<PAGE>
FILE NOS. 2-38827
811-2143
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-4
REGISTRATION STATEMENT UNDER THE SECURITIES
ACT OF 1933 [X]
PRE-EFFECTIVE AMENDMENT NO. [_]
[X]
POST-EFFECTIVE AMENDMENT NO. 39
AND/OR
REGISTRATION STATEMENT UNDER THE INVESTMENT
COMPANY ACT OF 1940
[X]
AMENDMENT NO. 21
(CHECK APPROPRIATE BOX OR BOXES.)
JOHN HANCOCK VARIABLE ANNUITY ACCOUNT U
(EXACT NAME OF REGISTRANT)
JOHN HANCOCK MUTUAL LIFE INSURANCE COMPANY
(NAME OF DEPOSITOR)
JOHN HANCOCK PLACE, BOSTON, MA 02117
(ADDRESS OF DEPOSITOR'S PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
DEPOSITOR'S TELEPHONE NUMBER, INCLUDING AREA CODE: (617) 572-5060
SANDRA M. DADALT, ESQUIRE
JOHN HANCOCK MUTUAL LIFE INSURANCE COMPANY
JOHN HANCOCK PLACE
BOSTON, MA 02117
(NAME AND ADDRESS OF AGENT FOR SERVICE)
It is proposed that this filing will become effective (check appropriate
space)
[_] immediately upon filing pursuant to paragraph (b) of Rule 485
[X] on May 1, 1997, pursuant to paragraph (b) of Rule 485
[_] 60 days after filing pursuant to paragraph (a) of Rule 485
[_] on (date) pursuant to paragraph (a) of Rule 485
If appropriate check the following box
[_] this post-effective amendment designates a new effective date for a
previously filed post-effective amendment
Pursuant to the provisions of Rule 24f-2, Registrant has registered an in-
definite amount of the securities being offered and filed its Notice for fis-
cal 1996 pursuant to Rule 24f-2 on February 26, 1997.
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<PAGE>
JOHN HANCOCK VARIABLE ANNUITY ACCOUNT U
CROSS REFERENCE SHEET
<TABLE>
<CAPTION>
FORM N-4 ITEM NO. SECTION IN PROSPECTUS
----------------- ---------------------
<C> <S> <C>
1. Cover Page................... Cover Page
2. Definitions.................. Special Terms; Variable Account Valuation
Procedures
3. Synopsis or Highlights....... Summary Information
4. Condensed Financial Condensed Financial Information
Information.................
5. General Description of
Registrant, Depositor and John Hancock, The Account and the Series
Portfolio Companies......... Fund; Voting Privileges; Distribution of
the Contracts
6. Deductions................... Charges Under Variable Annuity Contracts
7. General Description of The Contracts; The Accumulation Period;
Variable Annuity Contracts.. Miscellaneous Provisions; Changes in
Applicable Law--Funding and Otherwise
8. Annuity Period............... The Annuity Period
9. Death Benefit................ The Accumulation Period; The Annuity Period
10. Purchases and Contract The Contracts; The Accumulation Period;
Values...................... Variable Account Valuation Procedures;
Performance
11. Redemptions.................. The Accumulation Period; Miscellaneous
Provisions; Summary Information
12. Taxes........................ Federal Income Taxes
13. Legal Proceedings............ Not Applicable
14. Table of Contents of
Statement of Additional Table of Contents of Statement of
Information................. Additional Information
</TABLE>
<PAGE>
LOGO
Mutual Life
Insurance Company
INDIVIDUAL VARIABLE ANNUITY CONTRACTS
JOHN HANCOCK VARIABLE ANNUITY ACCOUNT U
JOHN HANCOCK PLACE, BOSTON, MASSACHUSETTS 02117
JOHN HANCOCK SERVICING OFFICE:
P.O. BOX 111
BOSTON, MASSACHUSETTS 02117
TELEPHONE 800-REAL LIFE (800-732-5543)
PROSPECTUS MAY 1, 1997
The individual variable annuity contracts ("Contracts") described in this
prospectus can be funded, at the discretion of the Owner by, at any one time,
up to ten of the eighteen subaccounts of John Hancock Variable Annuity Account
U ("Account"). The assets of each subaccount will be invested in a correspond-
ing Portfolio of John Hancock Variable Series Trust I ("Fund"), a "series"
type mutual fund advised by John Hancock Mutual Life Insurance Company ("John
Hancock").
