax expense of $26 million). F-14 JOHN HANCOCK LIFE INSURANCE COMPANY (U.S.A.) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Note 2 - Investments The following information summarizes the components of net investment income and net realized investment gains (losses): For the year ended December 31, ---------------------- 2006 2005 2004 ------ ------ ------ (in millions) Net investment income Fixed maturities.................................... $ 730 $ 705 $ 692 Equity securities................................... 24 17 16 Mortgage loans on real estate....................... 152 157 155 Real estate......................................... 98 92 86 Other............................................... 219 233 230 ------ ------ ------ Gross investment income............................. 1,223 1,204 1,179 Less investment expenses........................ 60 35 31 ====== ====== ====== Net investment income.................................. $1,163 $1,169 $1,148 ====== ====== ====== Net realized investment gains (losses) Fixed maturities.................................... $ (54) $ 178 $ 216 Equity securities................................... 44 17 34 Mortgage loans on real estate....................... 13 20 37 Real estate......................................... 7 (2) 1 Other............................................... (5) (4) (3) ------ ------ ------ Net realized investment gains.......................... $ 5 $ 209 $ 285 ====== ====== ====== F-15 JOHN HANCOCK LIFE INSURANCE COMPANY (U.S.A.) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Note 2 - Investments - (continued) As of December 31, 2006 and 2005, all fixed maturity and equity securities were classified as available-for-sale and reported at fair value. The amortized cost and fair value are summarized below for the years indicated:
December 31, 2006 --------------------------------------- Gross Gross Amortized Unrealized Unrealized Fair Cost Gains Losses Value --------- ---------- ---------- ------- (in millions) Available-for-Sale: U.S. government................................... $ 4,052 $ 47 $ 5 $ 4,094 Foreign governments............................... 937 182 -- 1,119 Corporate securities.............................. 6,079 234 62 6,251 Mortgage-backed securities........................ 163 4 2 165 ------- ---- ---- ------- Total fixed maturities available-for-sale......... 11,231 467 69 11,629 Equity securities................................. 857 182 5 1,034 ------- ---- ---- ------- Total fixed maturities and equity securities available-for-sale........................... $12,088 $649 $ 74 $12,663 ======= ==== ==== ======= December 31, 2005 --------------------------------------- Gross Gross Amortized Unrealized Unrealized Fair Cost Gains Losses Value --------- ---------- ---------- ------- (in millions) Available-for-Sale: U.S. government................................... $ 4,332 $102 $ 35 $ 4,399 Foreign governments............................... 1,019 221 -- 1,240 Corporate securities.............................. 5,723 321 56 5,988 Mortgage-backed securities........................ 141 4 2 143 ------- ---- ---- ------- Total fixed maturities available-for-sale......... 11,215 648 93 11,770 Equity securities................................. 478 113 7 584 ------- ---- ---- ------- Total fixed maturities and equity securities available-for-sale........................... $11,693 $761 $100 $12,354 ======= ==== ==== =======
Proceeds from sales of fixed maturity securities were $9,657 million, $8,293 million, and $8,860 million for the years ended December 31, 2006, 2005, and 2004. Gross gains and losses of $114 million and $125 million, respectively, were realized on those sales (2005 - $214 million and $69 million, respectively; 2004 - $252 million and $123 million, respectively). During 2006, other-than-temporary impairments on fixed maturity securities of $54 million (2005 - $0; 2004 - $0) were recognized in the consolidated statements of income. Proceeds from sales of equity securities were $355 million, $153 million, and $209 million for the years ended December 31, 2006, 2005, and 2004. Gross gains and losses of $48 million and $7 million, respectively, were realized on those sales (2005 - $37 million and $8 million respectively; 2004 - $35 million and $28 million, respectively). In addition, other-than-temporary impairments on equity securities of $10 million, $14 million, and $10 million for the years ended December 31, 2006, 2005, and 2004, respectively, were recognized in the consolidated statements of income. The Company has a process in place to identify securities that could potentially have an impairment that is other than temporary. This process involves monitoring market events that could impact issuers' credit ratings, business climate, management changes, litigation and government actions, and other similar factors. This process also involves monitoring late payments, downgrades by rating agencies, key financial ratios, financial statements, revenue forecasts and cash flow projections as indicators of credit issues. F-16 JOHN HANCOCK LIFE INSURANCE COMPANY (U.S.A.) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Note 2 - Investments - (continued) At the end of each quarter, the Manulife Loan Review Committee (the "committee") reviews all securities where market value is less than eighty percent of amortized cost for six months or more to determine whether impairments need to be taken. The committee meets with the management responsible for restructurings, as well as the management of each industry team, and portfolio management. The analysis focuses on each investee company's or project's ability to service its debts in a timely fashion and the length of time the security has been trading below amortized cost. The results of this analysis are reviewed by the Manulife Credit Committee. The Loan Review Committee includes Manulife's Chief Financial Officer, Chief Investment Officer, Chief Risk Officer, Chief Credit Officer, and other senior management. This quarterly process includes a fresh assessment of the credit quality of each investment in the entire fixed maturities portfolio. The Company considers relevant facts and circumstances in evaluating whether the impairment of a security is other than temporary. Relevant facts and circumstances considered include (1) the length of time the fair value has been below cost; (2) the financial position of the issuer, including the current and future impact of any specific events; and (3) the Company's ability and intent to hold the security to maturity or until it recovers in value. To the extent the Company determines that a security is deemed to be other than temporarily impaired the difference between amortized cost and fair value is charged to earnings. There are a number of significant risks and uncertainties inherent in the process of monitoring impairments and determining if impairment is other than temporary. These risks and uncertainties include (1) the risk that the committee's assessment of an issuer's ability to meet all of its contractual obligations will change based on changes in the credit characteristics of that issuer, (2) the risk that the economic outlook will be worse than expected or have more of an impact on the issuer than anticipated, (3) the risk that fraudulent information could be provided to the Manulife investment professionals who determine the fair value estimates and other than temporary impairments, and (4) the risk that new information obtained by Manulife, or changes in other facts and circumstances lead it to change it's intent to hold the security to maturity or until it recovers in value. Any of these situations could result in a charge to earnings in a future period. The cost amounts for both fixed-maturity securities and equity securities are net of the other-than-temporary impairment charges. As of December 31, 2006 and 2005, there were 425 and 366 fixed maturity securities with an aggregate gross unrealized loss of $69 million and $93 million as of December 31, 2006, and 2005, of which the single largest unrealized loss was $2 million and $4 million as of December 31, 2006 and 2005, respectively. The Company anticipates that these fixed maturity securities will perform in accordance with their contractual terms and currently has the ability and intent to hold these securities until they recover or mature. As of December 31, 2006 and 2005, there were 75 and 82 equity securities with an aggregate gross unrealized loss of $5 million and $7 million as of December 31, 2006 and 2005, of which the single largest unrealized loss was $1 million and $1 million as of December 31, 2006 and 2005, respectively. The Company anticipates that these equity securities will recover in value.
Unrealized Losses on Fixed Maturity and Equity Securities ---------------------------------------------------------------- As of December 31, 2006 ---------------------------------------------------------------- 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: Losses Losses Losses Losses Losses Losses - -------------------------- ---------- ---------- ---------- ---------- ---------- ---------- US Treasury obligations and direct obligations of U.S. government agencies........................ $ 451 $ (3) $ 137 $ (2) $ 588 $ (5) Federal agency mortgage backed securities......... 22 -- 71 (2) 93 (2) Fixed maturity securities issued by foreign governments..................................... -- -- 10 -- 10 -- Corporate bonds................................... 1,212 (25) 1,175 (37) 2,387 (62) ------ ---- ------ ---- ------ ---- Total fixed maturity securities................ 1,685 (28) 1,393 (41) 3,078 (69) Equity securities................................. 77 (3) 19 (2) 96 (5) ------ ---- ------ ---- ------ ---- Total fixed maturity and equity securities..... $1,762 $(31) $1,412 $(43) $3,174 $(74) ====== ==== ====== ==== ====== ====
F-17 JOHN HANCOCK LIFE INSURANCE COMPANY (U.S.A.) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Note 2 - Investments - (continued)
Unrealized Losses on Fixed Maturity and Equity Securities ---------------------------------------------------------------- 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: Losses Losses Losses Losses Losses Losses - -------------------------- ---------- ---------- ---------- ---------- ---------- ---------- US Treasury obligations and direct obligations of U.S. government agencies.................................. $1,665 $(30) $222 $ (5) $1,887 $ (35) Federal agency mortgage backed securities.............. 66 (2) 15 -- 81 (2) Corporate bonds........................................ 1,525 (36) 574 (20) 2,099 (56) ------ ---- ---- ---- ------ ----- Total fixed maturity securities..................... 3,256 (68) 811 (25) 4,067 (93) Equity securities...................................... 37 (4) 22 (3) 59 (7) ------ ---- ---- ---- ------ ----- Total fixed maturity and equity securities.......... $3,293 $(72) $833 $(28) $4,126 $(100) ====== ==== ==== ==== ====== =====
The amortized cost and fair value of fixed maturities as of December 31, 2006, by contractual maturity, are shown below: Amortized Fair Cost Value --------- ------- (in millions) Available-for-Sale: Due in one year or less...................................... $ 659 $ 657 Due after one year through five years........................ 1,657 1,686 Due after five years through ten years....................... 4,253 4,262 Due after ten years.......................................... 4,499 4,859 ------- ------- 11,068 11,464 Mortgage-backed securities................................... 163 165 ------- ------- Total fixed maturities available-for-sale................. $11,231 $11,629 ======= ======= 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 these investments before maturity. As of December 31, 2006, fixed maturity securities with a fair value of $8 million (2005 - $9 million) were on deposit with government authorities as required by law. Mortgage loans on real estate Mortgage loans on real estate are evaluated periodically as part of the Company's loan review procedures and are considered impaired when, based on current information and events, it is probable that the Company will be unable to collect all amounts due according to the contractual terms of the mortgage agreement. The allowance for losses is maintained at a level believed adequate by management to absorb estimated probable credit losses that exist at the balance sheet date. Management's periodic evaluation of the adequacy of the allowance for losses is based on the Company's past loan loss experience, known and inherent risks in the portfolio, adverse situations that may affect the borrower's ability to repay (including the timing of future payments), the estimated value of the underlying collateral, composition of the loan portfolio, current economic conditions, and other relevant factors. This evaluation is inherently subjective as it requires estimating the amounts and timing of future cash flows expected to be received on impaired mortgage loans that may be susceptible to significant change. Any change to the valuation allowance for mortgage loans on real estate is reported as a component of net realized investment gains. Interest received on impaired mortgage loans on real estate is included in net investment income in the period received. If foreclosure becomes probable, the measurement method used is based on the collateral value. Foreclosed real estate is recorded at the fair value of the collateral at the date of foreclosure, which establishes a new cost basis. F-18 JOHN HANCOCK LIFE INSURANCE COMPANY (U.S.A.) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Note 2 - Investments - (continued) Mortgage loans on real estate - (continued) Changes in the allowance for possible losses on mortgage loans on real estate were as follows: Balance at Balance at Beginning End of (in millions) of Period Additions Deductions Period - ------------- ---------- --------- ---------- ---------- Year ended December 31, 2006........ $ 4 $1 $ 3 $2 --- -- --- -- Year ended December 31, 2005........ $ 7 $3 $ 6 $4 --- -- --- -- Year ended December 31, 2004........ $14 $9 $16 $7 --- -- --- -- At December 31, 2006 and 2005, the total recorded investment in mortgage loans considered to be impaired in accordance with Statement of Financial Accounting Standards No. 114, "Accounting by Creditors for Impairment of a Loan," along with the related provision for losses, were as follows: As of December 31, ----------------- 2006 2005 ---- ---- (in millions) Impaired mortgage loans on real estate with provision for losses.................................................... $13 $20 Provision for losses........................................ (2) (4) --- --- Net impaired mortgage loans on real estate.................. $11 $16 === === All impaired loans have been provided for and no interest is accrued on impaired loans. The average recorded investment in impaired loans and the interest income recognized on impaired loans were as follows: Years Ended December 31, ------------------------ 2006 2005 2004 ---- ---- ---- (in millions) Average recorded investment in impaired loans........ $16 $31 $46 Interest income recognized on impaired loans......... $-- $-- $-- The payment terms of mortgage loans on real estate may be restructured or modified from time to time. Generally, the terms of the restructured mortgage loans call for the Company to receive some form or combination of an equity participation in the underlying collateral, excess cash flows or an effective yield at the maturity of the loans sufficient to meet the original terms of the loans. F-19 JOHN HANCOCK LIFE INSURANCE COMPANY (U.S.A.) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Note 2 - Investments - (continued) Mortgage loans on real estate - (continued) There were no restructured mortgage loans as of December 31, 2006 and 2005, respectively. At December 31, 2006, the mortgage portfolio was diversified by specific collateral property type and geographic region as displayed below: Carrying Carrying Collateral Property Type Amount Geographic Concentration Amount - ------------------------ ------------- ------------------------ ------------- (in millions) (in millions) Apartments............... $ 140 East North Central....... $ 328 Industrial............... 495 East South Central....... 39 Office buildings......... 867 Middle Atlantic.......... 289 Retail................... 546 Mountain................. 226 Multi family............. 150 New England.............. 148 Mixed use................ 35 Pacific.................. 698 Agricultural............. 63 South Atlantic........... 576 Other.................... 152 West North Central....... 11 West South Central....... 133 Allowance for losses..... (2) Allowance for losses..... (2) ------ ------ Total.................... $2,446 Total.................... $2,446 ====== ====== Mortgage loans with outstanding principal balances of $15 million were non-income producing as of December 31, 2006. There was no non-income producing real estate as of December 31, 2006. 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, 2006 the Company had loaned securities, which are included in invested assets, with a carrying value and market value of approximately $1,332 million and $1,320 million, respectively (2005 - $3,609 million and $3,636 million, respectively). Note 3 - Derivatives and Hedging Instruments The Company uses various derivative instruments to hedge and manage its exposure to changes in interest rate levels, foreign exchange rates, and equity market prices, and to manage the duration of assets and liabilities. The fair value of derivative instruments classified as assets at December 31, 2006 and 2005 was $39 million and $8 million, and is reported on the consolidated balance sheets in other assets. The fair value of derivative instruments classified as liabilities at December 31, 2006 and 2005 was $91 million and $41 million, and is reported on the consolidated balance sheets in other liabilities. Fair Value Hedges The Company uses interest rate futures contracts and interest rate swap agreements as part of its overall strategies of managing the duration of assets and liabilities or the average life of certain asset portfolios to specified targets. Interest rate swap agreements are contracts with counterparties to exchange interest rate payments of a differing character (e.g., fixed-rate payments exchanged for variable-rate payments) based on an underlying principal balance (notional principal). The net differential to be paid or received on interest rate swap agreements and currency rate swap agreements is accrued and recognized as a component of net investment income. F-20 JOHN HANCOCK LIFE INSURANCE COMPANY (U.S.A.) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Note 3 - Derivatives and Hedging Instruments - (continued) The Company uses cross currency rate swap agreements to manage exposures to foreign currency arising from its consolidated balance sheet assets and liabilities. Cross currency swap agreements 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 years ended December 31, 2006, 2005 and 2004, the Company recognized net gains of $3 million, net losses of $2 million, and net losses of $1 million, respectively, related to the ineffective portion of its fair value hedges. Cash Flow Hedges The Company also uses interest rate swap agreements to hedge the variable cash flows arising from floating-rate assets held on its consolidated balance sheet. Under interest rate swap agreements, the Company agrees with other parties to exchange, at specific 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 neither 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. For the year ended December 31, 2006, the Company recognized gains of $0 related to the ineffective portion of its cash flow hedge. For the year ended December 31, 2006, all of the Company's hedged forecast transaction qualified as cash flow hedges. For the year ended December 31, 2006, a net loss of $0.4 million was reclassified from accumulated other comprehensive income to earnings. It is anticipated that approximately $0.2 million will be reclassified from accumulated other comprehensive income to earnings within the next twelve months. The maximum length for which variable cash flows are hedged is 1 year. For the year ended December 31, 2006, $0 of the Company's cash flow hedges were discontinued because it was probable that the original forecasted transactions would not occur by the end of the originally specified time period documented at inception of the hedging relationship. For the years ended December 31, 2006 and 2005 losses of $9.8 million and $8.3 million (net of tax of $5.3 million and $4.5 million) representing the effective portion of the change in fair value of derivative instruments designated as cash flow hedges were added to accumulated other comprehensive income, resulting in a net loss balance of $5.0 million and a net gain balance of $5.1 million (net of tax of $2.7 million and $2.8 million) at December 31, 2006 and 2005, respectively. Derivatives Not Designated as Hedging Instruments The Company enters into interest rate swap agreements, interest rate floors, and cross currency swap agreements to manage exposure to interest rates and foreign exchange arising from on-balance sheet assets as described above under Fair Value Hedges without designating the derivatives as hedging instruments. In addition, the Company uses interest rate floor agreements to hedge the interest rate risk associated with minimum interest rate guarantees in certain of its businesses without designating the derivatives as hedging instruments. F-21 JOHN HANCOCK LIFE INSURANCE COMPANY (U.S.A.) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Note 3 - Derivatives and Hedging Instruments - (continued) Outstanding derivative instruments were as follows:
December 31, 2006 -------------------------------------------- Notional or Contractual Amounts Carrying Value Fair Value ------------------- -------------- ---------- (in millions) Outstanding Derivative Instruments: Interest rate and currency swaps and floors............ $5,810 $(42) $(42) Interest rate options written.......................... 12 -- -- Equity contracts....................................... 33 -- -- Currency forwards...................................... 313 (10) (10) ------ ---- ---- Total.................................................. $6,168 $(52) $(52) ====== ==== ==== December 31, 2005 -------------------------------------------- Notional or Contractual Amounts Carrying Value Fair Value ------------------- -------------- ---------- (in millions) Outstanding Derivative Instruments: Interest rate and currency swaps and floors............ $1,694 $(39) $(39) Interest rate options written.......................... 12 -- -- Equity contracts....................................... 5 -- -- Currency forwards...................................... 258 6 6 ------ ---- ---- Total.................................................. $1,969 $(33) $(33) ====== ==== ====
Note 4 - Income Taxes JH USA and its subsidiaries (collectively the "companies") join with MIC and other affiliates in filing a consolidated federal income tax return. John Hancock Life Insurance Company of New York ("JHNY"), a wholly-owned subsidiary of the Company, filed separate federal income tax returns for the years ended December 31, 2005 and 2004. JHNY will join the companies in filing a consolidated federal income tax return for the year ended December 31, 2006. 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 each filed separate federal 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. Intercompany settlements of income taxes are made through an increase or reduction to amounts due to or from affiliates. 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. The components of income taxes were as follows: For the Year Ended December 31, --------------------- 2006 2005 2004 ------ ------ ------ (in millions) Current taxes: Federal.................................................. $ (7) $128 $ 40 ------ ------ ------ Deferred taxes: Federal.................................................. $230 $119 $128 ------ ------ ------ Total income taxes....................................... $223 $247 $168 ====== ====== ====== F-22 JOHN HANCOCK LIFE INSURANCE COMPANY (U.S.A.) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Note 4 - Income Taxes - (continued) 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 acquisition costs, and differences in reserves for policy and contract liabilities for tax and financial reporting purposes. A reconciliation of income taxes computed by applying the 35% federal income tax rate to income before income taxes and cumulative effect of accounting change to income tax expense charged to operations follows: For the Year Ended December 31, ---------------- 2006 2005 2004 ---- ---- ---- (in millions) Tax at 35%.................................................. $257 $278 $202 Add (deduct): Prior year taxes......................................... (4) (9) -- Tax exempt investment income............................. (42) (28) (22) Other.................................................... 12 6 (12) ---- ---- ---- Total income taxes................................... $223 $247 $168 ==== ==== ==== 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 significant components of the Company's deferred tax assets and liabilities were as follows: December 31, ------------- 2006 2005 ------ ------ (in millions) Deferred tax assets: Policy reserve adjustments................................... $ 891 $1,068 Tax credits.................................................. 79 -- Other........................................................ 7 6 ------ ------ Total deferred tax assets................................ $ 977 $1,074 ------ ------ Deferred tax liabilities: Deferred acquisition costs................................... $ 989 $ 889 Unrealized gains on securities available-for-sale............ 353 377 Premiums receivable.......................................... 21 23 Investments.................................................. 236 283 Reinsurance.................................................. 97 53 Other........................................................ 43 59 ------ ------ Total deferred tax liabilities........................... 1,739 1,684 ------ ------ Net deferred tax liabilities............................. $ 762 $ 610 ====== ====== As of December 31, 2006, the Company had utilized all available operating loss carry forwards from prior years and had $79 million of unused tax credits. Unused tax credits will expire in various years through 2025. The Company believes that it will realize the full benefit of its deferred tax assets. The Company made income tax payments of $9 million, $66 million, and $4 million in 2006, 2005, and 2004, respectively. F-23 JOHN HANCOCK LIFE INSURANCE COMPANY (U.S.A.) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Note 5 - Related Party Transactions The Company has formal service agreements with MLI, which can be terminated by either party upon two months notice. Under the various agreements, the Company will pay direct operating expenses incurred by MLI 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 $386 million, $352 million, and $281 million for the years ended December 31, 2006, 2005, and 2004. 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. Net services provided by the Company to JHLICO were $111 million for the year ended December 31, 2006, $92 million for the year ended December 31, 2005, and approximately $61 million for the eight months ended December 31, 2004. As of December 31, 2006 and 2005 there were accrued receivables from JHLICO to the Company of $104 million and $37 million, respectively. Management believes the allocation methods used for service agreements are reasonable and appropriate in the circumstances; however, the Company's consolidated balance sheet may not necessarily be indicative of the financial condition that would have existed if the Company operated as an unaffiliated entity. The Company paid no dividends to MIC during 2006. During 2005, the Company paid dividends of $200 million to MIC. On December 14, 2006, the Company issued one share of common stock to MIC for $71 million in cash. 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 $371 million, $338 million, and $169 million for the years ended December 31, 2006, 2005, and 2004. These are classified as unearned revenue. The amounts are being amortized to income as payments are made to MRL. The balance of this unearned revenue as of December 31, 2006 and 2005 was $425 million and $423 million. 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 at December 31, 2006 and 2005 was $2,616 million and $2,469 million 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 million 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 equal to 3-month LIBOR plus 25 basis points and is payable quarterly. The interest rate was 5.61% as of December 31, 2006. On December 30, 2002, the Company repaid $176 million of the original principal balance. The principal balance outstanding as of December 31, 2006 and 2005 was $74 million. Pursuant to a promissory note issued August 7, 2001 and to a Credit Agreement of the same date, the Company borrowed $4 million 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 5.61% as of December 31, 2006. Pursuant to a demand promissory note dated August 16, 2006, the Company borrowed $8 million from an affiliate, P.T. Manulife Aset Manajemen Indonesia. Interest is calculated at a fluctuating rate equal to 3 month LIBOR and is payable quarterly. The interest rate was 5.37% as of December 31, 2006. The Company repaid the note on February 20, 2007. F-24 JOHN HANCOCK LIFE INSURANCE COMPANY (U.S.A.) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Note 5 - Related Party Transactions - (continued) Pursuant to a Note Purchase Agreement dated November 10, 2006, the Company issued a note of same date to JHLICO in the amount of $90 million, due December 1, 2011 and secured by a mortgage on the Company's property at 601 Congress Street, Boston, MA. The note provides for interest-only payments of $0.4 million per month commencing January 1, 2007 through November 1, 2011. The interest rate for the term of this note is fixed at 5.73%. Pursuant to a demand promissory note dated December 22, 2006, the Company borrowed $136 million from an affiliate, Manulife Holdings (Delaware) LLC. Interest is calculated at a fluctuating rate equal to 3 month LIBOR plus 30 basis points and is payable quarterly. The interest rate was 5.70% as of December 31, 2006. On December 28, 2006 the Company sold real estate held for investment with a net book value of $17 million to JHILCO for $150 million in cash. Since this sale was accounted for as a transaction between entities under common control, the difference between the net book value and sales price resulted in an increase of $87 million (net of tax of $46 million) to the Company's paid in capital as of December 31, 2006. At December 31, 2005, the Company had one note receivable from MRL with a carrying value of $18 million. The note matured and was repaid on May 11, 2006. 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 agreement, effective May 27, 2005, allows JHFS and subsidiaries 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"). The following table exhibits the affiliates and their participation in the Company's liquidity pools: December 31, December 31, 2006 2005 ------------ ------------ (in millions) Affiliate Manulife Investment Corporation...................... $ 61 $ 78 Manulife Reinsurance Ltd............................. 308 46 Manulife Reinsurance (Bermuda) Ltd................... 317 74 Manulife Hungary Holdings KFT........................ 33 20 Manulife Insurance Company........................... 51 15 John Hancock Life Insurance Company.................. 550 1,500 John Hancock Variable Life Insurance Company......... 202 136 John Hancock Insurance Company of Vermont............ 71 -- John Hancock Reassurance Co, Ltd..................... 236 224 John Hancock Financial Services, Inc................. 56 82 The Berkeley Financial Group, LLC.................... 28 8 John Hancock Signature Services, Inc................. 4 9 ------ ------ Total............................................. $1,917 $2,192 ====== ====== The balances above are reported on the consolidated balance sheets as amounts due to affiliates. F-25 JOHN HANCOCK LIFE INSURANCE COMPANY (U.S.A.) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Note 6 - Reinsurance The effect of reinsurance on life, health, and annuity premiums written and earned was as follows: For the years ended December 31, ---------------------------------------------- 2006 2005 2004 -------------- -------------- -------------- Premiums Premiums Premiums -------------- -------------- -------------- Written Earned Written Earned Written Earned ------- ------ ------- ------ ------- ------ Direct........................ $1,294 $1,294 $1,319 $1,319 $1,297 $1,284 Assumed....................... 376 405 287 315 299 320 Ceded......................... (685) (685) (764) (764) (661) (661) ------ ------ ------ ------ ------ ------ Net Premiums.................. $ 985 $1,014 $ 842 $ 870 $ 935 $ 943 ====== ====== ====== ====== ====== ====== For the years ended December 31, 2006 and 2005 and 2004, benefits to policyholders under life, health and annuity ceded reinsurance contracts were $423 million, $492 million, and $391 million, respectively. Reinsurance ceded contracts do not relieve the Company from its obligations to policyholders. The Company remains liable to its policyholders for the portion reinsured to the extent that any reinsurer does not meet its obligations for reinsurance ceded to it under the reinsurance agreements. Failure of the reinsurers to honor their obligations could result in losses to the Company; consequently, estimates are established for amounts deemed or estimated to be uncollectible. To minimize its exposure to significant losses from reinsurance insolvencies, the Company evaluates the financial condition of its reinsurers and monitors concentration of credit risk arising from similar characteristics among the reinsurers. Note 7 - Pension Benefit Plans and Other Postretirement Benefit 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 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 or 5.25% per annum. Actuarial valuation of accumulated Plan benefits are based on projected salaries, an assumed discount rate, and best estimates of investment yields on Plan assets, mortality of participants, employee termination, and ages at retirement. Pension costs that relate to current service are funded as they accrue and are charged to earnings of the Company in the current period. Vested benefits are fully funded. Experience gains and losses are amortized to income of the Company over the estimated average remaining service lives of the Plan participants. No contributions were made during the years ended December 31, 2004 though 2006 because the Plan was subject to the full funding limitation under the Internal Revenue Code. As of December 31, 2006 and 2005, the projected benefit obligation to the participants in the Plan was $88 million and $85 million, and the accumulated benefit obligation was $77 million and $74 million respectively. The fair value of the Plan assets was $75 million and $71 million as of December 31, 2006 and 2005. F-26 JOHN HANCOCK LIFE INSURANCE COMPANY (U.S.A.) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Note 7 - Pension Benefit Plans and Other Postretirement Benefit Plans - (continued) The Company also sponsors an unfunded supplemental cash balance plan entitled "The Manulife Financial U.S. Supplemental Cash Balance Plan" (the "Supplemental Plan"). This non-qualified plan provides defined pension benefits in excess of limits imposed by law. Compensation is not limited and benefits are not restricted by the Internal Revenue Code. Benefits under the Supplemental Plan are provided to participants who terminate after three years of service. The default form of payment under this plan is a lump sum, although participants may elect to receive payment in the form of an annuity provided that such an election is made within the time period prescribed in the Supplemental Plan. If an annuity form of payment is elected, the amount payable is equal to the actuarial equivalent of the participant's balance under the Supplemental Plan, using the factors and assumptions for determining immediate annuity amounts applicable to the participant under the Plan. Cash balance contribution credits for the Supplemental Plan vary with service, and interest credits are based on the greater of one-year U.S. Treasury Constant Maturity Bond yields or 5.25% per annum. The annual contribution credits are made in respect of the participant's compensation that is in excess of the limit set by the Internal Revenue Code. Together, these contributions serve to restore to the participant the benefit that he/she would have been entitled to under the Plan's benefit formula except for the pay and benefit limitations in the Internal Revenue Code. As of December 31 2006 and 2005, the projected benefit obligation to the participants in the Supplemental Plan was $33 million. The accumulated benefit obligation as of December 31, 2006 and 2005 was $30 million. The fair value of Supplemental Plan assets was $0 as of December 31, 2006 and 2005. As of December 31, 2006, the Plan was merged with the qualified pension plan of an affiliated company, JHLICO. Pursuant to the merger all of the assets of the former plans are commingled. The aggregate pool of assets from the former plans is available to meet the obligations of the merged plan. The merger is not expected to have a material effect on the consolidated financial statements of the Company. 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 $3 million in 2006 (2005 - $4 million; 2004 - $2 million). 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. On December 8, 2003, the Medicare Prescription Drug, Improvement and Modernization Act of 2003 (the "Act") was signed into law. The Act introduced a prescription drug benefit under Medicare, as well as a federal subsidy to sponsors of retiree health care benefit plans that provide a benefit that is at least actuarially equivalent to Medicare. As a result of the prescription drug subsidy, the accumulated post retirement benefit obligation at December 31, 2006, has been reduced by a deferred actuarial gain in the amount of $1.7 million to reflect the effect of the subsidy related to benefits attributed to past service. The amortization of the actuarial gain and reduction of service and interest cost resulted in a reduction of net periodic post retirement benefit cost for the year ended December 31, 2006 of $0.1 million. As discussed in Note 1, in September 2006 the FASB issued SFAS 158. SFAS 158 requires an employer on a prospective basis to recognize the overfunded or underfunded status of its defined benefit pension and postretirement plans as an asset or liability on its balance sheet and to recognize changes in that funded status in the year in which the changes occur through comprehensive income. The Company adopted SFAS 158 on December 31, 2006. See below for the effects for the adoption as well as the related disclosure requirements. The Company accounts for its Post-retirement Benefit Plan using the accrual method. As of December 31, 2006 and 2005, the benefit obligation of the Post-retirement Benefit Plan was $28 million and $35 million, respectively. The Post-Retirement Benefit Plan is unfunded. Post-retirement benefit plan expenses for 2006 were $2 million (2005 - $4 million; 2004 - $3 million). F-27 JOHN HANCOCK LIFE INSURANCE COMPANY (U.S.A.) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Note 7 - Pension Benefit Plans and Other Postretirement Benefit Plans - (continued) Information applicable to the Employee Retirement Plans and the Post-retirement Benefit Plan as estimated by a consulting actuary for the year ended December 31, 2006 and 2005 was as follows: Obligations and Funded Status:
Years Ended December 31, ------------------------------- Employee Post-retirement Retirement Plans Benefit Plan --------------- -------------- 2006 2005 2006 2005 ---- ---- ---- ---- (in millions) Change in benefit obligation: Benefit obligation at beginning of year..................... $118 $106 $ 35 $ 30 Service cost................................................ 6 6 -- 2 Interest cost............................................... 6 6 2 2 Actuarial (gain)/loss....................................... (3) 8 (7) 1 Plan amendments............................................. -- -- -- 1 Benefits paid............................................... (6) (8) (2) (1) ---- ---- ---- ---- Benefit obligation at end of year........................... $121 $118 $ 28 $ 35 ==== ==== ==== ==== Change in plan assets: Fair value of plan assets at beginning of year.............. $ 71 $ 74 $ -- $ -- Actual return on plan assets................................ 9 3 -- -- Employer contribution....................................... 2 2 2 1 Benefits paid............................................... (7) (8) (2) (1) ---- ---- ---- ---- Fair value of plan assets at end of year.................... $ 75 $ 71 $ -- $ -- ==== ==== ==== ==== Funded status at year end................................... $(46) $(47) $(28) $(35) Unrecognized actuarial loss/(gain) (1)...................... -- 53 -- (4) Unrecognized prior service cost (1)......................... -- 2 -- -- ---- ---- ---- ---- Net amount recognized....................................... $(46) $ 8 $(28) $(39) ==== ==== ==== ==== Amounts recognized in the consolidated balance sheets: Prepaid benefit cost........................................ $ -- $ 30 $ -- $ -- Accrued benefit liability................................... (46) -- (28) -- Accrued benefit liability including minimum liability (1)... -- (62) -- (39) Intangible asset (1)........................................ -- 2 -- -- Accumulated other comprehensive income...................... -- 38 -- -- ---- ---- ---- ---- Net amount recognized....................................... $(46) $ 8 $(28) $(39) ==== ==== ==== ====
- -------- (1) As a result of the adoption of SFAS 158 on December 31, 2006, these items are no longer applicable. The incremental effects of applying SFAS 158 to individual line items in the consolidated balance sheet on December 31, 2006 were as follows:
Incremental effect Pre SFAS of adopting Post SFAS 158 SFAS 158 158 -------- ------------------ --------- (in millions) Other assets.......................................... 1,299 (23) 1,276 Total assets....................................... 124,635 (23) 124,612 Deferred income tax liability......................... 760 2 762 Other liabilities..................................... 1,520 (28) 1,492 Total liabilities.................................. 119,856 (26) 119,830 Accumulated other comprehensive income................ 636 3 639 Total shareholder's equity......................... 4,779 3 4,782
F-28 JOHN HANCOCK LIFE INSURANCE COMPANY (U.S.A.) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Note 7 - Pension Benefit Plans and Other Postretirement Benefit Plans - (continued) Obligations and Funded Status (continued): Information for pension plans with accumulated benefit obligations in excess of plan assets was as follows: As of December 31, ------------ 2006 2005 ---- ---- (in millions) Projected benefit obligation................................ $121 $118 Accumulated benefit obligation.............................. 107 104 Fair value of plan assets................................... 75 71 Components of Net Periodic Benefit cost were as follows: Years Ended December 31, ----------------------- Other Pension Postretirement Benefits Benefits ----------- ----------- 2006 2005 2006 2005 ---- ---- ---- ---- (in millions) Service cost...................................... $ 6 $ 6 $-- $ 2 Interest cost .................................... 6 6 2 2 Expected return on plan assets ................... (5) (5) -- -- Amortization of prior service cost ............... -- -- -- 1 Recognized actuarial loss (gain) ................. 3 3 -- (1) --- --- --- --- Net periodic benefit cost ........................ $10 $10 $ 2 $ 4 === === === === The amounts included in "Accumulated Other Comprehensive Income" expected to be recognized as components of net periodic cost in 2007 are as follows: Other Pension Postretirement Benefits Benefits -------- -------------- (in millions) Amortization of prior service cost..................... $0.2 $0.1 Amortization of actuarial (gain) loss, net............. 0.3 -- ---- ---- Total.................................................. $0.5 $0.1 ==== ==== F-29 JOHN HANCOCK LIFE INSURANCE COMPANY (U.S.A.) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Note 7 - Pension Benefit Plans and Other Postretirement Benefit Plans - (continued) Projections for benefit payments for the next ten years are as follows: Projected Employer Pension Benefits Payments Total Total Year Qualified Nonqualified Total ---- --------- ------------ ----- (in millions) 2007 $ 6 $ 2 $ 8 2008 5 2 7 2009 6 2 8 2010 6 2 8 2011 7 2 9 2012-2016 38 14 52 Projected Employer Postretirement Benefits Payments(includes Future Service Accruals) Medicare Gross Part D Net Year Payments Subsidy Payments ---- -------- -------- -------- (in millions) 2007 $ 1.7 $.1 $1.6 2008 1.8 .2 1.6 2009 1.8 .2 1.6 2010 1.8 .1 1.7 2011 1.9 .2 1.7 2012-2016 10.0 .7 9.3 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, -------------------------------------------------------- 2006 2005 --------------------------- --------------------------- (in millions) Qualified Nonqualified Qualified Nonqualified Plans Plans Total Plans Plans Total --------- ------------ ----- --------- ------------ ----- Benefit obligation at the end of year................... $ 88 $ 33 $121 $ 85 $ 33 $118 Fair value of plan assets at end of year................ 75 -- 75 71 -- 71 Funded status (assets less obligations)................. (13) (33) (46) (14) (33) (47) Unrecognized net actuarial loss......................... -- -- -- 42 11 53 Unrecognized prior service cost......................... -- -- -- 2 -- 2 ---- ---- ---- ---- ---- ---- Prepaid (accrued) benefit cost.......................... $(13) $(33) $(46) $ 30 $(22) $ 8 ==== ==== ==== ==== ==== ==== Amounts recognized in the consolidated balance sheets: Prepaid benefit cost.................................... $ -- $ -- $ -- $ 30 $ -- $ 30 Accrued benefit liability(1)............................ (13) (33) (46) Accrued benefit liability including minimum liability(1) -- -- -- (33) (29) (62) Intangible asset (1).................................... -- -- -- 2 -- 2 Accumulated other comprehensive income.................. -- -- -- 31 7 38 ---- ---- ---- ---- ---- ---- Net amount recognized................................... $(13) $(33) $(46) $ 30 $(22) $ 8 ==== ==== ==== ==== ==== ==== - -------- (1) As a result of the adoption of SFAS 158 on December 31, 2006, these items are no longer applicable. Components of net periodic benefit cost: Service cost............................................ $ 5 $ 1 $ 6 $ 5 $ 1 $ 6 Interest cost........................................... 4 2 6 4 2 6 Expected return on plan assets.......................... (5) -- (5) (5) -- (5) Actuarial loss amortization............................. 3 -- 3 2 1 3 ---- ---- ---- ---- ---- ---- Net periodic benefit cost............................... $ 7 $ 3 $ 10 $ 6 $ 4 $ 10 ==== ==== ==== ==== ==== ====
F-30 JOHN HANCOCK LIFE INSURANCE COMPANY (U.S.A.) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Note 7 - Pension Benefit Plans and Other Postretirement Benefit Plans - (continued) Assumptions: Weighted-average assumptions used to determine benefit obligation were as follows: Years Ended December 31, ------------------------------ Other Postretirement Pension Benefits Benefits ------- -------- ------------- 2006 2005 2006 2005 ------- -------- ---- ----- Discount rate................................ 5.75% 5.50% 5.75% 5.50% Rate of compensation increase................ 4.00% 4.00% N/A N/A Health care trend rate for following year.... N/A N/A 9.50% 10.00% Ultimate trend rate.......................... N/A N/A 5.00% 5.00% Year ultimate rate reached................... N/A N/A 2016 2016 Weighted-average assumptions used to determine net periodic benefit cost were as follows: Years Ended December 31, ----------------------------- Other Postretirement Pension Benefits Benefits ------- -------- ------------ 2006 2005 2006 2005 ------- -------- ----- ----- Discount rate................................ 5.50% 5.75% 5.50% 5.75% Expected long-term return on plan assets..... 8.25% 8.25% N/A N/A Rate of compensation increase................ 4.00% 4.00% N/A N/A Health care trend rate for following year.... N/A N/A 10.00% 10.50% Ultimate trend rate.......................... N/A N/A 5.00% 5.00% Year ultimate rate reached................... N/A N/A 2016 2016 The Company generally determines the assumed long-term rate of return on plan assets based on the rate expected to be earned for plan assets. The asset mix based on the long-term investment policy and range of target allocation percentages of the plans and the Capital Asset Pricing Model are used as part of that determination. As of December 31, 2006 and 2005, the total accumulated Post-Retirement Benefit Plan obligation was $28 million and $35 million, respectively. The accumulated post-retirement benefit obligation for fully eligible active employees was $3 million as of December 31, 2006 and $4 million as of December 31, 2005. The accumulated post-retirement benefit obligation for ineligible active employees was $4 million as of December 31, 2006 and 2005. For measurement purposes as of December 31, 2006, a 9.5% 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. F-31 JOHN HANCOCK LIFE INSURANCE COMPANY (U.S.A.) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Note 7 - Pension Benefit Plans and Other Postretirement Benefit Plans - (continued) Assumed health care cost trend rates have a significant effect on the amounts reported for the healthcare plans. A one-percentage point change in assumed health care cost trend rates would have the following effects: 1-Percentage 1-Percentage Point Increase Point Decrease -------------- -------------- (in millions) Effect on total service and interest costs in 2006.................................... $0.1 $(0.1) Effect on postretirement benefit obligations as of December 31, 2006.................... $ 2 $ (1) Plan Assets The Company's weighted-average asset allocations for its U.S. Cash Balance Plan at December 31, 2006 and 2005 by asset category were as follows: Plan Assets at December 31, -------------- 2006 2005 ---- ---- Asset Category - -------------- Equity securities........................................... 66% 65% Fixed maturity securities................................... 29 31 Real estate................................................. 5 4 --- --- Total....................................................... 100% 100% === === The target asset allocations for the Company's pension plans are summarized below for major asset categories: Asset Category - -------------- Equity securities........................................... 40% - 80% Fixed maturity securities................................... 20% - 60% Real estate................................................. 0% - 5% F-32 JOHN HANCOCK LIFE INSURANCE COMPANY (U.S.A.) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Note 8 - Commitments and Contingencies Commitments As of December 31, 2006, the Company had outstanding commitments involving five mortgage applications in the United States for a total of $38 million to be disbursed in 2007. On December 19, 2006 the Company entered into a purchase and sale agreement to acquire $154 million of real estate to be held for investment. The purchase closed on February 6, 2007. 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 approximate minimum aggregate rental commitments on the ground lease together with other rental office space commitments were as follows: Operating Leases ------------- (in millions) 2007.................................... $ 2 2008.................................... 2 2009.................................... 2 2010.................................... 2 2011.................................... 2 Thereafter.............................. 200 ---- Total................................... $210 ==== There were no other material operating leases in existence as of December 31, 2006. Legal Proceedings. 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 consolidated financial position. F-33 JOHN HANCOCK LIFE INSURANCE COMPANY (U.S.A.) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Note 9 - Shareholder's Equity Capital Stock The Company has two classes of capital stock: Preferred stock, $1.00 par value, 50,000,000 shares authorized, 100,000 shares issued and outstanding at December 31, 2006 and 2005. Common stock, $1.00 par value, 50,000,000 shares authorized at December 31, 2006 and 2005, 4,728,935 shares issued and outstanding at December 31, 2006 (4,728,934 issued and outstanding at December 31, 2005). Accumulated Other Comprehensive Income Changes in accumulated other comprehensive income for the years indicated are presented below:
Net Net Accumulated Foreign Minimum Accumulated Unrealized Gain on Currency Pension Other Gains Cash Flow Translation Liability Comprehensive (Losses) Hedges Adjustment Adjustment Income ---------- ----------- ----------- ---------- ------------- (in millions) Balance at January 1, 2004........................................ $ 635 $ 3 $158 $ (3) $ 793 Gross unrealized gains (net of deferred income tax expense of $65 million)........................................................ 120 120 Reclassification adjustment for gains realized in net income (net of deferred income tax expense of $75 million)............... (140) (140) Adjustment for participating group annuity contracts (net of deferred income tax benefit of $10 million)..................... (18) (18) Adjustment for deferred acquisition costs and deferred sales inducements (net of deferred income tax expense of $7 million) 13 13 ----- ----- Net unrealized losses............................................. (25) (25) Foreign currency translation adjustment........................... 55 55 Minimum pension liability (net of deferred income tax benefit of $0)............................................................. (1) (1) Net gains on cash flow hedges (net of deferred income tax expense of $3 million).................................................. 6 6 ----- --- ---- ---- ----- Balance at December 31, 2004...................................... $ 610 $ 9 $213 $ (4) $ 828 ===== === ==== ==== ===== Net Net Accumulated Foreign Minimum Accumulated Unrealized Gain on Currency Pension Other Gains Cash Flow Translation Liability Comprehensive (Losses) Hedges Adjustment Adjustment Income ---------- ----------- ----------- ---------- ------------- (in millions) Balance at January 1, 2005........................................ $ 610 $ 9 $213 $ (4) $ 828 Gross unrealized losses (net of deferred income tax benefit of $30 million)........................................................ (55) (55) Reclassification adjustment for gains realized in net income (net of deferred income tax expense of $59 million)............... (111) (111) Adjustment for participating group annuity contracts (net of deferred income tax benefit of $7 million)...................... (15) (15) Adjustment for deferred acquisition costs and deferred sales inducements (net of deferred income tax expense of $22 million) 42 42 ----- ----- Net unrealized losses............................................. (139) (139) Foreign currency translation adjustment........................... -- -- Minimum pension liability (net of deferred income tax benefit of $11 million).................................................... (21) (21) Net (losses) on cash flow hedges (net of deferred income tax benefit of $0).................................................. (1) (1) ----- --- ---- ---- ----- Balance at December 31, 2005...................................... $ 471 $ 8 $213 $(25) $ 667 ===== === ==== ==== =====
F-34 JOHN HANCOCK LIFE INSURANCE COMPANY (U.S.A.) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Note 9 - Shareholder's Equity - (continued)
Additional Net Pension and Net Accumulated Foreign Minimum Postretirement Accumulated Unrealized Gain on Currency Pension Unrecognized Other Gains Cash Flow Translation Liability Net Periodic Comprehensive (Losses) Hedges Adjustment Adjustment Cost Income ---------- ----------- ----------- ---------- -------------- ------------- (in millions) Balance at January 1, 2006............................ $471 $ 8 $213 $(25) $ 0 $667 Gross unrealized losses (net of deferred income tax benefit of $36 million)............................. (67) (67) Reclassification adjustment for losses realized in net income (net of deferred income tax benefit of $12 million)............................................ 22 22 Adjustment for participating group annuity contracts (net of deferred income tax expense of $15 million)............................................ 28 28 Adjustment for deferred acquisition costs and deferred sales inducements (net of deferred income tax benefit of $11 million) (21) (21) ---- ---- Net unrealized losses................................. (38) (38) Foreign currency translation adjustment............... 7 7 Minimum pension liability (net of deferred income tax expense of $3 million).......................... 5 5 SFAS 158 transition adjustment........................ 20 (22) (2) Net accumulated (losses) on cash flow hedges (net of deferred income tax expense of $ 0).............. -- -- ---- --- ---- ---- ---- ---- Balance at December 31, 2006.......................... $433 $ 8 $220 $ -- $(22) $639 ==== === ==== ==== ==== ====
Net unrealized investment gains included in the consolidated balance sheets as a component of shareholder's equity are summarized below:
2006 2005 2004 ---- ------ ------ (in millions) As of December 31: Balance, end of year comprises: Unrealized investment gains (losses) on: Fixed maturities available for sale ............................ $590 $ 795 $1,073 Equity securities available for sale............................ 412 262 226 Other, net...................................................... (7) 8 20 ---- ------ ------ Total ................................................................. 995 1,065 1,319 Amounts of unrealized investment gains (losses) attributable to: Deferred acquisition costs and deferred sales inducements ...... 122 90 154 Participating group annuity contracts .......................... 208 251 228 Deferred federal income taxes................................... 233 253 327 ---- ------ ------ Total.................................................................. 562 594 709 ---- ------ ------ Net unrealized investment gains........................................ $433 $ 471 $ 610 ==== ====== ======
F-35 JOHN HANCOCK LIFE INSURANCE COMPANY (U.S.A.) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Note 9 - Shareholder's Equity - (continued) Statutory Results JH USA prepares its statutory basis financial statements in accordance with accounting practices prescribed or permitted by the state of domicile. Statutory net income and statutory capital and surplus were as follows: 2006 2005 2004 ------ ---- ------ (in millions) Statutory net income........................................ $ 184 $ 11 $ 304 Statutory capital and surplus............................... 1,426 945 1,165 JH USA is 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. 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. Note 10 - 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 and group annuity contracts and group pension contracts. 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. Corporate Segment. Includes corporate operations primarily related to certain financing activities and income on capital not specifically allocated to the reporting segments. The Company's reinsurance operations are also reported in this segment. Reinsurance refers to the transfer of all or part of certain risks related to policies issued by the Company to a reinsurer, or to the assumption of risk from other insurers. The accounting policies of the segments are the same as those described above in Note 1 - 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. F-36 JOHN HANCOCK LIFE INSURANCE COMPANY (U.S.A.) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Note 10 - Segment Information - (continued) The following tables summarize selected financial information by segment for the periods indicated:
Wealth Protection Management Corporate Consolidated ---------- ---------- --------- ------------ (in millions) Year ended December 31, 2006 Revenues: Revenue from external customers........................................... $ 1,483 $ 1,632 $ 382 $ 3,497 Net investment income..................................................... 712 225 226 1,163 Net realized investment gains (losses).................................... 79 20 (94) 5 ------- ------- ------ -------- Revenues.................................................................. $ 2,274 $ 1,877 $ 514 $ 4,665 ======= ======= ====== ======== Net income (loss):........................................................... $ 197 $ 324 $ (9) $ 512 ======= ======= ====== ======== 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.......... -- -- 36 36 Amortization of deferred acquisition costs and deferred sales inducements. $ 235 $ 303 (9) 529 Interest expense.......................................................... -- 21 5 26 Income tax expense........................................................ 104 115 4 223 Segment assets............................................................ 19,051 95,752 9,809 124,612 Wealth Protection Management Corporate Consolidated ---------- ---------- --------- ------------ (in millions) Year ended December 31, 2005 Revenues: Revenue from external customers........................................... $ 1,207 $ 1,225 $ 207 $ 2,639 Net investment income..................................................... 723 220 226 1,169 Net realized investment 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 7,766 101,660
F-37 JOHN HANCOCK LIFE INSURANCE COMPANY (U.S.A.) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Note 10 - Segment Information - (continued)
Wealth Protection Management Corporate Consolidated ---------- ---------- --------- ------------ (in millions) Year ended December 31, 2004 Revenues: Revenue from external customers........................................... $ 1,095 $ 931 $ 291 $ 2,317 Net investment income..................................................... 713 230 205 1,148 Net realized investment 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 5,907 85,354
F-38 JOHN HANCOCK LIFE INSURANCE COMPANY (U.S.A.) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Note 11 - Fair Value of Financial Instruments The following discussion outlines the methodologies and assumptions used to determine the fair value of the Company's financial instruments. The aggregate fair value amounts presented below do not represent the underlying value of the Company and, accordingly, care should be exercised in drawing conclusions about the Company's business or financial condition based on the fair value information presented below. For fixed maturity securities and equity securities, fair values 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. The 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. The fair values of policy loans, short term investments, and cash and cash equivalents approximated their respective carrying values. The fair values of fixed rate deferred and immediate annuities, which do not subject the Company to significant mortality or morbidity risks, were estimated using cash flows discounted at market rates. 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. The fair value of commitments approximated the amount of the outstanding commitment. The following table presents the carrying values and fair values of the Company's financial instruments: December 31, --------------------------------- 2006 2005 ---------------- ---------------- Carrying Fair Carrying Fair Value Value Value Value -------- ------- -------- ------- (in millions) Assets: Fixed maturities.......................... $11,629 $11,629 $11,770 $11,770 Equity securities......................... 1,034 1,034 584 584 Mortgage loans on real estate............. 2,446 2,478 2,410 2,475 Policy loans.............................. 2,340 2,340 2,187 2,187 Short term investments.................... 645 645 549 549 Cash and cash equivalents................. 4,112 4,112 2,591 2,591 Derivative financial instruments.......... 39 39 8 8 Liabilities: Fixed rate deferred and immediate annuities............................... 2,318 2,280 2,355 2,322 Derivative financial instruments.......... 91 91 41 41 Commitments............................... -- 402 -- 90 F-39 JOHN HANCOCK LIFE INSURANCE COMPANY (U.S.A.) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Note 12 - Certain Separate Accounts The Company issues variable annuity contracts through its separate accounts for which investment income and investment gains and losses accrue directly to, and investment risk is borne by, the contract holder. All contracts contain certain guarantees, which are discussed more fully below. The Company also has an immaterial amount of variable life insurance contracts in force, which will not be discussed further. During 2006 and 2005, 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 both traditional variable annuities and variable contracts with guarantees 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 contract holders for mortality, administrative, and other services are included in revenue and changes in liabilities for minimum guarantees are included in policyholder benefits in the 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 item in the consolidated statements of income. The variable annuity contracts are issued through separate accounts and the Company contractually guarantees the contract holder either (a) a return of no less than total deposits made to the contract less any partial withdrawals, (b) total deposits made to the contract less any partial withdrawals plus a minimum return, or (c) the highest contract value on a specified anniversary date minus any withdrawals following the contract anniversary. Contracts issued after December 31, 2002 have a proportional partial withdrawal benefit instead of a dollar-for-dollar relationship. As of December 31, 2006, 28% of the inforce contract values have reduction of benefit on a dollar-for-dollar basis, and 72% 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 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 Lifetime Income Amount available for the life of the covered person. In February 2006, the PPFL rider was upgraded to a new "Enhanced" version featuring key change to the Step-Up option. Previously, Step-Ups occurred automatically every third contract year until the thirtieth year. After the upgrade, Step-Ups will begin to occur annually after the ninth year. In October 2006, the Company added two new versions of the "Enhanced PPFL" rider to the PPFL family: . Principal Plus For Life PLUS Automatic Annual Step-Up, provides clients with the additional advantage that the Step-Up feature will occur annually beginning with the very first contract anniversary. . Principal Plus For Life PLUS Spousal Protection, provides clients with the additional advantage the rider will continue to provide the spouse with a guaranteed lifetime income even after the owner's death. Reinsurance has been utilized to mitigate risk related to Guaranteed Minimum Death Benefits ("GMDB") and Guaranteed Minimum Income Benefits ("GMIB"). F-40 JOHN HANCOCK LIFE INSURANCE COMPANY (U.S.A.) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Note 12 - Certain Separate Accounts - (continued) As of December 31, 2006 and 2005, the Company had the following variable contracts with guarantees: December 31, December 31, 2006 2005 ------------ ------------ (in millions, except percent) Guaranteed minimum death benefit: Return of net deposits in the event of death: Account value.................................. $11,869 $ 6,976 Net amount at risk - gross..................... 4 7 Net amount at risk - net....................... 1 1 Return of net deposits plus a minimum return in the event of death: Account value.................................. $ 786 $ 842 Net amount at risk - gross..................... 150 176 Net amount at risk - net....................... -- -- Guaranteed minimum return rate................. 5% 5% Highest specified anniversary account value minus withdrawals post anniversary in the event of death: Account value.................................. $30,956 $26,828 Net amount at risk - gross..................... 1,309 1,865 Net amount at risk - net....................... 53 81 Guaranteed Minimum Income Benefit: Account value.................................. $11,277 $11,477 Net amount at risk - gross..................... 1,137 1,332 Net amount at risk - net....................... 27 25 Guaranteed Minimum Withdrawal Benefit: Account value.................................. $19,275 $10,179 Net amount at risk - gross..................... 1 3 Net amount at risk - net....................... 1 3 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. F-41 JOHN HANCOCK LIFE INSURANCE COMPANY (U.S.A.) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Note 12 - Certain Separate Accounts - (continued) Account balances of variable contracts with guarantees invest in variable separate accounts in various mutual funds with the following characteristics:
December 31, December 31, Type of Fund Index 2006 2005 - ------------ ------------------------------------------- ------------- ------------ (in billions) Large Cap Equity.... S&P 500 $10.8 $ 9.9 High Quality Bond... Ibbottson US Intermediate term Gov't Bond 4.6 4.3 High Yield Bond..... Ibbottson Domestic High Yield Bond 0.5 0.6 Balanced............ 60% Large Cap Equity, 40% High Quality Bond 22.6 14.4 Small Cap Equity.... Ibbottson US Small Cap Stock 3.0 3.4 International Equity MSCI EAFE 1.4 1.3 Global Equity....... MSCI World 0.6 0.6 Real Estate......... NAREIT 0.4 0.3 ----- ----- Total............ $43.9 $34.8 ===== =====
The reserve roll forwards for the separate accounts as of December 31, 2006 and 2005 were as follows:
Guaranteed Minimum Guaranteed Guaranteed Withdrawal Minimum Death Minimum Income Benefit Benefit (GMDB) Benefit (GMIB) (GMWB) Totals -------------- -------------- ---------- ------ (in millions) Balance at January 1, 2006.............. $ 39 $(187) $(14) $(162) Incurred guarantee benefits............. (51) (33) -- (84) Other reserve changes................... 92 428 109 629 ---- ----- ---- ----- Balance at December 31, 2006............ 80 208 95 383 Reinsurance recoverable................. (35) (518) -- (553) ---- ----- ---- ----- Net balance at December 31, 2006........ $ 45 $(310) $ 95 $(170) ==== ===== ==== ===== 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) ==== ===== ==== =====
F-42 JOHN HANCOCK LIFE INSURANCE COMPANY (U.S.A.) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Note 12 - Certain Separate Accounts - (continued) The gross reserves and ceded assets for GMDB and the gross reserves for GMIB were determined using SOP 03-1, whereas the ceded asset for GMIB and gross reserve for GMWB were determined in accordance with 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 as of December 31, 2006 and 2005: . Data used included 1,000 stochastically generated investment performance scenarios. For SFAS 133 calculations, risk neutral scenarios have been used. . Mean return and volatility assumptions have been determined for each of the asset classes noted above. . For 2006, annuity mortality was based on 1994 MGDB table multiplied by factors varied by rider types (living benefit/GMDB only) and qualified/non-qualified business (2005 - Annuity mortality was assumed to be 90% of the Annuity 2000 table). . Annuity base lapse rates vary by contract type and duration and range from 1% to 42 % (2005 - 1% to 45%). . 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 5.24% (2005 - 5.00%) for SFAS 133 calculations. Note 13 - Deferred Acquisition Costs and Deferred Sales Inducements The components of the change in Deferred Acquisition Costs were as follows: 2006 2005 For the year ended December 31, ------ ------ (in millions) Balance, January 1.......................................... $4,112 $3,448 Capitalization.............................................. 1,115 940 Amortization................................................ (494) (293) Transfer of Taiwan operations - Note 15..................... -- (47) Effect of net unrealized gains on available-for-sale securities................................................ (32) 64 ------ ------ Balance, December 31........................................ $4,701 $4,112 ====== ====== The components of the change in Deferred Sales Inducements were as follows: 2006 2005 For the year ended December 31, ---- ---- (in millions) Balance, January 1.......................................... $231 $228 Capitalization.............................................. 39 36 Amortization................................................ (35) (29) Transfer of Taiwan operations - Note 15..................... -- (4) ---- ---- Balance, December 31........................................ $235 $231 ==== ==== Note 14 - Share Based Payments The Company participates in the stock compensation plans of MFC. The Company adopted the fair-value-based method of accounting for share-based payments effective January 1, 2002 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 granted to employees and continues to use this model after adopting SFAS 123R on January 1, 2006. Had the Company adopted SFAS 123R in prior periods, the impact of that guidance would have approximated the impact of SFAS 123. 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 the Company in other operating costs and expenses. F-43 JOHN HANCOCK LIFE INSURANCE COMPANY (U.S.A.) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Note 14 - Share Based Payments - (continued) Stock Options (ESOP) Certain employees of the Company are provided compensation in the form of stock options, deferred share units ("DSUs"), and restricted share units ("RSUs") in MFC. 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 the Company's employees is recognized in the accounts of the Company over the vesting periods of the units. The intrinsic fair value of the restricted share units granted by MFC to the Company's employees is recognized in the accounts of the Company over the vesting periods of the units. Under MFC's Executive Stock Option Plan ("ESOP"), stock options are granted to selected individuals. Options provide the holder with the right to purchase common shares at an exercise price equal to the closing market price of MFC's common shares on the Toronto Stock Exchange on the business day immediately preceding the date the options were granted. The options vest over a period not exceeding four years and expire not more than 10 years from the grant date. A total of 73.6 million common shares have been reserved for issuance under the ESOP. MFC grants DSUs under the ESOP and the Stock Plan for Non-Employee Directors. Under the ESOP, the holder is entitled to receive cash payment equal to the value of the same number of common shares plus credited dividends on retirement or termination of employment. These DSUs vested over a three-year period and each DSU entitles the holder to receive one common share on retirement or termination of employment. When dividends are paid on MFC's common shares, holders of DSUs are deemed to receive dividends at the same rate, payable in the form of additional DSUs. Under the Stock Plan for Non-Employee Directors, each eligible director may elect to receive his or her annual director's retainer and fees in DSUs or common shares in lieu of cash. Upon termination of board service, an eligible director who has elected to receive DSUs will be entitled to receive cash equal to the value of the DSUs accumulated in his or her account or, at his or her direction, an equivalent number of common shares. A total of one million common shares of MFC have been reserved for issuance under the Stock Plan for Non-Employee Directors. In 2006, MFC issued a total of 181,000 DSUs (2005 - 182,000) to certain employees who elected to defer receipt of all or part of their annual bonus. Also in 2006, MFC issued a total of 720,000 DSUs (2005 - 0) to certain employees who elected to defer payment of all or part of their 2004 restricted share units. Restricted share units are discussed below. The DSUs issued in 2006 and 2005 vested immediately upon issue. Global Share Ownership Plan (GSOP) Effective January 1, 2001, MFC established the Global Share Ownership Plan ("GSOP") for its eligible employees and the Stock Plan for Non-Employee Directors. Under the GSOP, qualifying employees 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 a percentage of the employee's eligible contributions to certain maximums. MFC's contributions vest immediately. All contributions are used by the GSOP's trustee to purchase common shares in the open market. The Company's compensation expense related to the GSOP was $0.9 million for the year ended December 31, 2006 (2005 - $0.3 million; 2004 - $0.6 million). Director Equity Incentive Plan (DEIP) MFC had previously granted stock options to directors under the Director Equity Incentive Plan ("DEIP"). There were no stock options granted under the DEIP in 2006 or 2005, as a result of a decision made by the MFC Board of Directors in 2004 to permanently discontinue stock option grants to directors. A total of 500,000 common shares of MFC had been reserved for issuance under the DEIP. Restricted Share Unit Plan (RSU) In 2003, MFC established the Restricted Share Unit ("RSU") Plan. For the year ended December 31, 2006, MFC granted a total of 1.6 million (2005 - 1.8 million) RSUs 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 three years from the grant date, subject to performance conditions, and the related compensation expense is recognized over this period, except where the employee is eligible to retire prior to the vesting date, in which case the cost is recognized over the period between the grant date and the date on which the employee is eligible to retire. The Company's compensation expense related to RSUs was $13.8 million for the year ended December 31, 2006 (2005 - $27.4 million; 2004 - $0). F-44 JOHN HANCOCK LIFE INSURANCE COMPANY (U.S.A.) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Note 14 - Share Based Payments - (continued) The Company's portion of MFC DSU unit awards outstanding during 2006 was as follows: DSUs Outstanding ----------- Outstanding, January 1, 2006................................ 306,888 Granted..................................................... 11,846 Redeemed.................................................... (50,548) Forfeited................................................... (--) Dividends Reinvested........................................ 5,466 ------- Outstanding, December 31, 2006.............................. 273,652 ======= The Company's portion of MFC RSU grants outstanding during 2006 was as follows: RSUs Outstanding ----------- Outstanding, January 1, 2006................................ 901,417 Granted..................................................... 353,340 Redeemed.................................................... (537,665) Forfeited................................................... (19,976) Dividends Reinvested........................................ 24,381 -------- Outstanding, December 31, 2006.............................. 721,497 ======== The following table summarizes the Company's stock option awards outstanding and the weighted average exercise price during the year ended December 31, 2006: December 31, 2006 --------------------------- Weighted Average Options Exercise Price --------- ---------------- Outstanding, January 1, 2006...................... 5,384,262 $19.28 Granted........................................... 754,616 $32.56 Exercised......................................... (611,554) $18.02 Forfeited......................................... (41,244) $26.41 --------- Outstanding, December 31, 2006.................... 5,486,080 $21.19 ========= Exercisable, December 31, 2006.................... 3,655,146 $18.39 ========= The market value of MFC common shares at December 31, 2006 was $33.62. The weighted average fair value of each option granted in 2006 has been estimated at $32.56 using the Black-Scholes option-pricing model. The weighted average assumptions used in the determination of the fair value of each option are as follows: For the Years Ended December 31, ---------------------------------- 2006 2005 2004 ---------- ---------- ---------- Dividend Yield.......................... 1.94% 1.90% 1.80% Expected Volatility..................... 20.00% 20.00% 22.50% Risk - Free Interest Rate............... 4.11% 3.70% 3.70% Expected Life of Stock Option........... 6.50 years 6.00 years 6.00 years The Company recorded compensation expense for stock options granted of $4.5 million during the year ended December 31, 2006 (2005 - $4.5 million; 2004 - $0). In aggregate, the Company recorded share based compensation expense of $19.2 million for the year ended December 31, 2006 (2005 - $32.2 million; 2004 - $0.6 million). F-45 JOHN HANCOCK LIFE INSURANCE COMPANY (U.S.A.) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Note 15 - 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 million and liabilities of $176 million were transferred. The loss on the intercompany transfer of $77 million, net of tax benefit of $42 million, 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 million, assumed policyholder liabilities of $123 million, and received a ceding commission of $102 million. These transactions were also accounted for as transactions between entities under common control, and the gain of $85 million, net of tax expense of $46 million, 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 million in 2005. Subsequent to the transfer it was determined that reserves on the Taiwan business needed to be strengthened by $10 million net of tax benefit of $5 million. This activity was reported in the Company's 2005 consolidated statement of income. Note 16 - Subsequent Events Pursuant to a senior promissory note dated March 1, 2007, the Company borrowed $477 million from an affiliate, Manulife Holdings (Delaware) LLC. Interest is calculated at a fluctuating rate equal to 3 month LIBOR plus 33.5 basis points and is payable quarterly. The interest rate was 5.68% as of March 15, 2007. The note matures on December 15, 2016. F-46 JOHN HANCOCK LIFE INSURANCE COMPANY (U.S.A.) SEPARATE ACCOUNT N Audited Financial Statements Year ended December 31, 2006 with Report of Independent Registered Public Accounting Firm John Hancock Life Insurance Company (U.S.A.) Separate Account N Audited Financial Statements Year Ended December 31, 2006 Contents Report of Independent Registered Public Accounting Firm.................... 3 Statements of Assets and Owners' Equity.................................... 6 Statements of Operations and Changes in Contract Owners' Equity............ 10 Notes to Financial Statements.............................................. 69 Organization............................................................ 69 Significant Accounting Policies......................................... 70 Mortality and Expense Risks Charge...................................... 71 Contract Charges........................................................ 71 Purchases and Sales of Investments...................................... 72 Transactions with Affiliates............................................ 75 Diversification Requirements............................................ 75 Financial Highlights.................................................... 76 Details of Dividend Income.............................................. 148 Report of Independent Registered Public Accounting Firm To the Contract Owners of John Hancock Life Insurance Company (U.S.A.) Separate Account N We have audited the accompanying statements of assets and contract owners' equity of John Hancock Life Insurance Company (U.S.A.) Separate Account N (the "Account"), comprised of the following sub-accounts; 500 Index Trust B Series 0 Equity-Income Trust Series 0 500 Index Trust Series 1 Equity-Income Trust Series 1 Active Bond Trust Series 0 Financial Services Trust Series 0 Active Bond Trust Series 1 Financial Services Trust Series 1 All Asset Portfolio Series 1 Fundamental Value Trust Series 0 All Cap Core Trust Series 0 Fundamental Value Trust Series 1 All Cap Core Trust Series 1 Global Allocation Trust Series 0 All Cap Growth Trust Series 0 Global Allocation Trust Series 1 All Cap Growth Trust Series 1 Global Bond Trust Series 0 All Cap Value Trust Series 0 Global Bond Trust Series 1 All Cap Value Trust Series 1 Global Trust Series 0 American Blue Chip Income and Growth Global Trust Series 1 Trust Series 1 Growth & Income Trust Series 0 American Bond Trust Series 1 Health Sciences Trust Series 0 American Growth Trust Series 1 Health Sciences Trust Series 1 American Growth-Income Trust Series 1 High Yield Trust Series 0 American International Trust Series 1 High Yield Trust Series 1 Blue Chip Growth Trust Series 0 Income & Value Trust Series 0 Blue Chip Growth Trust Series 1 Income & Value Trust Series 1 Bond Index Trust B Series 0 International Core Trust Series 0 Capital Appreciation Trust Series 0 International Core Trust Series 1 Capital Appreciation Trust Series 1 International Equity Index Trust A Series 1 Classic Value Trust Series 0 International Equity Index Trust B Series 0 Classic Value Trust Series 1 International Opportunities Trust Series 0 Core Bond Trust Series 1 International Opportunities Trust Series 1 Core Equity Trust Series 0 International Small Cap Trust Series 0 Core Equity Trust Series 1 International Small Cap Trust Series 1 Dynamic Growth Trust Series 0 International Value Trust Series 0 Dynamic Growth Trust Series 1 International Value Trust Series 1 Emerging Growth Trust Series 0 Investment Quality Bond Trust Series 1 Emerging Growth Trust Series 1 Large Cap Growth Trust Series 1 Emerging Small Company Trust Series 0 Large Cap Trust Series 0 Emerging Small Company Trust Series 1 Large Cap Trust Series 1
3 Report of Independent Registered Public Accounting Firm Large Cap Value Trust Series 0 Real Return Bond Trust Series 1 Large Cap Value Trust Series 1 Science & Technology Trust Series 0 Lifestyle Aggressive Trust Series 0 Science & Technology Trust Series 1 Lifestyle Aggressive Trust Series 1 Short-Term Bond Trust Series 0 Lifestyle Balanced Trust Series 0 Small Cap Growth Trust Series 0 Lifestyle Balanced Trust Series 1 Small Cap Index Trust Series 0 Lifestyle Conservative Trust Series 0 Small Cap Index Trust Series 1 Lifestyle Conservative Trust Series 1 Small Cap Opportunities Trust Series 1 Lifestyle Growth Trust Series 0 Small Cap Trust Series 0 Lifestyle Growth Trust Series 1 Small Cap Trust Series 1 Lifestyle Moderate Trust Series 0 Small Cap Value Trust Series 0 Lifestyle Moderate Trust Series 1 Small Company Trust Series 1 Managed Trust Series 0 Small Company Value Trust Series 0 Mid Cap Core Trust Series 0 Small Company Value Trust Series 1 Mid Cap Core Trust Series 1 Special Value Trust Series 1 Mid Cap Index Trust Series 0 Strategic Bond Trust Series 0 Mid Cap Index Trust Series 1 Strategic Bond Trust Series 1 Mid Cap Stock Trust Series 0 Strategic Income Trust Series 1 Mid Cap Stock Trust Series 1 Strategic Opportunities Trust Series 0 Mid Cap Value Trust Series 0 Strategic Opportunities Trust Series 1 Mid Cap Value Trust Series 1 Strategic Value Trust Series 0 Mid Value Trust Series 0 Strategic Value Trust Series 1 Money Market Trust B Series 0 Total Return Trust Series 0 Money Market Trust Series 1 Total Return Trust Series 1 Natural Resources Trust Series 0 Total Stock Market Index Trust Series 0 Natural Resources Trust Series 1 Total Stock Market Index Trust Series 1 Overseas Equity Trust Series 0 U.S. Core Trust Series 1 Pacific Rim Trust Series 0 U.S. Global Leaders Growth Trust Series 1 Pacific Rim Trust Series 1 U.S. Government Securities Trust Series 0 Quantitative All Cap Trust Series 0 U.S. Government Securities Trust Series 1 Quantitative All Cap Trust Series 1 U.S. High Yield Bond Trust Series 0 Quantitative Mid Cap Trust Series 0 U.S. High Yield Bond Trust Series 1 Quantitative Mid Cap Trust Series 1 U.S. Large Cap Trust Series 0 Quantitative Value Trust Series 0 U.S. Large Cap Trust Series 1 Quantitative Value Trust Series 1 Utilities Trust Series 0 Real Estate Securities Trust Series 0 Utilities Trust Series 1 Real Estate Securities Trust Series 1 Value Trust Series 1 Real Return Bond Trust Series 0
of John Hancock Life Insurance Company (U.S.A.) as of December 31, 2006, the related statements of operations and changes in contract owners' equity for each of the two years in 4 Report of Independent Registered Public Accounting Firm 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 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 at December 31, 2006, 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. /s/ Ernst & Young LLP Toronto, Canada April 5, 2007 5 John Hancock Life Insurance Company (U.S.A.) Separate Account N Statements of Assets and Contract Owners' Equity December 31, 2006 Assets Investments at fair value: Sub-accounts invested in John Hancock Trust portfolios: 500 Index Trust B Series 0 - 979,856 shares (cost $15,466,006) $17,764,778 500 Index Trust Series 1 - 927,362 shares (cost $10,179,047) 11,434,368 Active Bond Trust Series 0 - 10,926 shares (cost $108,280) 108,061 Active Bond Trust Series 1 - 451,883 shares (cost $4,354,493) 4,464,604 All Cap Core Trust Series 0 - 15 shares (cost $275) 295 All Cap Core Trust Series 1 - 232,958 shares (cost $3,752,733) 4,565,986 All Cap Growth Trust Series 0 - 47 shares (cost $789) 847 All Cap Growth Trust Series 1 - 234,192 shares (cost $3,569,226) 4,175,639 All Cap Value Trust Series 0 - 22 shares (cost $274) 288 All Cap Value Trust Series 1 - 153,391 shares (cost $2,009,852) 1,998,682 American Blue Chip Income and Growth Trust Series 1 -282,148 shares (cost $4,799,744) 5,160,481 American Bond Trust Series 1 - 30,543 shares (cost $402,687) 406,830 American Growth Trust Series 1 - 1,683,864 shares (cost $31,978,230) 36,590,362 American Growth-Income Trust Series 1 - 149,059 shares (cost $2,569,456) 3,009,500 American International Trust Series 1 - 1,228,656 shares (cost $26,385,722) 30,618,091 Blue Chip Growth Trust Series 0 - 36,579 shares (cost $643,468) 708,170 Blue Chip Growth Trust Series 1 - 1,239,100 shares (cost $20,951,412) 24,026,155 Bond Index Trust B Series 0 - 161,041 shares (cost $1,586,843) 1,637,785 Capital Appreciation Trust Series 0 - 11,135 shares (cost $100,885) 101,106 Capital Appreciation Trust Series 1 - 876,488 shares (cost $7,812,317) 7,949,747 Classic Value Trust Series 0 -42 shares (cost $641) 683 Classic Value Trust Series 1 - 67,790 shares (cost $1,047,423) 1,098,196 Core Bond Trust Series 1 - 28 shares (cost $347) 355 Core Equity Trust Series 0 - 426 shares (cost $5,755) 6,466 Core Equity Trust Series 1 - 45,119 shares (cost $644,235) 683,107 Dynamic Growth Trust Series 0 - 4,428 shares (cost $25,262) 26,745 Dynamic Growth Trust Series 1 - 596,891 shares (cost $3,387,424) 3,605,224 Emerging Growth Trust Series 0 - 50 shares (cost $591) 635 Emerging Growth Trust Series 1 - 37,041 shares (cost $558,785) 470,425 Emerging Small Company Trust Series 0 - 4,290 shares (cost $123,563) 126,387 Emerging Small Company Trust Series 1 - 1,383,291 shares (cost $41,477,932) 40,696,420 Equity-Income Trust Series 0 - 378,370 shares (cost $6,573,982) 6,996,068 Equity-Income Trust Series 1 - 2,035,277 shares (cost $33,836,308) 37,693,322 Financial Services Trust Series 0 - 55 shares (cost $901) 1,024 Financial Services Trust Series 1 - 133,765 shares (cost $2,303,922) 2,512,100 Fundamental Value Trust Series 0 - 6,028 shares (cost $97,222) 101,153 Fundamental Value Trust Series 1 - 265,228 shares (cost $3,963,786) 4,461,137 Global Allocation Trust Series 0 - 30 shares (cost $364) 388 Global Allocation Trust Series 1 - 142,948 shares (cost $1,675,220) 1,826,871 Global Bond Trust Series 0 - 213,886 shares (cost $3,091,841) 3,189,038 Global Bond Trust Series 1 - 340,822 shares (cost $4,979,020) 5,088,466