Three types of Contracts are offered: (1) a periodic payment deferred con-
tract, (2) a single payment deferred contract, and (3) a single payment imme-
diate contract.
This prospectus sets forth concisely information about the Account that a
prospective investor ought to know before investing. A statement of additional
information for the Account, dated May 1, 1997, has been filed with the Secu-
rities and Exchange Commission ("Commission") and is incorporated herein by
reference. This statement, the table of contents of which appears at page 35
of this prospectus, is available upon request and without charge from the Ac-
count at the address or telephone number above.
The prospectus for the Fund, which is attached to this prospectus, describes
the investment objectives, policies and risks of investing in the Portfolios
of the Fund: Growth & Income, Sovereign Bond, Money Market, Large Cap Growth,
Managed, Real Estate Equity, International Equities, Short-Term U.S. Govern-
ment, Special Opportunities, Equity Index, Large Cap Value, Mid Cap Growth,
Mid Cap Value, Small Cap Growth, Small Cap Value, Strategic Bond, Interna-
tional Opportunities, and International Balanced.
THIS PROSPECTUS SHOULD BE READ AND RETAINED FOR FUTURE REFERENCE.
IT IS NOT VALID UNLESS ATTACHED TO A CURRENT PROSPECTUS FOR THE FUND.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR ADE-
QUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OF-
FENSE.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
SYNOPSIS OF EXPENSE INFORMATION........................................... 2
CONDENSED FINANCIAL INFORMATION........................................... 8
SPECIAL TERMS............................................................. 10
SUMMARY INFORMATION....................................................... 11
THE VARIABLE ANNUITY...................................................... 15
JOHN HANCOCK, THE ACCOUNT AND THE SERIES FUND............................. 15
CHARGES UNDER VARIABLE ANNUITY CONTRACTS.................................. 18
Deductions for Sales and Administrative Expenses and Minimum Death Bene-
fit..................................................................... 19
Premium or Similar Taxes................................................. 20
Charges for Mortality and Expense Risks.................................. 20
Charges for Administrative Services...................................... 20
THE CONTRACTS............................................................. 21
THE ACCUMULATION PERIOD................................................... 21
Accumulation Shares...................................................... 21
Value of Accumulation Shares............................................. 22
Transfers Among Subaccounts.............................................. 22
Surrender of Contract; Partial Withdrawals............................... 22
Death Benefit Before Date of Maturity.................................... 23
THE ANNUITY PERIOD........................................................ 24
Deferred Variable Annuity Contracts...................................... 24
Immediate Variable Annuity Contracts..................................... 24
Variable Monthly Annuity Payments........................................ 24
Assumed Investment Rate.................................................. 25
Calculation of Annuity Units............................................. 25
Annuity Options.......................................................... 25
Option VA-1 Life Annuity with Five, Ten or Twenty Years Certain.......... 25
Option VA-2 Life Annuity without Refund.................................. 26
Other Conditions......................................................... 26
VARIABLE ACCOUNT VALUATION PROCEDURES..................................... 26
MISCELLANEOUS PROVISIONS.................................................. 27
FEDERAL INCOME TAXES...................................................... 28
The Account and John Hancock............................................. 28
Contracts Purchased Other Than to Fund a Tax Qualified Plan.............. 28
Diversification Requirements............................................. 29
Contracts Purchased to Fund a Tax Qualified Plan......................... 29
PERFORMANCE............................................................... 32
STATE REGULATION.......................................................... 33
REPORTS................................................................... 33
VOTING PRIVILEGES......................................................... 33
CHANGES IN APPLICABLE LAW--FUNDING AND OTHERWISE.......................... 34
LEGAL MATTERS............................................................. 34
DISTRIBUTION OF THE CONTRACTS............................................. 34
REGISTRATION STATEMENT.................................................... 34
EXPERTS................................................................... 34
FINANCIAL STATEMENTS...................................................... 36
TABLE OF CONTENTS OF STATEMENT OF ADDITIONAL INFORMATION.................. 36
APPENDIX--ILLUSTRATIVE ACCUMULATION VALUE AND ANNUITY PAYMENT TABLES...... 37
</TABLE>
2
<PAGE>
SYNOPSIS OF EXPENSE INFORMATION
SINGLE PAYMENT IMMEDIATE CONTRACTS
The purpose of this synopsis is to assist the Owner in understanding the
various costs and expenses that an Owner will bear directly or indirectly on
single payment immediate contracts. This synopsis includes expenses of the Ac-
count as well as those of the Fund. This synopsis does not include any premium
taxes that may be applicable. For a more complete description of the Account
charges, see "Charges under Variable Annuity Contracts." For a more complete
description of the investment advisory fee charged each Portfolio and the an-
nual operating expenses of each Portfolio, see the prospectus for the Fund.