6 John Hancock Life Insurance Company (U.S.A.) Separate Account N Statements of Assets and Contract Owners' Equity December 31, 2006 Assets (continued) Investments at fair value: Sub-accounts invested in John Hancock Trust portfolios: Global Trust Series 0 - 5,303 shares (cost $96,221) $ 101,826 Global Trust Series 1 - 298,216 shares (cost $4,794,109) 5,725,741 Growth & Income Trust Series 0 - 98,300 shares (cost $1,206,085) 1,339,825 Health Sciences Trust Series 0 - 131 shares (cost $1,929) 2,065 Health Sciences Trust Series 1 - 346,662 shares (cost $5,185,138) 5,446,065 High Yield Trust Series 0 - 12,445 shares (cost $127,743) 132,294 High Yield Trust Series 1 - 1,045,949 shares (cost $10,661,697) 11,149,819 Income & Value Trust Series 0 - 2,779 shares (cost $32,800) 33,687 Income & Value Trust Series 1 - 1,774,580 shares (cost $18,654,036) 21,490,159 International Core Trust Series 0 - 444 shares (cost $6,242) 6,728 International Core Trust Series 1 - 634,109 shares (cost $7,545,422) 9,619,429 International Equity Index Trust A Series 1 - 443,559 shares (cost $7,415,861) 9,394,587 International Equity Index Trust B Series 0 - 9,508 shares (cost $181,663) 202,332 International Opportunities Trust Series 0 - 10,587 shares (cost $174,679) 192,374 International Opportunities Trust Series 1 - 118,705 shares (cost $1,968,864) 2,154,500 International Small Cap Trust Series 0 - 656 shares (cost $13,827) 15,913 International Small Cap Trust Series 1 - 281,925 shares (cost $5,302,831) 6,853,600 International Value Trust Series 0 - 117 shares (cost $2,205) 2,266 International Value Trust Series 1 - 1,449,009 shares (cost $23,534,672) 28,081,796 Investment Quality Bond Trust Series 1 - 748,398 shares (cost $8,870,556) 8,726,321 Large Cap Growth Trust Series 1 -- Large Cap Trust Series 0 - 52 shares (cost $752) 818 Large Cap Trust Series 1 - 2,311 shares (cost $33,369) 36,373 Large Cap Value Trust Series 0 - 146 shares (cost $3,337) 3,364 Large Cap Value Trust Series 1 - 241,227 shares (cost $5,344,864) 5,565,112 Lifestyle Aggressive Trust Series 0 - 632 shares (cost $6,612) 7,133 Lifestyle Aggressive Trust Series 1 - 649,427 shares (cost $7,319,126) 7,319,039 Lifestyle Balanced Trust Series 0 - 96,263 shares (cost $1,290,048) 1,334,204 Lifestyle Balanced Trust Series 1 - 1,177,999 shares (cost $15,544,295) 16,303,510 Lifestyle Conservative Trust Series 0 - 96 shares (cost $1,285) 1,287 Lifestyle Conservative Trust Series 1 - 92,261 shares (cost $1,188,429) 1,239,063 Lifestyle Growth Trust Series 0 - 104,432 shares (cost $1,346,297) 1,457,877 Lifestyle Growth Trust Series 1 - 819,568 shares (cost $10,474,205) 11,424,780 Lifestyle Moderate Trust Series 0 - 903 shares (cost $11,861) 12,083 Lifestyle Moderate Trust Series 1 - 236,251 shares (cost $3,022,585) 3,158,679 Managed Trust Series 0 - 4,488 shares (cost $59,534) 60,233 Mid Cap Core Trust Series 0 -- Mid Cap Core Trust Series 1 -- Mid Cap Index Trust Series 0 - 18,551 shares (cost $319,339) 349,681 Mid Cap Index Trust Series 1 - 345,938 shares (cost $6,197,954) 6,517,466 Mid Cap Stock Trust Series 0 - 8,196 shares (cost $131,660) 139,406
7 John Hancock Life Insurance Company (U.S.A.) Separate Account N Statements of Assets and Contract Owners' Equity December 31, 2006 Assets (continued) Investments at fair value: Sub-accounts invested in John Hancock Trust portfolios: Mid Cap Stock Trust Series 1 - 782,682 shares (cost $11,753,633) $13,282,114 Mid Cap Value Trust Series 0 - 5,720 shares (cost $94,090) 100,380 Mid Cap Value Trust Series 1 - 1,797,159 shares (cost $30,906,022) 31,558,117 Mid Value Trust Series 0 - 69,580 shares (cost $820,742) 949,770 Money Market Trust B Series 0 - 6,933,060 shares (cost $6,933,060) 6,933,060 Money Market Trust Series 1 - 8,669,631 shares (cost $86,696,310) 86,696,310 Natural Resources Trust Series 0 - 122 shares (cost $3,696) 3,857 Natural Resources Trust Series 1 - 219,025 shares (cost $6,677,858) 6,971,550 Overseas Equity Trust Series 0 - 86,838 shares (cost $1,094,109) 1,246,990 Pacific Rim Trust Series 0 - 151 shares (cost $1,841) 1,981 Pacific Rim Trust Series 1 - 707,926 shares (cost $7,796,494) 9,231,358 Quantitative All Cap Trust Series 0 - 117 shares (cost $1,934) 2,045 Quantitative All Cap Trust Series 1 - 63 shares (cost $1,040) 1,093 Quantitative Mid Cap Trust Series 0 - 80 shares (cost $818) 860 Quantitative Mid Cap Trust Series 1 - 43,973 shares (cost $489,657) 474,909 Quantitative Value Trust Series 0 - 111 shares (cost $1,537) 1,687 Quantitative Value Trust Series 1 - 1,299 shares (cost $19,668) 19,810 Real Estate Securities Trust Series 0 - 211,576 shares (cost $5,526,155) 5,835,277 Real Estate Securities Trust Series 1 - 1,516,067 shares (cost $32,143,013) 41,904,090 Real Return Bond Trust Series 0 - 7,377 shares (cost $96,130) 95,237 Real Return Bond Trust Series 1 - 193,274 shares (cost $2,583,314) 2,514,498 Science & Technology Trust Series 0 - 79 shares (cost $868) 986 Science & Technology Trust Series 1 - 1,338,491 shares (cost $15,278,600) 16,624,064 Short-Term Bond Trust Series 0 - 2,446 shares (cost $24,634) 24,683 Small Cap Growth Trust Series 0 - 159,519 shares (cost $1,645,405) 1,840,852 Small Cap Index Trust Series 0 - 10,508 shares (cost $171,086) 178,426 Small Cap Index Trust Series 1 - 743,876 shares (cost $10,819,571) 12,623,575 Small Cap Opportunities Trust Series 1 - 298,437 shares (cost $6,814,438) 7,281,857 Small Cap Trust Series 0 -- Small Cap Trust Series 1 - 3,227 shares (cost $45,029) 45,604 Small Cap Value Trust Series 0 - 214,213 shares (cost $4,592,958) 4,406,358 Small Company Trust Series 1 - 90,805 shares (cost $1,299,526) 1,317,577 Small Company Value Trust Series 0 - 3,414 shares (cost $70,857) 74,625 Small Company Value Trust Series 1 - 1,082,131 shares (cost $22,854,510) 23,687,841 Special Value Trust Series 1 - 18,841 shares (cost $333,382) 370,598 Strategic Bond Trust Series 0 -- Strategic Bond Trust Series 1 - 454,203 shares (cost $5,324,719) 5,459,524 Strategic Income Trust Series 1 - 38,693 shares (cost $515,922) 512,297 Strategic Opportunities Trust Series 0 - 8 shares (cost $98) 106 Strategic Opportunities Trust Series 1 - 368,847 shares (cost $3,956,130) 4,938,858 Strategic Value Trust Series 0 --
8 John Hancock Life Insurance Company (U.S.A.) Separate Account N Statements of Assets and Contract Owners' Equity December 31, 2006 Assets (continued) Investments at fair value: Sub-accounts invested in John Hancock Trust portfolios: Strategic Value Trust Series 1 -- Total Return Trust Series 0 - 28,302 shares (cost $ 387,891) 390,568 Total Return Trust Series 1 - 2,085,347 shares (cost $ 28,489,442) 28,840,343 Total Stock Market Index Trust Series 0 - 131 shares (cost $ 1,723) 1,715 Total Stock Market Index Trust Series 1 - 218,419 shares (cost $ 2,555,567) 2,867,841 U.S. Core Trust Series 1 - 761,760 shares (cost $ 16,303,120) 16,484,485 U.S. Global Leaders Growth Trust Series 1 - 52,484 shares (cost $ 657,681) 690,161 U.S. Government Securities Trust Series 0 - 27 shares (cost $362) 370 U.S. Government Securities Trust Series 1 - 820,559 shares (cost $ 10,992,450) 11,102,160 U.S. High Yield Bond Trust Series 0 - 337 shares (cost $ 4,364) 4,564 U.S. High Yield Bond Trust Series 1 - 206 shares (cost $ 2,609) 2,781 U.S. Large Cap Trust Series 0 -- U.S. Large Cap Trust Series 1 - 1,427,266 shares (cost $ 19,367,795) 23,164,531 Utilities Trust Series 0 - 154 shares (cost $ 2,005) 2,261 Utilities Trust Series 1 - 166,021 shares (cost $ 2,080,849) 2,433,871 Value Trust Series 1 - 370,238 shares (cost $ 7,405,108) 8,411,802 Sub-account invested in Outside Trust portfolios: All Asset Portfolio Series 1 - 67,931 shares (cost $ 798,391) 793,435 ------------ Total assets $811,311,132 ============ Contract Owners' Equity ------------ Variable universal life insurance contracts $811,311,132 ============
See accompanying notes. 9 John Hancock Life Insurance Company (U.S.A.) Separate Account N Statements of Operations and Changes in Contract Owners' Equity
Sub-Account ---------------------------------------------------- 500 Index Trust B Series 0 500 Index Trust Series 1 -------------------------- ------------------------- Year Ended Year Ended Year Ended Year Ended Dec. 31/06 Dec. 31/05 ^ Dec. 31/06 Dec. 31/05 ------------ ------------ ----------- ----------- Income: Dividends $ 282,780 $ 263,850 $ 105,632 $ 96,820 Expenses: Mortality and expense risk 95,488 78,009 34,429 23,098 ------------ ----------- ----------- ----------- Net investment income (loss) 187,292 185,841 71,203 73,722 Net realized gain (loss) 1,951,007 427,560 972,049 314,803 Change in unrealized appreciation (depreciation) during the period 1,108,607 1,190,166 675,969 (25,167) ------------ ----------- ----------- ----------- Net increase (decrease) in assets from operations 3,246,906 1,803,567 1,719,221 363,358 ------------ ----------- ----------- ----------- Changes from principal transactions: Transfer of net premiums 2,032,426 1,349,134 1,491,095 2,093,648 Transfer on terminations (13,863,663) (1,268,439) (2,432,260) (609,636) Transfer on policy loans (24,494) 30,388 (3,005) (23,342) Net interfund transfers 3,960,547 20,498,406 (566,907) 2,045,945 ------------ ----------- ----------- ----------- Net increase (decrease) in assets from principal transactions (7,895,184) 20,609,489 (1,511,077) 3,506,615 ------------ ----------- ----------- ----------- Total increase (decrease) in assets (4,648,278) 22,413,056 208,144 3,869,973 Assets, beginning of period 22,413,056 -- 11,226,224 7,356,251 ------------ ----------- ----------- ----------- Assets, end of period $ 17,764,778 $22,413,056 $11,434,368 $11,226,224 ============ =========== =========== ===========
- -------- ^ Reflects the period from commencement of operations on May 2, 2005 through December 31, 2005. ++ Fund available in prior year but no activity. ^^ Terminated as an investment option and funds transferred to Mid Cap Stock Trust Series 1 on May 2, 2005. See accompanying notes. 10
Sub-Account ------------------------------------------------------------------------------------- Active Bond Trust Series 0 Active Bond Trust Series 1 Aggressive Growth Trust Series 1 -------------------------- ------------------------- -------------------------------- Year Ended Year Ended Year Ended Year Ended Dec. 31/06 ++ Dec. 31/06 Dec. 31/05 ^ Dec. 31/05 ^^ -------------------------- ---------- ------------ -------------------------------- Income: Dividends $ 9,541 $ 107,757 $ 15,178 -- Expenses: Mortality and expense risk -- 21,697 22,766 9,889 -------- ---------- ---------- ---------- Net investment income (loss) 9,541 86,060 (7,588) (9,889) Net realized gain (loss) (10,217) 6,290 25,796 118,075 Change in unrealized appreciation (depreciation) during the period (219) 69,245 40,866 (508,205) -------- ---------- ---------- ---------- Net increase (decrease) in assets from operations (895) 161,595 59,074 (400,019) Changes from principal transactions: Transfer of net premiums -- 407,935 188,984 414,591 Transfer on terminations (2,556) (110,771) (270,360) (97,631) Transfer on policy loans -- (46) (21,166) 568 Net interfund transfers 111,512 (159,567) 4,208,926 (5,703,049) -------- ---------- ---------- ---------- Net increase (decrease) in assets from principal transactions 108,956 137,551 4,106,384 (5,385,521) -------- ---------- ---------- ---------- Total increase (decrease) in assets 108,061 299,146 4,165,458 (5,785,540) Assets, beginning of period -- 4,165,458 -- 5,785,540 -------- ---------- ---------- ---------- Assets, end of period $108,061 $4,464,604 $4,165,458 -- ======== ========== ========== ==========
11 John Hancock Life Insurance Company (U.S.A.) Separate Account N Statements of Operations and Changes in Contract Owners' Equity (continued)
Sub-Account ----------------------------------- All Asset Portfolio All Cap Core Series 1 Trust Series 0 --------------------- -------------- Year Ended Year Ended Year Ended Dec. 31/06 Dec. 31/05 Dec. 31/06 ++ ---------- ---------- -------------- Income: Dividends $ 35,587 $ 15,763 -- Expenses: Mortality and expense risk 3,386 1,444 -- -------- -------- ---- Net investment income (loss) 32,201 14,319 -- Net realized gain (loss) (949) (1,624) 1 Change in unrealized appreciation (depreciation) during the period (1,319) (2,828) 20 -------- -------- ---- Net increase (decrease) in assets from operations 29,933 9,867 21 -------- -------- ---- Changes from principal transactions: Transfer of net premiums 130,934 12,099 228 Transfer on terminations (73,036) (14,767) (18) Transfer on policy loans -- -- -- Net interfund transfers 170,869 450,046 64 -------- -------- ---- Net increase (decrease) in assets from principal transactions 228,767 447,378 274 -------- -------- ---- Total increase (decrease) in assets 258,700 457,245 295 Assets, beginning of period 534,735 77,490 -- -------- -------- ---- Assets, end of period $793,435 $534,735 $295 ======== ======== ====
- -------- ++ Fund available in prior year but no activity. See accompanying notes. 12
Sub-Account --------------------------------------------------------------- All Cap Core All Cap Growth All Cap Growth Trust Series 1 Trust Series 0 Trust Series 1 ---------------------- -------------- ------------------------ Year Ended Year Ended Year Ended Year Ended Year Ended Dec. 31/06 Dec. 31/05 Dec. 31/06 ++ Dec. 31/06 Dec. 31/05 ---------- ---------- -------------- ----------- ----------- Income: Dividends $ 24,386 $ 21,563 -- -- -- Expenses: Mortality and expense risk 20,666 16,203 -- 39,826 43,637 ---------- ---------- ---- ----------- ----------- Net investment income (loss) 3,720 5,360 -- (39,826) (43,637) Net realized gain (loss) 258,922 137,400 2 739,977 382,697 Change in unrealized appreciation (depreciation) during the period 232,941 100,735 58 (492,006) 247,763 ---------- ---------- ---- ----------- ----------- Net increase (decrease) in assets from operations 495,583 243,495 60 208,145 586,823 ---------- ---------- ---- ----------- ----------- Changes from principal transactions: Transfer of net premiums 475,000 455,351 673 692,073 914,743 Transfer on terminations (394,405) (413,730) (76) (937,821) (1,078,685) Transfer on policy loans (8,327) 13,431 -- (7,646) 14,091 Net interfund transfers 931,922 (239,246) 190 (3,551,535) (501,878) ---------- ---------- ---- ----------- ----------- Net increase (decrease) in assets from principal transactions 1,004,190 (184,194) 787 (3,804,929) (651,729) ---------- ---------- ---- ----------- ----------- Total increase (decrease) in assets 1,499,773 59,301 847 (3,596,784) (64,906) Assets, beginning of period 3,066,213 3,006,912 -- 7,772,423 7,837,329 ---------- ---------- ---- ----------- ----------- Assets, end of period $4,565,986 $3,066,213 $847 $ 4,175,639 $ 7,772,423 ========== ========== ==== =========== ===========
13 John Hancock Life Insurance Company (U.S.A.) Separate Account N Statements of Operations and Changes in Contract Owners' Equity (continued)
Sub-Account ------------------------------------- All Cap Value All Cap Value Trust Series 0 Trust Series 1 -------------- ---------------------- Year Ended Year Ended Year Ended Dec. 31/06 ++ Dec. 31/06 Dec. 31/05 -------------- ---------- ---------- Income: Dividends -- $ 366,798 $ 65,492 Expenses: Mortality and expense risk -- 9,091 7,425 ---- ---------- ---------- Net investment income (loss) -- 357,707 58,067 Net realized gain (loss) -- 49,659 64,631 Change in unrealized appreciation (depreciation) during the period 15 (169,440) (45,890) ---- ---------- ---------- Net increase (decrease) in assets from operations 15 237,926 76,808 ---- ---------- ---------- Changes from principal transactions: Transfer of net premiums 228 353,846 352,551 Transfer on terminations (19) (275,304) (87,557) Transfer on policy loans -- -- -- Net interfund transfers 64 (23,721) (232,758) ---- ---------- ---------- Net increase (decrease) in assets from principal transactions 273 54,821 32,236 ---- ---------- ---------- Total increase (decrease) in assets 288 292,747 109,044 Assets, beginning of period -- 1,705,935 1,596,891 ---- ---------- ---------- Assets, end of period $288 $1,998,682 $1,705,935 ==== ========== ==========
- -------- ++ Fund available in prior year but no activity. See accompanying notes. 14
Sub-Account ------------------------------------------------------------------ American Blue Chip Income and Growth American Bond American Growth Trust Series 1 Trust Series 1 Trust Series 1 ------------------------ -------------- ------------------------- Year Ended Year Ended Year Ended Year Ended Year Ended Dec. 31/06 Dec. 31/05 Dec. 31/06 ++ Dec. 31/06 Dec. 31/05 ---------- ---------- -------------- ----------- ------------ Income: Dividends $ 71,258 $ 41,759 -- $ 276,179 $ 18,593 Expenses: Mortality and expense risk 12,892 3,135 306 136,426 72,698 ---------- ---------- -------- ----------- ----------- Net investment income (loss) 58,366 38,624 (306) 139,753 (54,105) Net realized gain (loss) 66,140 11,341 34 955,848 847,328 Change in unrealized appreciation (depreciation) during the period 363,974 (39,709) 4,142 1,670,864 2,037,453 ---------- ---------- -------- ----------- ----------- Net increase (decrease) in assets from operations 488,480 10,256 3,870 2,766,465 2,830,676 ---------- ---------- -------- ----------- ----------- Changes from principal transactions: Transfer of net premiums 464,293 364,431 3,088 1,692,259 1,218,724 Transfer on terminations (31,061) (65,483) (370) (900,900) (586,897) Transfer on policy loans (988) -- -- (17,148) (10,699) Net interfund transfers 1,914,449 1,653,265 400,242 6,860,568 14,475,470 ---------- ---------- -------- ----------- ----------- Net increase (decrease) in assets from principal transactions 2,346,693 1,952,213 402,960 7,634,779 15,096,598 ---------- ---------- -------- ----------- ----------- Total increase (decrease) in assets 2,835,173 1,962,469 406,830 10,401,244 17,927,274 Assets, beginning of period 2,325,308 362,839 -- 26,189,118 8,261,844 ---------- ---------- -------- ----------- ----------- Assets, end of period $5,160,481 $2,325,308 $406,830 $36,590,362 $26,189,118 ========== ========== ======== =========== ===========
15 John Hancock Life Insurance Company (U.S.A.) Separate Account N Statements of Operations and Changes in Contract Owners' Equity (continued)
Sub-Account ------------------------------------------------ American Growth-Income American International Trust Series 1 Trust Series 1 ---------------------- ------------------------ Year Ended Year Ended Year Ended Year Ended Dec. 31/06 Dec. 31/05 Dec. 31/06 Dec. 31/05 ---------- ---------- ----------- ----------- Income: Dividends $ 34,196 $ 12,744 $ 364,549 $ 536,453 Expenses: Mortality and expense risk 12,520 10,293 86,663 35,770 ---------- ---------- ----------- ----------- Net investment income (loss) 21,676 2,451 277,886 500,683 Net realized gain (loss) 133,791 26,885 829,200 75,086 Change in unrealized appreciation (depreciation) during the period 225,049 90,763 2,524,806 1,525,417 ---------- ---------- ----------- ----------- Net increase (decrease) in assets from operations 380,516 120,099 3,631,892 2,101,186 ---------- ---------- ----------- ----------- Changes from principal transactions: Transfer of net premiums 584,979 541,216 1,439,767 680,845 Transfer on terminations (249,905) (163,290) (633,077) (217,860) Transfer on policy loans (989) (113) (12,415) (9,282) Net interfund transfers (430,195) 451,358 10,937,970 10,996,205 ---------- ---------- ----------- ----------- Net increase (decrease) in assets from principal transactions (96,110) 829,171 11,732,245 11,449,908 ---------- ---------- ----------- ----------- Total increase (decrease) in assets 284,406 949,270 15,364,137 13,551,094 Assets, beginning of period 2,725,094 1,775,824 15,253,954 1,702,860 ---------- ---------- ----------- ----------- Assets, end of period $3,009,500 $2,725,094 $30,618,091 $15,253,954 ========== ========== =========== ===========
- -------- ++ Fund available in prior year but no activity. See accompanying notes. 16
Sub-Account ------------------------------------------------------------ Blue Chip Growth Blue Chip Growth Bond Index Trust Series 0 Trust Series 1 Trust B Series 0 ---------------- ------------------------- ---------------- Year Ended Year Ended Year Ended Year Ended Dec. 31/06 ++ Dec. 31/06 Dec. 31/05 Dec. 31/06 ++ ---------------- ------------ ----------- ---------------- Income: Dividends -- $ 59,385 $ 114,555 $ 24,257 Expenses: Mortality and expense risk -- 136,070 138,242 -- -------- ------------ ----------- ---------- Net investment income (loss) -- (76,685) (23,687) 24,257 Net realized gain (loss) 780 2,781,876 2,228,419 180 Change in unrealized appreciation (depreciation) during the period 64,702 (318,318) (969,360) 50,942 -------- ------------ ----------- ---------- Net increase (decrease) in assets from operations 65,482 2,386,873 1,235,372 75,379 -------- ------------ ----------- ---------- Changes from principal transactions: Transfer of net premiums 115,515 2,784,024 4,163,454 80,498 Transfer on terminations (12,807) (10,202,021) (2,871,393) (22,496) Transfer on policy loans -- (7,131) (18,689) -- Net interfund transfers 539,980 (381,960) (5,435,650) 1,504,404 -------- ------------ ----------- ---------- Net increase (decrease) in assets from principal transactions 642,688 (7,807,088) (4,162,278) 1,562,406 -------- ------------ ----------- ---------- Total increase (decrease) in assets 708,170 (5,420,215) (2,926,906) 1,637,785 Assets, beginning of period -- 29,446,370 32,373,276 -- -------- ------------ ----------- ---------- Assets, end of period $708,170 $ 24,026,155 $29,446,370 $1,637,785 ======== ============ =========== ==========
17 John Hancock Life Insurance Company (U.S.A.) Separate Account N Statements of Operations and Changes in Contract Owners' Equity (continued)
Sub-Account -------------------------------------------- Capital Appreciation Capital Appreciation Trust Series 0 Trust Series 1 -------------------- ----------------------- Year Ended Year Ended Year Ended Dec. 31/06 ++ Dec. 31/06 Dec. 31/05 -------------------- ----------- ---------- Income: Dividends -- $ 284,871 -- Expenses: Mortality and expense risk -- 32,673 7,438 -------- ----------- ---------- Net investment income (loss) -- 252,198 (7,438) Net realized gain (loss) 31 (50,207) 75,373 Change in unrealized appreciation (depreciation) during the period 221 (147,127) 163,380 -------- ----------- ---------- Net increase (decrease) in assets from operations 252 54,864 231,315 -------- ----------- ---------- Changes from principal transactions: Transfer of net premiums 187 666,878 124,985 Transfer on terminations (160) (1,169,210) (47,804) Transfer on policy loans -- (494) -- Net interfund transfers 100,827 6,240,842 865,616 -------- ----------- ---------- Net increase (decrease) in assets from principal transactions 100,854 5,738,016 942,797 -------- ----------- ---------- Total increase (decrease) in assets 101,106 5,792,880 1,174,112 Assets, beginning of period -- 2,156,867 982,755 -------- ----------- ---------- Assets, end of period $101,106 $ 7,949,747 $2,156,867 ======== =========== ==========
- -------- ++ Fund available in prior year but no activity. ^ Reflects the period from commencement of operations on May 2, 2005 through December 31, 2005. See accompanying notes. 18
Sub-Account ------------------------------------------------------------------ Classic Value Classic Value Core Bond Trust Series 0 Trust Series 1 Trust Series 1 -------------- ------------------------ ------------------------- Year Ended Year Ended Year Ended Year Ended Year Ended Dec. 31/06 ++ Dec. 31/06 Dec. 31/05 ++ Dec. 31/06 Dec. 31/05 ^ -------------- ---------- ------------- ---------- -------------- Income: Dividends $ 17 $ 28,453 $ 21,910 $ 5 -- Expenses: Mortality and expense risk -- 3,827 378 1 -- ---- ---------- -------- ---- --- Net investment income (loss) 17 24,626 21,532 4 -- Net realized gain (loss) 2 12,655 337 -- -- Change in unrealized appreciation (depreciation) during the period 41 64,710 (13,938) 7 1 ---- ---------- -------- ---- --- Net increase (decrease) in assets from operations 60 101,991 7,931 11 1 ---- ---------- -------- ---- --- Changes from principal transactions: Transfer of net premiums 518 188,549 26,665 285 71 Transfer on terminations (41) (23,069) (2,174) (13) -- Transfer on policy loans -- -- -- -- -- Net interfund transfers 146 397,203 401,100 -- -- ---- ---------- -------- ---- --- Net increase (decrease) in assets from principal transactions 623 562,683 425,591 272 71 ---- ---------- -------- ---- --- Total increase (decrease) in assets 683 664,674 433,522 283 72 Assets, beginning of period -- 433,522 -- 72 -- ---- ---------- -------- ---- --- Assets, end of period $683 $1,098,196 $433,522 $355 $72 ==== ========== ======== ==== ===
19 John Hancock Life Insurance Company (U.S.A.) Separate Account N Statements of Operations and Changes in Contract Owners' Equity (continued)
Sub-Account --------------------------------------- Core Equity Core Equity Trust Series 0 Trust Series 1 -------------- ------------------------ Year Ended Year Ended Year Ended Dec. 31/06 ++ Dec. 31/06 Dec. 31/05 ++ -------------- ---------- ------------- Income: Dividends -- $ 24,172 -- Expenses: Mortality and expense risk -- 2,774 1,248 ------ -------- -------- Net investment income (loss) -- 21,398 (1,248) Net realized gain (loss) 18 (344) 3,551 Change in unrealized appreciation (depreciation) during the period 710 20,155 18,717 ------ -------- -------- Net increase (decrease) in assets from operations 728 41,209 21,020 ------ -------- -------- Changes from principal transactions: Transfer of net premiums 4,921 109,062 23,003 Transfer on terminations (571) (24,625) (8,030) Transfer on policy loans -- 3,516 (3,442) Net interfund transfers 1,388 269,501 251,893 ------ -------- -------- Net increase (decrease) in assets from principal transactions 5,738 357,454 263,424 ------ -------- -------- Total increase (decrease) in assets 6,466 398,663 284,444 Assets, beginning of period -- 284,444 -- ------ -------- -------- Assets, end of period $6,466 $683,107 $284,444 ====== ======== ========
- -------- ++ Fund available in prior year but no activity. ^^^ Terminated as an investment option and funds transferred to Active Bond Trust Series 1 on May 2, 2005. See accompanying notes. 20
Sub-Account ------------------------------------------------------- Diversified Bond Dynamic Growth Dynamic Growth Trust Series 1 Trust Series 0 Trust Series 1 ---------------- -------------- ----------------------- Year Ended Year Ended Year Ended Year Ended Dec. 31/05 ^^^ Dec. 31/06 ++ Dec. 31/06 Dec. 31/05 ---------------- -------------- ----------- ---------- Income: Dividends $ 264,857 -- -- -- Expenses: Mortality and expense risk 12,406 -- 19,137 14,466 ----------- ------- ----------- ---------- Net investment income (loss) 252,451 -- (19,137) (14,466) Net realized gain (loss) (131,515) 298 567,438 161,865 Change in unrealized appreciation (depreciation) during the period (98,599) 1,483 (224,471) 185,926 ----------- ------- ----------- ---------- Net increase (decrease) in assets from operations 22,337 1,781 323,830 333,325 ----------- ------- ----------- ---------- Changes from principal transactions: Transfer of net premiums 140,281 18,643 713,657 770,406 Transfer on terminations (774,404) (557) (89,364) (145,831) Transfer on policy loans (589) -- (642) (4,167) Net interfund transfers (7,097,386) 6,878 (1,431,101) 549,742 ----------- ------- ----------- ---------- Net increase (decrease) in assets from principal transactions (7,732,098) 24,964 (807,450) 1,170,150 ----------- ------- ----------- ---------- Total increase (decrease) in assets (7,709,761) 26,745 (483,620) 1,503,475 Assets, beginning of period 7,709,761 -- 4,088,844 2,585,369 ----------- ------- ----------- ---------- Assets, end of period -- $26,745 $ 3,605,224 $4,088,844 =========== ======= =========== ==========
21 John Hancock Life Insurance Company (U.S.A.) Separate Account N Statements of Operations and Changes in Contract Owners' Equity (continued) Sub-Account ------------------------------------- Emerging Growth Emerging Growth Trust Series 0 Trust Series 1 --------------- --------------------- Year Ended Year Ended Year Ended Dec. 31/06 ++ Dec. 31/06 Dec. 31/05 --------------- ---------- ---------- Income: Dividends -- $ 178,162 -- Expenses: Mortality and expense risk -- 2,029 916 ---- --------- -------- Net investment income (loss) -- 176,133 (916) Net realized gain (loss) 1 (48,779) 13,839 Change in unrealized appreciation (depreciation) during the period 44 (85,962) (7,183) ---- --------- -------- Net increase (decrease) in assets from operations 45 41,392 5,740 ---- --------- -------- Changes from principal transactions: Transfer of net premiums 508 267,906 37,965 Transfer on terminations (61) (13,642) (6,188) Transfer on policy loans -- -- -- Net interfund transfers 143 (125,289) 201,144 ---- --------- -------- Net increase (decrease) in assets from principal transactions 590 128,975 232,921 ---- --------- -------- Total increase (decrease) in assets 635 170,367 238,661 Assets, beginning of period -- 300,058 61,397 ---- --------- -------- Assets, end of period $635 $ 470,425 $300,058 ==== ========= ======== - -------- ++ Fund available in prior year but no activity. +++ Terminated as an investment option and funds transferred to 500 Index Trust B Series 0 on May 2, 2005. See accompanying notes. 22
Sub-Account ---------------------------------------------------------------- Emerging Small Company Emerging Small Company Equity Index Trust Series 0 Trust Series 1 Trust Series 1 ---------------------- ------------------------- -------------- Year Ended Year Ended Year Ended Year Ended Dec. 31/06 ++ Dec. 31/06 Dec. 31/05 Dec. 31/05 +++ ---------------------- ------------ ----------- -------------- Income: Dividends -- $ 2,674,796 -- $ 484,590 Expenses: Mortality and expense risk -- 279,831 286,353 42,334 -------- ------------ ----------- ------------ Net investment income (loss) -- 2,394,965 (286,353) 442,256 Net realized gain (loss) 555 1,383,143 3,539,027 2,620,736 Change in unrealized appreciation (depreciation) during the period 2,824 (3,044,679) (1,005,566) (4,081,084) -------- ------------ ----------- ------------ Net increase (decrease) in assets from operations 3,379 733,429 2,247,108 (1,018,092) -------- ------------ ----------- ------------ Changes from principal transactions: Transfer of net premiums 43,803 2,725,022 3,928,531 1,061,721 Transfer on terminations (2,609) (10,053,926) (6,207,527) (1,235,509) Transfer on policy loans -- (103,853) (15,035) (3,483) Net interfund transfers 81,814 (3,553,560) 388,938 (25,969,554) -------- ------------ ----------- ------------ Net increase (decrease) in assets from principal transactions 123,008 (10,986,317) (1,905,093) (26,146,825) -------- ------------ ----------- ------------ Total increase (decrease) in assets 126,387 (10,252,888) 342,015 (27,164,917) Assets, beginning of period -- 50,949,308 50,607,293 27,164,917 -------- ------------ ----------- ------------ Assets, end of period $126,387 $ 40,696,420 $50,949,308 -- ======== ============ =========== ============
23 John Hancock Life Insurance Company (U.S.A.) Separate Account N Statements of Operations and Changes in Contract Owners' Equity (continued)
Sub-Account ---------------------------------------- Equity-Income Equity-Income Trust Series 0 Trust Series 1 -------------- ------------------------- Year Ended Year Ended Year Ended Dec. 31/06 ++ Dec. 31/06 Dec. 31/05 -------------- ------------ ----------- Income: Dividends $ 374,329 $ 2,840,626 $ 1,682,669 Expenses: Mortality and expense risk -- 178,013 173,653 ---------- ------------ ----------- Net investment income (loss) 374,329 2,662,613 1,509,016 Net realized gain (loss) (6,017) 2,028,547 2,493,240 Change in unrealized appreciation (depreciation) during the period 422,086 1,664,587 (2,793,940) ---------- ------------ ----------- Net increase (decrease) in assets from operations 790,398 6,355,747 1,208,316 ---------- ------------ ----------- Changes from principal transactions: Transfer of net premiums 1,122,253 4,143,822 5,545,297 Transfer on terminations (96,216) (11,069,787) (5,203,604) Transfer on policy loans -- 2,280 (66,563) Net interfund transfers 5,179,633 2,034,082 (2,017,139) ---------- ------------ ----------- Net increase (decrease) in assets from principal transactions 6,205,670 (4,889,603) (1,742,009) ---------- ------------ ----------- Total increase (decrease) in assets 6,996,068 1,466,144 (533,693) Assets, beginning of period -- 36,227,178 36,760,871 ---------- ------------ ----------- Assets, end of period $6,996,068 $ 37,693,322 $36,227,178 ========== ============ ===========
- -------- ++ Fund available in prior year but no activity. See accompanying notes. 24
Sub-Account ----------------------------------------------------------- Financial Services Financial Services Fundamental Value Trust Series 0 Trust Series 1 Trust Series 0 ------------------ ---------------------- ----------------- Year Ended Year Ended Year Ended Year Ended Dec. 31/06 ++ Dec. 31/06 Dec. 31/05 Dec. 31/06 ++ ------------------ ---------- ---------- ----------------- Income: Dividends -- $ 1,605 $ 1,355 -- Expenses: Mortality and expense risk -- 3,765 2,017 -- ------ ---------- -------- -------- Net investment income (loss) -- (2,160) (662) -- Net realized gain (loss) 3 55,457 21,889 34 Change in unrealized appreciation (depreciation) during the period 123 146,028 9,089 3,930 ------ ---------- -------- -------- Net increase (decrease) in assets from operations 126 199,325 30,316 3,964 ------ ---------- -------- -------- Changes from principal transactions: Transfer of net premiums 746 49,102 52,927 10,204 Transfer on terminations (58) (40,074) (29,365) (1,885) Transfer on policy loans -- 4,292 (2,833) -- Net interfund transfers 210 1,833,215 93,169 88,870 ------ ---------- -------- -------- Net increase (decrease) in assets from principal transactions 898 1,846,535 113,898 97,189 ------ ---------- -------- -------- Total increase (decrease) in assets 1,024 2,045,860 144,214 101,153 Assets, beginning of period -- 466,240 322,026 -- ------ ---------- -------- -------- Assets, end of period $1,024 $2,512,100 $466,240 $101,153 ====== ========== ======== ========
25 John Hancock Life Insurance Company (U.S.A.) Separate Account N Statements of Operations and Changes in Contract Owners' Equity (continued)
Sub-Account ---------------------------------------- Fundamental Value Global Allocation Trust Series 1 Trust Series 0 ---------------------- ----------------- Year Ended Year Ended Year Ended Dec. 31/06 Dec. 31/05 Dec. 31/06 ++ ---------- ---------- ----------------- Income: Dividends $ 148,571 $ 11,737 -- Expenses: Mortality and expense risk 18,811 14,824 -- ---------- ---------- ---- Net investment income (loss) 129,760 (3,087) -- Net realized gain (loss) 156,488 200,098 1 Change in unrealized appreciation (depreciation) during the period 211,439 34,728 24 ---------- ---------- ---- Net increase (decrease) in assets from operations 497,687 231,739 25 ---------- ---------- ---- Changes from principal transactions: Transfer of net premiums 288,957 687,119 300 Transfer on terminations (407,951) (396,895) (22) Transfer on policy loans 2,924 (4,526) -- Net interfund transfers 1,135,577 70,459 85 ---------- ---------- ---- Net increase (decrease) in assets from principal transactions 1,019,507 356,157 363 ---------- ---------- ---- Total increase (decrease) in assets 1,517,194 587,896 388 Assets, beginning of period 2,943,943 2,356,047 -- ---------- ---------- ---- Assets, end of period $4,461,137 $2,943,943 $388 ========== ========== ====
- -------- ++ Fund available in prior year but no activity. See accompanying notes. 26
Sub-Account ------------------------------------------------------------ Global Allocation Global Bond Global Bond Trust Series 1 Trust Series 0 Trust Series 1 ---------------------- -------------- ---------------------- Year Ended Year Ended Year Ended Year Ended Year Ended Dec. 31/06 Dec. 31/05 Dec. 31/06 ++ Dec. 31/06 Dec. 31/05 ---------- ---------- -------------- ---------- ---------- Income: Dividends $ 13,734 $ 1,948 $ 26,941 $ 59,657 $ 239,690 Expenses: Mortality and expense risk 7,188 1,889 -- 24,142 23,042 ---------- --------- ---------- ---------- ---------- Net investment income (loss) 6,546 59 26,941 35,515 216,648 Net realized gain (loss) 80,136 15,166 (824) (76,647) (9,069) Change in unrealized appreciation (depreciation) during the period 131,257 6,937 97,196 292,520 (572,862) ---------- --------- ---------- ---------- ---------- Net increase (decrease) in assets from operations 217,939 22,162 123,313 251,388 (365,283) ---------- --------- ---------- ---------- ---------- Changes from principal transactions: Transfer of net premiums 486,651 265,732 552,401 472,515 1,045,864 Transfer on terminations (26,704) (22,017) (45,899) (489,708) (123,392) Transfer on policy loans -- -- -- (2,177) (504) Net interfund transfers 832,565 (147,226) 2,559,223 (377,984) 354,630 ---------- --------- ---------- ---------- ---------- Net increase (decrease) in assets from principal transactions 1,292,512 96,489 3,065,725 (397,354) 1,276,598 ---------- --------- ---------- ---------- ---------- Total increase (decrease) in assets 1,510,451 118,651 3,189,038 (145,966) 911,315 Assets, beginning of period 316,420 197,769 -- 5,234,432 4,323,117 ---------- --------- ---------- ---------- ---------- Assets, end of period $1,826,871 $ 316,420 $3,189,038 $5,088,466 $5,234,432 ========== ========= ========== ========== ==========
27 John Hancock Life Insurance Company (U.S.A.) Separate Account N Statements of Operations and Changes in Contract Owners' Equity (continued)
Sub-Account -------------------------------------------- Global Trust Series 0 Global Trust Series 1 --------------------- ---------------------- Year Ended Year Ended Year Ended Dec. 31/06 ++ Dec. 31/06 Dec. 31/05 --------------------- ---------- ---------- Income: Dividends -- $ 60,375 $ 51,371 Expenses: Mortality and expense risk -- 24,363 21,563 -------- ---------- ---------- Net investment income (loss) -- 36,012 29,808 Net realized gain (loss) 190 539,705 263,657 Change in unrealized appreciation (depreciation) during the period 5,604 329,778 127,942 -------- ---------- ---------- Net increase (decrease) in assets from operations 5,794 905,495 421,407 -------- ---------- ---------- Changes from principal transactions: Transfer of net premiums 58,405 763,200 641,290 Transfer on terminations (1,717) (497,033) (294,436) Transfer on policy loans -- (4,908) 9,487 Net interfund transfers 39,344 48,735 (356,250) -------- ---------- ---------- Net increase (decrease) in assets from principal transactions 96,032 309,994 91 -------- ---------- ---------- Total increase (decrease) in assets 101,826 1,215,489 421,498 Assets, beginning of period -- 4,510,252 4,088,754 -------- ---------- ---------- Assets, end of period $101,826 $5,725,741 $4,510,252 ======== ========== ==========
- -------- ++ Fund available in prior year but no activity. ++ b Fund renamed on May 1, 2006. Previously known as Growth & Income Trust II. Fund available in prior year but no activity. See accompanying notes. 28
Sub-Account ------------------------------------------------------ Growth & Income Health Sciences Health Sciences Trust Series 0 Trust Series 0 Trust Series 1 --------------- --------------- ---------------------- Year Ended Year Ended Year Ended Year Ended Dec. 31/06 ++ b Dec. 31/06 ++ Dec. 31/06 Dec. 31/05 --------------- --------------- ---------- ---------- Income: Dividends -- -- $ 408,934 $ 274,633 Expenses: Mortality and expense risk -- -- 23,308 17,374 ---------- ------ ---------- ---------- Net investment income (loss) -- -- 385,626 257,259 Net realized gain (loss) 1,964 3 305,009 (11,535) Change in unrealized appreciation (depreciation) during the period 133,739 136 (272,587) 228,018 ---------- ------ ---------- ---------- Net increase (decrease) in assets from operations 135,703 139 418,048 473,742 ---------- ------ ---------- ---------- Changes from principal transactions: Transfer of net premiums 253,607 1,596 820,917 523,999 Transfer on terminations (19,642) (120) (317,914) (204,490) Transfer on policy loans -- -- 1,231 (8,689) Net interfund transfers 970,157 450 (60,492) 319,201 ---------- ------ ---------- ---------- Net increase (decrease) in assets from principal transactions 1,204,122 1,926 443,742 630,021 ---------- ------ ---------- ---------- Total increase (decrease) in assets 1,339,825 2,065 861,790 1,103,763 Assets, beginning of period -- -- 4,584,275 3,480,512 ---------- ------ ---------- ---------- Assets, end of period $1,339,825 $2,065 $5,446,065 $4,584,275 ========== ====== ========== ==========
29 John Hancock Life Insurance Company (U.S.A.) Separate Account N Statements of Operations and Changes in Contract Owners' Equity (continued)
Sub-Account --------------------------------------- High Yield High Yield Trust Series 0 Trust Series 1 -------------- ------------------------ Year Ended Year Ended Year Ended Dec. 31/06 ++ Dec. 31/06 Dec. 31/05 -------------- ----------- ----------- Income: Dividends -- $ 1,116,926 $ 747,411 Expenses: Mortality and expense risk -- 70,552 72,018 -------- ----------- ----------- Net investment income (loss) -- 1,046,374 675,393 Net realized gain (loss) 164 59,432 242,330 Change in unrealized appreciation (depreciation) during the period 4,551 113,516 (425,412) -------- ----------- ----------- Net increase (decrease) in assets from operations 4,715 1,219,322 492,311 -------- ----------- ----------- Changes from principal transactions: Transfer of net premiums 35,955 1,325,822 1,948,232 Transfer on terminations (2,303) (2,570,328) (921,044) Transfer on policy loans -- 4,387 20,025 Net interfund transfers 93,927 (5,728,019) 3,496,664 -------- ----------- ----------- Net increase (decrease) in assets from principal transactions 127,579 (6,968,138) 4,543,877 -------- ----------- ----------- Total increase (decrease) in assets 132,294 (5,748,816) 5,036,188 Assets, beginning of period -- 16,898,635 11,862,447 -------- ----------- ----------- Assets, end of period $132,294 $11,149,819 $16,898,635 ======== =========== ===========
- -------- ++ Fund available in prior year but no activity. ++ ~ Fund renamed on May 1, 2006. Previously known as International Stock Trust. Fund available in prior year but no activity. See accompanying notes. 30
Sub-Account ---------------------------------------------------------- Income & Value Income & Value International Core Trust Series 0 Trust Series 1 Trust Series 0 -------------- ------------------------ ------------------ Year Ended Year Ended Year Ended Year Ended Dec. 31/06 ++ Dec. 31/06 Dec. 31/05 Dec. 31/06 ++ ~ -------------- ----------- ----------- ------------------ Income: Dividends -- $ 504,298 $ 400,124 -- Expenses: Mortality and expense risk -- 142,312 148,561 -- ------- ----------- ----------- ------ Net investment income (loss) -- 361,986 251,563 -- Net realized gain (loss) 20 730,264 375,495 5 Change in unrealized appreciation (depreciation) during the period 887 647,357 417,912 486 ------- ----------- ----------- ------ Net increase (decrease) in assets from operations 907 1,739,607 1,044,970 491 ------- ----------- ----------- ------ Changes from principal transactions: Transfer of net premiums 20,609 1,706,406 2,021,690 -- Transfer on terminations (595) (5,319,992) (3,016,086) (145) Transfer on policy loans -- 34,839 (49,659) -- Net interfund transfers 12,766 (2,130,395) (4,367,818) 6,382 ------- ----------- ----------- ------ Net increase (decrease) in assets from principal transactions 32,780 (5,709,142) (5,411,873) 6,237 ------- ----------- ----------- ------ Total increase (decrease) in assets 33,687 (3,969,535) (4,366,903) 6,728 Assets, beginning of period -- 25,459,694 29,826,597 -- ------- ----------- ----------- ------ Assets, end of period $33,687 $21,490,159 $25,459,694 $6,728 ======= =========== =========== ======
31 John Hancock Life Insurance Company (U.S.A.) Separate Account N Statements of Operations and Changes in Contract Owners' Equity (continued)
Sub-Account ---------------------------------------------------- International Core International Equity Index Trust Series 1 Trust A Series 1 ------------------------- ------------------------- Year Ended Year Ended Year Ended Year Ended Dec. 31/06 ~ Dec. 31/05 Dec. 31/06 Dec. 31/05 (d) ------------ ----------- ---------- -------------- Income: Dividends $ 836,391 $ 90,908 $ 115,136 $ 323,833 Expenses: Mortality and expense risk 77,019 59,646 35,162 18,238 ------------ ----------- ---------- ---------- Net investment income (loss) 759,372 31,262 79,974 305,595 Net realized gain (loss) 3,620,975 1,303,080 260,582 7,043 Change in unrealized appreciation (depreciation) during the period (1,222,391) 549,710 1,443,938 446,113 ------------ ----------- ---------- ---------- Net increase (decrease) in assets from operations 3,157,956 1,884,052 1,784,494 758,751 ------------ ----------- ---------- ---------- Changes from principal transactions: Transfer of net premiums 1,081,864 943,422 329,258 323,730 Transfer on terminations (12,217,337) (1,955,865) (384,880) (85,057) Transfer on policy loans (5,003) (33,396) (15,182) (233) Net interfund transfers 3,415,008 (20,044) 1,785,490 4,146,035 ------------ ----------- ---------- ---------- Net increase (decrease) in assets from principal transactions (7,725,468) (1,065,883) 1,714,686 4,384,475 ------------ ----------- ---------- ---------- Total increase (decrease) in assets (4,567,512) 818,169 3,499,180 5,143,226 Assets, beginning of period 14,186,941 13,368,772 5,895,407 752,181 ------------ ----------- ---------- ---------- Assets, end of period $ 9,619,429 $14,186,941 $9,394,587 $5,895,407 ============ =========== ========== ==========
- -------- ~ Fund renamed on May 1, 2006. Previously known as International Stock Trust. (d) Fund renamed on May 2, 2005. Previously known as International Equity Index Fund. ++ Fund available in prior year but no activity. ^ Reflects the period from commencement of operations on May 2, 2005 through December 31, 2005. See accompanying notes. 32
Sub-Account --------------------------------------------------------------------------------- International Equity Index International Opportunities International Opportunities Trust B Series 0 Trust Series 0 Trust Series 1 -------------------------- --------------------------- -------------------------- Year Ended Year Ended Year Ended Year Ended Dec. 31/06 ++ Dec. 31/06 ++ Dec. 31/06 Dec. 31/05 ^ -------------------------- --------------------------- ---------- ------------ Income: Dividends $ 92,526 -- $ 16,371 -- Expenses: Mortality and expense risk -- -- 3,104 43 ----------- -------- ---------- ------ Net investment income (loss) 92,526 -- 13,267 (43) Net realized gain (loss) 225,148 (222) (63,519) 1,176 Change in unrealized appreciation (depreciation) during the period 20,668 17,695 184,945 692 ----------- -------- ---------- ------ Net increase (decrease) in assets from operations 338,342 17,473 134,693 1,825 ----------- -------- ---------- ------ Changes from principal transactions: Transfer of net premiums 1,024,066 352 189,587 -- Transfer on terminations (23,328) (1,354) (6,471) (130) Transfer on policy loans -- -- (15,193) -- Net interfund transfers (1,136,748) 175,903 1,844,627 5,562 ----------- -------- ---------- ------ Net increase (decrease) in assets from principal transactions (136,010) 174,901 2,012,550 5,432 ----------- -------- ---------- ------ Total increase (decrease) in assets 202,332 192,374 2,147,243 7,257 Assets, beginning of period -- -- 7,257 -- ----------- -------- ---------- ------ Assets, end of period $ 202,332 $192,374 $2,154,500 $7,257 =========== ======== ========== ======
33 John Hancock Life Insurance Company (U.S.A.) Separate Account N Statements of Operations and Changes in Contract Owners' Equity (continued)
Sub-Account ---------------------------------------------- International Small Cap International Small Cap Trust Series 0 Trust Series 1 ----------------------- ---------------------- Year Ended Year Ended Year Ended Dec. 31/06 ++ Dec. 31/06 Dec. 31/05 ----------------------- ---------- ---------- Income: Dividends -- $ 58,302 $ 41,190 Expenses: Mortality and expense risk -- 29,380 25,748 ------- ---------- ---------- Net investment income (loss) -- 28,922 15,442 Net realized gain (loss) 23 579,482 404,070 Change in unrealized appreciation (depreciation) during the period 2,086 819,917 25,018 ------- ---------- ---------- Net increase (decrease) in assets from operations 2,109 1,428,321 444,530 ------- ---------- ---------- Changes from principal transactions: Transfer of net premiums -- 698,436 562,224 Transfer on terminations (497) (771,065) (384,316) Transfer on policy loans -- 3,037 (3,607) Net interfund transfers 14,301 500,324 (368,929) ------- ---------- ---------- Net increase (decrease) in assets from principal transactions 13,804 430,732 (194,628) ------- ---------- ---------- Total increase (decrease) in assets 15,913 1,859,053 249,902 Assets, beginning of period -- 4,994,547 4,744,645 ------- ---------- ---------- Assets, end of period $15,913 $6,853,600 $4,994,547 ======= ========== ==========
- -------- ++ Fund available in prior year but no activity. See accompanying notes. 34
Sub-Account ----------------------------------------------------------------------- International Value International Value Investment Quality Bond Trust Series 0 Trust Series 1 Trust Series 1 ------------------- ------------------------ ------------------------- Year Ended Year Ended Year Ended Year Ended Year Ended Dec. 31/06 ++ Dec. 31/06 Dec. 31/05 Dec. 31/06 Dec. 31/05 ------------------- ----------- ----------- ------------ ----------- Income: Dividends -- $ 1,372,977 $ 220,337 $ 1,288,354 $ 1,301,456 Expenses: Mortality and expense risk -- 108,226 72,597 105,730 145,911 ------ ----------- ----------- ------------ ----------- Net investment income (loss) -- 1,264,751 147,740 1,182,624 1,155,545 Net realized gain (loss) 1 2,013,283 779,637 (1,184,275) (131,716) Change in unrealized appreciation (depreciation) during the period 61 2,661,201 758,110 429,934 (678,441) ------ ----------- ----------- ------------ ----------- Net increase (decrease) in assets from operations 62 5,939,235 1,685,487 428,283 345,388 ------ ----------- ----------- ------------ ----------- Changes from principal transactions: Transfer of net premiums 394 2,727,556 2,752,144 2,422,502 2,919,232 Transfer on terminations (24) (2,112,356) (995,811) (2,226,276) (1,330,058) Transfer on policy loans -- (7,715) (7,151) (2,046) (11,860) Net interfund transfers 1,834 2,046,461 7,855,764 (11,335,698) (5,128,972) ------ ----------- ----------- ------------ ----------- Net increase (decrease) in assets from principal transactions 2,204 2,653,946 9,604,946 (11,141,518) (3,551,658) ------ ----------- ----------- ------------ ----------- Total increase (decrease) in assets 2,266 8,593,181 11,290,433 (10,713,235) (3,206,270) Assets, beginning of period -- 19,488,615 8,198,182 19,439,556 22,645,826 ------ ----------- ----------- ------------ ----------- Assets, end of period $2,266 $28,081,796 $19,488,615 $ 8,726,321 $19,439,556 ====== =========== =========== ============ ===========
35 John Hancock Life Insurance Company (U.S.A.) Separate Account N Statements of Operations and Changes in Contract Owners' Equity (continued)
Sub-Account --------------------------------------- Large Cap Growth Large Cap Trust Series 1 Trust Series 0 ------------------------ -------------- Year Ended Year Ended Year Ended Dec. 31/06 # Dec. 31/05 Dec. 31/06 ++ ------------ ----------- -------------- Income: Dividends $ 24,131 $ 43,632 -- Expenses: Mortality and expense risk 11,016 32,151 -- ----------- ----------- ---- Net investment income (loss) 13,115 11,481 -- Net realized gain (loss) 509,226 168,700 1 Change in unrealized appreciation (depreciation) during the period (380,339) (202,527) 66 ----------- ----------- ---- Net increase (decrease) in assets from operations 142,002 (22,346) 67 ----------- ----------- ---- Changes from principal transactions: Transfer of net premiums 103,462 809,538 622 Transfer on terminations (86,365) (471,606) (46) Transfer on policy loans 510 (2,137) -- Net interfund transfers (6,693,902) (1,100,453) 175 ----------- ----------- ---- Net increase (decrease) in assets from principal transactions (6,676,295) (764,658) 751 ----------- ----------- ---- Total increase (decrease) in assets (6,534,293) (787,004) 818 Assets, beginning of period 6,534,293 7,321,297 -- ----------- ----------- ---- Assets, end of period -- $ 6,534,293 $818 =========== =========== ====
- -------- # Terminated as an investment option and funds transferred to Capital Appreciation Trust on May 1, 2006. ++ Fund available in prior year but no activity. ^ Reflects the period from commencement of operations on May 2, 2005 through December 31, 2005. See accompanying notes. 36
Sub-Account ---------------------------------------------------------------- Large Cap Large Cap Value Large Cap Value Trust Series 1 Trust Series 0 Trust Series 1 -------------- ------------------------- ---------------------- Year Ended Year Ended Year Ended Year Ended Year Ended Dec. 31/06 Dec. 31/05 ^ Dec. 31/06 ++ Dec. 31/06 Dec. 31/05 -------------- ------------ ------------- ---------- ---------- Income: Dividends $ 834 -- -- $ 398,949 -- Expenses: Mortality and expense risk 161 6 -- 19,369 7,746 ------- ------ ------ ---------- ---------- Net investment income (loss) 673 (6) -- 379,580 (7,746) Net realized gain (loss) 74 8 -- 252,166 98,792 Change in unrealized appreciation (depreciation) during the period 2,764 240 27 21,508 129,574 ------- ------ ------ ---------- ---------- Net increase (decrease) in assets from operations 3,511 242 27 653,254 220,620 ------- ------ ------ ---------- ---------- Changes from principal transactions: Transfer of net premiums 1,547 190 306 460,818 554,135 Transfer on terminations (1,103) (203) (12) (55,385) (85,528) Transfer on policy loans -- -- -- (15,537) (21,269) Net interfund transfers 28,399 3,790 3,043 655,696 1,762,407 ------- ------ ------ ---------- ---------- Net increase (decrease) in assets from principal transactions 28,843 3,777 3,337 1,045,592 2,209,745 ------- ------ ------ ---------- ---------- Total increase (decrease) in assets 32,354 4,019 3,364 1,698,846 2,430,365 Assets, beginning of period 4,019 -- -- 3,866,266 1,435,901 ------- ------ ------ ---------- ---------- Assets, end of period $36,373 $4,019 $3,364 $5,565,112 $3,866,266 ======= ====== ====== ========== ==========
37 John Hancock Life Insurance Company (U.S.A.) Separate Account N Statements of Operations and Changes in Contract Owners' Equity (continued)
Sub-Account -------------------------------------------- Lifestyle Aggressive Lifestyle Aggressive Trust Series 0 Trust Series 1 -------------------- ----------------------- Year Ended Year Ended Year Ended Dec. 31/06 ++ i Dec. 31/06 i Dec. 31/05 -------------------- ------------ ---------- Income: Dividends -- $1,798,354 $ 166,623 Expenses: Mortality and expense risk -- 39,930 32,784 ------ ---------- ---------- Net investment income (loss) -- 1,758,424 133,839 Net realized gain (loss) 31 72,211 111,210 Change in unrealized appreciation (depreciation) during the period 520 (894,495) 284,348 ------ ---------- ---------- Net increase (decrease) in assets from operations 551 936,140 529,397 ------ ---------- ---------- Changes from principal transactions: Transfer of net premiums 2,582 429,496 139,567 Transfer on terminations (494) (169,847) (226,254) Transfer on policy loans -- (44,179) (472) Net interfund transfers 4,494 365,103 266,813 ------ ---------- ---------- Net increase (decrease) in assets from principal transactions 6,582 580,573 179,654 ------ ---------- ---------- Total increase (decrease) in assets 7,133 1,516,713 709,051 Assets, beginning of period -- 5,802,326 5,093,275 ------ ---------- ---------- Assets, end of period $7,133 $7,319,039 $5,802,326 ====== ========== ==========
- -------- ++ i Fund renamed on May 1, 2006. Previously known as Lifestyle Aggressive 1000 Trust. Fund available in prior year but no activity. i Fund renamed on May 1, 2006. Previously known as Lifestyle Aggressive 1000 Trust. ++ ii Fund renamed on May 1, 2006. Previously known as Lifestyle Balanced 640 Trust. Fund available in prior year but no activity. ii Fund renamed on May 1, 2006. Previously known as Lifestyle Balanced 640 Trust. ++ iiiFund renamed on May 1, 2006. Previously known as Lifestyle Conservative 280 Trust. Fund available in prior year but no activity. See accompanying notes. 38
Sub-Account ------------------------------------------------------------------- Lifestyle Balanced Lifestyle Balanced Lifestyle Conservative Trust Series 0 Trust Series 1 Trust Series 0 ------------------ ------------------------- ---------------------- Year Ended Year Ended Year Ended Year Ended Dec. 31/06 ++ ii Dec. 31/06 ii Dec. 31/05 Dec. 31/06 ++ iii ------------------ ------------- ----------- ---------------------- Income: Dividends $ 316 $ 2,501,734 $ 1,032,966 $ 1 Expenses: Mortality and expense risk -- 114,550 110,084 -- ---------- ----------- ----------- ------ Net investment income (loss) 316 2,387,184 922,882 1 Net realized gain (loss) 874 793,703 653,088 -- Change in unrealized appreciation (depreciation) during the period 44,155 (1,043,458) (492,526) 2 ---------- ----------- ----------- ------ Net increase (decrease) in assets from operations 45,345 2,137,429 1,083,444 3 ---------- ----------- ----------- ------ Changes from principal transactions: Transfer of net premiums 26,615 2,623,836 2,455,423 644 Transfer on terminations (36,547) (2,342,319) (1,998,862) (93) Transfer on policy loans -- (2,430) (110,799) -- Net interfund transfers 1,298,791 (5,694,687) 113,337 733 ---------- ----------- ----------- ------ Net increase (decrease) in assets from principal transactions 1,288,859 (5,415,600) 459,099 1,284 ---------- ----------- ----------- ------ Total increase (decrease) in assets 1,334,204 (3,278,171) 1,542,543 1,287 Assets, beginning of period -- 19,581,681 18,039,138 -- ---------- ----------- ----------- ------ Assets, end of period $1,334,204 $16,303,510 $19,581,681 $1,287 ========== =========== =========== ======
39 John Hancock Life Insurance Company (U.S.A.) Separate Account N Statements of Operations and Changes in Contract Owners' Equity (continued)
Sub-Account ---------------------------------------------- Lifestyle Conservative Lifestyle Growth Trust Series 1 Trust Series 0 ----------------------------- ---------------- Year Ended Year Ended Year Ended Dec. 31/06 iii Dec. 31/05 Dec. 31/06 ++ iv -------------- -------------- ---------------- Income: Dividends $ 505,216 $ 490,384 $ 390 Expenses: Mortality and expense risk 30,910 37,798 -- ----------- ---------- ---------- Net investment income (loss) 474,306 452,586 390 Net realized gain (loss) (333,059) 11,961 2,563 Change in unrealized appreciation (depreciation) during the period 169,605 (328,023) 111,580 ----------- ---------- ---------- Net increase (decrease) in assets from operations 310,852 136,524 114,533 ----------- ---------- ---------- Changes from principal transactions: Transfer of net premiums 900,293 949,035 761,973 Transfer on terminations (745,497) (497,194) (54,873) Transfer on policy loans (13) -- -- Net interfund transfers (5,188,895) (130,406) 636,244 ----------- ---------- ---------- Net increase (decrease) in assets from principal transactions (5,034,112) 321,435 1,343,344 ----------- ---------- ---------- Total increase (decrease) in assets (4,723,260) 457,959 1,457,877 Assets, beginning of period 5,962,323 5,504,364 -- ----------- ---------- ---------- Assets, end of period $ 1,239,063 $5,962,323 $1,457,877 =========== ========== ==========
- -------- iii Fund renamed on May 1, 2006. Previously known as Lifestyle Conservative 280 Trust. ++iv Fund renamed on May 1, 2006. Previously known as Lifestyle Growth 820 Trust. Fund available in prior year but no activity. iv Fund renamed on May 1, 2006. Previously known as Lifestyle Growth 820 Trust. ++v Fund renamed on May 1, 2006. Previously known as Lifestyle Moderate 460 Trust. Fund available in prior year but no activity. v Fund renamed on May 1, 2006. Previously known as Lifestyle Moderate 460 Trust. See accompanying notes. 40
Sub-Account --------------------------------------------------------------------- Lifestyle Growth Lifestyle Moderate Lifestyle Moderate Trust Series 1 Trust Series 0 Trust Series 1 -------------------------- ------------------ ----------------------- Year Ended Year Ended Year Ended Year Ended Year Ended Dec. 31/06 iv Dec. 31/05 Dec. 31/06 ++ v Dec. 31/06 v Dec. 31/05 ------------- ------------ ------------------ ------------ ---------- Income: Dividends $ 1,268,999 $ 248,841 $ 7 $ 202,278 $ 196,461 Expenses: Mortality and expense risk 62,624 46,474 -- 14,913 15,050 ----------- ----------- ------- ---------- ---------- Net investment income (loss) 1,206,375 202,367 7 187,365 181,411 Net realized gain (loss) 183,308 272,909 6 53,995 84,567 Change in unrealized appreciation (depreciation) during the period (160,067) 112,729 222 36,275 (162,256) ----------- ----------- ------- ---------- ---------- Net increase (decrease) in assets from operations 1,229,616 588,005 235 277,635 103,722 ----------- ----------- ------- ---------- ---------- Changes from principal transactions: Transfer of net premiums 943,502 599,804 -- 375,825 189,342 Transfer on terminations (816,175) (1,241,110) (76) (503,815) (802,700) Transfer on policy loans (31,609) (25,468) -- (7,365) 158,125 Net interfund transfers 1,783,643 672,862 11,924 7,427 (87,269) ----------- ----------- ------- ---------- ---------- Net increase (decrease) in assets from principal transactions 1,879,361 6,088 11,848 (127,928) (542,502) ----------- ----------- ------- ---------- ---------- Total increase (decrease) in assets 3,108,977 594,093 12,083 149,707 (438,780) Assets, beginning of period 8,315,803 7,721,710 -- 3,008,972 3,447,752 ----------- ----------- ------- ---------- ---------- Assets, end of period $11,424,780 $ 8,315,803 $12,083 $3,158,679 $3,008,972 =========== =========== ======= ========== ==========
41 John Hancock Life Insurance Company (U.S.A.) Separate Account N Statements of Operations and Changes in Contract Owners' Equity (continued) Sub-Account ------------------------------ Managed Mid Cap Core Trust Series 0 Trust Series 0 -------------- --------------- Year Ended Year Ended Dec. 31/06 ++ Dec. 31/06 ++ x -------------- --------------- Income: Dividends $ 55,487 $ 55 Expenses: Mortality and expense risk -- -- -------- ----- Net investment income (loss) 55,487 55 Net realized gain (loss) (68,564) (38) Change in unrealized appreciation (depreciation) during the period 698 0 -------- ----- Net increase (decrease) in assets from operations (12,379) 17 -------- ----- Changes from principal transactions: Transfer of net premiums 122,876 203 Transfer on terminations (4,412) (23) Transfer on policy loans -- -- Net interfund transfers (45,852) (197) -------- ----- Net increase (decrease) in assets from principal transactions 72,612 (17) -------- ----- Total increase (decrease) in assets 60,233 -- Assets, beginning of period -- -- -------- ----- Assets, end of period $ 60,233 -- ======== ===== - -------- ++ Fund available in prior year but no activity. ++x Terminated as an investment option and funds transferred to Mid Cap Index Trust on Dec. 4, 2006. Fund available in prior year but no activity. x Terminated as an investment option and funds transferred to Mid Cap Index Trust on December 4, 2006. See accompanying notes. 42
Sub-Account ---------------------------------------------------------------- Mid Cap Core Mid Cap Index Mid Cap Index Trust Series 1 Trust Series 0 Trust Series 1 ----------------------- -------------- ------------------------- Year Ended Year Ended Year Ended Year Ended Year Ended Dec. 31/06 x Dec. 31/05 Dec. 31/06 ++ Dec. 31/06 Dec. 31/05 ------------ ---------- -------------- ----------- ------------ Income: Dividends $ 261,414 $ 83,108 -- $ 322,328 $ 398,312 Expenses: Mortality and expense risk 5,294 4,916 -- 32,903 35,270 --------- -------- -------- ----------- ----------- Net investment income (loss) 256,120 78,192 -- 289,425 363,042 Net realized gain (loss) (179,040) 6,252 (467) 586,781 430,241 Change in unrealized appreciation (depreciation) during the period (7,652) (41,042) 30,342 (330,368) (104,490) --------- -------- -------- ----------- ----------- Net increase (decrease) in assets from operations 69,428 43,402 29,875 545,838 688,793 --------- -------- -------- ----------- ----------- Changes from principal transactions: Transfer of net premiums 97,129 354,026 88,754 482,049 969,412 Transfer on terminations (61,148) (69,558) (7,149) (1,987,942) (366,310) Transfer on policy loans -- (21) -- (3,369) (352) Net interfund transfers (934,758) (85,934) 238,201 1,249,510 (2,044,633) --------- -------- -------- ----------- ----------- Net increase (decrease) in assets from principal transactions (898,777) 198,513 319,806 (259,752) (1,441,883) --------- -------- -------- ----------- ----------- Total increase (decrease) in assets (829,349) 241,915 349,681 286,086 (753,090) Assets, beginning of period 829,349 587,434 -- 6,231,380 6,984,470 --------- -------- -------- ----------- ----------- Assets, end of period -- $829,349 $349,681 $ 6,517,466 $ 6,231,380 ========= ======== ======== =========== ===========
43 John Hancock Life Insurance Company (U.S.A.) Separate Account N Statements of Operations and Changes in Contract Owners' Equity (continued)
Sub-Account --------------------------------------- Mid Cap Stock Mid Cap Stock Trust Series 0 Trust Series 1 -------------- ------------------------ Year Ended Year Ended Year Ended Dec. 31/06 ++ Dec. 31/06 Dec. 31/05 -------------- ----------- ----------- Income: Dividends -- $ 601,318 $ 203,232 Expenses: Mortality and expense risk -- 70,864 55,141 -------- ----------- ----------- Net investment income (loss) -- 530,454 148,091 Net realized gain (loss) (587) 1,903,374 424,773 Change in unrealized appreciation (depreciation) during the period 7,745 (702,432) 1,237,951 -------- ----------- ----------- Net increase (decrease) in assets from operations 7,158 1,731,396 1,810,815 -------- ----------- ----------- Changes from principal transactions: Transfer of net premiums 3,802 1,048,897 1,552,040 Transfer on terminations (3,434) (2,411,802) (638,596) Transfer on policy loans -- (24,242) (376) Net interfund transfers 131,880 (423,608) (5,724,536) -------- ----------- ----------- Net increase (decrease) in assets from principal transactions 132,248 (1,810,755) (4,811,468) -------- ----------- ----------- Total increase (decrease) in assets 139,406 (79,359) (3,000,653) Assets, beginning of period -- 13,361,473 16,362,126 -------- ----------- ----------- Assets, end of period $139,406 $13,282,114 $13,361,473 ======== =========== ===========
- -------- ++ Fund available in prior year but no activity. See accompanying notes. 44
Sub-Account -------------------------------------------------------- Mid Cap Value Mid Cap Value Mid Value Trust Trust Series 0 Trust Series 1 Series 0 -------------- ------------------------ --------------- Year Ended Year Ended Year Ended Year Ended Dec. 31/06 ++ Dec. 31/06 Dec. 31/05 Dec. 31/06 ++ -------------- ----------- ----------- --------------- Income: Dividends -- $ 5,433,795 $ 865,256 -- Expenses: Mortality and expense risk -- 139,600 119,540 -- -------- ----------- ----------- -------- Net investment income (loss) -- 5,294,195 745,716 -- Net realized gain (loss) 700 88,813 1,371,665 3,888 Change in unrealized appreciation (depreciation) during the period 6,290 (1,822,166) 326,694 129,028 -------- ----------- ----------- -------- Net increase (decrease) in assets from operations 6,990 3,560,842 2,444,075 132,916 -------- ----------- ----------- -------- Changes from principal transactions: Transfer of net premiums 66,779 2,953,540 3,777,121 171,269 Transfer on terminations (2,019) (1,851,005) (912,509) (15,027) Transfer on policy loans -- (17,192) (378) -- Net interfund transfers 28,630 (5,250,371) 13,268,419 660,612 -------- ----------- ----------- -------- Net increase (decrease) in assets from principal transactions 93,390 (4,165,028) 16,132,653 816,854 -------- ----------- ----------- -------- Total increase (decrease) in assets 100,380 (604,186) 18,576,728 949,770 Assets, beginning of period -- 32,162,303 13,585,575 -- -------- ----------- ----------- -------- Assets, end of period $100,380 $31,558,117 $32,162,303 $949,770 ======== =========== =========== ========
45 John Hancock Life Insurance Company (U.S.A.) Separate Account N Statements of Operations and Changes in Contract Owners' Equity (continued)
Sub-Account ------------------------------------------ Money Market Money Market Trust B Series 0 Trust Series 1 ---------------- ------------------------- Year Ended Year Ended Year Ended Dec. 31/06 ++ Dec. 31/06 Dec. 31/05 ---------------- ------------ ----------- Income: Dividends $ 173,969 $ 2,957,926 $ 1,334,553 Expenses: Mortality and expense risk -- 336,317 240,075 ------------ ------------ ----------- Net investment income (loss) 173,969 2,621,609 1,094,478 Net realized gain (loss) -- -- -- Change in unrealized appreciation (depreciation) during the period 0 0 -- ------------ ------------ ----------- Net increase (decrease) in assets from operations 173,969 2,621,609 1,094,478 ------------ ------------ ----------- Changes from principal transactions: Transfer of net premiums 9,032,419 14,592,677 12,718,525 Transfer on terminations 37,532,862 (19,877,281) (8,191,624) Transfer on policy loans -- 3,862 (36,426) Net interfund transfers (39,806,190) 36,657,483 6,751,164 ------------ ------------ ----------- Net increase (decrease) in assets from principal transactions 6,759,091 31,376,741 11,241,639 ------------ ------------ ----------- Total increase (decrease) in assets 6,933,060 33,998,350 12,336,117 Assets, beginning of period -- 52,697,960 40,361,843 ------------ ------------ ----------- Assets, end of period $ 6,933,060 $ 86,696,310 $52,697,960 ============ ============ ===========
- -------- ++ Fund available in prior year but no activity. See accompanying notes. 46
Sub-Account ---------------------------------------------------------- Natural Resources Natural Resources Overseas Equity Trust Series 0 Trust Series 1 Trust Series 0 ----------------- ----------------------- --------------- Year Ended Year Ended Year Ended Year Ended Dec. 31/06 ++ Dec. 31/06 Dec. 31/05 Dec. 31/06 ++ ----------------- ----------- ---------- --------------- Income: Dividends -- $ 1,442,515 $ 70,449 -- Expenses: Mortality and expense risk -- 37,196 16,587 -- ------ ----------- ---------- ---------- Net investment income (loss) -- 1,405,319 53,862 -- Net realized gain (loss) (4) 261,161 739,877 370 Change in unrealized appreciation (depreciation) during the period 161 (475,687) 558,950 152,881 ------ ----------- ---------- ---------- Net increase (decrease) in assets from operations 157 1,190,793 1,352,689 153,251 ------ ----------- ---------- ---------- Changes from principal transactions: Transfer of net premiums 2,994 2,280,002 884,166 213,508 Transfer on terminations (138) (552,932) (113,353) (18,382) Transfer on policy loans -- (40,815) (4,099) -- Net interfund transfers 844 (1,145,952) 1,157,218 898,613 ------ ----------- ---------- ---------- Net increase (decrease) in assets from principal transactions 3,700 540,303 1,923,932 1,093,739 ------ ----------- ---------- ---------- Total increase (decrease) in assets 3,857 1,731,096 3,276,621 1,246,990 Assets, beginning of period -- 5,240,454 1,963,833 -- ------ ----------- ---------- ---------- Assets, end of period $3,857 $ 6,971,550 $5,240,454 $1,246,990 ====== =========== ========== ==========
47 John Hancock Life Insurance Company (U.S.A.) Separate Account N Statements of Operations and Changes in Contract Owners' Equity (continued) Sub-Account ----------------------------- Overseas Pacific Rim Trust Series 1 Trust Series 0 -------------- -------------- Year Ended Year Ended Dec. 31/05 ~~ Dec. 31/06 ++ -------------- -------------- Income: Dividends $ 26,472 -- Expenses: Mortality and expense risk 11,015 -- ----------- ------ Net investment income (loss) 15,457 -- Net realized gain (loss) 453,768 3 Change in unrealized appreciation (depreciation) during the period (643,264) 139 ----------- ------ Net increase (decrease) in assets from operations (174,039) 142 ----------- ------ Changes from principal transactions: Transfer of net premiums 332,051 1,544 Transfer on terminations (121,484) (140) Transfer on policy loans (203) -- Net interfund transfers (6,052,348) 435 ----------- ------ Net increase (decrease) in assets from principal transactions (5,841,984) 1,839 ----------- ------ Total increase (decrease) in assets (6,016,023) 1,981 Assets, beginning of period 6,016,023 -- ----------- ------ Assets, end of period -- $1,981 =========== ====== - -------- ~~ Terminated as an investment option and funds transferred to International Value Trust on May 2, 2005. ++ Fund available in prior year but no activity. See accompanying notes. 48
Sub-Account ------------------------------------------------------------------ Pacific Rim Quantitative All Cap Quantitative All Cap Trust Series 1 Trust Series 0 Trust Series 1 ---------------------- -------------------- --------------------- Year Ended Year Ended Year Ended Year Ended Year Ended Dec. 31/06 Dec. 31/05 Dec. 31/06 ++ Dec. 31/06 Dec. 31/05 ---------- ---------- -------------------- ---------- ---------- Income: Dividends $ 78,114 $ 51,181 $ 82 $ 928 $ 2,139 Expenses: Mortality and expense risk 46,116 33,430 -- 753 52 ---------- ---------- ------ -------- ------- Net investment income (loss) 31,998 17,751 82 175 2,087 Net realized gain (loss) 1,078,836 366,227 4 26,037 319 Change in unrealized appreciation (depreciation) during the period (439,341) 992,934 111 1,501 (1,577) ---------- ---------- ------ -------- ------- Net increase (decrease) in assets from operations 671,493 1,376,912 197 27,713 829 ---------- ---------- ------ -------- ------- Changes from principal transactions: Transfer of net premiums 932,749 475,979 1,554 18,848 27,153 Transfer on terminations (647,909) (716,554) (144) (3,960) (1,212) Transfer on policy loans (24,162) 6,685 -- (14,791) -- Net interfund transfers 1,369,954 (50,112) 438 (59,390) 2,987 ---------- ---------- ------ -------- ------- Net increase (decrease) in assets from principal transactions 1,630,632 (284,002) 1,848 (59,293) 28,928 ---------- ---------- ------ -------- ------- Total increase (decrease) in assets 2,302,125 1,092,910 2,045 (31,580) 29,757 Assets, beginning of period 6,929,233 5,836,323 -- 32,673 2,916 ---------- ---------- ------ -------- ------- Assets, end of period $9,231,358 $6,929,233 $2,045 $ 1,093 $32,673 ========== ========== ====== ======== =======
49 John Hancock Life Insurance Company (U.S.A.) Separate Account N Statements of Operations and Changes in Contract Owners' Equity (continued)
Sub-Account ------------------------------------------ Quantitative Mid Cap Quantitative Mid Cap Trust Series 0 Trust Series 1 -------------------- --------------------- Year Ended Year Ended Year Ended Dec. 31/06 ++ Dec. 31/06 Dec. 31/05 -------------------- ---------- ---------- Income: Dividends -- $ 130,839 -- Expenses: Mortality and expense risk -- 3,103 2,544 ---- --------- -------- Net investment income (loss) -- 127,736 (2,544) Net realized gain (loss) 1 (1,529) 13,336 Change in unrealized appreciation (depreciation) during the period 42 (116,417) 42,955 ---- --------- -------- Net increase (decrease) in assets from operations 43 9,790 53,747 ---- --------- -------- Changes from principal transactions: Transfer of net premiums 694 217,911 71,765 Transfer on terminations (73) (22,242) (19,192) Transfer on policy loans -- -- (22) Net interfund transfers 196 (217,618) (13,615) ---- --------- -------- Net increase (decrease) in assets from principal transactions 817 (21,949) 38,936 ---- --------- -------- Total increase (decrease) in assets 860 (12,159) 92,683 Assets, beginning of period -- 487,068 394,385 ---- --------- -------- Assets, end of period $860 $ 474,909 $487,068 ==== ========= ========
- -------- ++ Fund available in prior year but no activity. See accompanying notes. 50
Sub-Account ------------------------------------------------------------------ Quantitative Value Quantitative Value Real Estate Securities Trust Series 0 Trust Series 1 Trust Series 0 ------------------ ------------------------ ---------------------- Year Ended Year Ended Year Ended Year Ended Dec. 31/06 ++ Dec. 31/06 Dec. 31/05 ++ Dec. 31/06 ++ ------------------ ---------- ------------- ---------------------- Income: Dividends -- $ 2,943 -- $ 737,009 Expenses: Mortality and expense risk -- 895 27 -- ------ ------- ---- ---------- Net investment income (loss) -- 2,048 (27) 737,009 Net realized gain (loss) 3 23,430 649 (100,301) Change in unrealized appreciation (depreciation) during the period 150 142 -- 309,121 ------ ------- ---- ---------- Net increase (decrease) in assets from operations 153 25,620 622 945,829 ------ ------- ---- ---------- Changes from principal transactions: Transfer of net premiums 1,254 -- -- 980,004 Transfer on terminations (74) (2,392) (156) (78,898) Transfer on policy loans -- -- -- -- Net interfund transfers 354 (3,418) (466) 3,988,342 ------ ------- ---- ---------- Net increase (decrease) in assets from principal transactions 1,534 (5,810) (622) 4,889,448 ------ ------- ---- ---------- Total increase (decrease) in assets 1,687 19,810 -- 5,835,277 Assets, beginning of period -- -- -- -- ------ ------- ---- ---------- Assets, end of period $1,687 $19,810 -- $5,835,277 ====== ======= ==== ==========
51 John Hancock Life Insurance Company (U.S.A.) Separate Account N Statements of Operations and Changes in Contract Owners' Equity (continued)
Sub-Account ------------------------------------------ Real Estate Securities Real Return Bond Trust Series 1 Trust Series 0 ------------------------- ---------------- Year Ended Year Ended Year Ended Dec. 31/06 Dec. 31/05 Dec. 31/06 ++ ------------ ----------- ---------------- Income: Dividends $ 8,050,634 $ 5,696,781 -- Expenses: Mortality and expense risk 233,063 201,032 -- ------------ ----------- ------- Net investment income (loss) 7,817,571 5,495,749 -- Net realized gain (loss) 2,942,349 2,300,759 18 Change in unrealized appreciation (depreciation) during the period 3,039,570 (4,050,057) (893) ------------ ----------- ------- Net increase (decrease) in assets from operations 13,799,490 3,746,451 (875) ------------ ----------- ------- Changes from principal transactions: Transfer of net premiums 2,773,775 3,203,497 9,800 Transfer on terminations (11,895,817) (3,735,390) (1,639) Transfer on policy loans (207,472) (71,285) -- Net interfund transfers (2,193,878) (1,953,087) 87,951 ------------ ----------- ------- Net increase (decrease) in assets from principal transactions (11,523,392) (2,556,265) 96,112 ------------ ----------- ------- Total increase (decrease) in assets 2,276,098 1,190,186 95,237 Assets, beginning of period 39,627,992 38,437,806 -- ------------ ----------- ------- Assets, end of period $ 41,904,090 $39,627,992 $95,237 ============ =========== =======
- -------- ++ Fund available in prior year but no activity. See accompanying notes. 52
Sub-Account ----------------------------------------------------------------------- Series Real Return Bond Science & Technology Science & Technology Trust Series 1 Trust Series 0 Trust Series 1 ---------------------- -------------------- -------------------------- Year Ended Year Ended Year Ended Year Ended Year Ended Dec. 31/06 Dec. 31/05 Dec. 31/06 ++ Dec. 31/06 Dec. 31/05 ---------- ---------- -------------------- ----------- ------------ Income: Dividends $ 90,802 $ 58,163 -- -- -- Expenses: Mortality and expense risk 9,847 7,035 -- 95,580 106,167 ---------- ---------- ----- ----------- ------------ Net investment income (loss) 80,955 51,128 -- (95,580) (106,167) Net realized gain (loss) (3,102) 20,619 4 851,679 415,202 Change in unrealized appreciation (depreciation) during the period (75,972) (62,554) 118 203,963 (348,119) ---------- ---------- ----- ----------- ------------ Net increase (decrease) in assets from operations 1,881 9,193 122 960,062 (39,084) ---------- ---------- ----- ----------- ------------ Changes from principal transactions: Transfer of net premiums 339,182 477,070 767 1,369,054 2,330,500 Transfer on terminations (61,199) (76,309) (119) (3,995,688) (1,675,670) Transfer on policy loans (416) (24,241) -- 58,489 8,380 Net interfund transfers 565,582 (301,076) 216 (2,055,089) (10,559,993) ---------- ---------- ----- ----------- ------------ Net increase (decrease) in assets from principal transactions 843,149 75,444 864 (4,623,234) (9,896,783) ---------- ---------- ----- ----------- ------------ Total increase (decrease) in assets 845,030 84,637 986 (3,663,172) (9,935,867) Assets, beginning of period 1,669,468 1,584,831 -- 20,287,236 30,223,103 ---------- ---------- ----- ----------- ------------ Assets, end of period $2,514,498 $1,669,468 $ 986 $16,624,064 $ 20,287,236 ========== ========== ===== =========== ============
53 John Hancock Life Insurance Company (U.S.A.) Separate Account N Statements of Operations and Changes in Contract Owners' Equity (continued) Sub-Account -------------------------------- Short-Term Bond Small Cap Growth Trust Series 0 Trust Series 0 --------------- ---------------- Year Ended Year Ended Dec. 31/06 ++ Dec. 31/06 ++ --------------- ---------------- Income: Dividends $ 23,330 -- Expenses: Mortality and expense risk -- -- -------- ---------- Net investment income (loss) 23,330 -- Net realized gain (loss) (21,712) (6,735) Change in unrealized appreciation (depreciation) during the period 49 195,446 -------- ---------- Net increase (decrease) in assets from operations 1,667 188,711 -------- ---------- Changes from principal transactions: Transfer of net premiums -- 287,659 Transfer on terminations (1,936) (26,832) Transfer on policy loans -- -- Net interfund transfers 24,952 1,391,314 -------- ---------- Net increase (decrease) in assets from principal transactions 23,016 1,652,141 -------- ---------- Total increase (decrease) in assets 24,683 1,840,852 Assets, beginning of period -- -- -------- ---------- Assets, end of period $ 24,683 $1,840,852 ======== ========== - -------- ++ Fund available in prior year but no activity. See accompanying notes. 54
Sub-Account ------------------------------------------------------------------ Small Cap Index Small Cap Index Small Cap Opportunities Trust Series 0 Trust Series 1 Trust Series 1 --------------- ------------------------ ------------------------ Year Ended Year Ended Year Ended Year Ended Year Ended Dec. 31/06 ++ Dec. 31/06 Dec. 31/05 Dec. 31/06 Dec. 31/05 --------------- ----------- ----------- ---------- ------------ Income: Dividends $ 10,583 $ 398,191 $ 450,972 $ 214,796 $ 19,697 Expenses: Mortality and expense risk -- 59,501 52,105 30,190 17,963 -------- ----------- ----------- ---------- ---------- Net investment income (loss) 10,583 338,690 398,867 184,606 1,734 Net realized gain (loss) (20,894) 680,809 194,935 424,573 296,913 Change in unrealized appreciation (depreciation) during the period 7,340 1,025,799 12,957 11,087 293,682 -------- ----------- ----------- ---------- ---------- Net increase (decrease) in assets from operations (2,971) 2,045,298 606,759 620,266 592,329 -------- ----------- ----------- ---------- ---------- Changes from principal transactions: Transfer of net premiums 118,533 999,774 953,242 390,090 332,904 Transfer on terminations (4,852) (2,195,316) (466,990) (436,143) (280,836) Transfer on policy loans -- (3,343) 49,463 (9,268) (169) Net interfund transfers 67,716 38,138 3,529,504 705,870 3,741,257 -------- ----------- ----------- ---------- ---------- Net increase (decrease) in assets from principal transactions 181,397 (1,160,747) 4,065,219 650,549 3,793,156 -------- ----------- ----------- ---------- ---------- Total increase (decrease) in assets 178,426 884,551 4,671,978 1,270,815 4,385,485 Assets, beginning of period -- 11,739,024 7,067,046 6,011,042 1,625,557 -------- ----------- ----------- ---------- ---------- Assets, end of period $178,426 $12,623,575 $11,739,024 $7,281,857 $6,011,042 ======== =========== =========== ========== ==========
55 John Hancock Life Insurance Company (U.S.A.) Separate Account N Statements of Operations and Changes in Contract Owners' Equity (continued) Sub-Account -------------------------------------- Small Cap Small Cap Trust Series 0 Trust Series 1 -------------- ----------------------- Year Ended Year Ended Year Ended Dec. 31/06 ++ Dec. 31/06 Dec. 31/05 ^ -------------- ---------- ------------ Income: Dividends -- $ 4,089 -- Expenses: Mortality and expense risk -- 216 15 ---- ------- ------- Net investment income (loss) -- 3,873 (15) Net realized gain (loss) 480 (4,230) (7) Change in unrealized appreciation (depreciation) during the period 0 235 340 ---- ------- ------- Net increase (decrease) in assets from operations 480 (122) 318 ---- ------- ------- Changes from principal transactions: Transfer of net premiums -- 6,211 517 Transfer on terminations 483 (2,395) (224) Transfer on policy loans -- -- -- Net interfund transfers (963) 24,879 16,420 ---- ------- ------- Net increase (decrease) in assets from principal transactions (480) 28,695 16,713 ---- ------- ------- Total increase (decrease) in assets -- 28,573 17,031 Assets, beginning of period -- 17,031 -- ---- ------- ------- Assets, end of period -- $45,604 $17,031 ==== ======= ======= - -------- ++ Fund available in prior year but no activity. ^ Reflects the period from commencement of operations on May 2, 2005 through December 31, 2005. (j) Terminated as an investment option and funds transferred to Small Cap Opportunity Trust on May 2, 2005. See accompanying notes. 56
Sub-Account --------------------------------------------------------- Small Cap Value Small Company Blend Small Company Trust Series 0 Trust Series 1 Trust Series 1 --------------- ------------------- --------------------- Year Ended Year Ended Year Ended Year Ended Dec. 31/06 ++ Dec. 31/05 (j) Dec. 31/06 Dec. 31/05 --------------- ------------------- ---------- ---------- Income: Dividends $ 659,586 -- $ 8,125 $ 4 Expenses: Mortality and expense risk -- 4,230 673 245 ---------- ---------- ---------- -------- Net investment income (loss) 659,586 (4,230) 7,452 (241) Net realized gain (loss) (61,769) (4,367) 1,188 6,841 Change in unrealized appreciation (depreciation) during the period (186,600) (227,929) 17,035 1,017 ---------- ---------- ---------- -------- Net increase (decrease) in assets from operations 411,217 (236,526) 25,675 7,617 ---------- ---------- ---------- -------- Changes from principal transactions: Transfer of net premiums 715,696 27,490 266,446 42,362 Transfer on terminations (58,632) (100,046) (4,121) (89,707) Transfer on policy loans -- (1,238) -- -- Net interfund transfers 3,338,077 (1,314,266) 985,610 83,695 ---------- ---------- ---------- -------- Net increase (decrease) in assets from principal transactions 3,995,141 (1,388,060) 1,247,935 36,350 ---------- ---------- ---------- -------- Total increase (decrease) in assets 4,406,358 (1,624,586) 1,273,610 43,967 Assets, beginning of period -- 1,624,586 43,967 -- ---------- ---------- ---------- -------- Assets, end of period $4,406,358 -- $1,317,577 $ 43,967 ========== ========== ========== ========
57 John Hancock Life Insurance Company (U.S.A.) Separate Account N Statements of Operations and Changes in Contract Owners' Equity (continued)
Sub-Account -------------------------------------------- Small Company Value Small Company Value Trust Series 0 Trust Series 1 ------------------- ------------------------ Year Ended Year Ended Year Ended Dec. 31/06 ++ Dec. 31/06 Dec. 31/05 ------------------- ----------- ----------- Income: Dividends -- $ 4,388,046 $ 428,910 Expenses: Mortality and expense risk -- 136,642 115,206 ------- ----------- ----------- Net investment income (loss) -- 4,251,404 313,704 Net realized gain (loss) 596 1,531,690 2,353,453 Change in unrealized appreciation (depreciation) during the period 3,768 (2,093,977) (1,242,663) ------- ----------- ----------- Net increase (decrease) in assets from operations 4,364 3,689,117 1,424,494 ------- ----------- ----------- Changes from principal transactions: Transfer of net premiums 53,849 4,303,892 4,488,191 Transfer on terminations (3,892) (8,072,237) (1,916,909) Transfer on policy loans -- 4,286 (8,957) Net interfund transfers 20,304 (2,333,045) (2,287,918) ------- ----------- ----------- Net increase (decrease) in assets from principal transactions 70,261 (6,097,104) 274,407 ------- ----------- ----------- Total increase (decrease) in assets 74,625 (2,407,987) 1,698,901 Assets, beginning of period -- 26,095,828 24,396,927 ------- ----------- ----------- Assets, end of period $74,625 $23,687,841 $26,095,828 ======= =========== ===========
- -------- ++ Fund available in prior year but no activity. See accompanying notes. 58
Sub-Account ----------------------------------------------------------- Special Value Strategic Bond Strategic Bond Trust Series 1 Trust Series 0 Trust Series 1 -------------------- -------------- ---------------------- Year Ended Year Ended Year Ended Year Ended Year Ended Dec. 31/06 Dec. 31/05 Dec. 31/06 ++ Dec. 31/06 Dec. 31/05 ---------- ---------- -------------- ---------- ---------- Income: Dividends $ 35,048 $ 1,101 -- $ 349,479 $ 104,231 Expenses: Mortality and expense risk 1,596 1,480 -- 30,307 23,638 --------- -------- ---- ---------- ---------- Net investment income (loss) 33,452 (379) -- 319,172 80,593 Net realized gain (loss) 15,101 5,043 18 (36,577) 102,238 Change in unrealized appreciation (depreciation) during the period (11,507) 13,482 0 49,719 (100,942) --------- -------- ---- ---------- ---------- Net increase (decrease) in assets from operations 37,046 18,146 18 332,314 81,889 --------- -------- ---- ---------- ---------- Changes from principal transactions: Transfer of net premiums 164,070 39,101 -- 1,100,588 878,464 Transfer on terminations (7,006) (7,980) (686) (479,632) (303,891) Transfer on policy loans -- -- -- 713 202 Net interfund transfers (132,743) 34,544 668 (712,282) (260,453) --------- -------- ---- ---------- ---------- Net increase (decrease) in assets from principal transactions 24,321 65,665 (18) (90,613) 314,322 --------- -------- ---- ---------- ---------- Total increase (decrease) in assets 61,367 83,811 -- 241,701 396,211 Assets, beginning of period 309,231 225,420 -- 5,217,823 4,821,612 --------- -------- ---- ---------- ---------- Assets, end of period $ 370,598 $309,231 -- $5,459,524 $5,217,823 ========= ======== ==== ========== ==========
59 John Hancock Life Insurance Company (U.S.A.) Separate Account N Statements of Operations and Changes in Contract Owners' Equity (continued)
Sub-Account --------------------------------------- Strategic Growth Strategic Income Trust Series 1 Trust Series 1 ---------------- ---------------------- Year Ended Year Ended Year Ended Dec. 31/05 (h) Dec. 31/06 Dec. 31/05 ---------------- ---------- ---------- Income: Dividends $ 22,052 $ 18,156 $ 42,262 Expenses: Mortality and expense risk 1,619 5,454 2,001 ----------- ---------- ---------- Net investment income (loss) 20,433 12,702 40,261 Net realized gain (loss) 31,411 (2,157) 1,191 Change in unrealized appreciation (depreciation) during the period (111,325) 25,116 (29,060) ----------- ---------- ---------- Net increase (decrease) in assets from operations (59,481) 35,661 12,392 ----------- ---------- ---------- Changes from principal transactions: Transfer of net premiums 43,285 288,069 31,429 Transfer on terminations (14,017) (49,100) (13,544) Transfer on policy loans -- (3) (124) Net interfund transfers (1,009,266) (837,587) 1,014,937 ----------- ---------- ---------- Net increase (decrease) in assets from principal transactions (979,998) (598,621) 1,032,698 ----------- ---------- ---------- Total increase (decrease) in assets (1,039,479) (562,960) 1,045,090 Assets, beginning of period 1,039,479 1,075,257 30,167 ----------- ---------- ---------- Assets, end of period -- $ 512,297 $1,075,257 =========== ========== ==========
- -------- (h) Terminatead as an investment option and funds transferred to U.S. Global Leaders Growth Trust on May 2, 2005. ++ Fund available in prior year but no activity. ++ c Terminated as an investment option and funds transferred to Large Cap Value Trust on Dec. 4, 2006. Fund available in prior year but no activity. See accompanying notes. 60
Sub-Account --------------------------------------------------------------- Strategic Opportunities Strategic Opportunities Strategic Value Trust Series 0 Trust Series 1 Trust Series 0 ----------------------- ---------------------- --------------- Year Ended Year Ended Year Ended Year Ended Dec. 31/06 ++ Dec. 31/06 Dec. 31/05 Dec. 31/06 ++ c ----------------------- ---------- ---------- --------------- Income: Dividends -- $ 577 $ 18,691 $ 277 Expenses: Mortality and expense risk -- 28,728 26,579 -- ---- ---------- ---------- ----- Net investment income (loss) -- (28,151) (7,888) 277 Net realized gain (loss) -- 489,721 108,570 (181) Change in unrealized appreciation (depreciation) during the period 8 41,827 319,582 0 ---- ---------- ---------- ----- Net increase (decrease) in assets from operations 8 503,397 420,264 96 ---- ---------- ---------- ----- Changes from principal transactions: Transfer of net premiums 83 600,267 401,814 958 Transfer on terminations (8) (739,778) (620,348) (90) Transfer on policy loans -- 107,464 (1,187) -- Net interfund transfers 23 (639,091) 173,814 (964) ---- ---------- ---------- ----- Net increase (decrease) in assets from principal transactions 98 (671,138) (45,907) (96) ---- ---------- ---------- ----- Total increase (decrease) in assets 106 (167,741) 374,357 -- Assets, beginning of period -- 5,106,599 4,732,242 -- ---- ---------- ---------- ----- Assets, end of period $106 $4,938,858 $5,106,599 -- ==== ========== ========== =====
61 John Hancock Life Insurance Company (U.S.A.) Separate Account N Statements of Operations and Changes in Contract Owners' Equity (continued)
Sub-Account --------------------------------------------------------- Strategic Value Trust Series 1 Total Return Trust Series 0 ------------------------------ --------------------------- Year Ended Year Ended Year Ended Dec. 31/06 (c) Dec. 31/05 Dec. 31/06 ++ -------------- ---------- --------------------------- Income: Dividends $ 26,523 $ 19,083 -- Expenses: Mortality and expense risk 1,250 5,018 -- --------- --------- -------- Net investment income (loss) 25,273 14,065 -- Net realized gain (loss) 39,294 25,957 1,032 Change in unrealized appreciation (depreciation) during the period (4,326) (91,372) 2,677 --------- --------- -------- Net increase (decrease) in assets from operations 60,241 (51,350) 3,709 --------- --------- -------- Changes from principal transactions: Transfer of net premiums 155,352 56,440 69,283 Transfer on terminations (56,288) (623,336) (8,043) Transfer on policy loans -- -- -- Net interfund transfers (246,473) (127,478) 325,619 --------- --------- -------- Net increase (decrease) in assets from principal transactions (147,409) (694,374) 386,859 --------- --------- -------- Total increase (decrease) in assets (87,168) (745,724) 390,568 Assets, beginning of period 87,168 832,892 -- --------- --------- -------- Assets, end of period -- $ 87,168 $390,568 ========= ========= ========
- -------- (c)Terminated as an investment option and funds transferred to Large Cap Value Trust on December 4, 2006. ++ Fund available in prior year but no activity. See accompanying notes. 62
Sub-Account ---------------------------------------------------------------------------- Total Stock Market Index Total Stock Market Index Total Return Trust Series 1 Trust Series 0 Trust Series 1 --------------------------- ------------------------ ----------------------- Year Ended Year Ended Year Ended Year Ended Year Ended Dec. 31/06 Dec. 31/05 Dec. 31/06 ++ Dec. 31/06 Dec. 31/05 ------------ ------------ ------------------------ ----------- ---------- Income: Dividends $ 1,285,963 $ 2,249,068 -- $ 57,196 $ 30,875 Expenses: Mortality and expense risk 162,013 205,186 -- 17,229 15,894 ------------ ------------ ------ ----------- ---------- Net investment income (loss) 1,123,950 2,043,882 -- 39,967 14,981 Net realized gain (loss) (777,149) (298,985) -- 345,518 158,751 Change in unrealized appreciation (depreciation) during the period 677,233 (781,786) (8) 82,756 (11,247) ------------ ------------ ------ ----------- ---------- Net increase (decrease) in assets from operations 1,024,034 963,111 (8) 468,241 162,485 ------------ ------------ ------ ----------- ---------- Changes from principal transactions: Transfer of net premiums 4,883,577 5,960,390 -- 139,877 456,605 Transfer on terminations (10,473,292) (3,595,874) -- (264,963) (314,313) Transfer on policy loans (819) (20,285) -- -- 476 Net interfund transfers (8,964,975) (10,329,597) 1,723 (1,282,841) 930,146 ------------ ------------ ------ ----------- ---------- Net increase (decrease) in assets from principal transactions (14,555,509) (7,985,366) 1,723 (1,407,927) 1,072,914 ------------ ------------ ------ ----------- ---------- Total increase (decrease) in assets (13,531,475) (7,022,255) 1,715 (939,686) 1,235,399 Assets, beginning of period 42,371,818 49,394,073 -- 3,807,527 2,572,128 ------------ ------------ ------ ----------- ---------- Assets, end of period $ 28,840,343 $ 42,371,818 $1,715 $ 2,867,841 $3,807,527 ============ ============ ====== =========== ==========
63 John Hancock 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. Core Trust Series 1 Growth Trust Series 1 -------------------------- ------------------------- Year Ended Year Ended Year Ended Year Ended Dec. 31/06 (g) Dec. 31/05 Dec. 31/06 Dec. 31/05 ++ -------------- ----------- ---------- ------------- Income: Dividends $ 2,009,688 $ 605,754 $ 10,457 $ 21,640 Expenses: Mortality and expense risk 81,729 87,017 4,151 3,729 ----------- ----------- ---------- ---------- Net investment income (loss) 1,927,959 518,737 6,306 17,911 Net realized gain (loss) (31,873) 885,708 22,132 13,359 Change in unrealized appreciation (depreciation) during the period (565,624) (1,099,656) (33,718) 66,198 ----------- ----------- ---------- ---------- Net increase (decrease) in assets from operations 1,330,462 304,789 (5,280) 97,468 ----------- ----------- ---------- ---------- Changes from principal transactions: Transfer of net premiums 1,057,532 1,132,428 155,111 120,102 Transfer on terminations (1,071,864) (1,809,316) (311,167) (95,802) Transfer on policy loans 21,777 (37,371) 61 100 Net interfund transfers (629,805) (5,695) (249,515) 979,083 ----------- ----------- ---------- ---------- Net increase (decrease) in assets from principal transactions (622,360) (719,954) (405,510) 1,003,483 ----------- ----------- ---------- ---------- Total increase (decrease) in assets 708,102 (415,165) (410,790) 1,100,951 Assets, beginning of period 15,776,383 16,191,548 1,100,951 -- ----------- ----------- ---------- ---------- Assets, end of period $16,484,485 $15,776,383 $ 690,161 $1,100,951 =========== =========== ========== ==========
- -------- (g)Fund renamed on May 1, 2006. Previously known as Growth & Income Trust. ++ Fund available in prior year but no activity. See accompanying notes. 64
Sub-Account ------------------------------------------------------------ U.S. Government U.S. Government Secur ities Securities U.S. High Yield Bond Trust Series 0 Trust Series 1 Trust Series 0 --------------- ----------------------- -------------------- Year Ended Year Ended Year Ended Year Ended Dec. 31/06 ++ Dec. 31/06 Dec. 31/05 Dec. 31/06 ++ --------------- ----------- ---------- -------------------- Income: Dividends -- $ 567,693 $ 325,470 -- Expenses: Mortality and expense risk -- 48,276 46,019 -- ---- ----------- ---------- ------ Net investment income (loss) -- 519,417 279,451 -- Net realized gain (loss) -- (315,149) (60,923) 4 Change in unrealized appreciation (depreciation) during the period 8 163,981 (126,220) 199 ---- ----------- ---------- ------ Net increase (decrease) in assets from operations 8 368,249 92,308 203 ---- ----------- ---------- ------ Changes from principal transactions: Transfer of net premiums 300 1,599,478 2,691,564 3,637 Transfer on terminations (23) (1,591,435) (601,199) (302) Transfer on policy loans -- (1,823) (17,078) -- Net interfund transfers 85 743,579 (427,261) 1,026 ---- ----------- ---------- ------ Net increase (decrease) in assets from principal transactions 362 749,799 1,646,026 4,361 ---- ----------- ---------- ------ Total increase (decrease) in assets 370 1,118,048 1,738,334 4,564 Assets, beginning of period -- 9,984,112 8,245,778 -- ---- ----------- ---------- ------ Assets, end of period $370 $11,102,160 $9,984,112 $4,564 ==== =========== ========== ======
65 John Hancock Life Insurance Company (U.S.A.) Separate Account N Statements of Operations and Changes in Contract Owners' Equity (continued) Sub-Account ---------------------------------- U.S. High Yield Bond U.S. Large Cap Trust Series 1 Trust Series 0 -------------------- -------------- Year Ended Year Ended Dec. 31/06 ++ Dec. 31/06 ++ -------------------- -------------- Income: Dividends -- -- Expenses: Mortality and expense risk 9 -- ------ ------ Net investment income (loss) (9) -- Net realized gain (loss) 2 871 Change in unrealized appreciation (depreciation) during the period 172 0 ------ ------ Net increase (decrease) in assets from operations 165 871 ------ ------ Changes from principal transactions: Transfer of net premiums 282 -- Transfer on terminations (49) (1,974) Transfer on policy loans -- -- Net interfund transfers 2,383 1,103 ------ ------ Net increase (decrease) in assets from principal transactions 2,616 (871) ------ ------ Total increase (decrease) in assets 2,781 -- Assets, beginning of period -- -- ------ ------ Assets, end of period $2,781 -- ====== ====== - -------- ++ Fund available in prior year but no activity. See accompanying notes. 66
Sub-Account ------------------------------------------------------------------------------- U.S. Large Cap Trust Series 1 Utilities Trust Series 0 Utilities Trust Series 1 ----------------------------- ------------------------ ------------------------- Year Ended Year Ended Year Ended Year Ended Year Ended Dec. 31/06 Dec. 31/05 Dec. 31/06 ++ Dec. 31/06 Dec. 31/05 ----------- ----------- ------------------------ ------------ ------------ Income: Dividends $ 123,657 $ 93,489 -- $ 312,030 $ 81,868 Expenses: Mortality and expense risk 131,783 134,525 -- 10,239 6,969 ----------- ----------- ------ ---------- ---------- Net investment income (loss) (8,126) (41,036) -- 301,791 74,899 Net realized gain (loss) 841,022 495,701 5 107,775 60,629 Change in unrealized appreciation (depreciation) during the period 1,267,046 619,166 256 199,624 87,129 ----------- ----------- ------ ---------- ---------- Net increase (decrease) in assets from operations 2,099,942 1,073,831 261 609,190 222,657 ----------- ----------- ------ ---------- ---------- Changes from principal transactions: Transfer of net premiums 1,352,023 1,723,981 1,606 430,714 292,142 Transfer on terminations (2,482,289) (2,437,739) (59) (249,088) (41,249) Transfer on policy loans (44,076) 27,193 -- (10,151) (2,831) Net interfund transfers (540,586) (444,512) 453 (547,240) 1,240,265 ----------- ----------- ------ ---------- ---------- Net increase (decrease) in assets from principal transactions (1,714,928) (1,131,077) 2,000 (375,765) 1,488,327 ----------- ----------- ------ ---------- ---------- Total increase (decrease) in assets 385,014 (57,246) 2,261 233,425 1,710,984 Assets, beginning of period 22,779,517 22,836,763 -- 2,200,446 489,462 ----------- ----------- ------ ---------- ---------- Assets, end of period $23,164,531 $22,779,517 $2,261 $2,433,871 $2,200,446 =========== =========== ====== ========== ==========
67 John Hancock Life Insurance Company (U.S.A.) Separate Account N Statements of Operations and Changes in Contract Owners' Equity (continued)
Sub-Account ------------------------------------------------------ Value Trust Series 1 Total ------------------------- --------------------------- Year Ended Year Ended Year Ended Year Ended Dec. 31/06 Dec. 31/05 Dec. 31/06 Dec. 31/05 ----------- ------------ ------------- ------------ Income: Dividends $ 1,587,475 $ 56,502 $ 53,421,166 $ 22,903,011 Expenses: Mortality and expense risk 54,488 56,755 3,910,285 3,546,389 ----------- ------------ ------------- ------------ Net investment income (loss) 1,532,987 (253) 49,510,881 19,356,622 Net realized gain (loss) 749,169 693,338 32,846,305 29,910,849 Change in unrealized appreciation (depreciation) during the period (628,530) 44,915 8,955,229 (8,176,520) ----------- ------------ ------------- ------------ Net increase (decrease) in assets from operations 1,653,626 738,000 91,312,415 41,090,951 ----------- ------------ ------------- ------------ Changes from principal transactions: Transfer of net premiums 1,545,867 1,587,703 103,202,662 93,226,794 Transfer on terminations (668,407) (548,553) (120,216,284) (66,979,008) Transfer on policy loans (18,564) (3,802) (507,373) (351,004) Net interfund transfers (4,006,735) (14,588,210) (4,432,694) (6,962,283) ----------- ------------ ------------- ------------ Net increase (decrease) in assets from principal transactions (3,147,839) (13,552,862) (21,953,689) 18,934,499 ----------- ------------ ------------- ------------ Total increase (decrease) in assets (1,494,213) (12,814,862) 69,358,726 60,025,450 Assets, beginning of period 9,906,015 22,720,877 741,952,406 681,926,956 ----------- ------------ ------------- ------------ Assets, end of period $ 8,411,802 $ 9,906,015 $ 811,311,132 $741,952,406 =========== ============ ============= ============
See accompanying notes. 68 John Hancock Life Insurance Company (U.S.A.) Separate Account N Notes to Financial Statements December 31, 2006 1. Organization John Hancock 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"). The Account operates as a Unit Investment Trust registered under the Investment Company Act of 1940, as amended (the "Act") and has eighty-one active investment sub-accounts that invest in shares of a particular John Hancock Trust (the "Trust") portfolio and one sub-account that invests in shares of other outside investment trusts. The Trust is registered under the Act as an open-end management investment company, commonly known as a mutual fund, which does not transact with the general public. Instead, the Trust deals 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. Each sub-account that invests in Portfolios of the John Hancock Trust may offer two classes of units to fund the Contracts issued by the Company. These classes, Series 1 and Series 0 represent an interest in the same Trust Portfolio but in different share classes of that Portfolio. Series 1 represents interests in Series I shares of the Portfolio and Series 0 represents interests in Series NAV shares of the Trust's Portfolio. Series I and Series NAV shares differ in the level of 12b-1 fees and other expenses assessed against the Portfolio's assets. 69 John Hancock Life Insurance Company (U.S.A.) Separate Account N Notes to Financial Statements (continued) As the result of portfolio changes, the following sub-accounts of the Account were renamed as follows:
Previous Name New Name Effective Date - ------------- ------------------------------------- -------------- Growth & Income Trust U.S. Core Trust May 1, 2006 Growth & Income Trust II Growth & Income Trust May 1, 2006 International Equity Index Fund International Equity Index Trust A May 2, 2005 International Stock Trust International Core Trust May 1, 2006 Lifestyle Aggressive 1000 Trust Lifestyle Aggressive Trust May 1, 2006 Lifestyle Balanced 640 Trust Lifestyle Balanced Trust May 1, 2006 Lifestyle Conservative 280 Trust Lifestyle Conservative Trust May 1, 2006 Lifestyle Growth 820 Trust Lifestyle Growth Trust May 1, 2006 Lifestyle Moderate 460 Trust Lifestyle Moderate Trust May 1, 2006
Effective May 1, 2006, the following sub-account of the Account was terminated as an investment option and the fund was transferred to an existing sub-account fund as follows: Terminated Funds Transferred To ---------- -------------------- Large Cap Growth Capital Trust Appreciation Trust Effective December 4, 2006, 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 ---------- -------------------- Mid Cap Core Trust Mid Cap Index Trust Strategic Value Large Cap Value Trust Trust 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 Where a fund has two series, the changes noted above apply to both Series 0 and Series 1. 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 70 John Hancock Life Insurance Company (U.S.A.) Separate Account N Notes to Financial Statements (continued) 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. 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. 71 John Hancock Life Insurance Company (U.S.A.) Separate Account N Notes to Financial Statements (continued) 5. Purchases and Sales of Investments The cost of purchases and proceeds from sales of investments for the year ended December 31, 2006 were as follows: Purchases Sales ----------- ----------- Sub-Accounts: 500 Index Trust B Series 0 $10,120,469 $17,828,361 500 Index Trust Series 1 8,304,827 9,744,701 Active Bond Trust Series 0 500,675 382,178 Active Bond Trust Series 1 1,522,865 1,299,254 All Asset Portfolio Series 1 522,633 261,665 All Cap Core Trust Series 0 285 10 All Cap Core Trust Series 1 2,366,156 1,358,246 All Cap Growth Trust Series 0 816 29 All Cap Growth Trust Series 1 1,850,686 5,695,441 All Cap Value Trust Series 0 283 10 All Cap Value Trust Series 1 1,694,832 1,282,304 American Blue Chip Income and Growth Trust Series 1 4,952,029 2,546,971 American Bond Trust Series 1 452,448 49,794 American Growth Trust Series 1 12,934,332 5,159,799 American Growth-Income Trust Series 1 1,216,857 1,291,290 American International Trust Series 1 17,535,439 5,525,307 Blue Chip Growth Trust Series 0 655,201 12,513 Blue Chip Growth Trust Series 1 11,820,147 19,703,920 Bond Index Trust B Series 0 1,658,692 72,029 Capital Appreciation Trust Series 0 108,769 7,915 Capital Appreciation Trust Series 1 9,723,911 3,733,697 Classic Value Trust Series 0 663 24 Classic Value Trust Series 1 770,966 183,658 Core Bond Trust Series 1 286 10 Core Equity Trust Series 0 5,956 218 Core Equity Trust Series 1 467,780 88,928 Dynamic Growth Trust Series 0 28,372 3,407 Dynamic Growth Trust Series 1 5,187,949 6,014,537 Emerging Growth Trust Series 0 612 22 Emerging Growth Trust Series 1 641,120 336,011 Emerging Small Company Trust Series 0 133,175 10,167 Emerging Small Company Trust Series 1 13,300,687 21,892,039 Equity-Income Trust Series 0 7,421,975 841,976 Equity-Income Trust Series 1 20,020,532 22,247,521 Financial Services Trust Series 0 933 35 Financial Services Trust Series 1 2,082,379 238,004 Fundamental Value Trust Series 0 99,163 1,974 Fundamental Value Trust Series 1 2,405,217 1,255,951 Global Allocation Trust Series 0 377 13 72 John Hancock Life Insurance Company (U.S.A.) Separate Account N Notes to Financial Statements (continued) Purchases Sales ----------- ----------- Sub-Accounts: Global Allocation Trust Series 1 $ 2,791,590 $ 1,492,533 Global Bond Trust Series 0 3,537,369 444,704 Global Bond Trust series 1 3,340,382 3,702,222 Global Trust Series 0 99,048 3,017 Global Trust Series 1 3,241,169 2,895,163 Growth & Income Trust Series 0 1,231,209 27,089 Health Sciences Trust Series 0 1,997 72 Health Sciences Trust Series 1 4,060,486 3,231,118 High Yield Trust Series 0 135,178 7,599 High Yield Trust Series 1 6,809,244 12,731,007 Income & Value Trust Series 0 33,407 626 Income & Value Trust Series 1 3,237,931 8,585,085 International Core Trust Series 0 6,514 277 International Core Trust Series 1 7,737,069 14,703,164 International Equity Index Trust A Series 1 3,253,602 1,458,942 International Equity Index Trust B Series 0 6,136,408 6,179,893 International Opportunities Trust Series 0 179,623 4,722 International Opportunities Trust Series 1 3,584,413 1,558,595 International Small Cap Trust Series 0 14,177 373 International Small Cap Trust Series 1 2,677,088 2,217,434 International Value Trust Series 0 2,222 18 International Value Trust Series 1 16,664,769 12,746,072 Investment Quality Bond Trust Series 1 6,477,131 16,436,025 Large Cap Growth Trust Series 1 792,876 7,456,056 Large Cap Trust Series 0 779 28 Large Cap Trust Series 1 31,569 2,053 Large Cap Value Trust Series 0 3,343 6 Large Cap Value Trust Series 1 4,797,905 3,372,733 Lifestyle Aggressive Trust Series 0 7,151 569 Lifestyle Aggressive Trust Series 1 4,160,377 1,821,380 Lifestyle Balanced Trust Series 0 1,321,175 32,001 Lifestyle Balanced Trust Series 1 7,804,705 10,833,121 Lifestyle Conservative Trust Series 0 1,293 8 Lifestyle Conservative Trust Series 1 1,910,327 6,470,133 Lifestyle Growth Trust Series 0 1,396,184 52,450 Lifestyle Growth Trust Series 1 4,579,364 1,493,629 Lifestyle Moderate Trust Series 0 12,136 280 Lifestyle Moderate Trust Series 1 3,668,002 3,608,566 Managed Trust Series 0 821,093 692,995 Mid Cap Core Trust Series 0 309 271 Mid Cap Core Trust Series 1 2,594,471 3,237,127 Mid Cap Index Trust Series 0 328,454 8,649 Mid Cap Index Trust Series 1 4,578,258 4,548,585 Mid Cap Stock Trust Series 0 143,792 11,545 Mid Cap Stock Trust Series 1 7,701,459 8,981,759 73 John Hancock Life Insurance Company (U.S.A.) Separate Account N Notes to Financial Statements (continued)
Purchases Sales ----------- ----------- Sub-Accounts: Mid Cap Value Trust Series 0 $ 102,253 $ 8,863 Mid Cap Value Trust Series 1 18,525,339 17,396,171 Mid Value Trust Series 0 876,959 60,105 Money Market Trust B Series 0 11,304,497 4,371,437 Money Market Trust Series 1 92,109,224 58,110,873 Natural Resources Trust Series 0 3,831 132 Natural Resources Trust Series 1 10,708,357 8,762,735 Overseas Equity Trust Series 0 1,113,558 19,819 Pacific Rim Trust Series 0 1,906 68 Pacific Rim Trust Series 1 7,987,883 6,325,254 Quantitative All Cap Trust Series 0 1,999 70 Quantitative All Cap Trust Series 1 699,025 758,143 Quantitative Mid Cap Trust Series 0 847 30 Quantitative Mid Cap Trust Series 1 580,582 474,794 Quantitative Value Trust Series 0 1,592 58 Quantitative Value Trust Series 1 241,762 245,524 Real Estate Securities Trust Series 0 6,444,337 817,881 Real Estate Securities Trust Series 1 15,634,983 19,340,805 Real Return Bond Trust Series 0 98,079 1,966 Real Return Bond Trust Series 1 1,559,999 635,895 Science & Technology Trust Series 0 897 34 Science & Technology Trust Series 1 6,178,099 10,896,913 Short-Term Bond Trust Series 0 788,729 742,384 Small Cap Growth Trust Series 0 1,738,086 85,946 Small Cap Index Trust Series 0 534,327 342,346 Small Cap Index Trust Series 1 3,290,914 4,112,972 Small Cap Opportunities Trust Series 1 4,519,835 3,684,680 Small Cap Trust Series 0 69,654 70,134 Small Cap Trust Series 1 65,893 33,325 Small Cap Value Trust Series 0 5,264,026 609,300 Small Company Trust Series 1 1,496,774 241,386 Small Company Value Trust Series 0 82,972 12,710 Small Company Value Trust Series 1 19,427,074 21,272,775 Special Value Trust Series 1 293,410 235,637 Strategic Bond Trust Series 0 613 631 Strategic Bond Trust Series 1 3,223,975 2,995,415 Strategic Income Trust Series 1 548,746 1,134,665 Strategic Opportunities Trust Series 0 101 4 Strategic Opportunities Trust Series 1 2,231,424 2,930,712 Strategic Value Trust Series 0 1,498 1,317 Strategic Value Trust Series 1 3,016,726 3,138,862 Total Return Trust Series 0 415,745 28,886 Total Return Trust Series 1 17,107,406 30,538,964 Total Stock Market Index Trust Series 0 1,723 -- Total Stock Market Index Trust Series 1 1,854,551 3,222,512
74 John Hancock Life Insurance Company (U.S.A.) Separate Account N Notes to Financial Statements (continued)
Purchases Sales ------------ ------------ Sub-Accounts: U.S. Core Trust Series 1 $ 6,243,069 $ 4,937,471 U.S. Global Leaders Growth Trust Series 1 348,384 747,588 U.S. Government Securities Trust Series 0 374 13 U.S. Government Securities Trust Series 1 9,682,876 8,413,660 U.S. High Yield Bond Trust Series 0 4,520 160 U.S. High Yield Bond Trust Series 1 2,666 58 U.S. Large Cap Trust Series 0 101,128 101,999 U.S. Large Cap Trust Series 1 4,321,066 6,044,121 Utilities Trust Series 0 2,077 77 Utilities Trust Series 1 1,512,204 1,586,178 Value Trust Series 1 6,603,041 8,217,893 ------------ ------------ $531,389,157 $503,831,974 ============ ============
6. Transactions with Affiliates John Hancock Distributors LLC, a registered broker-dealer and wholly owned subsidiary of JHUSA, 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 or other broker-dealers having distribution agreements with John Hancock Distributors 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. The 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. 7. 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 75 John Hancock Life Insurance Company (U.S.A.) Separate Account N Notes to Financial Statements (continued) 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. 8. 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. 76 John Hancock Life Insurance Company (U.S.A.) Separate Account N Notes to Financial Statements (continued) 8. Financial Highlights
Sub-Account ------------------------------- 500 Index Trust B Series 0 ------------------------------- Year Ended Year Ended Dec. 31/06 Dec. 31/05 ^ --------------- -------------- Units, beginning of year 1,649,564 -- Units issued 497,491 2,372,470 Units redeemed (1,184,079) (722,906) --------------- -------------- Units, end of year 962,976 1,649,564 =============== ============== Unit value, end of period $ 15.57 to 25.20 13.57 to 13.60 Assets, end of period $ 17,764,778 22,413,056 Investment income ratio* 1.22% 0.00% Expense ratio, lowest to highest** 0.40% to 0.70% 0.40% to 0.70% Total return, lowest to highest*** 14.76% to 15.56% 8.56% to 8.78%
- -------- ^ Reflects the period from commencement of operations on May 2, 2005 through December 31, 2005.
Sub-Account ------------------------------------------------------------------------------------- 500 Index Trust Series 1 ------------------------------------------------------------------------------------- Year Ended Year Ended Year Ended Year Ended Year Ended Dec. 31/06 Dec. 31/05 Dec. 31/04 Dec. 31/03 Dec. 31/02 --------------- -------------- -------------- --------------- ------------------- Units, beginning of year 1,012,464 689,458 575,198 375,317 94,218 Units issued 705,327 932,154 773,654 501,063 688,915 Units redeemed (822,371) (609,148) (659,394) (301,182) (407,816) --------------- -------------- -------------- --------------- ------------------- Units, end of year 895,420 1,012,464 689,458 575,198 375,317 =============== ============== ============== =============== =================== Unit value, end of period $ 12.47 to 12.91 10.89 to 11.16 10.51 to 10.72 9.59 to 9.72 7.54 to 7.61 Assets, end of period $ 11,434,368 11,226,224 7,356,251 5,572,911 2,849,500 Investment income ratio* 0.90% 1.22% 0.81% 0.79% 0.00% Expense ratio, lowest to highest** 0.25% to 0.65% 0.35% to 0.65% 0.35% to 0.65% 0.40% to 0.65% 0.40% to 0.65% Total return, lowest to highest*** 14.52% to 15.15% 3.60% to 4.09% 9.54% to 10.05% 27.19% to 27.69% (23.02)% to (22.71)%
77 John Hancock Life Insurance Company (U.S.A.) Separate Account N Notes to Financial Statements (continued) 8. Financial Highlights Sub-Account -------------- Active Bond Trust Series 0 -------------- Year Ended Dec. 31/06 ++ -------------- Units, beginning of year -- Units issued 11,827 Units redeemed (9,316) ------- Units, end of year 2,511 ======= Unit value, end of period $ 43.05 Assets, end of period $ 108,061 Investment income ratio* 22.71% Expense ratio, lowest to highest** 0.00% Total return, lowest to highest*** 4.54% - -------- ++ Fund available in prior year but no activity. Sub-Account ------------------------------ Active Bond Trust Series 1 ------------------------------ Year Ended Year Ended Dec. 31/06 Dec. 31/05 ^ -------------- -------------- Units, beginning of year 329,188 -- Units issued 111,305 647,762 Units redeemed (100,836) (318,574) -------------- -------------- Units, end of year 339,657 329,188 ============== ============== Unit value, end of period $ 13.11 to 13.18 12.64 to 12.67 Assets, end of period $ 4,464,604 4,165,458 Investment income ratio* 2.60% 0.00% Expense ratio, lowest to highest** 0.35% to 0.70% 0.35% to 0.70% Total return, lowest to highest*** 3.70% to 4.05% 1.14% to 1.36% - -------- ^ Reflects the period from commencement of operations on May 2, 2005 through December 31, 2005. 78 John Hancock Life Insurance Company (U.S.A.) Separate Account N Notes to Financial Statements (continued) 8. Financial Highlights
Sub-Account --------------------------------------------- All Asset Portfolio Series 1 --------------------------------------------- Year Ended Year Ended Year Ended Dec. 31/06 Dec. 31/05 Dec. 31/04 ## -------------- -------------- ------------- Units, beginning of year 36,420 5,558 -- Units issued 33,107 44,219 5,623 Units redeemed (17,543) (13,357) (65) -------------- -------------- ------ Units, end of year 51,984 36,420 5,558 ============== ============== ====== Unit value, end of period $ 15.21 to 15.30 14.67 to 14.72 13.94 Assets, end of period $ 793,435 534,735 77,490 Investment income ratio* 5.36% 5.84% 17.85% Expense ratio, lowest to highest** 0.45% to 0.65% 0.45% to 0.65% 0.65% Total return, lowest to highest*** 3.68% to 3.89% 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 0 -------------- Year Ended Dec. 31/06 ++ -------------- Units, beginning of year -- Units issued 24 Units redeemed (1) ----- Units, end of year 23 ===== Unit value, end of period $ 12.98 Assets, end of period $ 295 Investment income ratio* 0.00% Expense ratio, lowest to highest** 0.00% Total return, lowest to highest*** 14.77% - -------- ++ Fund available in prior year but no activity. 79 John Hancock Life Insurance Company (U.S.A.) Separate Account N Notes to Financial Statements (continued) 8. Financial Highlights
Sub-Account ------------------------------------------------------------------------------------ All Cap Core Trust Series 1 ------------------------------------------------------------------------------------ Year Ended Year Ended Year Ended Dec. Year Ended Dec. Year Ended Dec. Dec. 31/06 Dec. 31/05 31/04 31/03 31/02 --------------- ------------- --------------- --------------- ------------------ Units, beginning of year 180,858 192,844 384,083 632,910 955,887 Units issued 126,247 60,566 162,081 396,838 744,586 Units redeemed (72,310) (72,552) (353,320) (645,665) (1,067,563) --------------- ------------- --------------- --------------- ------------------ Units, end of year 234,795 180,858 192,844 384,083 632,910 =============== ============= =============== =============== ================== Unit value, end of period $ 10.80 to 19.99 9.46 to 7.43 8.72 to 16.04 7.54 to 13.81 5.76 to 10.54 Assets, end of period $ 4,565,986 3,066,213 3,006,912 4,650,328 5,895,402 Investment income ratio* 0.64% 0.73% 0.50% 0.00% 0.00% Expense ratio, lowest to highest** 0.30% to 0.70% 0.35% to 0.70% 0.35% to 0.65% 0.40% to 0.65% 0.40% to 0.65% Total return, lowest to highest*** 13.95% to 14.40% 8.32% to 8.70% 15.57% to 15.92% 30.71% to 31.02% (25.72)% to (25.57)%
Sub-Account -------------- All Cap Growth Trust Series 0 -------------- Year Ended Dec. 31/06 ++ -------------- Units, beginning of year -- Units issued 71 Units redeemed (2) ----- Units, end of year 69 ===== Unit value, end of period $ 12.42 Assets, end of period $ 847 Investment income ratio* 0.00% Expense ratio, lowest to highest** 0.00% Total return, lowest to highest*** 6.63% - -------- ++ Fund available in prior year but no activity. 80 John Hancock Life Insurance Company (U.S.A.) Separate Account N Notes to Financial Statements (continued) 8. Financial Highlights
Sub-Account ---------------------------------------------------------------------------------- All Cap Growth Trust Series 1 ---------------------------------------------------------------------------------- Year Ended Year Ended Year Ended Year Ended Year Ended Dec. 31/06 Dec. 31/05 Dec. 31/04 Dec. 31/03 Dec. 31/02 -------------- -------------- ------------- --------------- ------------------ Units, beginning of year 377,588 413,068 507,091 602,095 604,579 Units issued 87,667 136,091 266,106 472,429 510,835 Units redeemed (272,940) (171,571) (360,129) (567,433) (513,319) -------------- -------------- ------------- --------------- ------------------ Units, end of year 192,315 377,588 413,068 507,091 602,095 ============== ============== ============= =============== ================== Unit value, end of period $ 11.42 to 22.34 10.77 to 20.97 9.94 to 19.31 9.38 to 18.16 7.30 to 14.11 Assets, end of period $ 4,175,639 7,772,423 7,837,329 8,204,194 7,785,855 Investment income ratio* 0.00% 0.00% 0.00% 0.00% 0.00% Expense ratio, lowest to highest** 0.30% to 0.70% 0.35% to 0.70% 0.35% to 0.65% 0.40% to 0.65% 0.45% to 0.65% Total return, lowest to highest*** 5.83% to 6.25% 8.23% to 8.61% 5.83% to 6.14% 28.40% to 28.72% (24.90)% to (24.75)%
Sub-Account -------------- All Cap Value Trust Series 0 -------------- Year Ended Dec. 31/06 ++ -------------- Units, beginning of year -- Units issued 24 Units redeemed (1) ----- Units, end of year 23 ===== Unit value, end of period $ 12.64 Assets, end of period $ 288 Investment income ratio* 0.00% Expense ratio, lowest to highest** 0.00% Total return, lowest to highest*** 13.82%
- -------- ++ Fund available in prior year but no activity. 81 John Hancock Life Insurance Company (U.S.A.) Separate Account N Notes to Financial Statements (continued) 8. Financial Highlights
Sub-Account ------------------------------------------------------------------------------------- All Cap Value Trust Series 1 ------------------------------------------------------------------------------------- Year Ended Year Ended Year Ended Year Ended Year Ended Dec. 31/06 Dec. 31/05 Dec. 31/04 Dec. 31/03 Dec. 31/02 --------------- -------------- --------------- --------------- ------------------ Units, beginning of year 112,887 111,377 42,078 19,759 1,194 Units issued 81,884 43,049 149,430 48,939 83,130 Units redeemed (78,070) (41,539) (80,131) (26,620) (64,565) --------------- -------------- --------------- --------------- ------------------ Units, end of year 116,701 112,887 111,377 42,078 19,759 =============== ============== =============== =============== ================== Unit value, end of period $ 16.92 to 17.21 14.97 to 15.19 14.26 to 14.42 12.38 to 12.44 9.00 to 9.03 Assets, end of period $ 1,998,682 1,705,935 1,596,891 520,935 177,909 Investment income ratio* 0.80% 0.52% 0.33% 0.04% 0.01% Expense ratio, lowest to highest** 0.35% to 0.65% 0.35% to 0.65% 0.35% to 0.65% 0.45% to 0.65% 0.45% to 0.65% Total return, lowest to highest*** 12.98% to 13.32% 5.03% to 5.35% 15.20% to 15.55% 37.47% to 37.75% (28.30)% to (28.16)%
Sub-Account ---------------------------------------------------------------- American Blue Chip Income and Growth Trust Series 1 ---------------------------------------------------------------- Year Ended Year Ended Year Ended Year Ended Dec. 31/06 Dec. 31/05 Dec. 31/04 Dec. 31/03 + --------------- -------------- -------------- --------------- Units, beginning of year 141,580 23,565 14,497 -- Units issued 276,354 149,882 24,431 14,889 Units redeemed (148,189) (31,867) (15,363) (392) --------------- -------------- -------------- --------------- Units, end of year 269,745 141,580 23,565 14,497 =============== ============== ============== =============== Unit value, end of period $ 12.99 to 19.17 16.32 to 16.44 15.38 to 15.44 14.17 to 14.18 Assets, end of period $ 5,160,481 2,325,308 362,839 205,368 Investment income ratio* 0.55% 0.19% 0.00% 0.00% Expense ratio, lowest to highest** 0.00% to 0.65% 0.35% to 0.65% 0.40% to 0.65% 0.45% to 0.65% Total return, lowest to highest*** 16.24% to 16.99% 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. 82 John Hancock Life Insurance Company (U.S.A.) Separate Account N Notes to Financial Statements (continued) 8. Financial Highlights Sub-Account -------------- American Bond Trust Series 1 -------------- Year Ended Dec. 31/06 ++ -------------- Units, beginning of year -- Units issued 34,152 Units redeemed (3,769) -------------- Units, end of year 30,383 ============== Unit value, end of period $ 10.78 to 13.40 Assets, end of period $ 406,830 Investment income ratio* 0.00% Expense ratio, lowest to highest** 0.00% to 0.65% Total return, lowest to highest*** 5.89% to 6.57% - -------- ++ Fund available in prior year but no activity.
Sub-Account ----------------------------------------------------------------- American Growth Trust Series 1 ----------------------------------------------------------------- Year Ended Year Ended Year Ended Year Ended Dec. 31/06 Dec. 31/05 Dec. 31/04 Dec. 31/03 + -------------- --------------- --------------- --------------- Units, beginning of year 1,469,444 534,464 106,170 -- Units issued 690,357 1,438,001 615,014 107,375 Units redeemed (274,372) (503,021) (186,720) (1,205) -------------- --------------- --------------- --------------- Units, end of year 1,885,429 1,469,444 534,464 106,170 ============== =============== =============== =============== Unit value, end of period $ 13.15 to 19.59 17.74 to 17.89 15.42 to 15.49 13.84 to 13.86 Assets, end of period $ 36,590,362 26,189,118 8,261,844 1,470,676 Investment income ratio* 0.29% 0.00% 0.00% 0.00% Expense ratio, lowest to highest** 0.00% to 0.65% 0.30% to 0.65% 0.35% to 0.65% 0.40% to 0.65% Total return, lowest to highest*** 9.09% to 9.80% 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. 83 John Hancock Life Insurance Company (U.S.A.) Separate Account N Notes to Financial Statements (continued) 8. Financial Highlights
Sub-Account ------------------------------------------------------------ American Growth-Income Trust Series 1 ------------------------------------------------------------ Year Ended Year Ended Year Ended Year Ended Dec. 31/06 Dec. 31/05 Dec. 31/04 Dec. 31/03 + --------------- -------------- -------------- ------------ Units, beginning of year 168,096 114,971 3,474 -- Units issued 71,113 82,686 230,255 3,561 Units redeemed (75,076) (29,561) (118,758) (87) --------------- -------------- -------------- ------ Units, end of year 164,133 168,096 114,971 3,474 =============== ============== ============== ====== Unit value, end of period $ 12.61 to 18.60 16.14 to 16.26 15.41 to 15.47 14.10 Assets, end of period $ 3,009,500 2,725,094 1,775,824 48,990 Investment income ratio* 1.09% 0.45% 0.30% 0.00% Expense ratio, lowest to highest** 0.00% to 0.65% 0.35% to 0.65% 0.35% to 0.65% 0.65% Total return, lowest to highest*** 14.06% to 14.80% 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 Year Ended Year Ended Dec. 31/06 Dec. 31/05 Dec. 31/04 Dec. 31/03 + --------------- --------------- --------------- --------------- Units, beginning of year 705,780 94,988 7,859 -- Units issued 930,416 664,947 98,310 8,484 Units redeemed (243,039) (54,155) (11,181) (625) --------------- --------------- --------------- --------------- Units, end of year 1,393,157 705,780 94,988 7,859 =============== =============== =============== =============== Unit value, end of period $ 14.72 to 25.64 21.51 to 21.70 17.88 to 17.96 15.14 to 15.15 Assets, end of period $ 30,618,091 15,253,954 1,702,860 118,979 Investment income ratio* 0.71% 0.55% 0.43% 0.00% Expense ratio, lowest to highest** 0.00% to 0.65% 0.30% to 0.65% 0.35% to 0.65% 0.45% to 0.65% Total return, lowest to highest*** 17.77% to 18.54% 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. 84 John Hancock Life Insurance Company (U.S.A.) Separate Account N Notes to Financial Statements (continued) 8. Financial Highlights
Sub-Account ---------------- Blue Chip Growth Trust Series 0 ---------------- Year Ended Dec. 31/06 ++ ---------------- Units, beginning of year -- Units issued 11,788 Units redeemed (218) ------- Units, end of year 11,570 ======= Unit value, end of period $ 61.21 Assets, end of period $ 708,170 Investment income ratio* 0.00% Expense ratio, lowest to highest** 0.00% Total return, lowest to highest*** 9.59%
- -------- ++ Fund available in prior year but no activity.
Sub-Account ------------------------------------------------------------------------------------ Blue Chip Growth Trust Series 1 ------------------------------------------------------------------------------------ Year Ended Year Ended Year Ended Year Ended Year Ended Dec. 31/06 Dec. 31/05 Dec. 31/04 Dec. 31/03 Dec. 31/02 -------------- -------------- -------------- ---------------- ------------------ Units, beginning of year 1,450,904 1,667,853 2,092,515 1,902,374 1,996,442 Units issued 544,153 562,542 958,632 1,470,531 2,117,890 Units redeemed (911,716) (779,491) (1,383,294) (1,280,390) (2,211,958) -------------- -------------- -------------- ---------------- ------------------ Units, end of year 1,083,341 1,450,904 1,667,853 2,092,515 1,902,374 ============== ============== ============== ================ ================== Unit value, end of period $ 12.73 to 24.23 11.68 to 22.06 11.12 to 20.96 10.25 to 19.26 7.98 to 14.97 Assets, end of period $ 24,026,155 29,446,370 32,373,276 34,818,639 26,370,964 Investment income ratio* 0.21% 0.41% 0.11% 0.04% 0.00% Expense ratio, lowest to highest** 0.25% to 0.70% 0.35% to 0.70% 0.35% to 0.65% 0.40% to 0.65% 0.40% to 0.65% Total return, lowest to highest*** 8.82% to 9.30% 4.86% to 5.23% 8.33% to 8.65% 28.33% to 28.65% (24.75)% to (24.56)%
85 John Hancock Life Insurance Company (U.S.A.) Separate Account N Notes to Financial Statements (continued) 8. Financial Highlights Sub-Account ---------------- Bond Index Trust B Series 0 ---------------- Year Ended Dec. 31/06 ++ ---------------- Units, beginning of year -- Units issued 107,642 Units redeemed (4,584) --------- Units, end of year 103,058 ========= Unit value, end of period $ 15.89 Assets, end of period $ 1,637,785 Investment income ratio* 2.44% Expense ratio, lowest to highest** 0.00% Total return, lowest to highest*** 4.07% - -------- ++ Fund available in prior year but no activity. Sub-Account -------------------- Capital Appreciation Trust Series 0 -------------------- Year Ended Dec. 31/06 ++ -------------------- Units, beginning of year -- Units issued 8,767 Units redeemed (635) ------- Units, end of year 8,132 ======= Unit value, end of period $ 12.43 Assets, end of period $ 101,106 Investment income ratio* 0.00% Expense ratio, lowest to highest** 0.00% Total return, lowest to highest*** 2.38% - -------- ++ Fund available in prior year but no activity. 86 John Hancock Life Insurance Company (U.S.A.) Separate Account N Notes to Financial Statements (continued) 8. Financial Highlights
Sub-Account ------------------------------------------------------------------------------------ Capital Appreciation Trust Series 1 ------------------------------------------------------------------------------------ Year Ended Year Ended Year Ended Year Ended Year Ended Dec. 31/06 Dec. 31/05 Dec. 31/04 Dec. 31/03 Dec. 31/02 -------------- --------------- -------------- --------------- ------------------ Units, beginning of year 177,674 91,845 126,280 25,173 3,341 Units issued 782,997 129,375 65,459 111,005 67,713 Units redeemed (316,840) (43,546) (99,894) (9,898) (45,881) -------------- --------------- -------------- --------------- ------------------ Units, end of year 643,831 177,674 91,845 126,280 25,173 ============== =============== ============== =============== ================== Unit value, end of period $ 12.21 to 12.46 12.05 to 12.20 10.64 to 10.75 9.80 to 9.85 7.62 to 7.64 Assets, end of period $ 7,949,747 2,156,867 982,755 1,240,907 192,338 Investment income ratio* 0.00% 0.00% 0.00% 0.00% 0.00% Expense ratio, lowest to highest** 0.35% to 0.70% 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*** 1.56% to 1.90% 13.25% to 13.55% 8.61% to 8.88% 28.62% to 28.88% (31.07)% to (30.93)%
Sub-Account -------------- Classic Value Trust Series 0 -------------- Year Ended Dec. 31/06 ++ -------------- Units, beginning of year -- Units issued 54 Units redeemed (2) ----- Units, end of year 52 ===== Unit value, end of period $ 13.09 Assets, end of period $ 683 Investment income ratio* 2.93% Expense ratio, lowest to highest** 0.00% Total return, lowest to highest*** 16.14% - -------- ++ Fund available in prior year but no activity. 87 John Hancock Life Insurance Company (U.S.A.) Separate Account N Notes to Financial Statements (continued) 8. Financial Highlights Sub-Account ------------------------------- Classic Value Trust Series 1 ------------------------------- Year Ended Year Ended Dec. 31/06 Dec. 31/05 ++ --------------- -------------- Units, beginning of year 28,771 -- Units issued 45,105 30,518 Units redeemed (10,826) (1,747) --------------- -------------- Units, end of year 63,050 28,771 =============== ============== Unit value, end of period $ 17.36 to 17.45 15.06 to 15.11 Assets, end of period $ 1,098,196 433,522 Investment income ratio* 1.45% 3.55% Expense ratio, lowest to highest** 0.45% to 0.65% 0.45% to 0.65% Total return, lowest to highest*** 15.29% to 15.51% 8.72% to 8.92% - -------- ++ Fund available in prior year but no activity. Sub-Account ------------------------- Core Bond Trust Series 1 ------------------------- Year Ended Year Ended Dec. 31/06 Dec. 31/05 ^ ------------ ------------ Units, beginning of year 6 -- Units issued 22 6 Units redeemed (1) -- ----- ----- Units, end of year 27 6 ===== ===== Unit value, end of period $ 12.97 12.58 Assets, end of period $ 355 72 Investment income ratio* 2.15% 0.00% Expense ratio, lowest to highest** 0.65% 0.65% Total return, lowest to highest*** 3.13% 0.60% - -------- ^ Reflects the period from commencement of operations on May 2, 2005 through December 31, 2005. 88 John Hancock Life Insurance Company (U.S.A.) Separate Account N Notes to Financial Statements (continued) 8. Financial Highlights Sub-Account -------------- Core Equity Trust Series 0 -------------- Year Ended Dec. 31/06 ++ -------------- Units, beginning of year -- Units issued 544 Units redeemed (19) ----- Units, end of year 525 ===== Unit value, end of period $ 12.31 Assets, end of period $ 6,466 Investment income ratio* 0.00% Expense ratio, lowest to highest** 0.00% Total return, lowest to highest*** 6.73% - -------- ++ Fund available in prior year but no activity. Sub-Account ------------------------------ Core Equity Trust Series 1 ------------------------------ Year Ended Year Ended Dec. 31/06 Dec. 31/05 ++ -------------- -------------- Units, beginning of year 19,069 -- Units issued 30,049 25,690 Units redeemed (5,958) (6,621) -------------- -------------- Units, end of year 43,160 19,069 ============== ============== Unit value, end of period $ 15.81 to 15.89 14.91 to 14.96 Assets, end of period $ 683,107 284,444 Investment income ratio* 0.00% 0.00% Expense ratio, lowest to highest** 0.45% to 0.65% 0.45% to 0.65% Total return, lowest to highest*** 6.05% to 6.26% 5.22% to 5.42% - -------- ++ Fund available in prior year but no activity. 89 John Hancock Life Insurance Company (U.S.A.) Separate Account N Notes to Financial Statements (continued) 8. Financial Highlights Sub-Account -------------- Dynamic Growth Trust Series 0 -------------- Year Ended Dec. 31/06 ++ -------------- Units, beginning of year -- Units issued 2,331 Units redeemed (268) ------ Units, end of year 2,063 ====== Unit value, end of period $ 12.96 Assets, end of period $ 26,745 Investment income ratio* 0.00% Expense ratio, lowest to highest** 0.00% Total return, lowest to highest*** 10.83% - -------- ++ Fund available in prior year but no activity.
Sub-Account ------------------------------------------------------------------------------------ Dynamic Growth Trust Series 1 ------------------------------------------------------------------------------------ Year Ended Year Ended Year Ended Year Ended Year Ended Dec. 31/06 Dec. 31/05 Dec. 31/04 Dec. 31/03 Dec. 31/02 --------------- --------------- ------------- --------------- ------------------ Units, beginning of year 770,700 544,964 577,167 217,363 102,477 Units issued 940,197 518,036 670,334 707,581 235,862 Units redeemed (1,097,851) (292,300) (702,537) (347,777) (120,976) --------------- --------------- ------------- --------------- ------------------ Units, end of year 613,046 770,700 544,964 577,167 217,363 =============== =============== ============= =============== ================== Unit value, end of period $ 05.78 to 05.94 5.24 to 5.34 4.70 to 4.77 4.30 to 4.34 3.36 to 3.37 Assets, end of period $ 3,605,224 4,088,844 2,585,369 2,493,791 730,822 Investment income ratio* 0.00% 0.00% 0.00% 0.00% 0.00% Expense ratio, lowest to highest** 0.25% to 0.70% 0.35% to 0.70% 0.35% to 0.65% 0.40% to 0.65% 0.45% to 0.65% Total return, lowest to highest*** 10.25% to 10.76% 11.62% to 12.00% 9.29% to 9.62% 28.17% to 28.60% (28.83)% to (28.63)%
90 John Hancock Life Insurance Company (U.S.A.) Separate Account N Notes to Financial Statements (continued) 8. Financial Highlights
Sub-Account --------------- Emerging Growth Trust Series 0 --------------- Year Ended Dec. 31/06 ++ --------------- Units, beginning of year -- Units issued 49 Units redeemed (2) ----- Units, end of year 47 ===== Unit value, end of period $ 13.34 Assets, end of period $ 635 Investment income ratio* 0.00% Expense ratio, lowest to highest** 0.00% Total return, lowest to highest*** 11.59%
- -------- ++ Fund available in prior year but no activity.
Sub-Account ---------------------------------------------------------------- Emerging Growth Trust Series 1 ---------------------------------------------------------------- Year Ended Year Ended Year Ended Year Ended Dec. 31/06 Dec. 31/05 Dec. 31/04 Dec. 31/03 (a) --------------- -------------- -------------- --------------- Units, beginning of year 16,147 3,541 13,715 -- Units issued 23,611 32,098 27,399 15,745 Units redeemed (16,967) (19,492) (37,573) (2,030) --------------- -------------- -------------- --------------- Units, end of year 22,791 16,147 3,541 13,715 =============== ============== ============== =============== Unit value, end of period $ 20.51 to 20.74 18.50 to 18.60 17.29 to 17.35 16.29 to 16.31 Assets, end of period $ 470,425 300,058 61,397 223,380 Investment income ratio* 0.00% 0.00% 0.00% 0.00% Expense ratio, lowest to highest** 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*** 10.88% to 11.21% 6.96% to 7.17% 6.20% to 6.41% 30.28% to 30.45%
- -------- (a) Reflects the period from commencement of operations on May 5, 2003 through December 31, 2003. 91 John Hancock Life Insurance Company (U.S.A.) Separate Account N Notes to Financial Statements (continued) 8. Financial Highlights
Sub-Account ---------------------- Emerging Small Company Trust Series 0 ---------------------- Year Ended Dec. 31/06 ++ ---------------------- Units, beginning of year -- Units issued 11,516 Units redeemed (872) ------- Units, end of year 10,644 ======= Unit value, end of period $ 11.87 Assets, end of period $ 126,387 Investment income ratio* 0.00% Expense ratio, lowest to highest** 0.00% Total return, lowest to highest*** 2.44%
- -------- ++ Fund available in prior year but no activity.
Sub-Account ------------------------------------------------------------------------------------ Emerging Small Company Trust Series 1 ------------------------------------------------------------------------------------ Year Ended Year Ended Year Ended Year Ended Year Ended Dec. 31/06 Dec. 31/05 Dec. 31/04 Dec. 31/03 Dec. 31/02 -------------- -------------- --------------- --------------- ------------------ Units, beginning of year 669,785 687,402 911,363 1,056,757 1,065,694 Units issued 138,895 232,231 273,287 380,894 544,611 Units redeemed (288,504) (249,848) (497,248) (526,288) (553,548) -------------- -------------- --------------- --------------- ------------------ Units, end of year 520,176 669,785 687,402 911,363 1,056,757 ============== ============== =============== =============== ================== Unit value, end of period $ 13.50 to 93.33 13.25 to 91.13 12.69 to 86.85 11.44 to 78.03 8.23 to 56.84 Assets, end of period $ 40,696,420 50,949,308 50,607,293 51,002,629 41,741,461 Investment income ratio* 0.00% 0.00% 0.00% 0.00% 0.00% Expense ratio, lowest to highest** 0.25% to 0.70% 0.30% to 0.70% 0.35% to 0.65% 0.40% to 0.65% 0.40% to 0.65% Total return, lowest to highest*** 1.70% to 2.15% 4.31% to 4.73% 10.80% to 11.13% 38.83% to 39.17% (29.66)% to (29.49)%
92 John Hancock Life Insurance Company (U.S.A.) Separate Account N Notes to Financial Statements (continued) 8. Financial Highlights Sub-Account -------------- Equity-Income Trust Series 0 -------------- Year Ended Dec. 31/06 ++ -------------- Units, beginning of year -- Units issued 271,056 Units redeemed (32,255) --------- Units, end of year 238,801 ========= Unit value, end of period $ 29.30 Assets, end of period $ 6,996,068 Investment income ratio* 1.68% Expense ratio, lowest to highest** 0.00% Total return, lowest to highest*** 19.05%
Sub-Account ------------------------------------------------------------------------------------- Equity-Income Trust Series 1 ------------------------------------------------------------------------------------- Year Ended Year Ended Year Ended Year Ended Year Ended Dec. 31/06 Dec. 31/05 Dec. 31/04 Dec. 31/03 Dec. 31/02 --------------- -------------- --------------- --------------- ------------------ Units, beginning of year 1,578,724 1,646,238 1,460,643 1,339,589 840,766 Units issued 690,921 759,963 1,139,513 1,036,965 1,689,347 Units redeemed (877,917) (827,477) (953,918) (915,911) (1,190,524) --------------- -------------- --------------- --------------- ------------------ Units, end of year 1,391,728 1,578,724 1,646,238 1,460,643 1,339,589 =============== ============== =============== =============== ================== Unit value, end of period $ 20.31 to 28.11 17.15 to 23.56 16.60 to 22.75 14.54 to 19.85 11.64 to 15.87 Assets, end of period $ 37,693,322 36,227,178 36,760,871 27,301,230 20,927,060 Investment income ratio* 1.49% 1.25% 1.22% 1.44% 1.22% Expense ratio, lowest to highest** 0.25% to 0.70% 0.35% to 0.70% 0.35% to 0.65% 0.40% to 0.65% 0.40% to 0.65% Total return, lowest to highest*** 18.19% to 18.72% 3.20% to 3.56% 14.06% to 14.41% 24.76% to 25.07% (13.84)% to (13.63)%
93 John Hancock Life Insurance Company (U.S.A.) Separate Account N Notes to Financial Statements (continued) 8. Financial Highlights Sub-Account ------------------ Financial Services Trust Series 0 ------------------ Year Ended Dec. 31/06 ++ ------------------ Units, beginning of year -- Units issued 47 Units redeemed (2) ----- Units, end of year 45 ===== Unit value, end of period $ 22.83 Assets, end of period $ 1,024 Investment income ratio* 0.00% Expense ratio, lowest to highest** 0.00% Total return, lowest to highest*** 23.16% - -------- ++ Fund available in prior year but no activity.
Sub-Account ------------------------------------------------------------------------------------ Financial Services Trust Series 1 ------------------------------------------------------------------------------------ Year Ended Year Ended Year Ended Year Ended Year Ended Dec. 31/06 Dec. 31/05 Dec. 31/04 Dec. 31/03 Dec. 31/02 --------------- -------------- -------------- --------------- ------------------ Units, beginning of year 30,934 23,337 31,948 33,067 8,377 Units issued 119,009 17,012 39,967 13,233 42,607 Units redeemed (14,582) (9,415) (48,578) (14,352) (17,917) --------------- -------------- -------------- --------------- ------------------ Units, end of year 135,361 30,934 23,337 31,948 33,067 =============== ============== ============== =============== ================== Unit value, end of period $ 18.35 to 18.66 15.00 to 15.14 13.75 to 13.85 12.54 to 12.61 9.45 to 9.48 Assets, end of period $ 2,512,100 466,240 322,026 401,985 313,108 Investment income ratio* 0.22% 0.38% 0.37% 0.17% 0.00% Expense ratio, lowest to highest** 0.35% to 0.65% 0.45% to 0.65% 0.45% to 0.65% 0.45% to 0.65% 0.45% to 0.65% Total return, lowest to highest*** 22.32% to 22.69% 9.07% to 9.28 9.66% to 9.87 32.71% to 32.98% (18.41)% to (18.25)%
94 John Hancock Life Insurance Company (U.S.A.) Separate Account N Notes to Financial Statements (continued) 8. Financial Highlights
Sub-Account ----------------- Fundamental Value Trust Series 0 ----------------- Year Ended Dec. 31/06 ++ ----------------- Units, beginning of year -- Units issued 8,137 Units redeemed (161) ------- Units, end of year 7,976 ======= Unit value, end of period $ 12.68 Assets, end of period $ 101,153 Investment income ratio* 0.00% Expense ratio, lowest to highest** 0.00% Total return, lowest to highest*** 14.55%
- -------- ++ Fund available in prior year but no activity.
Sub-Account ------------------------------------------------------------------------------------- Fundamental Value Trust Series 1 ------------------------------------------------------------------------------------- Year Ended Year Ended Year Ended Year Ended Year Ended Dec. 31/06 Dec. 31/05 Dec. 31/04 Dec. 31/03 Dec. 31/02 --------------- -------------- --------------- --------------- ------------------ Units, beginning of year 194,312 168,396 93,865 33,158 21,338 Units issued 143,105 107,178 205,077 173,788 35,752 Units redeemed (78,997) (81,262) (130,546) (113,081) (23,932) --------------- -------------- --------------- --------------- ------------------ Units, end of year 258,420 194,312 168,396 93,865 33,158 =============== ============== =============== =============== ================== Unit value, end of period $ 17.14 to 17.49 15.06 to 15.28 13.93 to 14.08 12.54 to 12.61 9.72 to 9.75 Assets, end of period $ 4,461,137 2,943,943 2,356,047 1,179,257 322,506 Investment income ratio* 0.79% 0.42% 0.48% 0.18% 0.09% Expense ratio, lowest to highest** 0.30% to 0.65% 0.35% to 0.65% 0.35% to 0.65% 0.45% to 0.65% 0.45% to 0.65% Total return, lowest to highest*** 13.77% to 14.18% 8.14% to 8.46% 11.08% to 11.42% 28.99% to 29.25% (16.75)% to (16.58)%
95 John Hancock Life Insurance Company (U.S.A.) Separate Account N Notes to Financial Statements (continued) 8. Financial Highlights
Sub-Account ----------------- Global Allocation Trust Series 0 ----------------- Year Ended Dec. 31/06 ++ ----------------- Units, beginning of year -- Units issued 33 Units redeemed (1) ----- Units, end of year 32 ===== Unit value, end of period $ 12.31 Assets, end of period $ 388 Investment income ratio* 0.00% Expense ratio, lowest to highest** 0.00% Total return, lowest to highest*** 13.58%
- -------- ++ Fund available in prior year but no activity.
Sub-Account ------------------------------------------------------------------------------- Global Allocation Trust Series 1 ------------------------------------------------------------------------------- Year Ended Year Ended Year Ended Year Ended Year Ended Dec. 31/06 Dec. 31/05 Dec. 31/04 Dec. 31/03 Dec. 31/02 --------------- -------------- --------------- ---------- ------------------ Units, beginning of year 26,935 17,767 3,613 3,195 7,967 Units issued 223,082 51,578 66,928 844 23,360 Units redeemed (113,254) (42,410) (52,774) (426) (28,132) --------------- -------------- --------------- ------ ------------------ Units, end of year 136,763 26,935 17,767 3,613 3,195 =============== ============== =============== ====== ================== Unit value, end of period $ 13.24 to 13.48 11.74 to 11.92 11.13 to 11.22 9.94 7.91 to 7.94 Assets, end of period $ 1,826,871 316,420 197,769 35,900 25,278 Investment income ratio* 0.91% 0.65% 0.40% 0.48% 0.00% Expense ratio, lowest to highest** 0.35% to 0.65% 0.35% to 0.65% 0.45% to 0.65% 0.65% 0.45% to 0.65% Total return, lowest to highest*** 12.77% to 13.11% 5.51% to 5.84% 11.99% to 12.25% 25.61% (23.70)% to (23.55)%
96 John Hancock Life Insurance Company (U.S.A.) Separate Account N Notes to Financial Statements (continued) 8. Financial Highlights Sub-Account -------------- Global Bond Trust Series 0 -------------- Year Ended Dec. 31/06 ++ -------------- Units, beginning of year -- Units issued 179,125 Units redeemed (22,871) --------- Units, end of year 156,254 ========= Unit value, end of period $ 20.41 Assets, end of period $ 3,189,038 Investment income ratio* 0.00% Expense ratio, lowest to highest** 0.00% Total return, lowest to highest*** 5.27% - -------- ++ Fund available in prior year but no activity.
Sub-Account ----------------------------------------------------------------------------------- Global Bond Trust Series 1 ----------------------------------------------------------------------------------- Year Ended Year Ended Year Ended Year Ended Year Ended Dec. 31/06 Dec. 31/05 Dec. 31/04 Dec. 31/03 Dec. 31/02 -------------- ---------------- -------------- --------------- --------------- Units, beginning of year 283,511 218,132 196,659 297,639 118,128 Units issued 174,167 195,710 233,486 389,164 348,049 Units redeemed (194,405) (130,331) (212,013) (490,144) (168,538) -------------- ---------------- -------------- --------------- --------------- Units, end of year 263,273 283,511 218,132 196,659 297,639 ============== ================ ============== =============== =============== Unit value, end of period $ 18.20 to 19.56 17.39 to 18.59 18.71 to 19.96 17.06 to 18.14 14.87 to 15.77 Assets, end of period $ 5,088,466 5,234,432 4,323,117 3,463,203 4,596,803 Investment income ratio* 0.00% 4.26% 3.41% 4.35% 0.00% Expense ratio, lowest to highest** 0.30% to 0.70% 0.35% to 0.70% 0.35% to 0.65% 0.40% to 0.65% 0.45% to 0.65% Total return, lowest to highest*** 4.53% to 4.96% (7.19)% to (6.87)% 9.53% to 9.85% 14.65% to 14.94% 19.35% to 19.59%
97 John Hancock Life Insurance Company (U.S.A.) Separate Account N Notes to Financial Statements (continued) 8. Financial Highlights Sub-Account --------------------- Global Trust Series 0 --------------------- Year Ended Dec. 31/06 ++ --------------------- Units, beginning of year -- Units issued 7,736 Units redeemed (232) ------- Units, end of year 7,504 ======= Unit value, end of period $ 13.57 Assets, end of period $ 101,826 Investment income ratio* 0.00% Expense ratio, lowest to highest** 0.00% Total return, lowest to highest*** 20.42% - -------- ++ Fund available in prior year but no activity.
Sub-Account -------------------------------------------------------------------------------------- Global Trust Series 1 -------------------------------------------------------------------------------------- Year Ended Year Ended Year Ended Year Ended Year Ended Dec. 31/06 Dec. 31/05 Dec. 31/04 Dec. 31/03 Dec. 31/02 --------------- --------------- --------------- --------------- ------------------ Units, beginning of year 227,332 226,763 220,709 272,877 206,811 Units issued 148,216 88,843 178,596 315,226 360,226 Units redeemed (134,860) (88,274) (172,542) (367,394) (294,160) --------------- --------------- --------------- --------------- ------------------ Units, end of year 240,688 227,332 226,763 220,709 272,877 =============== =============== =============== =============== ================== Unit value, end of period $ 18.08 to 24.15 15.10 to 20.08 13.72 to 18.20 12.02 to 15.89 9.48 to 12.52 Assets, end of period $ 5,725,741 4,510,252 4,088,754 3,119,936 3,166,722 Investment income ratio* 1.27% 1.25% 1.76% 1.19% 1.15% Expense ratio, lowest to highest** 0.30% to 0.70% 0.35% to 0.70% 0.35% to 0.65% 0.40% to 0.65% 0.45% to 0.65% Total return, lowest to highest*** 19.49% to 19.96% 9.95% to 10.33% 14.01% to 14.35% 26.63% to 26.95% (19.63)% to (19.47)%
98 John Hancock Life Insurance Company (U.S.A.) Separate Account N Notes to Financial Statements (continued) 8. Financial Highlights Sub-Account --------------- Growth & Income Trust Series 0 --------------- Year Ended Dec. 31/06 ++ b --------------- Units, beginning of year -- Units issued 17,322 Units redeemed (359) --------- Units, end of year 16,963 ========= Unit value, end of period $ 78.98 Assets, end of period $ 1,339,825 Investment income ratio* 0.00% Expense ratio, lowest to highest** 0.00% Total return, lowest to highest*** 12.72% - -------- ++b Fund renamed on May 1, 2006. Previously known as Growth & Income Trust II. Fund available in prior year but no activity. Sub-Account --------------- Health Sciences Trust Series 0 --------------- Year Ended Dec. 31/06 ++ --------------- Units, beginning of year -- Units issued 146 Units redeemed (5) ----- Units, end of year 141 ===== Unit value, end of period $ 14.66 Assets, end of period $ 2,065 Investment income ratio* 0.00% Expense ratio, lowest to highest** 0.00% Total return, lowest to highest*** 8.44% - -------- ++ Fund available in prior year but no activity. 99 John Hancock Life Insurance Company (U.S.A.) Separate Account N Notes to Financial Statements (continued) 8. Financial Highlights
Sub-Account ------------------------------------------------------------------------------------- Health Sciences Trust Series 1 ------------------------------------------------------------------------------------- Year Ended Year Ended Year Ended Year Ended Year Ended Dec. 31/06 Dec. 31/05 Dec. 31/04 Dec. 31/03 Dec. 31/02 -------------- --------------- --------------- --------------- ------------------ Units, beginning of year 268,882 228,816 195,742 185,557 11,197 Units issued 210,936 114,558 312,678 257,208 260,559 Units redeemed (183,521) (74,492) (279,604) (247,023) (86,199) -------------- --------------- --------------- --------------- ------------------ Units, end of year 296,297 268,882 228,816 195,742 185,557 ============== =============== =============== =============== ================== Unit value, end of period $ 18.21 to 18.57 16.91 to 17.15 15.11 to 15.28 13.19 to 13.28 9.75 to 9.78 Assets, end of period $ 5,446,065 4,584,275 3,480,512 2,590,184 1,810,992 Investment income ratio* 0.00% 0.00% 0.00% 0.00% 0.00% Expense ratio, lowest to highest** 0.30% to 0.65% 0.35% to 0.65% 0.35% to 0.65% 0.40% to 0.65% 0.45% to 0.65% Total return, lowest to highest*** 7.67% to 8.05% 11.91% to 12.25% 14.57% to 14.91% 35.33% to 35.68% (27.71)% to (27.57)%
Sub-Account -------------- High Yield Trust Series 0 -------------- Year Ended Dec. 31/06 ++ -------------- Units, beginning of year -- Units issued 10,940 Units redeemed (622) ------- Units, end of year 10,318 ======= Unit value, end of period $ 12.82 Assets, end of period $ 132,294 Investment income ratio* 0.00% Expense ratio, lowest to highest** 0.00% Total return, lowest to highest*** 10.48% - -------- ++ Fund available in prior year but no activity. 100 John Hancock Life Insurance Company (U.S.A.) Separate Account N Notes to Financial Statements (continued) 8. Financial Highlights
Sub-Account ----------------------------------------------------------------------------------- High Yield Trust Series 1 ----------------------------------------------------------------------------------- Year Ended Year Ended Year Ended Year Ended Year Ended Dec. 31/06 Dec. 31/05 Dec. 31/04 Dec. 31/03 Dec. 31/02 -------------- -------------- --------------- --------------- ----------------- Units, beginning of year 1,025,251 747,358 699,961 536,644 395,816 Units issued 335,772 576,968 615,089 565,735 687,272 Units redeemed (738,819) (299,075) (567,692) (402,418) (546,444) -------------- -------------- --------------- --------------- ----------------- Units, end of year 622,204 1,025,251 747,358 699,961 536,644 ============== ============== =============== =============== ================= Unit value, end of period $ 15.50 to 18.69 14.12 to 16.99 13.69 to 16.40 12.40 to 14.80 10.02 to 11.94 Assets, end of period $ 11,149,819 16,898,635 11,862,447 9,989,519 6,211,875 Investment income ratio* 7.72% 5.03% 4.99% 4.84% 7.65% Expense ratio, lowest to highest** 0.30% to 0.70% 0.30% to 0.70% 0.35% to 0.65% 0.40% to 0.65% 0.40% to 0.65% Total return, lowest to highest*** 9.61% to 10.05% 2.98% to 3.39% 10.34% to 10.68% 23.65% to 23.94% (7.48)% to (7.23)%
Sub-Account -------------- Income & Value Trust Series 0 -------------- Year Ended Dec. 31/06 ++ -------------- Units, beginning of year -- Units issued 2,909 Units redeemed (54) ------ Units, end of year 2,855 ====== Unit value, end of period $ 11.80 Assets, end of period $ 33,687 Investment income ratio* 0.00% Expense ratio, lowest to highest** 0.00% Total return, lowest to highest*** 8.77% - -------- ++ Fund available in prior year but no activity. 101 John Hancock Life Insurance Company (U.S.A.) Separate Account N Notes to Financial Statements (continued) 8. Financial Highlights
Sub-Account -------------------------------------------------------------------------------- Income & Value Trust Series 1 -------------------------------------------------------------------------------- Year Ended Year Ended Year Ended Year Ended Year Ended Dec. 31/06 Dec. 31/05 Dec. 31/04 Dec. 31/03 Dec. 31/02 ------------- ------------- ------------- --------------- ------------------ Units, beginning of year 1,373,417 1,679,725 465,991 605,848 649,395 Units issued 143,883 211,726 2,010,940 357,985 747,671 Units redeemed (440,866) (518,034) (797,206) (497,842) (791,218) ------------- ------------- ------------- --------------- ------------------ Units, end of year 1,076,434 1,373,417 1,679,725 465,991 605,848 ============= ============= ============= =============== ================== Unit value, end of period $ 16.89 to 15.63 to 14.94 to 20.47 18.89 18.01 13.95 to 16.73 11.09 to 13.28 Assets, end of period $ 21,490,159 25,459,694 29,826,597 7,397,904 7,497,869 Investment income ratio* 2.10% 1.59% 0.53% 1.90% 2.11% Expense ratio, lowest to highest** 0.30% to 0.70% 0.30% to 0.70% 0.30% to 0.65% 0.40% to 0.65% 0.40% to 0.65% Total return, lowest to highest*** 7.90% to 8.33% 4.49% to 4.90% 6.94% to 7.33% 25.66% to 25.98% (16.48)% to (16.27)%
Sub-Account ------------------ International Core Trust Series 0 ------------------ Year Ended Dec. 31/06 ++ ~ ------------------ Units, beginning of year -- Units issued 474 Units redeemed (20) ----- Units, end of year 454 ===== Unit value, end of period $ 14.84 Assets, end of period $ 6,728 Investment income ratio* 0.00% Expense ratio, lowest to highest** 0.00% Total return, lowest to highest*** 24.81% - -------- ++~ Fund renamed on May 1, 2006. Previously known as International Stock Trust. Fund available in prior year but no activity. 102 John Hancock Life Insurance Company (U.S.A.) Separate Account N Notes to Financial Statements (continued) 8. Financial Highlights
Sub-Account -------------------------------------------------------------------------------------- International Core Trust Series 1 -------------------------------------------------------------------------------------- Year Ended Year Ended Year Ended Year Ended Year Ended Dec. 31/06 ~ Dec. 31/05 Dec. 31/04 Dec. 31/03 Dec. 31/02 --------------- --------------- --------------- --------------- ------------------ Units, beginning of year 934,920 1,016,696 1,106,364 1,306,287 1,135,448 Units issued 408,054 375,227 334,186 431,223 1,749,658 Units redeemed (829,309) (457,003) (423,854) (631,146) (1,578,819) --------------- --------------- --------------- --------------- ------------------ Units, end of year 513,665 934,920 1,016,696 1,106,364 1,306,287 =============== =============== =============== =============== ================== Unit value, end of period $ 15.30 to 19.01 12.33 to 15.29 10.69 to 13.23 9.30 to 11.47 7.18 to 8.84 Assets, end of period $ 9,619,429 14,186,941 13,368,772 12,549,025 11,319,824 Investment income ratio* 0.60% 0.74% 0.84% 0.49% 0.45% Expense ratio, lowest to highest** 0.35% to 0.70% 0.35% to 0.70% 0.35% to 0.65% 0.40% to 0.65% 0.40% to 0.65% Total return, lowest to highest*** 23.91% to 24.33% 15.14% to 15.55% 14.84% to 15.19% 29.43% to 29.75% (22.19)% to (22.00)%
- -------- ~ Fund renamed on May 1, 2006. Previously known as International Stock Trust.
Sub-Account ------------------------------------------------- International Equity Index Trust A Series 1 ------------------------------------------------- Year Ended Year Ended Year Ended Dec. 31/06 Dec. 31/05 (d) Dec. 31/04 ## --------------- --------------- --------------- Units, beginning of year 343,997 51,012 -- Units issued 167,620 392,254 103,970 Units redeemed (72,832) (99,269) (52,958) --------------- --------------- --------------- Units, end of year 438,785 343,997 51,012 =============== =============== =============== Unit value, end of period $ 21.27 to 21.49 17.07 to 17.18 14.74 to 14.77 Assets, end of period $ 9,394,587 5,895,407 752,181 Investment income ratio* 0.72% 0.79% 0.58% Expense ratio, lowest to highest** 0.30% to 0.70% 0.30% to 0.70% 0.35% to 0.65% Total return, lowest to highest*** 24.62% to 25.11% 15.80% to 16.26% 17.94% to 18.17%
- -------- (d) Fund renamed on May 2, 2005. Previously known as International Equity Index Fund. ## Reflects the period from commencement of operations on May 3, 2004 through December 31, 2004. 103 John Hancock Life Insurance Company (U.S.A.) Separate Account N Notes to Financial Statements (continued) 8. Financial Highlights Sub-Account -------------------------- International Equity Index Trust B Series 0 -------------------------- Year Ended Dec. 31/06 ++ -------------------------- Units, beginning of year -- Units issued 169,895 Units redeemed (164,981) -------- Units, end of year 4,914 ======== Unit value, end of period $ 41.18 Assets, end of period $ 202,332 Investment income ratio* 6.58% Expense ratio, lowest to highest** 0.00% Total return, lowest to highest*** 27.11% - -------- ++ Fund available in prior year but no activity. Sub-Account --------------------------- International Opportunities Trust Series 0 --------------------------- Year Ended Dec. 31/06 ++ --------------------------- Units, beginning of year -- Units issued 12,824 Units redeemed (341) ------- Units, end of year 12,483 ======= Unit value, end of period $ 15.41 Assets, end of period $ 192,374 Investment income ratio* 0.00% Expense ratio, lowest to highest** 0.00% Total return, lowest to highest*** 23.96% - -------- ++ Fund available in prior year but no activity. 104 John Hancock Life Insurance Company (U.S.A.) Separate Account N Notes to Financial Statements (continued) 8. Financial Highlights Sub-Account ----------------------------- International Opportunities Trust Series 1 ----------------------------- Year Ended Year Ended Dec. 31/06 Dec. 31/05 ^ --------------- ------------ Units, beginning of year 469 -- Units issued 204,132 1,745 Units redeemed (91,777) (1,276) --------------- ------ Units, end of year 112,824 469 =============== ====== Unit value, end of period $ 19.03 to 19.12 15.46 Assets, end of period $ 2,154,500 7,257 Investment income ratio* 0.25% 0.00% Expense ratio, lowest to highest** 0.35% to 0.65% 0.65% Total return, lowest to highest*** 23.04% to 23.40% 23.71% - -------- ^ Reflects the period from commencement of perations on May 2, 2005 through December 31, 2005. Sub-Account ----------------------- International Small Cap Trust Series 0 ----------------------- Year Ended Dec. 31/06 ++ ----------------------- Units, beginning of year -- Units issued 1,143 Units redeemed (28) ------ Units, end of year 1,115 ====== Unit value, end of period $ 14.27 Assets, end of period $ 15,913 Investment income ratio* 0.00% Expense ratio, lowest to highest** 0.00% Total return, lowest to highest*** 27.73% - -------- ++ Fund available in prior year but no activity. 105 John Hancock Life Insurance Company (U.S.A.) Separate Account N Notes to Financial Statements (continued) 8. Financial Highlights
Sub-Account ------------------------------------------------------------------------------------ International Small Cap Trust Series 1 ------------------------------------------------------------------------------------ Year Ended Year Ended Year Ended Year Ended Year Ended Dec. 31/06 Dec. 31/05 Dec. 31/04 Dec. 31/03 Dec. 31/02 --------------- ------------- --------------- --------------- ------------------ Units, beginning of year 242,913 254,360 261,096 345,552 215,989 Units issued 115,106 115,857 297,698 143,552 344,659 Units redeemed (95,619) (127,304) (304,434) (228,008) (215,096) --------------- ------------- --------------- --------------- ------------------ Units, end of year 262,400 242,913 254,360 261,096 345,552 =============== ============= =============== =============== ================== Unit value, end of period $ 13.00 to 16.52 to 26.77 21.03 11.88 to 19.17 9.86 to 15.86 6.40 to 10.28 Assets, end of period $ 6,853,600 4,994,547 4,744,645 3,409,121 2,893,046 Investment income ratio* 1.03% 0.86% 0.12% 0.00% 0.00% Expense ratio, lowest to highest** 0.35% to 0.70% 0.35% to 0.70% 0.35% to 0.65% 0.40% to 0.65% 0.45% to 0.65% Total return, lowest to highest*** 26.84% to 27.29% 9.34% to 9.72% 20.28% to 20.64% 53.94% to 54.34% (17.27)% to (17.10)%
Sub-Account ------------------- International Value Trust Series 0 ------------------- Year Ended Dec. 31/06 ++ ------------------- Units, beginning of year -- Units issued 157 Units redeemed (1) ----- Units, end of year 156 ===== Unit value, end of period $ 14.55 Assets, end of period $ 2,266 Investment income ratio* 0.00% Expense ratio, lowest to highest** 0.00% Total return, lowest to highest*** 29.61% - -------- ++ Fund available in prior year but no activity. 106 John Hancock Life Insurance Company (U.S.A.) Separate Account N Notes to Financial Statements (continued) 8. Financial Highlights
Sub-Account ------------------------------------------------------------------------------------- International Value Trust Series 1 ------------------------------------------------------------------------------------- Year Ended Year Ended Year Ended Year Ended Year Ended Dec. 31/06 Dec. 31/05 Dec. 31/04 Dec. 31/03 Dec. 31/02 --------------- -------------- --------------- --------------- ------------------ Units, beginning of year 1,151,161 534,492 451,530 225,236 200,221 Units issued 802,307 1,071,184 510,926 488,195 349,940 Units redeemed (670,988) (454,515) (427,964) (261,901) (324,925) --------------- -------------- --------------- --------------- ------------------ Units, end of year 1,282,480 1,151,161 534,492 451,530 225,236 =============== ============== =============== =============== ================== Unit value, end of period $ 21.49 to 22.42 16.70 to 17.40 15.24 to 15.83 12.62 to 13.09 8.77 to 9.09 Assets, end of period $ 28,081,796 19,488,615 8,198,182 5,780,317 1,978,346 Investment income ratio* 1.77% 0.66% 1.28% 0.67% 0.71% Expense ratio, lowest to highest** 0.25% to 0.70% 0.35% to 0.70% 0.35% to 0.65% 0.40% to 0.65% 0.40% to 0.65% Total return, lowest to highest*** 28.68% to 29.27% 9.78% to 10.15% 20.75% to 21.12% 43.91% to 44.28% (18.38)% to (18.16)%
Sub-Account ------------------------------------------------------------------------------ Investment Quality Bond Trust Series 1 ------------------------------------------------------------------------------ Year Ended Year Ended Year Ended Year Ended Year Ended Dec. 31/06 Dec. 31/05 Dec. 31/04 Dec. 31/03 Dec. 31/02 -------------- -------------- -------------- -------------- -------------- Units, beginning of year 956,608 1,132,045 1,159,780 1,475,664 1,255,012 Units issued 255,155 240,139 645,968 984,315 631,277 Units redeemed (794,516) (415,576) (673,703) (1,300,199) (410,625) -------------- -------------- -------------- -------------- -------------- Units, end of year 417,247 956,608 1,132,045 1,159,780 1,475,664 ============== ============== ============== ============== ============== Unit value, end of period $ 18.33 to 21.40 17.79 to 20.67 17.50 to 20.28 16.79 to 19.39 15.73 to 18.14 Assets, end of period $ 8,726,321 19,439,556 22,645,826 22,161,364 26,443,146 Investment income ratio* 7.56% 5.63% 5.96% 5.40% 5.06% Expense ratio, lowest to highest** 0.30% to 0.70% 0.35% to 0.70% 0.35% to 0.65% 0.40% to 0.65% 0.40% to 0.65% Total return, lowest to highest*** 2.84% to 3.26% 1.55% to 1.91% 4.13% to 4.45% 6.63% to 6.89% 9.22% to 9.50%
107 John Hancock Life Insurance Company (U.S.A.) Separate Account N Notes to Financial Statements (continued) 8. Financial Highlights
Sub-Account ------------------------------------------------------------------------------------- Large Cap Growth Trust Series 1 ------------------------------------------------------------------------------------- Year Ended Year Ended Year Ended Year Ended Year Ended Dec. 31/06 # Dec. 31/05 Dec. 31/04 Dec. 31/03 Dec. 31/02 -------------- ----------------- ------------- --------------- ------------------ Units, beginning of year 504,507 561,612 621,936 797,344 583,261 Units issued 57,622 180,956 613,074 486,197 655,691 Units redeemed (562,129) (238,061) (673,398) (661,605) (441,608) -------------- ----------------- ------------- --------------- ------------------ Units, end of year -- 504,507 561,612 621,936 797,344 ============== ================= ============= =============== ================== Unit value, end of period $ 09.67 to 13.75 9.46 to 13.41 9.49 to 13.42 8.99 to 12.67 7.21 to 10.15 Assets, end of period $ -- 6,534,293 7,321,297 7,142,200 7,640,972 Investment income ratio* 0.38% 0.70% 0.29% 0.28% 0.32% Expense ratio, lowest to highest** 0.30% to 0.70% 0.35% to 0.70% 0.35% to 0.65% 0.40% to 0.65% 0.40% to 0.65% Total return, lowest to highest*** 2.15% to 2.28% (0.45)% to (0.10)% 5.49% to 5.80% 24.51% to 24.82% (23.33)% to (23.14)%
- -------- # Terminated as an investment option and funds transferred to Capital Appreciation Trust on May 1, 2006. Sub-Account ------------- Large Cap Trust Series 0 ------------- Year Ended Dec. 31/06 ++ ------------- Units, beginning of year -- Units issued 66 Units redeemed (2) ----- Units, end of year 64 ===== Unit value, end of period $ 12.77 Assets, end of period $ 818 Investment income ratio* 0.00% Expense ratio, lowest to highest** 0.00% Total return, lowest to highest*** 14.38% - -------- ++ Fund available in prior year but no activity. 108 John Hancock Life Insurance Company (U.S.A.) Separate Account N Notes to Financial Statements (continued) 8. Financial Highlights Sub-Account ----------------------------- Large Cap Trust Series 1 ----------------------------- Year Ended Year Ended Dec. 31/06 Dec. 31/05 ^ --------------- ------------ Units, beginning of year 289 -- Units issued 2,142 304 Units redeemed (129) (15) --------------- ----- Units, end of year 2,302 289 =============== ===== Unit value, end of period $ 15.80 to 15.85 13.90 Assets, end of period $ 36,373 4,019 Investment income ratio* 0.27% 0.00% Expense ratio, lowest to highest** 0.45% to 0.65% 0.65% Total return, lowest to highest*** 13.62% to 13.85% 11.22% - -------- ^ Reflects the period from commencement of operations on May 2, 2005 through December 31, 2005. Sub-Account --------------- Large Cap Value Trust Series 0 --------------- Year Ended Dec. 31/06 ++ --------------- Units, beginning of year -- Units issued 251 Units redeemed -- ----- Units, end of year 251 ===== Unit value, end of period $ 13.43 Assets, end of period $ 3,364 Investment income ratio* 0.00% Expense ratio, lowest to highest** 0.00% Total return, lowest to highest*** 16.03% - -------- ++ Fund available in prior year but no activity. 109 John Hancock Life Insurance Company (U.S.A.) Separate Account N Notes to Financial Statements (continued) 8. Financial Highlights
Sub-Account ------------------------------------------------------------------ Large Cap Value Trust Series 1 ------------------------------------------------------------------ Year Ended Year Ended Year Ended Year Ended Dec. 31/06 Dec. 31/05 Dec. 31/04 Dec. 31/03 (a) --------------- --------------- --------------- --------------- Units, beginning of year 174,124 74,430 83,191 -- Units issued 186,497 144,010 156,448 83,839 Units redeemed (143,510) (44,316) (165,209) (648) --------------- --------------- --------------- --------------- Units, end of year 217,111 174,124 74,430 83,191 =============== =============== =============== =============== Unit value, end of period $ 25.41 to 25.69 22.06 to 22.24 19.23 to 19.32 15.89 to 15.91 Assets, end of period $ 5,565,112 3,866,266 1,435,901 1,322,947 Investment income ratio* 0.45% 0.00% 1.43% 0.00% Expense ratio, lowest to highest** 0.35% to 0.65% 0.35% to 0.65% 0.35% to 0.65% 0.40% to 0.65% Total return, lowest to highest*** 15.18% to 15.53% 14.74% to 15.08% 21.02% to 21.38% 27.11% to 27.32%
- -------- (a) Reflects the period from commencement of operations on May 5, 2003 through December 31, 2003. Sub-Account -------------------- Lifestyle Aggressive Trust Series 0 -------------------- Year Ended Dec. 31/06 ++ i -------------------- Units, beginning of year -- Units issued 579 Units redeemed (45) ----- Units, end of year 534 ===== Unit value, end of period $ 13.34 Assets, end of period $ 7,133 Investment income ratio* 0.00% Expense ratio, lowest to highest** 0.00% Total return, lowest to highest*** 15.48% - -------- ++i Fund renamed on May 1, 2006. Previously known as Lifestyle Aggressive 1000 Trust. Fund available in prior year but no activity. 110 John Hancock Life Insurance Company (U.S.A.) Separate Account N Notes to Financial Statements (continued) 8. Financial Highlights
Sub-Account ------------------------------------------------------------------------------------- Lifestyle Aggressive Trust Series 1 ------------------------------------------------------------------------------------- Year Ended Year Ended Year Ended Year Ended Year Ended Dec. 31/06 i Dec. 31/05 Dec. 31/04 Dec. 31/03 Dec. 31/02 --------------- -------------- --------------- --------------- ------------------ Units, beginning of year 316,430 305,615 73,758 38,262 47,093 Units issued 121,063 63,954 350,315 46,257 10,408 Units redeemed (89,427) (53,139) (118,458) (10,761) (19,239) --------------- -------------- --------------- --------------- ------------------ Units, end of year 348,066 316,430 305,615 73,758 38,262 =============== ============== =============== =============== ================== Unit value, end of period $ 16.82 to 21.44 14.65 to 18.58 13.31 to 16.86 11.53 to 14.53 8.60 to 10.82 Assets, end of period $ 7,319,039 5,802,326 5,093,275 1,038,282 412,158 Investment income ratio* 7.38% 1.79% 0.78% 0.35% 0.81% Expense ratio, lowest to highest** 0.30% to 0.65% 0.35% to 0.65% 0.35% to 0.65% 0.45% to 0.65% 0.45% to 0.65% Total return, lowest to highest*** 14.72% to 15.11% 9.92% to 10.25% 15.30% to 15.66% 34.04% to 34.31% (21.23)% to (21.06)%
- -------- i Fund renamed on May 1, 2006. Previously known as Lifestyle Aggressive 1000 Trust. Sub-Account ------------------ Lifestyle Balanced Trust Series 0 ------------------ Year Ended Dec. 31/06 ++ ii ------------------ Units, beginning of year -- Units issued 110,597 Units redeemed (2,748) --------- Units, end of year 107,849 ========= Unit value, end of period $ 12.37 Assets, end of period $ 1,334,204 Investment income ratio* 0.11% Expense ratio, lowest to highest** 0.00% Total return, lowest to highest*** 12.80% - -------- ++ii Fund renamed on May 1, 2006. Previously known as Lifestyle Balanced 640 Trust. Fund available in prior year but no activity. 111 John Hancock Life Insurance Company (U.S.A.) Separate Account N Notes to Financial Statements (continued) 8. Financial Highlights
Sub-Account ------------------------------------------------------------------------------------- Lifestyle Balanced Trust Series 1 ------------------------------------------------------------------------------------- Year Ended Year Ended Year Ended Year Ended Year Ended Dec. 31/06 ii Dec. 31/05 Dec. 31/04 Dec. 31/03 Dec. 31/02 --------------- -------------- --------------- --------------- ------------------ Units, beginning of year 934,585 914,120 805,068 549,847 385,225 Units issued 245,346 282,338 639,365 354,757 502,066 Units redeemed (486,216) (261,873) (530,313) (99,536) (337,444) --------------- -------------- --------------- --------------- ------------------ Units, end of year 693,715 934,585 914,120 805,068 549,847 =============== ============== =============== =============== ================== Unit value, end of period $ 18.61 to 23.96 16.60 to 21.26 15.62 to 19.96 13.84 to 17.62 11.22 to 14.27 Assets, end of period $ 16,303,510 19,581,681 18,039,138 13,798,701 7,802,640 Investment income ratio* 5.76% 3.96% 2.05% 2.30% 3.49% Expense ratio, lowest to highest** 0.30% to 0.65% 0.35% to 0.65% 0.35% to 0.65% 0.40% to 0.65% 0.40% to 0.65% Total return, lowest to highest*** 12.01% to 12.39% 6.20% to 6.51% 12.75% to 13.09% 23.17% to 23.48% (10.53)% to (10.32)%
- -------- ii Fund renamed on May 1, 2006. Previously known as Lifestyle Balanced 640 Trust. Sub-Account ---------------------- Lifestyle Conservative Trust series 0 ---------------------- Year Ended Dec. 31/06 ++ iii ---------------------- Units, beginning of year -- Units issued 115 Units redeemed (1) ----- Units, end of year 114 ===== Unit value, end of period $ 11.21 Assets, end of period $ 1,287 Investment income ratio* 1.13% Expense ratio, lowest to highest** 0.00% Total return, lowest to highest*** 8.44% - -------- ++iii Fund renamed on May 1, 2006. Previously known as Lifestyle Conservative 280 Trust. Fund available in prior year but no activity. 112 John Hancock Life Insurance Company (U.S.A.) Separate Account N Notes to Financial Statements (continued) 8. Financial Highlights
Sub-Account ------------------------------------------------------------------------------- Lifestyle Conservative Trust Series 1 ------------------------------------------------------------------------------- Year Ended Year Ended Year Ended Year Ended Year Ended Dec. 31/06 iii Dec. 31/05 Dec. 31/04 Dec. 31/03 Dec. 31/02 -------------- -------------- -------------- --------------- -------------- Units, beginning of year 284,921 268,947 268,987 198,190 220,989 Units issued 66,508 55,265 280,449 176,092 177,049 Units redeemed (295,840) (39,291) (280,489) (105,295) (199,848) -------------- -------------- -------------- --------------- -------------- Units, end of year 55,589 284,921 268,947 268,987 198,190 ============== ============== ============== =============== ============== Unit value, end of period $ 18.47 to 23.07 17.13 to 21.23 16.74 to 20.76 15.50 to 19.16 13.97 to 17.22 Assets, end of period $ 1,239,063 5,962,323 5,504,364 5,025,582 3,398,476 Investment income ratio* 6.17% 5.00% 3.76% 3.54% 3.26% Expense ratio, lowest to highest** 0.30% to 0.65% 0.40% to 0.65% 0.35% to 0.65% 0.40% to 0.65% 0.45% to 0.65% Total return, lowest to highest*** 7.73% to 8.11% 2.22% to 2.48% 7.88% to 8.21% 10.83% to 11.10% 1.06% to 1.26%
- -------- iii Fund renamed on May 1, 2006. Previously known as Lifestyle Conservative 280 Trust. Sub-Account ---------------- Lifestyle Growth Trust Series 0 ---------------- Year Ended Dec. 31/06 ++ iv ---------------- Units, beginning of year -- Units issued 118,278 Units redeemed (4,308) --------- Units, end of year 113,970 ========= Unit value, end of period $ 12.79 Assets, end of period $ 1,457,877 Investment income ratio* 0.08% Expense ratio, lowest to highest** 0.00% Total return, lowest to highest*** 13.58% - -------- ++iv Fund renamed on May 1, 2006. Previously known as Lifestyle Growth 820 Trust. Fund available in prior year but no activity. 113 John Hancock Life Insurance Company (U.S.A.) Separate Account N Notes to Financial Statements (continued) 8. Financial Highlights
Sub-Account ------------------------------------------------------------------------------------- Lifestyle Growth Trust Series 1 ------------------------------------------------------------------------------------- Year Ended Year Ended Year Ended Year Ended Year Ended Dec. 31/06 iv Dec. 31/05 Dec. 31/04 Dec. 31/03 Dec. 31/02 --------------- -------------- --------------- --------------- ------------------ Units, beginning of year 416,491 417,608 178,824 93,184 87,349 Units issued 158,281 130,964 368,911 120,911 76,636 Units redeemed (67,666) (132,081) (130,127) (35,271) (70,801) --------------- -------------- --------------- --------------- ------------------ Units, end of year 507,106 416,491 417,608 178,824 93,184 =============== ============== =============== =============== ================== Unit value, end of period $ 17.42 to 22.91 15.44 to 20.26 14.28 to 18.71 12.53 to 16.33 9.73 to 12.66 Assets, end of period $ 11,424,780 8,315,803 7,721,710 2,875,199 1,173,670 Investment income ratio* 5.75% 2.70% 1.39% 1.02% 2.04% Expense ratio, lowest to highest** 0.35% to 0.65% 0.35% to 0.65% 0.35% to 0.65% 0.45% to 0.65% 0.45% to 0.65% Total return, lowest to highest*** 12.76% to 13.11% 7.96% to 8.28% 13.85% to 14.19% 28.70% to 28.97% (16.39)% to (16.22)%
- -------- iv Fund renamed on May 1, 2006. Previously known as Lifestyle Growth 820 Trust. Sub-Account ------------------ Lifestyle Moderate Trust Series 0 ------------------ Year Ended Dec. 31/06 ++ v ------------------ Units, beginning of year -- Units issued 1,056 Units redeemed (24) ------ Units, end of year 1,032 ====== Unit value, end of period $ 11.71 Assets, end of period $ 12,083 Investment income ratio* 0.42% Expense ratio, lowest to highest** 0.00% Total return, lowest to highest*** 10.49% - -------- ++v Fund renamed on May 1, 2006. Previously known as Lifestyle Moderate 460 Trust. Fund available in prior year but no activity. 114 John Hancock Life Insurance Company (U.S.A.) Separate Account N Notes to Financial Statements (continued) 8. Financial Highlights
Sub-Account ---------------------------------------------------------------------------------- Lifestyle Moderate Trust Series 1 ---------------------------------------------------------------------------------- Year Ended Year Ended Year Ended Year Ended Year Ended Dec. 31/06 v Dec. 31/05 Dec. 31/04 Dec. 31/03 Dec. 31/02 -------------- -------------- --------------- --------------- ---------------- Units, beginning of year 143,857 170,770 105,262 58,209 53,694 Units issued 158,656 66,570 170,447 136,503 41,924 Units redeemed (164,848) (93,483) (104,939) (89,450) (37,409) -------------- -------------- --------------- --------------- ---------------- Units, end of year 137,665 143,857 170,770 105,262 58,209 ============== ============== =============== =============== ================ Unit value, end of period $ 18.23 to 23.42 16.60 to 21.22 16.03 to 20.45 14.51 to 18.45 12.39 to 15.71 Assets, end of period $ 3,158,679 3,008,972 3,447,752 1,819,243 904,445 Investment income ratio* 3.83% 4.03% 2.62% 2.75% 2.98% Expense ratio, lowest to highest** 0.30% to 0.65% 0.35% to 0.65% 0.35% to 0.65% 0.40% to 0.65% 0.45% to 0.65% Total return, lowest to highest*** 9.70% to 10.09% 3.48% to 3.79% 10.32% to 10.65% 17.06% to 17.35% (4.66)% to (4.47)%
- -------- v Fund renamed on May 1, 2006. Previously known as Lifestyle Moderate 460 Trust. Sub-Account -------------- Managed Trust Series 0 -------------- Year Ended Dec. 31/06 ++ -------------- Units, beginning of year -- Units issued 14,325 Units redeemed (13,252) ------- Units, end of year 1,073 ======= Unit value, end of period $ 56.17 Assets, end of period $ 60,233 Investment income ratio* 10.94% Expense ratio, lowest to highest** 0.00% Total return, lowest to highest*** 7.48% - -------- ++ Fund available in prior year but no activity. 115 John Hancock Life Insurance Company (U.S.A.) Separate Account N Notes to Financial Statements (continued) 8. Financial Highlights Sub-Account --------------- Mid Cap Core Trust Series 0 --------------- Year Ended Dec. 31/06 ++ x --------------- Units, beginning of year -- Units issued 23 Units redeemed (23) ----- Units, end of year -- ===== Unit value, end of period $ 11.84 Assets, end of period $ -- Investment income ratio* 4.98% Expense ratio, lowest to highest** 0.00% Total return, lowest to highest*** 9.05% - -------- ++x Terminated as an investment option and funds transferred to Mid Cap Index Trust on Dec. 4, 2006. Fund available in prior year but no activity.
Sub-Account ---------------------------------------------------------------- Mid Cap Core Trust Series 1 ---------------------------------------------------------------- Year Ended Year Ended Year Ended Year Ended Dec. 31/06 x Dec. 31/05 Dec. 31/04 Dec. 31/03 (a) -------------- -------------- --------------- --------------- Units, beginning of year 45,218 33,843 3,038 -- Units issued 121,723 90,564 61,571 5,520 Units redeemed (166,941) (79,189) (30,766) (2,482) -------------- -------------- --------------- --------------- Units, end of year -- 45,218 33,843 3,038 ============== ============== =============== =============== Unit value, end of period $ 19.80 to 20.01 18.28 to 18.42 17.33 to 17.40 15.26 to 15.27 Assets, end of period $ -- 829,349 587,434 46,343 Investment income ratio* 1.54% 0.00% 0.00% 0.00% Expense ratio, lowest to highest** 0.35% to 0.65% 0.35% to 0.65% 0.40% to 0.65% 0.45% to 0.65% Total return, lowest to highest*** 8.32% to 8.62% 5.50% to 5.81% 13.57% to 13.85% 22.04% to 22.19%
- -------- x Terminated as an investment option and funds transferred to Mid Cap Index Trust on December 4, 2006. (a) Reflects the period from commencement of operations on May 5, 2003 through December 31, 2003. 116 John Hancock Life Insurance Company (U.S.A.) Separate Account N Notes to Financial Statements (continued) 8. Financial Highlights Sub-Account -------------- Mid Cap Index Trust Series 0 -------------- Year Ended Dec. 31/06 ++ -------------- Units, beginning of year -- Units issued 25,693 Units redeemed (656) ------- Units, end of year 25,037 ======= Unit value, end of period $ 13.97 Assets, end of period $ 349,681 Investment income ratio* 0.00% Expense ratio, lowest to highest** 0.00% Total return, lowest to highest*** 9.74% - -------- ++ Fund available in prior year but no activity.
Sub-Account ------------------------------------------------------------------------------------- Mid Cap Index Trust Series 1 ------------------------------------------------------------------------------------- Year Ended Year Ended Year Ended Year Ended Year Ended Dec. 31/06 Dec. 31/05 Dec. 31/04 Dec. 31/03 Dec. 31/02 -------------- --------------- --------------- --------------- ------------------ Units, beginning of year 329,426 411,020 253,416 151,140 80,845 Units issued 210,019 329,260 459,051 275,299 140,757 Units redeemed (224,165) (410,854) (301,447) (173,023) (70,462) -------------- --------------- --------------- --------------- ------------------ Units, end of year 315,280 329,426 411,020 253,416 151,140 ============== =============== =============== =============== ================== Unit value, end of period $ 20.42 to 20.92 18.74 to 19.08 16.88 to 17.09 14.67 to 14.78 10.97 to 11.02 Assets, end of period $ 6,517,466 6,231,380 6,984,470 3,729,877 1,659,979 Investment income ratio* 0.63% 0.76% 0.34% 0.00% 0.67% Expense ratio, lowest to highest** 0.30% to 0.70% 0.35% to 0.70% 0.35% to 0.65% 0.40% to 0.65% 0.45% to 0.65% Total return, lowest to highest*** 8.95% to 9.39% 11.24% to 11.63% 15.08% to 15.43% 33.70% to 34.03% (15.71)% to (15.54)%
117 John Hancock Life Insurance Company (U.S.A.) Separate Account N Notes to Financial Statements (continued) 8. Financial Highlights Sub-Account -------------- Mid Cap Stock Trust Series 0 -------------- Year Ended Dec. 31/06 ++ -------------- Units, beginning of year -- Units issued 3,810 Units redeemed (313) ------- Units, end of year 3,497 ======= Unit value, end of period $ 39.87 Assets, end of period $ 139,406 Investment income ratio* 0.00% Expense ratio, lowest to highest** 0.00% Total return, lowest to highest*** 13.66% - -------- ++ Fund available in prior year but no activity.
Sub-Account -------------------------------------------------------------------------------------- Mid Cap Stock Trust Series 1 -------------------------------------------------------------------------------------- Year Ended Year Ended Year Ended Year Ended Year Ended Dec. 31/06 Dec. 31/05 Dec. 31/04 Dec. 31/03 Dec. 31/02 --------------- --------------- --------------- --------------- ------------------ Units, beginning of year 842,918 1,191,214 439,064 157,865 72,047 Units issued 429,518 832,322 1,709,693 463,180 226,721 Units redeemed (525,614) (1,180,618) (957,543) (181,981) (140,903) --------------- --------------- --------------- --------------- ------------------ Units, end of year 746,822 842,918 1,191,214 439,064 157,865 =============== =============== =============== =============== ================== Unit value, end of period $ 17.44 to 18.58 15.46 to 16.45 13.62 to 14.44 11.52 to 12.20 8.14 to 8.62 Assets, end of period $ 13,282,114 13,361,473 16,362,126 5,169,749 1,286,585 Investment income ratio* 0.00% 0.00% 0.00% 0.00% 0.00% Expense ratio, lowest to highest** 0.30% to 0.70% 0.30% to 0.70% 0.30% to 0.65% 0.40% to 0.65% 0.40% to 0.65% Total return, lowest to highest*** 12.75% to 13.21% 13.77% to 14.23% 18.26% to 18.68% 41.41% to 41.76% (23.07)% to (22.87)%
118 John Hancock Life Insurance Company (U.S.A.) Separate Account N Notes to Financial Statements (continued) 8. Financial Highlights Sub-Account -------------- Mid Cap Value Trust Series 0 -------------- Year Ended Dec. 31/06 ++ -------------- Units, beginning of year -- Units issued 8,649 Units redeemed (726) ------- Units, end of year 7,923 ======= Unit value, end of period $ 12.67 Assets, end of period $ 100,380 Investment income ratio* 0.00% Expense ratio, lowest to highest** 0.00% Total return, lowest to highest*** 12.30% - -------- ++ Fund available in prior year but no activity.
Sub-Account ------------------------------------------------------------------------------------- Mid Cap Value Trust Series 1 ------------------------------------------------------------------------------------- Year Ended Year Ended Year Ended Year Ended Year Ended Dec. 31/06 Dec. 31/05 Dec. 31/04 Dec. 31/03 Dec. 31/02 --------------- -------------- --------------- --------------- ------------------ Units, beginning of year 1,656,848 753,501 445,032 376,737 10,285 Units issued 665,474 1,329,000 675,227 383,482 701,062 Units redeemed (869,531) (425,653) (366,758) (315,187) (334,610) --------------- -------------- --------------- --------------- ------------------ Units, end of year 1,452,791 1,656,848 753,501 445,032 376,737 =============== ============== =============== =============== ================== Unit value, end of period $ 21.46 to 21.94 19.24 to 19.55 17.93 to 18.12 14.50 to 14.59 11.64 to 11.68 Assets, end of period $ 31,558,117 32,162,303 13,585,575 6,473,940 4,392,977 Investment income ratio* 0.69% 0.38% 0.49% 0.36% 0.00% Expense ratio, lowest to highest** 0.25% to 0.65% 0.30% to 0.65% 0.35% to 0.65% 0.40% to 0.65% 0.45% to 0.65% Total return, lowest to highest*** 11.55% to 12.00% 7.31% to 7.68% 23.65% to 24.03% 24.54% to 24.86% (10.68)% to (10.51)%
119 John Hancock Life Insurance Company (U.S.A.) Separate Account N Notes to Financial Statements (continued) 8. Financial Highlights Sub-Account -------------- Mid Value Trust Series 0 -------------- Year Ended Dec. 31/06 ++ -------------- Units, beginning of year -- Units issued 46,901 Units redeemed (2,932) ------- Units, end of year 43,969 ======= Unit value, end of period $ 21.60 Assets, end of period $ 949,770 Investment income ratio* 0.00% Expense ratio, lowest to highest** 0.00% Total return, lowest to highest*** 20.34% - -------- ++ Fund available in prior year but no activity. Sub-Account ---------------- Money Market Trust B Series 0 ---------------- Year Ended Dec. 31/06 ++ ---------------- Units, beginning of year -- Units issued 705,113 Units redeemed (275,144) --------- Units, end of year 429,969 ========= Unit value, end of period $ 16.12 Assets, end of period $ 6,933,060 Investment income ratio* 4.82% Expense ratio, lowest to highest** 0.00% Total return, lowest to highest*** 4.70% - -------- ++ Fund available in prior year but no activity. 120 John Hancock Life Insurance Company (U.S.A.) Separate Account N Notes to Financial Statements (continued) 8. Financial Highlights
Sub-Account ------------------------------------------------------------------------------- Money Market Trust Series 1 ------------------------------------------------------------------------------- Year Ended Year Ended Year Ended Year Ended Year Ended Dec. 31/06 Dec. 31/05 Dec. 31/04 Dec. 31/03 Dec. 31/02 -------------- -------------- -------------- --------------- -------------- Units, beginning of year 2,786,033 2,174,205 2,120,159 2,245,118 2,216,771 Units issued 4,547,755 2,639,719 2,342,246 2,995,349 3,641,306 Units redeemed (2,950,639) (2,027,891) (2,288,200) (3,120,308) (3,612,959) -------------- -------------- -------------- --------------- -------------- Units, end of year 4,383,149 2,786,033 2,174,205 2,120,159 2,245,118 ============== ============== ============== =============== ============== Unit value, end of period $ 14.58 to 20.58 14.04 to 19.65 13.75 to 19.21 13.71 to 19.09 13.71 to 19.06 Assets, end of period $ 86,696,310 52,697,960 40,361,843 38,888,983 41,461,920 Investment income ratio* 4.40% 2.66% 0.81% 0.58% 1.18% Expense ratio, lowest to highest** 0.25% to 0.70% 0.35% to 0.70% 0.35% to 0.65% 0.40% to 0.65% 0.40% to 0.65% Total return, lowest to highest*** 3.70% to 4.17% 1.95% to 2.31% 0.15% to 0.46% (0.07)% to 0.17% 0.53% to 0.77%
Sub-Account ----------------- Natural Resources Trust Series 0 ----------------- Year Ended Dec. 31/06 ++ ----------------- Units, beginning of year -- Units issued 236 Units redeemed (8) ----- Units, end of year 228 ===== Unit value, end of period $ 16.92 Assets, end of period $ 3,857 Investment income ratio* 0.00% Expense ratio, lowest to highest** 0.00% Total return, lowest to highest*** 22.32% - -------- ++ Fund available in prior year but no activity. 121 John Hancock Life Insurance Company (U.S.A.) Separate Account N Notes to Financial Statements (continued) 8. Financial Highlights
Sub-Account ------------------------------------------------------------------ Natural Resources Trust Series 1 ------------------------------------------------------------------ Year Ended Year Ended Year Ended Year Ended Dec. 31/06 Dec. 31/05 Dec. 31/04 Dec. 31/03 (a) --------------- --------------- --------------- --------------- Units, beginning of year 161,459 88,358 62,308 -- Units issued 253,308 197,987 108,859 66,429 Units redeemed (238,279) (124,886) (82,809) (4,121) --------------- --------------- --------------- --------------- Units, end of year 176,488 161,459 88,358 62,308 =============== =============== =============== =============== Unit value, end of period $ 39.22 to 39.65 32.28 to 32.54 22.14 to 22.24 17.92 to 17.95 Assets, end of period $ 6,971,550 5,420,454 1,963,833 1,117,564 Investment income ratio* 0.50% 0.00% 0.07% 0.00% Expense ratio, lowest to highest** 0.35% to 0.65% 0.35% to 0.65% 0.35% to 0.65% 0.40% to 0.65% Total return, lowest to highest*** 21.50% to 21.87% 45.82% to 46.26% 23.51% to 23.88% 43.39% to 43.63%
- -------- (a) Reflects the period from commencement of operations on May 5, 2003 through December 31, 2003. Sub-Account --------------- Overseas Equity Trust Series 0 --------------- Year Ended Dec. 31/06 ++ --------------- Units, beginning of year -- Units issued 66,602 Units redeemed (1,120) --------- Units, end of year 65,482 ========= Unit value, end of period $ 19.04 Assets, end of period $ 1,246,990 Investment income ratio* 0.00% Expense ratio, lowest to highest** 0.00% Total return, lowest to highest*** 19.76% - -------- ++ Fund available in prior year but no activity. 122 John Hancock Life Insurance Company (U.S.A.) Separate Account N Notes to Financial Statements (continued) 8. Financial Highlights Sub-Account -------------- Pacific Rim Trust Series 0 -------------- Year Ended Dec. 31/06 ++ -------------- Units, beginning of year -- Units issued 146 Units redeemed (5) ----- Units, end of year 141 ===== Unit value, end of period $ 14.10 Assets, end of period $ 1,981 Investment income ratio* 0.00% Expense ratio, lowest to highest** 0.00% Total return, lowest to highest*** 11.22% - -------- ++ Fund available in prior year but no activity.
Sub-Account -------------------------------------------------------------------------------------- Pacific Rim Trust Series 1 -------------------------------------------------------------------------------------- Year Ended Year Ended Year Ended Year Ended Year Ended Dec. 31/06 Dec. 31/05 Dec. 31/04 Dec. 31/03 Dec. 31/02 --------------- --------------- --------------- --------------- ------------------ Units, beginning of year 562,685 592,545 487,239 500,442 569,972 Units issued 604,396 242,075 502,648 494,143 429,620 Units redeemed (489,879) (271,935) (397,342) (507,346) (499,150) --------------- --------------- --------------- --------------- ------------------ Units, end of year 677,202 562,685 592,545 487,239 500,442 =============== =============== =============== =============== ================== Unit value, end of period $ 13.46 to 16.58 12.20 to 15.01 9.79 to 9.91 8.43 to 10.32 6.03 to 7.38 Assets, end of period $ 9,231,358 6,929,233 5,836,323 4,250,322 3,100,984 Investment income ratio* 0.90% 0.86% 0.65% 0.19% 0.12% Expense ratio, lowest to highest** 0.30% to 0.70% 0.35% to 0.70% 0.35% to 0.65% 0.40% to 0.65% 0.45% to 0.65% Total return, lowest to highest*** 10.27% to 10.71% 24.89% to 25.32% 16.14% to 16.50% 39.81% to 40.16% (13.09)% to (12.92)%
123 John Hancock Life Insurance Company (U.S.A.) Separate Account N Notes to Financial Statements (continued) 8. Financial Highlights Sub-Account -------------------- Quantitative All Cap Trust Series 0 -------------------- Year Ended Dec. 31/06 ++ -------------------- Units, beginning of year -- Units issued 160 Units redeemed (6) ----- Units, end of year 154 ===== Unit value, end of period $ 13.22 Assets, end of period $ 2,045 Investment income ratio* 3.01% Expense ratio, lowest to highest** 0.00% Total return, lowest to highest*** 15.24% ++ Fund available in prior year but no activity.
Sub-Account ------------------------------------------------ Quantitative All Cap Trust Series 1 ------------------------------------------------ Year Ended Year Ended Year Ended Dec. 31/06 Dec. 31/05 Dec. 31/04 ## --------------- -------------- --------------- Units, beginning of year 1,712 164 -- Units issued 34,598 3,081 1,784 Units redeemed (36,260) (1,533) (1,620) --------------- -------------- --------------- Units, end of year 50 1,712 164 =============== ============== =============== Unit value, end of period $ 21.84 to 21.99 19.08 to 19.18 17.69 to 17.75 Assets, end of period $ 1,093 32,673 2,916 Investment income ratio* 0.01% 3.08% 1.30% Expense ratio, lowest to highest** 0.45% to 0.65% 0.45% to 0.65% 0.45% to 0.65% Total return, lowest to highest*** 14.42% to 14.65% 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. 124 John Hancock Life Insurance Company (U.S.A.) Separate Account N Notes to Financial Statements (continued) 8. Financial Highlights Sub-Account -------------------- Quantitative Mid Cap Trust Series 0 -------------------- Year Ended Dec. 31/06 ++ -------------------- Units, beginning of year -- Units issued 73 Units redeemed (3) ----- Units, end of year 70 ===== Unit value, end of period $ 12.17 Assets, end of period $ 860 Investment income ratio* 0.00% Expense ratio, lowest to highest** 0.00% Total return, lowest to highest*** 4.10% - -------- ++ Fund available in prior year but no activity.
Sub-Account ------------------------------------------------------------------------------------- Quantitative Mid Cap Trust Series 1 ------------------------------------------------------------------------------------- Year Ended Year Ended Year Ended Year Ended Year Ended Dec. 31/06 Dec. 31/05 Dec. 31/04 Dec. 31/03 Dec. 31/02 ++ -------------- --------------- --------------- --------------- ------------------ Units, beginning of year 34,103 31,203 14,437 1,039 -- Units issued 30,835 9,698 41,021 27,939 6,248 Units redeemed (32,767) (6,798) (24,255) (14,541) (5,209) -------------- --------------- --------------- --------------- ------------------ Units, end of year 32,171 34,103 31,203 14,437 1,039 ============== =============== =============== =============== ================== Unit value, end of period $ 14.73 to 15.02 14.24 to 14.44 12.62 to 12.71 10.74 to 10.80 7.80 to 7.83 Assets, end of period $ 474,909 487,068 394,385 155,204 8,139 Investment income ratio* 0.00% 0.00% 0.00% 0.00% 0.00% Expense ratio, lowest to highest** 0.30% 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*** 3.41% to 3.78% 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 no activity. 125 John Hancock Life Insurance Company (U.S.A.) Separate Account N Notes to Financial Statements (continued) 8. Financial Highlights Sub-Account ------------------ Quantitative Value Trust Series 0 ------------------ Year Ended Dec. 31/06 ++ ------------------ Units, beginning of year -- Units issued 129 Units redeemed (5) ----- Units, end of year 124 ===== Unit value, end of period $ 13.61 Assets, end of period $ 1,687 Investment income ratio* 0.00% Expense ratio, lowest to highest** 0.00% Total return, lowest to highest*** 21.36% - -------- ++ Fund available in prior year but no activity. Sub-Account ------------------------------ Quantitative Value Trust Series 1 ------------------------------ Year Ended Year Ended Dec. 31/06 Dec. 31/05 ++ --------------- ------------- Units, beginning of year -- -- Units issued 14,129 1,072 Units redeemed (13,091) (1,072) --------------- ------ Units, end of year 1,038 -- =============== ====== Unit value, end of period $ 19.08 to 19.18 15.85 Assets, end of period $ 19,810 -- Investment income ratio* 0.22% 0.00% Expense ratio, lowest to highest** 0.45% to 0.65% 0.65% Total return, lowest to highest*** 20.38% to 20.63% 8.48% - -------- ++ Fund available in prior year but no activity. 126 John Hancock Life Insurance Company (U.S.A.) Separate Account N Notes to Financial Statements (continued) 8. Financial Highlights Sub-Account ---------------------- Real Estate Securities Trust Series 0 ---------------------- Year Ended Dec. 31/06 ++ ---------------------- Units, beginning of year -- Units issued 71,898 Units redeemed (10,645) --------- Units, end of year 61,253 ========= Unit value, end of period $ 95.27 Assets, end of period $ 5,835,277 Investment income ratio* 2.02% Expense ratio, lowest to highest** 0.00% Total return, lowest to highest*** 38.17% ++ Fund available in prior year but no activity.
Sub-Account --------------------------------------------------------------------------------- Real Estate Securities Trust Series 1 --------------------------------------------------------------------------------- Year Ended Year Ended Year Ended Year Ended Year Ended Dec. 31/06 Dec. 31/05 Dec. 31/04 Dec. 31/03 Dec. 31/02 --------------- --------------- --------------- --------------- ------------- Units, beginning of year 472,983 511,509 445,289 572,990 495,247 Units issued 79,184 132,415 359,425 190,483 458,746 Units redeemed (186,059) (170,941) (293,205) (318,184) (381,003) --------------- --------------- --------------- --------------- ------------- Units, end of year 366,108 472,983 511,509 445,289 572,990 =============== =============== =============== =============== ============= Unit value, end of period $ 16.32 to 45.30 to 117.35 32.99 to 85.23 29.65 to 76.43 22.58 to 57.88 41.77 Assets, end of period $ 41,904,090 39,627,992 38,437,806 24,344,448 22,348,452 Investment income ratio* 1.78% 1.96% 2.36% 2.98% 3.12% Expense ratio, lowest to highest** 0.30% to 0.70% 0.30% to 0.70% 0.30% to 0.65% 0.40% to 0.65% 0.40% to 0.65% Total return, lowest to highest*** 37.14% to 37.69% 11.07% to 11.52% 31.18% to 31.64% 38.24% to 38.59% 1.92% to 2.17%
127 John Hancock Life Insurance Company (U.S.A.) Separate Account N Notes to Financial Statements (continued) 8. Financial Highlights Sub-Account ---------------- Real Return Bond Trust Series 0 ---------------- Year Ended Dec. 31/06 ++ ---------------- Units, beginning of year -- Units issued 9,712 Units redeemed (193) ------ Units, end of year 9,519 ====== Unit value, end of period $ 10.01 Assets, end of period $ 95,237 Investment income ratio* 0.00% Expense ratio, lowest to highest** 0.00% Total return, lowest to highest*** 0.43% - -------- ++ Fund available in prior year but no activity.
Sub-Account --------------------------------------------------------------- Real Return Bond Trust Series 1 --------------------------------------------------------------- Year Ended Year Ended Year Ended Year Ended Dec. 31/06 Dec. 31/05 Dec. 31/04 Dec. 31/03 (a) --------------- -------------- -------------- -------------- Units, beginning of year 116,509 111,729 5,873 -- Units issued 103,018 85,239 262,524 133,583 Units redeemed (43,959) (80,459) (156,668) (127,710) --------------- -------------- -------------- -------------- Units, end of year 175,568 116,509 111,729 5,873 =============== ============== ============== ============== Unit value, end of period $ 14.22 to 14.38 14.25 to 14.37 14.14 to 14.22 13.05 to 13.07 Assets, end of period $ 2,514,498 1,669,468 1,584,831 76,663 Investment income ratio* 2.37% 0.00% 0.49% 0.00% Expense ratio, lowest to highest** 0.35% to 0.65% 0.35% to 0.65% 0.35% to 0.65% 0.45% to 0.65% Total return, lowest to highest*** (0.27)% to 0.05% 0.78% to 1.09% 8.35% to 8.69% 4.43% to 4.57%
- -------- (a) Reflects the period from commencement of operations on May 5, 2003 through December 31, 2003. 128 John Hancock Life Insurance Company (U.S.A.) Separate Account N Notes to Financial Statements (continued) 8. Financial Highlights Sub-Account -------------------- Science & Technology Trust series 0 -------------------- Year Ended Dec. 31/06 ++ -------------------- Units, beginning of year -- Units issued 86 Units redeemed (3) ----- Units, end of year 83 ===== Unit value, end of period $ 11.90 Assets, end of period $ 986 Investment income ratio* 0.00% Expense ratio, lowest to highest** 0.00% Total return, lowest to highest*** 5.60% - -------- ++ Fund available in prior year but no activity.
Sub-Account --------------------------------------------------------------------------------- Science & Technology Trust Series 1 --------------------------------------------------------------------------------- Year Ended Year Ended Year Ended Year Ended Year Ended Dec. 31/06 Dec. 31/05 Dec. 31/04 Dec. 31/03 Dec. 31/02 -------------- ------------- ------------- --------------- ------------------ Units, beginning of year 1,728,120 2,513,425 2,816,080 2,889,535 2,589,114 Units issued 490,113 687,432 2,720,294 2,001,149 2,806,957 Units redeemed (892,132) (1,472,737) (3,022,949) (2,074,604) (2,506,536) -------------- ------------- ------------- --------------- ------------------ Units, end of year 1,326,101 1,728,120 2,513,425 2,816,080 2,889,535 ============== ============= ============= =============== ================== Unit value, end of period $ 05.41 to 14.46 5.16 to 13.74 5.08 to 13.50 5.06 to 13.38 3.39 to 8.94 Assets, end of period $ 16,624,064 20,287,236 30,223,103 26,154,570 18,853,376 Investment income ratio* 0.00% 0.00% 0.00% 0.00% 0.00% Expense ratio, lowest to highest** 0.30% to 0.70% 0.30% to 0.70% 0.30% to 0.65% 0.40% to 0.65% 0.40% to 0.65% Total return, lowest to highest*** 4.79% to 5.21% 1.37% to 1.78% 0.22% to 0.58% 49.43% to 49.79% (41.15)% to (41.00)%
129 John Hancock Life Insurance Company (U.S.A.) Separate Account N Notes to Financial Statements (continued) 8. Financial Highlights Sub-Account --------------- Short-Term Bond Trust Series 0 --------------- Year Ended Dec. 31/06 ++ --------------- Units, beginning of year -- Units issued 42,917 Units redeemed (41,579) ------- Units, end of year 1,338 ======= Unit value, end of period $ 18.45 Assets, end of period $ 24,683 Investment income ratio* 35.06% Expense ratio, lowest to highest** 0.00% Total return, lowest to highest*** 4.55% - -------- ++ Fund available in prior year but no activity. Sub-Account ---------------- Small Cap Growth Trust Series 0 ---------------- Year Ended Dec. 31/06 ++ ---------------- Units, beginning of year -- Units issued 112,610 Units redeemed (5,498) --------- Units, end of year 107,112 ========= Unit value, end of period $ 17.19 Assets, end of period $ 1,840,852 Investment income ratio* 0.00% Expense ratio, lowest to highest** 0.00% Total return, lowest to highest*** 13.47% - -------- ++ Fund available in prior year but no activity. 130 John Hancock Life Insurance Company (U.S.A.) Separate Account N Notes to Financial Statements (continued) 8. Financial Highlights Sub-Account --------------- Small Cap Index Trust Series 0 --------------- Year Ended Dec. 31/06 ++ --------------- Units, beginning of year -- Units issued 35,074 Units redeemed (23,549) ------- Units, end of year 11,525 ======= Unit value, end of period $ 15.48 Assets, end of period $ 178,426 Investment income ratio* 2.39% Expense ratio, lowest to highest** 0.00% Total return, lowest to highest*** 17.64% - -------- ++ Fund available in prior year but no activity.
Sub-Account ------------------------------------------------------------------------------------- Small Cap Index Trust Series 1 ------------------------------------------------------------------------------------- Year Ended Dec. Year Ended Year Ended Year Ended Year Ended 31/06 Dec. 31/05 Dec. 31/04 Dec. 31/03 Dec. 31/02 --------------- -------------- --------------- --------------- ------------------ Units, beginning of year 728,419 453,968 162,048 226,973 58,468 Units issued 167,253 454,316 586,135 280,118 325,076 Units redeemed (227,319) (179,865) (294,215) (345,043) (156,571) --------------- -------------- --------------- --------------- ------------------ Units, end of year 668,353 728,419 453,968 162,048 226,973 =============== ============== =============== =============== ================== Unit value, end of period $ 18.61 to 19.06 15.94 to 16.25 15.48 to 15.66 13.28 to 13.38 9.17 to 9.21 Assets, end of period $ 12,623,575 11,739,024 7,067,046 2,159,093 2,085,303 Investment income ratio* 0.49% 0.53% 0.34% 0.00% 1.05% Expense ratio, lowest to highest** 0.30% to 0.70% 0.30% to 0.70% 0.35% to 0.65% 0.40% to 0.65% 0.40% to 0.65% Total return, lowest to highest*** 16.79% to 17.26% 3.16% to 3.58% 16.56% to 16.92% 44.85% to 45.20% (21.98)% to (21.79)%
131 John Hancock Life Insurance Company (U.S.A.) Separate Account N Notes to Financial Statements (continued) 8. Financial Highlights
Sub-Account ---------------------------------------------------------------- Small Cap Opportunities Trust Series 1 ---------------------------------------------------------------- Year Ended Year Ended Year Ended Year Ended Dec. 31/06 Dec. 31/05 Dec. 31/04 Dec. 31/03 (a) -------------- -------------- --------------- --------------- Units, beginning of year 256,511 74,332 28,153 -- Units issued 171,059 314,871 98,813 32,131 Units redeemed (145,049) (132,692) (52,634) (3,978) -------------- -------------- --------------- --------------- Units, end of year 282,521 256,511 74,332 28,153 ============== ============== =============== =============== Unit value, end of period $ 25.54 to 25.92 23.28 to 23.53 21.77 to 21.88 17.43 to 17.45 Assets, end of period $ 7,281,857 6,011,042 1,625,557 491,037 Investment income ratio* 0.68% 0.00% 0.03% 0.00% Expense ratio, lowest to highest** 0.30% to 0.70% 0.30% to 0.70% 0.35% to 0.65% 0.40% to 0.65% Total return, lowest to highest*** 9.68% to 10.12% 7.02% to 7.45% 24.96% to 25.34% 39.40% to 39.64%
- -------- (a) Reflects the period from commencement of operations on May 5, 2003 through December 31, 2003. Sub-Account -------------- Small Cap Trust Series 0 -------------- Year Ended Dec. 31/06 ++ -------------- Units, beginning of year -- Units issued 5,610 Units redeemed (5,610) ------ Units, end of year -- ====== Unit value, end of period $ 12.32 Assets, end of period $ -- Investment income ratio* 0.00% Expense ratio, lowest to highest** 0.00% Total return, lowest to highest*** 7.62% - -------- ++ Fund available in prior year but no activity. 132 John Hancock Life Insurance Company (U.S.A.) Separate Account N Notes to Financial Statements (continued) 8. Financial Highlights Sub-Account ------------------------------- Small Cap Trust Series 1 ------------------------------- Year Ended Year Ended Dec. 31/06 Dec. 31/05 ^ -------------- --------------- Units, beginning of year 1,196 -- Units issued 4,121 1,696 Units redeemed (2,321) (500) -------------- --------------- Units, end of year 2,996 1,196 ============== =============== Unit value, end of period $ 15.22 to 15.27 14.24 to 14.26 Assets, end of period $ 45,604 17,031 Investment income ratio* 0.00% 0.00% Expense ratio, lowest to highest** 0.45% to 0.65% 0.45% to 0.65% Total return, lowest to highest*** 6.86% to 7.08% 13.92% to 14.06% - -------- ^ Reflects the period from commencement of operations on may 2, 2005 through December 31, 2005. Sub-Account --------------- Small Cap Value Trust Series 0 --------------- Year Ended Dec. 31/06 ++ --------------- Units, beginning of year -- Units issued 143,375 Units redeemed (19,034) --------- Units, end of year 124,341 ========= Unit value, end of period $ 35.44 Assets, end of period $ 4,406,358 Investment income ratio* 0.13% Expense ratio, lowest to highest** 0.00% Total return, lowest to highest*** 19.32% - -------- ++ Fund available in prior year but no activity. 133 John Hancock Life Insurance Company (U.S.A.) Separate Account N Notes to Financial Statements (continued) 8. Financial Highlights Sub-Account ------------------------------ Small Company Trust Series 1 ------------------------------ Year Ended Year Ended Dec. 31/06 Dec. 31/05 ++ -------------- -------------- Units, beginning of year 2,740 -- Units issued 90,180 10,254 Units redeemed (15,073) (7,514) -------------- -------------- Units, end of year 77,847 2,740 ============== ============== Unit value, end of period $ 16.80 to 16.93 16.01 to 16.06 Assets, end of period $ 1,317,577 43,967 Investment income ratio* 0.00% 0.00% Expense ratio, lowest to highest** 0.35% to 0.65% 0.45% to 0.65% Total return, lowest to highest*** 4.92% to 5.23% 5.63% to 5.84% - -------- ++ Fund available in prior year but no activity. Sub-Account ------------------- Small Company Value Trust Series 0 ------------------- Year Ended Dec. 31/06 ++ ------------------- Units, beginning of year -- Units issued 6,551 Units redeemed (985) ------ Units, end of year 5,566 ====== Unit value, end of period $ 13.41 Assets, end of period $ 74,625 Investment income ratio* 0.00% Expense ratio, lowest to highest** 0.00% Total return, lowest to highest*** 15.50% - -------- ++ Fund available in prior year but no activity. 134 John Hancock Life Insurance Company (U.S.A.) Separate Account N Notes to Financial Statements (continued) 8. Financial Highlights
Sub-Account ----------------------------------------------------------------------------------- Small Company Value Trust Series 1 ----------------------------------------------------------------------------------- Year Ended Year Ended Year Ended Year Ended Year Ended Dec. 31/06 Dec. 31/05 Dec. 31/04 Dec. 31/03 Dec. 31/02 --------------- -------------- --------------- --------------- ---------------- Units, beginning of year 1,534,174 1,525,817 1,151,115 1,194,763 521,854 Units issued 813,580 766,171 1,166,644 1,030,795 1,822,893 Units redeemed (1,150,380) (757,814) (791,942) (1,074,443) (1,149,984) --------------- -------------- --------------- --------------- ---------------- Units, end of year 1,197,374 1,534,174 1,525,817 1,151,115 1,194,763 =============== ============== =============== =============== ================ Unit value, end of period $ 19.05 to 28.45 16.62 to 24.78 15.67 to 23.28 12.60 to 18.70 9.49 to 14.07 Assets, end of period $ 23,687,841 26,095,828 24,396,927 15,104,792 11,607,392 Investment income ratio* 0.07% 0.27% 0.15% 0.44% 0.25% Expense ratio, lowest to highest** 0.25% to 0.70% 0.35% to 0.70% 0.35% to 0.65% 0.40% to 0.65% 0.40% to 0.65% Total return, lowest to highest*** 14.62% to 15.13% 6.29% to 6.66% 24.38% to 24.76% 32.81% to 33.12% (6.53)% to (6.30)%
Sub-Account --------------------------------------------------------------- Special Value Trust Series 1 --------------------------------------------------------------- Year Ended Year Ended Year Ended Year Ended Dec. 31/06 Dec. 31/05 Dec. 31/04 Dec. 31/03 (a) --------------- -------------- --------------- -------------- Units, beginning of year 15,605 11,949 10,527 -- Units issued 12,637 5,903 3,178 20,755 Units redeemed (11,311) (2,247) (1,756) (10,228) --------------- -------------- --------------- ------- Units, end of year 16,931 15,605 11,949 10,527 =============== ============== =============== ======= Unit value, end of period $ 21.73 to 21.97 19.74 to 19.84 18.81 to 18.87 15.77 Assets, end of period $ 370,598 309,231 225,420 166,036 Investment income ratio* 0.03% 0.00% 0.00% 0.00% Expense ratio, lowest to highest** 0.35% to 0.65% 0.45% to 0.65% 0.45% to 0.65% 0.45% Total return, lowest to highest*** 10.12% to 10.45% 4.92% to 5.13% 19.40% to 19.65% 26.18%
- -------- (a)Reflects the period from commencement of operations on May 5, 2003 through December 31, 2003. 135 John Hancock Life Insurance Company (U.S.A.) Separate Account N Notes to Financial Statements (continued) 8. Financial Highlights
Sub-Account -------------- Strategic Bond Trust Series 0 -------------- Year Ended Dec. 31/06 ++ -------------- Units, beginning of year -- Units issued 60 Units redeemed (60) ----- Units, end of year -- ===== Unit value, end of period $ 10.99 Assets, end of period $ -- Investment income ratio* 0.00% Expense ratio, lowest to highest** 0.00% Total return, lowest to highest*** 7.05%
- -------- ++ Fund available in prior year but no activity.
Sub-Account ------------------------------------------------------------------------------- Strategic Bond Trust Series 1 ------------------------------------------------------------------------------- Year Ended Year Ended Year Ended Year Ended Dec. Year Ended Dec. 31/06 Dec. 31/05 Dec. 31/04 31/03 Dec. 31/02 -------------- -------------- -------------- --------------- -------------- Units, beginning of year 253,221 238,775 169,132 221,458 183,559 Units issued 138,457 176,347 290,490 397,326 428,880 Units redeemed (142,469) (161,901) (220,847) (449,652) (390,981) -------------- -------------- -------------- --------------- -------------- Units, end of year 249,209 253,221 238,775 169,132 221,458 ============== ============== ============== =============== ============== Unit value, end of period $ 19.92 to 22.32 18.71 to 20.86 18.32 to 20.38 17.27 to 19.15 15.36 to 16.98 Assets, end of period $ 5,459,524 5,217,823 4,821,612 3,179,959 3,701,587 Investment income ratio* 6.48% 2.48% 3.88% 6.69% 5.15% Expense ratio, lowest to highest** 0.30% to 0.70% 0.35% to 0.70% 0.35% to 0.65% 0.40% to 0.65% 0.45% to 0.65% Total return, lowest to highest*** 6.31% to 6.73% 1.98% to 2.34% 5.98% to 6.29% 12.38% to 12.66% 8.25% to 8.47%
136 John Hancock Life Insurance Company (U.S.A.) Separate Account N Notes to Financial Statements (continued) 8. Financial Highlights
Sub-Account ---------------------------------------------- Strategic Income Trust Series 1 ---------------------------------------------- Year Ended Year Ended Year Ended Dec. 31/06 Dec. 31/05 Dec. 31/04 ## -------------- -------------- -------------- Units, beginning of year 78,004 2,225 -- Units issued 37,952 90,668 2,246 Units redeemed (80,028) (14,889) (21) -------------- -------------- -------------- Units, end of year 35,928 78,004 2,225 ============== ============== ============== Unit value, end of period $ 14.24 to 14.35 13.78 to 13.82 13.56 to 13.57 Assets, end of period $ 512,297 1,075,257 30,167 Investment income ratio* 2.03% 12.20% 6.19% Expense ratio, lowest to highest** 0.35% to 0.65% 0.45% to 0.65% 0.45% to 0.65% Total return, lowest to highest*** 3.31% to 3.62% 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.
Sub-Account ----------------------- Strategic Opportunities Trust Series 0 ----------------------- Year Ended Dec. 31/06 ++ ----------------------- Units, beginning of year -- Units issued 8 Units redeemed -- ----- Units, end of year 8 ===== Unit value, end of period $ 13.40 Assets, end of period $ 106 Investment income ratio* 0.00% Expense ratio, lowest to highest** 0.00% Total return, lowest to highest*** 12.25%
- -------- ++ Fund available in prior year but no activity. 137 John Hancock Life Insurance Company (U.S.A.) Separate Account N Notes to Financial Statements (continued) 8. Financial Highlights
Sub-Account ------------------------------------------------------------------------------------- Strategic Opportunities Trust Series 1 ------------------------------------------------------------------------------------- Year Ended Year Ended Year Ended Year Ended Year Ended Dec. 31/06 Dec. 31/05 Dec. 31/04 Dec. 31/03 Dec. 31/02 --------------- -------------- --------------- --------------- ------------------ Units, beginning of year 389,613 396,663 588,318 895,938 706,044 Units issued 164,694 146,665 299,516 493,480 804,779 Units redeemed (212,443) (153,715) (491,171) (801,100) (614,885) --------------- -------------- --------------- --------------- ------------------ Units, end of year 341,864 389,613 396,663 588,318 895,938 =============== ============== =============== =============== ================== Unit value, end of period $ 11.16 to 15.24 10.01 to 13.59 9.17 to 12.43 8.21 to 11.09 6.56 to 8.84 Assets, end of period $ 4,938,858 5,106,599 4,732,242 5,962,880 7,208,068 Investment income ratio* 0.01% 0.40% 0.09% 0.00% 0.00% Expense ratio, lowest to highest** 0.30% to 0.70% 0.35% to 0.70% 0.35% to 0.65% 0.40% to 0.65% 0.45% to 0.65% Total return, lowest to highest*** 11.38% to 11.83% 8.96% to 9.34% 11.58% to 11.93% 25.03% to 25.34% (39.16)% to (39.04)%
Sub-Account --------------- Strategic Value Trust Series 0 --------------- Year Ended Dec. 31/06 ++ c --------------- Units, beginning of year -- Units issued 112 Units redeemed (112) ----- Units, end of year -- ===== Unit value, end of period $ 11.74 Assets, end of period $ -- Investment income ratio* 7.15% Expense ratio, lowest to highest** 0.00% Total return, lowest to highest*** 11.71%
- -------- ++c Terminated as an investment option and funds transferred to Large Cap Value Trust on Dec. 4, 2006. Fund available in prior year but no activity. 138 John Hancock Life Insurance Company (U.S.A.) Separate Account N Notes to Financial Statements (continued) 8. Financial Highlights
Sub-Account ---------------------------------------------------------------------------------------- Strategic Value Trust Series 1 ---------------------------------------------------------------------------------------- Year Ended Year Ended Year Ended Year Ended Year Ended Dec. 31/06 (c) Dec. 31/05 Dec. 31/04 Dec. 31/03 Dec. 31/02 --------------- ---------------- --------------- --------------- ------------------ Units, beginning of year 7,607 71,614 235,464 34,516 9,069 Units issued 250,417 328,718 79,793 211,670 29,192 Units redeemed (258,024) (392,725) (243,643) (10,722) (3,745) --------------- ---------------- --------------- --------------- ------------------ Units, end of year -- 7,607 71,614 235,464 34,516 =============== ================ =============== =============== ================== Unit value, end of period $ 12.70 to 12.92 11.45 to 11.61 11.56 to 11.66 9.86 to 9.93 7.71 to 7.73 Assets, end of period $ -- 87,168 832,892 2,330,657 266,768 Investment income ratio* 0.80% 0.11% 0.25% 0.01% 0.00% Expense ratio, lowest to highest** 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*** 10.95% to 11.26% (0.94)% to (0.64)% 17.23% to 17.52% 27.94% to 28.27% (27.66)% to (27.52)%
- -------- (c) Terminated as an investment option and funds transferred to Large Cap Value Trust on December 4, 2006.
Sub-Account -------------- Total Return Trust Series 0 -------------- Year Ended Dec. 31/06 ++ -------------- Units, beginning of year -- Units issued 36,837 Units redeemed (2,554) ------- Units, end of year 34,283 ======= Unit value, end of period $ 11.39 Assets, end of period $ 390,568 Investment income ratio* 0.00% Expense ratio, lowest to highest** 0.00% Total return, lowest to highest*** 3.67%
- -------- ++ Fund available in prior year but no activity. 139 John Hancock Life Insurance Company (U.S.A.) Separate Account N Notes to Financial Statements (continued) 8. Financial Highlights
Sub-Account ------------------------------------------------------------------------------ Total Return Trust Series 1 ------------------------------------------------------------------------------ Year Ended Year Ended Year Ended Year Ended Year Ended Dec. 31/06 Dec. 31/05 Dec. 31/04 Dec. 31/03 Dec. 31/02 -------------- -------------- -------------- -------------- -------------- Units, beginning of year 2,385,781 2,833,935 2,319,152 2,315,832 1,419,177 Units issued 879,060 1,121,316 2,668,560 1,537,006 3,545,219 Units redeemed (1,694,363) (1,569,470) (2,153,777) (1,533,686) (2,648,564) -------------- -------------- -------------- -------------- -------------- Units, end of year 1,570,478 2,385,781 2,833,935 2,319,152 2,315,832 ============== ============== ============== ============== ============== Unit value, end of period $ 18.06 to 18.56 17.56 to 17.92 17.28 to 17.53 16.57 to 16.70 15.89 to 15.97 Assets, end of period $ 28,840,343 42,371,818 49,394,073 38,643,292 36,916,915 Investment income ratio* 3.62% 2.49% 3.71% 2.77% 2.58% Expense ratio, lowest to highest** 0.25% to 0.70% 0.30% to 0.70% 0.30% to 0.65% 0.40% to 0.65% 0.40% to 0.65% Total return, lowest to highest*** 2.89% to 3.34% 1.76% to 2.17% 4.28% to 4.65% 4.32% to 4.60% 8.80% to 9.08%
Sub-Account ------------------------ Total Stock Market Index Trust Series 0 ------------------------ Year Ended Dec. 31/06 ++ ------------------------ Units, beginning of year -- Units issued 37 Units redeemed -- ----- Units, end of year 37 ===== Unit value, end of period $ 46.25 Assets, end of period $ 1,715 Investment income ratio* 0.00% Expense ratio, lowest to highest** 0.00% Total return, lowest to highest*** 15.33% - -------- ++ Fund available in prior year but no activity. 140 John Hancock Life Insurance Company (U.S.A.) Separate Account N Notes to Financial Statements (continued) 8. Financial Highlights
Sub-Account ------------------------------------------------------------------------------------- Total Stock Market Index Trust Series 1 ------------------------------------------------------------------------------------- Year Ended Year Ended Year Ended Year Ended Year Ended Dec. 31/06 Dec. 31/05 Dec. 31/04 Dec. 31/03 Dec. 31/02 --------------- -------------- --------------- --------------- ------------------ Units, beginning of year 323,999 230,903 371,604 181,207 309,502 Units issued 144,172 313,142 405,051 467,766 327,720 Units redeemed (255,422) (220,046) (545,752) (277,369) (456,015) --------------- -------------- --------------- --------------- ------------------ Units, end of year 212,749 323,999 230,903 371,604 181,207 =============== ============== =============== =============== ================== Unit value, end of period $ 13.31 to 13.63 11.62 to 11.83 11.10 to 11.23 9.99 to 10.07 7.71 to 7.74 Assets, end of period $ 2,867,841 3,807,527 2,572,128 3,719,559 1,397,047 Investment income ratio* 1.02% 0.99% 0.73% 0.00% 0.42% Expense ratio, lowest to highest** 0.30% to 0.70% 0.35% to 0.70% 0.35% to 0.65% 0.40% to 0.65% 0.45% to 0.65% Total return, lowest to highest*** 14.49% to 14.95% 4.96% to 5.32% 11.02% to 11.35% 29.69% to 30.02% (21.80)% to (21.65)%
Sub-Account ----------------------------------------------------------------------------------- U.S. Core Trust Series 1 ----------------------------------------------------------------------------------- Year Ended Year Ended Year Ended Year Ended Year Ended Dec. 31/06 (g) Dec. 31/05 Dec. 31/04 Dec. 31/03 Dec. 31/02 -------------- -------------- -------------- --------------- ------------------ Units, beginning of year 853,493 899,801 1,151,229 1,592,866 1,605,126 Units issued 237,418 549,300 471,319 695,451 1,400,088 Units redeemed (263,158) (595,608) (722,747) (1,137,088) (1,412,348) -------------- -------------- -------------- --------------- ------------------ Units, end of year 827,753 853,493 899,801 1,151,229 1,592,866 ============== ============== ============== =============== ================== Unit value, end of period $ 11.57 to 20.96 10.66 to 19.25 10.50 to 18.89 9.89 to 17.73 7.86 to 14.06 Assets, end of period $ 16,484,485 15,776,383 16,191,548 18,310,286 19,158,844 Investment income ratio* 1.19% 1.38% 0.85% 1.02% 0.63% Expense ratio, lowest to highest** 0.30% to 0.70% 0.30% to 0.70% 0.35% to 0.65% 0.40% to 0.65% 0.40% to 0.65% Total return, lowest to highest*** 8.42% to 8.84% 1.32% to 1.72% 6.08% to 6.39% 25.77% to 26.09% (24.82)% to (24.63)%
- -------- (g) Fund renamed on May 1, 2006. Previously known as Growth & Income Trust. 141 John Hancock Life Insurance Company (U.S.A.) Separate Account N Notes to Financial Statements (continued) 8. Financial Highlights
Sub-Account ------------------------------ U.S. Global Leaders Growth Trust Series 1 ------------------------------ Year Ended Year Ended Dec. 31/06 Dec. 31/05 ++ -------------- -------------- Units, beginning of year 83,180 -- Units issued 25,598 104,006 Units redeemed (57,372) (20,826) -------------- -------------- Units, end of year 51,406 83,180 ============== ============== Unit value, end of period $ 13.35 to 13.46 13.20 to 13.27 Assets, end of period $ 690,161 1,100,951 Investment income ratio* 0.00% 0.24% Expense ratio, lowest to highest** 0.35% to 0.65% 0.35% to 0.65% Total return, lowest to highest*** 1.14% to 1.45% 0.22% to 0.52%
- -------- ++ Fund available in prior year but no activity. Sub-Account -------------------------- U.S. Government Securities Trust Series 0 -------------------------- Year Ended Dec. 31/06 ++ -------------------------- Units, beginning of year -- Units issued 31 Units redeemed (1) ----- Units, end of year 30 ===== Unit value, end of period $ 12.24 Assets, end of period $ 370 Investment income ratio* 0.00% Expense ratio, lowest to highest** 0.00% Total return, lowest to highest*** 4.39% - -------- ++ Fund available in prior year but no activity. 142 John Hancock Life Insurance Company (U.S.A.) Separate Account N Notes to Financial Statements (continued) 8. Financial Highlights
Sub-Account ------------------------------------------------------------------------------ U.S. Government Securities Trust Series 1 ------------------------------------------------------------------------------ Year Ended Year Ended Year Ended Year Ended Year Ended Dec. 31/06 Dec. 31/05 Dec. 31/04 Dec. 31/03 Dec. 31/02 -------------- -------------- -------------- -------------- -------------- Units, beginning of year 649,545 541,692 595,722 1,081,467 719,661 Units issued 578,659 404,113 625,354 950,497 1,334,914 Units redeemed (537,424) (296,260) (679,384) (1,436,242) (973,108) -------------- -------------- -------------- -------------- -------------- Units, end of year 690,780 649,545 541,692 595,722 1,081,467 ============== ============== ============== ============== ============== Unit value, end of period $ 15.74 to 16.94 15.18 to 16.32 15.08 to 16.15 14.76 to 15.78 14.60 to 15.59 Assets, end of period $ 11,102,160 9,984,112 8,245,778 8,887,862 16,062,944 Investment income ratio* 5.48% 1.72% 1.95% 4.00% 3.29% Expense ratio, lowest to highest** 0.25% to 0.70% 0.35% to 0.70% 0.35% to 0.65% 0.40% to 0.65% 0.40% to 0.65% Total return, lowest to highest*** 3.66% to 4.13% 0.87% to 1.24% 2.21% to 2.54% 1.07% to 1.32% 7.30% to 7.56%
Sub-Account -------------------- U.S. High Yield Bond Trust Series 0 -------------------- Year Ended Dec. 31/06 ++ -------------------- Units, beginning of year -- Units issued 414 Units redeemed (14) ----- Units, end of year 400 ===== Unit value, end of period $ 11.42 Assets, end of period $ 4,564 Investment income ratio* 0.00% Expense ratio, lowest to highest** 0.00% Total return, lowest to highest*** 9.60% - -------- ++ Fund available in prior year but no activity. 143 John Hancock Life Insurance Company (U.S.A.) Separate Account N Notes to Financial Statements (continued) 8. Financial Highlights Sub-Account -------------------- U.S. High Yield Bond Trust Series 1 -------------------- Year Ended Dec. 31/06 ++ -------------------- Units, beginning of year -- Units issued 201 Units redeemed (4) ----- Units, end of year 197 ===== Unit value, end of period $ 14.11 Assets, end of period $ 2,781 Investment income ratio* 0.00% Expense ratio, lowest to highest** 0.65% Total return, lowest to highest*** 8.89% - -------- ++ Fund available in prior year but no activity. Sub-Account -------------- U.S. Large Cap Trust Series 0 -------------- Year Ended Dec. 31/06 ++ -------------- Units, beginning of year -- Units issued 8,184 Units redeemed (8,184) ------ Units, end of year -- ====== Unit value, end of period $ 12.41 Assets, end of period $ -- Investment income ratio* 0.00% Expense ratio, lowest to highest** 0.00% Total return, lowest to highest*** 10.68% - -------- ++ Fund available in prior year but no activity. 144 John Hancock Life Insurance Company (U.S.A.) Separate Account N Notes to Financial Statements (continued) 8. Financial Highlights
Sub-Account ----------------------------------------------------------------------------------- U.S. Large Cap Trust Series 1 ----------------------------------------------------------------------------------- Year Ended Year Ended Year Ended Year Ended Year Ended Dec. 31/06 Dec. 31/05 Dec. 31/04 Dec. 31/03 Dec. 31/02 -------------- -------------- -------------- --------------- ------------------ Units, beginning of year 1,555,399 1,640,031 284,605 268,376 277,574 Units issued 270,247 430,513 1,930,714 230,093 443,269 Units redeemed (390,599) (515,145) (575,288) (213,864) (452,467) -------------- -------------- -------------- --------------- ------------------ Units, end of year 1,435,047 1,555,399 1,640,031 284,605 268,376 ============== ============== ============== =============== ================== Unit value, end of period $ 16.02 to 16.46 14.58 to 14.84 13.91 to 14.07 12.79 to 12.89 9.38 to 9.44 Assets, end of period $ 23,164,531 22,779,517 22,836,763 3,646,301 2,521,529 Investment income ratio* 0.57% 0.43% 0.09% 0.39% 0.36% Expense ratio, lowest to highest** 0.25% to 0.70% 0.35% to 0.70% 0.35% to 0.65% 0.40% to 0.65% 0.40% to 0.65% Total return, lowest to highest*** 9.88% to 10.38% 5.08% to 5.45% 8.68% to 9.01% 36.17% to 36.52% (25.67)% to (25.49)%
Sub-Account ------------------------ Utilities Trust Series 0 ------------------------ Year Ended Dec. 31/06 ++ ------------------------ Units, beginning of year -- Units issued 155 Units redeemed (6) ----- Units, end of year 149 ===== Unit value, end of period $ 15.17 Assets, end of period $ 2,261 Investment income ratio* 0.00% Expense ratio, lowest to highest** 0.00% Total return, lowest to highest*** 31.06% - -------- ++ Fund available in prior year but no activity. 145 John Hancock Life Insurance Company (U.S.A.) Separate Account N Notes to Financial Statements (continued) 8. Financial Highlights
Sub-Account -------------------------------------------------------------------------------------- Utilities Trust Series 1 -------------------------------------------------------------------------------------- Year Ended Year Ended Year Ended Year Ended Year Ended Dec. 31/06 Dec. 31/05 Dec. 31/04 Dec. 31/03 Dec. 31/02 --------------- --------------- --------------- --------------- ------------------ Units, beginning of year 154,810 40,217 12,829 4,043 5,383 Units issued 77,515 154,202 57,841 34,544 12,660 Units redeemed (101,058) (39,609) (30,453) (25,758) (14,000) --------------- --------------- --------------- --------------- ------------------ Units, end of year 131,267 154,810 40,217 12,829 4,043 =============== =============== =============== =============== ================== Unit value, end of period $ 18.35 to 18.66 14.10 to 14.30 12.15 to 12.26 9.45 to 9.50 7.07 to 7.09 Assets, end of period $ 2,433,871 2,200,446 489,462 121,451 28,615 Investment income ratio* 2.31% 0.39% 0.54% 0.56% 0.01% Expense ratio, lowest to highest** 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*** 30.15% to 30.55% 16.07% to 16.41% 28.57% to 28.91% 33.64% to 33.93% (24.04)% to (23.89)%
Sub-Account -------------------------------------------------------------------------------------- Value Trust Series 1 -------------------------------------------------------------------------------------- Year Ended Year Ended Year Ended Year Ended Year Ended Dec. 31/06 Dec. 31/05 Dec. 31/04 Dec. 31/03 Dec. 31/02 --------------- --------------- --------------- --------------- ------------------ Units, beginning of year 422,144 1,080,759 720,769 715,767 700,592 Units issued 199,825 208,115 1,280,008 639,080 622,576 Units redeemed (324,742) (866,730) (920,018) (634,078) (607,401) --------------- --------------- --------------- --------------- ------------------ Units, end of year 297,227 422,144 1,080,759 720,769 715,767 =============== =============== =============== =============== ================== Unit value, end of period $ 25.21 to 28.68 20.94 to 23.77 18.71 to 21.18 16.33 to 18.39 11.84 to 13.31 Assets, end of period $ 8,411,802 9,906,015 22,720,877 12,699,749 9,377,558 Investment income ratio* 0.42% 0.55% 0.53% 1.23% 0.85% Expense ratio, lowest to highest** 0.30% to 0.70% 0.30% to 0.70% 0.30% to 0.65% 0.40% to 0.65% 0.40% to 0.65% Total return, lowest to highest*** 20.20% to 20.68% 11.78% to 12.22% 14.43% to 14.83% 37.86% to 38.20% (23.31)% to (23.11)%
146 John Hancock Life Insurance Company (U.S.A.) Separate Account N Notes to Financial Statements (continued) (*) These ratios, which are not annualized, 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. (**) 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. (***) These ratios, which are not annualized, 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. 147 John Hancock Life Insurance Company (U.S.A.) Separate Account N Notes to Financial Statements (continued) 9. Details of Dividend Income The Dividend Income reported in the Statements of Operations and Changes in Contract Owners' Equity is comprised of distributions received from the underlying Portfolios as follows:
Dividend Income Distribution Capital Gain Distribution Total ---------------------------- ------------------------- --------------------- Sub-account 2006 2005 2006 2005 2006 2005 - ----------- -------------- ------------- ------------ ------------ ---------- ---------- 500 Index Trust B Series 0 $282,780 -- -- $ 263,850 $ 282,780 $ 263,850 500 Index Trust Series 1 105,632 96,820 -- -- 105,632 96,820 Active Bond Trust Series 0 9,541 -- -- -- 9,541 -- Active Bond Trust Series 1 107,757 -- -- 15,178 107,757 15,178 Aggressive Growth Trust Series 1 -- -- -- -- -- -- All Asset Portfolio Series 1 33,599 14,171 1,988 1,592 35,587 15,763 All Cap Core Trust Series 0 -- -- -- -- -- -- All Cap Core Trust Series 1 24,386 21,563 -- -- 24,386 21,563 All Cap Growth Trust Series 0 -- -- -- -- -- -- All Cap Growth Trust Series 1 -- -- -- -- -- -- All Cap Value Trust Series 0 -- -- -- -- -- -- All Cap Value Trust Series 1 15,750 8,165 351,048 57,327 366,798 65,492 American Blue Chip Income and Growth Trust Series 17,474 1,138 53,784 40,621 71,258 41,759 American Bond Trust Series 1 -- -- -- -- -- -- American Growth Trust Series 1 88,398 -- 187,781 18,593 276,179 18,593 American Growth-Income Trust Series 1 30,892 9,749 3,304 2,995 34,196 12,744 American International Trust Series 1 169,701 45,553 194,848 490,900 364,549 536,453 Blue Chip Growth Trust Series 0 -- -- -- -- -- -- Blue Chip Growth Trust Series 1 59,385 114,555 -- -- 59,385 114,555 Bond Index Trust B Series 0 24,257 -- -- -- 24,257 -- Capital Appreciation Trust Series 0 -- -- -- -- -- -- Capital Appreciation Trust Series 1 -- -- 284,871 -- 284,871 -- Classic Value Trust Series 0 6 -- 11 -- 17 -- Classic Value Trust Series 1 9,753 2,332 18,700 19,578 28,453 21,910 Core Bond Trust Series 1 5 -- -- -- 5 -- Core Equity Trust Series 0 -- -- -- -- -- -- Core Equity Trust Series 1 -- -- 24,172 -- 24,172 -- Diversified Bond Trust Series 1 -- 234,234 -- 30,623 -- 264,857 Dynamic Growth Trust Series 0 -- -- -- -- -- -- Dynamic Growth Trust Series 1 -- -- -- -- -- -- Emerging Growth Trust Series 0 -- -- -- -- -- -- Emerging Growth Trust Series 1 -- -- 178,162 -- 178,162 -- Emerging Small Company Trust Series 0 -- -- -- -- -- -- Emerging Small Company Trust Series 1 -- -- 2,674,796 -- 2,674,796 -- Equity Index Trust Series 1 -- 484,590 -- -- -- 484,590 Equity-Income Trust Series 0 75,195 -- 299,134 -- 374,329 -- Equity-Income Trust Series 1 555,400 447,051 2,285,226 1,235,618 2,840,626 1,682,669 Financial Services Trust Series 0 -- -- -- -- -- -- Financial Services Trust Series 1 1,596 1,355 9 -- 1,605 1,355 Fundamental Value Trust Series 0 -- -- -- -- -- -- Fundamental Value Trust Series 1 28,785 11,737 119,786 -- 148,571 11,737
148 John Hancock Life Insurance Company (U.S.A.) Separate Account N Notes to Financial Statements (continued) 9. Details of Dividend Income The Dividend Income reported in the Statements of Operations and Changes in Contract Owners' Equity is comprised of distributions received from the underlying Portfolios as follows:
Dividend Income Distribution Capital Gain Distribution Total ---------------------------- ------------------------- ------------------- Sub-account 2006 2005 2006 2005 2006 2005 - ----------- --------- --------- --------- ------- --------- --------- Global Allocation Trust Series 0 -- -- -- -- -- -- Global Allocation Trust Series 1 13,734 1,948 -- -- 13,734 1,948 Global Bond Trust Series 0 -- -- 26,941 -- 26,941 -- Global Bond Trust Series 1 -- 202,892 59,657 36,798 59,657 239,690 Global Trust Series 0 -- -- -- -- -- -- Global Trust Series 1 60,375 51,371 -- -- 60,375 51,371 Growth & Income Trust Series 0 -- -- -- -- -- -- Health Sciences Trust Series 0 -- -- -- -- -- -- Health Sciences Trust Series 1 -- -- 408,934 274,633 408,934 274,633 High Yield Trust Series 0 -- -- -- -- -- -- High Yield Trust Series 1 1,116,926 747,411 -- -- 1,116,926 747,411 Income & Value Trust Series 0 -- -- -- -- -- -- Income & Value Trust Series 1 504,298 400,124 -- -- 504,298 400,124 International Core Trust Series 0 -- -- -- -- -- -- International Core Trust Series 1 97,181 90,908 739,210 -- 836,391 90,908 International Equity Index Trust A Series 1 57,198 32,639 57,938 291,194 115,136 323,833 International Equity Index Trust B Series 0 46,778 -- 45,748 -- 92,526 -- International Opportunities Trust Series 0 -- -- -- -- -- -- International Opportunities Trust Series 1 1,648 -- 14,723 -- 16,371 -- International Small Cap Trust Series 0 -- -- -- -- -- -- International Small Cap Trust Series 1 58,302 41,190 -- -- 58,302 41,190 International Value Trust Series 0 -- -- -- -- -- -- International Value Trust Series 1 403,952 95,422 969,025 124,915 1,372,977 220,337 Investment Quality Bond Trust Series 1 1,288,354 1,301,456 -- -- 1,288,354 1,301,456 Large Cap Growth Trust Series 1 24,131 43,632 -- -- 24,131 43,632 Large Cap Trust Series 0 -- -- -- -- -- -- Large Cap Trust Series 1 70 -- 764 -- 834 -- Large Cap Value Trust Series 0 -- -- -- -- -- -- Large Cap Value Trust Series 1 21,052 -- 377,897 -- 398,949 -- Lifestyle Aggressive Trust Series 0 -- -- -- -- -- -- Lifestyle Aggressive Trust Series 1 492,939 94,063 1,305,415 72,560 1,798,354 166,623 Lifestyle Balanced Trust Series 0 316 -- -- -- 316 -- Lifestyle Balanced Trust Series 1 1,139,775 734,888 1,361,959 298,078 2,501,734 1,032,966 Lifestyle Conservative Trust Series 0 1 -- -- -- 1 -- Lifestyle Conservative Trust Series 1 305,056 298,340 200,160 192,044 505,216 490,384 Lifestyle Growth Trust Series 0 390 -- -- -- 390 -- Lifestyle Growth Trust Series 1 592,683 203,912 676,316 44,929 1,268,999 248,841 Lifestyle Moderate Trust Series 0 7 -- -- -- 7 -- Lifestyle Moderate Trust Series 1 102,082 115,721 100,196 80,740 202,278 196,461 Managed Trust Series 0 10,132 -- 45,355 -- 55,487 -- Mid Cap Core Trust Series 0 4 -- 51 -- 55 --
149 John Hancock Life Insurance Company (U.S.A.) Separate Account N Notes to Financial Statements (continued) 9. Details of Dividend Income The Dividend Income reported in the Statements of Operations and Changes in Contract Owners' Equity is comprised of distributions received from the underlying Portfolios as follows:
Dividend Income Distribution Capital Gain Distribution Total ---------------------------- ------------------------- ------------------- Sub-account 2006 2005 2006 2005 2006 2005 - ----------- --------- --------- --------- --------- --------- --------- Mid Cap Core Trust Series 1 17,934 -- 243,480 83,108 261,414 83,108 Mid Cap Index Trust Series 0 -- -- -- -- -- -- Mid Cap Index Trust Series 1 40,359 52,895 281,969 345,417 322,328 398,312 Mid Cap Stock Trust Series 0 -- -- -- -- -- -- Mid Cap Stock Trust Series 1 -- -- 601,318 203,232 601,318 203,232 Mid Cap Value Trust Series 0 -- -- -- -- -- -- Mid Cap Value Trust Series 1 219,309 100,156 5,214,486 765,100 5,433,795 865,256 Mid Value Trust Series 0 -- -- -- -- -- -- Money Market Trust B Series 0 173,969 -- -- -- 173,969 -- Money Market Trust Series 1 2,957,926 1,334,553 -- -- 2,957,926 1,334,553 Natural Resources Trust Series 0 -- -- -- -- -- -- Natural Resources Trust Series 1 41,753 -- 1,400,762 70,449 1,442,515 70,449 Overseas Equity Trust Series 0 -- -- -- -- -- -- Overseas Trust Series 1 -- 26,472 -- -- -- 26,472 Pacific Rim Trust Series 0 -- -- -- -- -- -- Pacific Rim Trust Series 1 78,114 51,181 -- -- 78,114 51,181 Quantitative All Cap Trust Series 0 20 -- 62 -- 82 -- Quantitative All Cap Trust Series 1 11 263 917 1,876 928 2,139 Quantitative Mid Cap Trust Series 0 -- -- -- -- -- -- Quantitative Mid Cap Trust Series 1 -- -- 130,839 -- 130,839 -- Quantitative Value Trust Series 0 -- -- -- -- -- -- Quantitative Value Trust Series 1 304 -- 2,639 -- 2,943 -- Real Estate Securities Trust Series 0 71,568 -- 665,441 -- 737,009 -- Real Estate Securities Trust Series 1 763,686 721,672 7,286,948 4,975,109 8,050,634 5,696,781 Real Return Bond Trust Series 0 -- -- -- -- -- -- Real Return Bond Trust Series 1 51,772 -- 39,030 58,163 90,802 58,163 Science & Technology Trust Series 0 -- -- -- -- -- -- Science & Technology Trust Series 1 -- -- -- -- -- -- Short-Term Bond Trust Series 0 23,330 -- -- -- 23,330 -- Small Cap Growth Trust Series 0 -- -- -- -- -- -- Small Cap Index Trust Series 0 1,746 -- 8,837 -- 10,583 -- Small Cap Index Trust Series 1 62,183 58,118 336,008 392,854 398,191 450,972 Small Cap Opportunities Trust Series 1 45,311 -- 169,485 19,697 214,796 19,697 Small Cap Trust Series 0 -- -- -- -- -- -- Small Cap Trust Series 1 -- -- 4,089 -- 4,089 -- Small Cap Value Trust Series 0 4,073 -- 655,513 -- 659,586 -- Small Company Blend Trust Series 1 -- -- -- -- -- -- Small Company Trust Series 1 -- -- 8,125 4 8,125 4 Small Company Value Trust Series 0 -- -- -- -- -- -- Small Company Value Trust Series 1 18,948 61,743 4,369,098 367,167 4,388,046 428,910 Special Value Trust Series 1 98 -- 34,950 1,101 35,048 1,101
150 John Hancock Life Insurance Company (U.S.A.) Separate Account N Notes to Financial Statements (continued) 9. Details of Dividend Income The Dividend Income reported in the Statements of Operations and Changes in Contract Owners' Equity is comprised of distributions received from the underlying Portfolios as follows:
Dividend Income Distribution Capital Gain Distribution Total ---------------------------- ------------------------- ------------------- Sub-account 2006 2005 2006 2005 2006 2005 - ----------- --------- --------- --------- --------- --------- --------- Strategic Bond Trust Series 0 -- -- -- -- -- -- Strategic Bond Trust Series 1 349,479 104,231 -- -- 349,479 104,231 Strategic Growth Trust Series 1 -- -- -- 22,052 -- 22,052 Strategic Income Trust Series 1 17,910 39,815 246 2,447 18,156 42,262 Strategic Opportunities Trust Series 0 -- -- -- -- -- -- Strategic Opportunities Trust Series 1 577 18,691 -- -- 577 18,691 Strategic Value Trust Series 0 27 -- 250 -- 277 -- Strategic Value Trust Series 1 2,689 1,447 23,834 17,636 26,523 19,083 Total Return Trust Series 0 -- -- -- -- -- -- Total Return Trust Series 1 1,285,963 1,107,824 -- 1,141,244 1,285,963 2,249,068 Total Stock Market Index Trust Series 0 -- -- -- -- -- -- Total Stock Market Index Trust Series 1 37,263 30,875 19,933 -- 57,196 30,875 U.S. Core Trust Series 1 189,381 237,513 1,820,307 368,241 2,009,688 605,754 U.S. Global Leaders Growth Trust Series 1 -- 1,868 10,457 19,772 10,457 21,640 U.S. Government Securities Trust Series 0 -- -- -- -- -- -- U.S. Government Securities Trust Series 1 567,693 158,188 -- 167,282 567,693 325,470 U.S. High Yield Bond Trust Series 0 -- -- -- -- -- -- U.S. High Yield Bond Trust Series 1 -- -- -- -- -- -- U.S. Large Cap Trust Series 0 -- -- -- -- -- -- U.S. Large Cap Trust Series 1 123,657 93,489 -- -- 123,657 93,489 Utilities Trust Series 0 -- -- -- -- -- -- Utilities Trust Series 1 50,080 5,951 261,950 75,917 312,030 81,868 Value Trust Series 1 41,708 56,502 1,545,767 -- 1,587,475 56,502
151 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) Distribution Agreement between John Hancock Life Insurance Company (U.S.A.) and ManEquity, Inc. dated January 1, 2001. Incorporated by reference to post-effective amendment number 9 file number 333-85284 filed with the Commission in April, 2007. (2) Form of General Agent 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 file number 333-126668 filed with the Commission on October 12, 2005. (3) Form of General Agent Selling Agreement by and among John Hancock Life Insurance Company, John Hancock Variable Life Insurance Company, John Hancock Life Insurance Company (U.S.A.), John Hancock Life Insurance Company of New York and John Hancock Distributors. Incorporated by reference to post-effective amendment number 9 file number 333-85284 filed with the Commission in April, 2007. (d) (1)Form of Specimen Flexible Premium Variable Life Insurance Policy. Incorporated by reference to pre-effective amendment number 1 filed number 333-126668 filed with the Commission on October 12, 2005. (2) Form of Specimen Enhanced Cash Value Rider. Incorporated by reference to pre-effective amendment number 1 filed number 333-126668 filed with the Commission on October 12, 2005. (e) Form of Specimen Application for a Master COLI Insurance Policy. Incorporated by reference to pre-effective amendment number 1 file number 333-126668 filed with the Commission on October 12, 2005. (f) (1) Restated Articles of Redomestication of the John Hancock Life Insurance Company (U.S.A.) (formerly, The Manufacturers Life Insurance Company (U.S.A.)) dated December 30, 1992. Incorporated by reference to post-effective amendment number 9 file number 333-85284 filed with the Commission in April, 2007. (a) Amendment to the Articles of Redomestication of the John Hancock Life Insurance Company (U.S.A.) (formerly, The Manufacturers 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. (b) Amendment to the Articles of Redomestication dated January 1, 2005. Incorporated by reference to post-effective amendment number 9 file number 333-85284 filed with the Commission in April, 2007. (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. (c) 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 July 16, 2004. Incorporated by reference to post-effective amendment number 9 file number 333-85284 filed with the Commission in April, 2007. (g) The Depositor maintains reinsurance arrangements in the normal course of business, none of which are material. (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 dated April 20, 2005. Incorporated by reference to pre-effective amendment no. 1 file number 333-126668 filed with the Commission on October 12, 2005. (3) Shareholder Information Agreement between 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, and John Hancock Trust portfolios (except American Funds Insurance Series) dated April 16, 2007. Incorporated by reference to post-effective amendment number 9 file number 333-85284 filed with the Commission in April, 2007. (4) Shareholder Information Agreement between 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, and John Hancock Trust on behalf of series of the Trust that are feeder funds of the American Funds Insurance Series dated April 16, 2007. Incorporated by reference to post-effective amendment number 9 file number 333-85284 filed with the Commission in April, 2007. (i) (1) Service Agreement between John Hancock Life Insurance Company (U.S.A.) (formerly, The Manufacturers Life Insurance Company (U.S.A.)) and John Hancock Life Insurance Company dated April 28, 2004 . Incorporated by reference to post-effective amendment number 9 file number 333-85284 filed with the Commission in April, 2007. (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) Consents 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 James R. Boyle, John DesPrezIII, John R. Ostler, Rex Schlaybaugh, Jr., Diana Scott, and Warren Thomson are incorporated by reference to post-effective amendment number 1 file number 333-126668 filed with the Commission on May 1, 2006. (ii) Powers of Attorney for Marc Costantini, Steve Finch, Hugh McHaffie and Katherine MacMillan are 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, 2007
Name and Principal Business Address Position with Depositor - ------------------------------------- --------------------------------------------------------- Directors James R. Boyle* ..................... Director Marc Costantini* .................... Director John D. DesPrez III* ................ Director Steve Finch** ....................... Director Hugh McHaffie* ...................... Director Katherine MacMillan***** ............ Director John R. Ostler**** .................. Director Rex Schlaybaugh Jr.******* .......... Director Diana Scott* ........................ Director Warren Thomson** .................... Director Officers John D. DesPrez III* ................ Chairman and President Hugh McHaffie* ...................... Executive Vice President, Wealth Management James Boyle** ....................... Executive Vice President, Life Insurance Steven Mannik**** ................... Executive Vice President & General Manager, Reinsurance Steve Finch** ....................... Senior Vice President & General Manager, Life Insurance
Name and Principal Business Address Position with Depositor - ------------------------------------- --------------------------------------------------------- Katherine MacMillan***** ............ Senior Vice President & General Manager, RPS Senior Vice President & General Manager, Variable Marc Costantini* .................... Annuities Lynne Patterson* .................... Senior Vice President & Chief Financial Officer Diana Scott* ........................ Senior Vice President, Human Resources Emanuel Alves* ...................... Vice President, Counsel and Corporate Secretary Jonathan Chiel* ..................... Executive Vice President & General Counsel Mitchell A. Karman** ................ Vice President, Chief Compliance Officer & Counsel Executive Vice President & Chief Investments Officer, US Warren Thomson** .................... Investments Scott Hartz** ....................... Senior Vice President, US Investments John Brabazon** ..................... Vice President & CFO, US Investments Patrick Gill* ....................... Senior Vice President and Controller Peter Mitsopoulos****** ............. Vice President, Treasury Kris Ramdial***** ................... Vice President, Treasury 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, 2006 appears below: Subsidiary Name 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 NewYork Ennal, Inc. John Hancock Distributors, LLC Ironside Venture Partners I LLC Ironside Venture Partners II LLC Item 30. Indemnification The Form of Selling Agreement or Service Agreement between John Hancock Distributors, LLC and various broker-dealers may provide that the selling broker-dealer indemnify and hold harmless John Hancock Distributors, LLC and the Company, including their affiliates, officers, directors, employees and agents against losses, claims, liabilities or expenses (including reasonable attorney's fees), arising out of or based upon a breach of the Selling or Service Agreement, or any applicable law or regulation or any applicable rule of any self-regulatory organization or similar provision consistent with industry practice. 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 as of April 1, 2007.
Name Title - --------------------------------- ----------------------------------------------------------- Marc Costantini* ................ Chairman Steve Finch**** ................. President and Chief Executive Officer 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 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 All management services contracts are discussed in Part A or Part B. 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 25th day of April, 2007. 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 Principal Executive Officer JOHN HANCOCK LIFE INSURANCE COMPANY (U.S.A.) (Depositor) By: /s/ John D. DesPrez III ------------------ John D. DesPrez III Principal Executive Officer 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 25th day of April, 2007.
/s/ Patrick Gill - ------------------------------ Patrick Gill Senior Vice President and Controller /s/ Lynne Patterson Senior Vice President and Chief Financial Officer - ------------------------------ Lynne Patterson * Director - ------------------------------ James R. Boyle * Director - ------------------------------ Marc Costantini * Director - ------------------------------ John D. DesPrez III * Director - ------------------------------ Steven A. Finch * Director - ------------------------------ Katherine MacMillan * Director - ------------------------------ Hugh McHaffie * 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 SUPPLEMENT DATED MAY 1, 2007 TO PROSPECTUSES DATED MAY 1, 2007 OR LATER ----------------- This Supplement is to be distributed with certain prospectuses dated May 1, 2007 or later for variable life insurance policies issued by John Hancock Life Insurance Company, John Hancock Variable Life Insurance Company, John Hancock Life Insurance Company (U.S.A.) or John Hancock Life Insurance Company of New York. The prospectuses involved bear the title "Protection Variable Universal Life," "Accumulation Variable Universal Life," "Corporate VUL," "Medallion Variable Universal Life Plus," "Medallion Variable Universal Life Edge," "Medallion Variable Universal Life Edge II," "Medallion Executive Variable Life," "Medallion Executive Variable Life II," "Medallion Executive Variable Life III," "Performance Executive Variable Life," "Variable Estate Protection," "Variable Estate Protection Plus," "Variable Estate Protection Edge," or "Performance Survivorship Variable Universal Life." We refer to these prospectuses as the "Product Prospectuses." This supplement will be used only with policies sold through the product prospectuses and through registered representatives affiliated with the M Financial Group. ----------------- This Supplement is accompanied with a prospectus dated April 30, 2007 for the M Fund, Inc. that contains detailed information about the funds. Be sure to read that prospectus before selecting any of the four additional variable investment options/investment accounts. ----------------- AMENDMENT TO PRODUCT PROSPECTUSES The table on the cover page of each product prospectus is amended to include the following four additional variable investment options/investment accounts: Brandes International Equity Turner Core Growth Frontier Capital Appreciation Business Opportunity Value VL M SUPP (5/07) EX-99.27N 2 dex9927n.txt CONSENT OF INDEPENDENT AUDITORS Consent of Independent Registered Public Accounting Firm We consent to the reference to our firm under the caption "Independent Registered Public Accounting Firm" and to the use of our report dated April 20, 2007 with respect to the consolidated financial statements of John Hancock Life Insurance Company (U.S.A.), which are contained in the Statement of Additional Information in Post-Effective Amendment No. 2 in the Registration Statement (Form N-6 No. 333-126668) and related Prospectus of John Hancock Life Insurance Company (U.S.A.) Separate Account N. /s/ Ernst & Young LLP Boston, Massachusetts April 26, 2007 CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM We consent to the reference to our firm under the caption "Independent Registered Public Accounting Firm" and to the use of our reports dated April 5, 2007 with respect to the financial statements of John Hancock Life Insurance Company (U.S.A.) Separate Account N, which are contained in the Statement of Additional Information in Post-Effective Amendment No. 2 in the Registration Statement [Form N-6 No. 333-126668] and related Prospectus of John Hancock Life Insurance Company (U.S.A.) Separate Account N. Toronto, Canada, /s/ Ernst & Young LLP April 26, 2007 Chartered Accountants Licensed Public Accountants EX-99.27N1 3 dex9927n1.txt OPINION OF COUNSEL JOHN HANCOCK FINANCIAL SERVICES, INC. John Hancock Place Post Office Box 111 Boston, Massachusetts 02117 [LOGO OF JOHN HANCOCK FINANCIAL SERVICES] (617) 572-8050 Fax: (617) 572-9197 E-mail: jchoodlet@jhancock.com JAMES C. HOODLET Vice President and Counsel April 25, 2007 U.S. Securities and Exchange Commission 100 F St., N.E. Washington, D.C. 20549 Re: John Hancock Life Insurance Company (U.S.A.) Account N File Nos. 811-5130 and 333-126668 Commissioners: This opinion is being furnished with respect to the filing of Post-Effective No. 2 under the Securities Act of 1933 (Post-Effective Amendment No. 8 under the Investment Company Act of 1940) on the Form N-6 Registration Statement of John Hancock Life Insurance Company (U.S.A.) Account N as required by Rule 485 under the 1933 Act. I have acted as counsel to Registrant for the purpose of preparing this Post-Effective Amendment which is being filed pursuant to paragraph (b) of Rule 485 and hereby represent to the Commission that in our opinion this Post-Effective Amendment does not contain disclosures which would render it ineligible to become effective pursuant to paragraph (b). I hereby consent to the filing of this opinion with and as a part of this Post-Effective Amendment to Registrant's Registration Statement with the Commission. Very truly yours, /s/ James C. Hoodlet - -------------------------- James C. Hoodlet Vice President and Counsel EX-99.27 4 dex9927.txt POWERS OF ATTORNEY POWER OF ATTORNEY I, Hugh McHaffie, in my capacity as a Director of John Hancock Life Insurance Company (U.S.A.) (the "Company"), do hereby constitute and appoint John D. DesPrez III, Marc Costantini, Emanuel Alves, John Danello, Arnold R. Bergman, and James C. Hoodlet or any of them individually, my true and lawful attorneys and agents to execute, in the name of, and on behalf of, the undersigned as a member of said Board of Directors, the Registration Statements listed below filed with the Securities and Exchange Commission ("SEC") under the Securities Act of 1933 and the Investment Company Act of 1940, and any and all amendments to the Registration Statements listed below filed with the SEC, and the undersigned hereby ratifies and confirms as his or her own act and deed all that each of said attorneys and agents shall do or cause to have done by virtue hereof. Variable Life Registration Statement filed under the Securities Act of 1933: 333-126668 Each of said attorneys and agents shall have, and may exercise, all of the powers hereby conferred. This Power of Attorney is intended to supersede any and all prior Power of Attorneys in connection with the above mentioned acts, and is effective June 7, 2006 and remains in effect until revoked or revised. SIGNATURE TITLE DATE - --------- -------- --------------------------------- /s/ Hugh McHaffie Director June 7,2006 - ------------------------------- Hugh McHaffie POWER OF ATTORNEY I, Marc Costantini, in my capacity as a Director of John Hancock Life Insurance Company (U.S.A.) (the "Company"), do hereby constitute and appoint John D. DesPrez III, Emanuel Alves, John Danello, Arnold R. Bergman, and James C. Hoodlet or any of them individually, my true and lawful attorneys and agents to execute, in the name of, and on behalf of, the undersigned as a member of said Board of Directors, the Registration Statements listed below filed with the Securities and Exchange Commission ("SEC") under the Securities Act of 1933 and the Investment Company Act of 1940, and any and all amendments to the Registration Statements listed below filed with the SEC, and the undersigned hereby ratifies and confirms as his or her own act and deed all that each of said attorneys and agents shall do or cause to have done by virtue hereof. Variable Life Registration Statement filed under the Securities Act of 1933: 333-126668 Each of said attorneys and agents shall have, and may exercise, all of the powers hereby conferred. This Power of Attorney is intended to supersede any and all prior Power of Attorneys in connection with the above mentioned acts, and is effective 1/1/07 and remains in effect until revoked or revised. SIGNATURE TITLE DATE - --------- -------- --------------------------------- /s/ Marc Costantini Director 1/1/07 - ------------------------------- Marc Costantini POWER OF ATTORNEY I, Steven Andrew Finch, in my capacity as a Director of John Hancock Life Insurance Company (U.S.A.) (the "Company"), do hereby constitute and appoint Steven Andrew Finch, Marc Costantini, Emanuel Alves, John Danello, Arnold R. Bergman, and James C. Hoodlet or any of them individually, my true and lawful attorneys and agents to execute, in the name of, and on behalf of, the undersigned as a member of said Board of Directors, the Registration Statements listed below filed with the Securities and Exchange Commission ("SEC") under the Securities Act of 1933 and the Investment Company Act of 1940, and any and all amendments to the Registration Statements listed below filed with the SEC, and the undersigned hereby ratifies and confirms as his or her own act and deed all that each of said attorneys and agents shall do or cause to have done by virtue hereof. Variable Life Registration Statement filed under the Securities Act of 1933: 333-126668 Each of said attorneys and agents shall have, and may exercise, all of the powers hereby conferred. This Power of Attorney is intended to supersede any and all prior Power of Attorneys in connection with the above mentioned acts, and is effective 6/9/06 and remains in effect until revoked or revised. SIGNATURE TITLE DATE - --------- -------- --------------------------------- /s/ Steven Andrew Finch Director 6/9/06 - ------------------------------- Steven Andrew Finch POWER OF ATTORNEY I, Katherine MacMillan, in my capacity as a Director of John Hancock Life Insurance Company (U.S.A.) (the "Company"), do hereby constitute and appoint John D. DesPrez III, Emanuel Alves, John Danello, Arnold R. Bergman, and James C. Hoodlet or any of them individually, my true and lawful attorneys and agents to execute, in the name of, and on behalf of, the undersigned as a member of said Board of Directors, the Registration Statements listed below filed with the Securities and Exchange Commission ("SEC") under the Securities Act of 1933 and the Investment Company Act of 1940, and any and all amendments to the Registration Statements listed below filed with the SEC, and the undersigned hereby ratifies and confirms as his or her own act and deed all that each of said attorneys and agents shall do or cause to have done by virtue hereof. Variable Life Registration Statement filed under the Securities Act of 1933: 333-126668 Each of said attorneys and agents shall have, and may exercise, all of the powers hereby conferred. This Power of Attorney is intended to supersede any and all prior Power of Attorneys in connection with the above mentioned acts, and is effective 12/5/06 and remains in effect until revoked or revised. SIGNATURE TITLE DATE - --------- -------- --------------------------------- /s/ Katherine MacMillan Director 12/5/06 - ------------------------------- Katherine MacMillan -----END PRIVACY-ENHANCED MESSAGE-----