CONTRACT EXPENSES
<TABLE>
<S> <C>
Maximum Sales Load on Purchases/1/ (as a percentage of purchase pay-
ments).................................................................. 5.00%
Annual Contract Fee...................................................... $0
SEPARATE ACCOUNT ANNUAL EXPENSES
(as a percentage of average account value)
Mortality and Expense Risk Charge........................................ 0.75%
Administrative Services Charge........................................... 0.25%
----
Total Separate Account Annual Expenses................................... 1.00%
</TABLE>
ANNUAL FUND OPERATING EXPENSES (as a percentage of average daily net assets)
The figures in the following chart reflect the investment management fees
currently payable and the 1996 non-advisory expenses that would have been al-
located to the Fund under the allocation rules currently in effect.
<TABLE>
<CAPTION>
OTHER FUND
EXPENSES
OTHER FUND TOTAL ABSENT
MANAGE- EXPENSES FUND EXPENSE
MENT AFTER EXPENSE OPERATING REIMBURSE-
FUND NAME FEE REIMBURSEMENT EXPENSES MENT/2/
--------- ------- ------------- --------- ----------
<S> <C> <C> <C> <C>
Managed.............................. 0.34% 0.03% 0.37% N/A
Growth & Income...................... 0.25% 0.03% 0.28% N/A
Equity Index......................... 0.20% 0.25% 0.45% 1.61%
Large Cap Value...................... 0.75% 0.25% 1.00% 1.89%
Large Cap Growth..................... 0.40% 0.05% 0.45% N/A
Mid Cap Value........................ 0.80% 0.25% 1.05% 2.15%
Mid Cap Growth....................... 0.85% 0.25% 1.10% 2.34%
Special Opportunities................ 0.75% 0.12% 0.87% N/A
Real Estate Equity................... 0.60% 0.11% 0.71% N/A
Small Cap Value...................... 0.80% 0.25% 1.05% 2.06%
Small Cap Growth..................... 0.75% 0.25% 1.00% 1.55%
International Balanced............... 0.85% 0.25% 1.10% 1.44%
International Equities............... 0.60% 0.18% 0.78% N/A
International Opportunities.......... 1.00% 0.25% 1.25% 2.76%
Short-Term U.S. Government........... 0.30% 0.25% 0.55% 0.79%
Sovereign Bond....................... 0.25% 0.06% 0.31% N/A
Strategic Bond....................... 0.75% 0.25% 1.00% 1.57%
Money Market......................... 0.25% 0.07% 0.32% N/A
</TABLE>
The following examples should not be considered representations of past or
future expenses; actual expenses may be greater than or less than those shown
above.
3
<PAGE>
EXAMPLES
Single payment immediate annuity contracts cannot be surrendered and must be
annuitized not more than two months after receipt of the purchase payment at
the Servicing Office of John Hancock. You would pay the following expenses on
a $1000 investment, at the end of the applicable time period, assuming 5% re-
turn on assets:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
MANAGED......................................... $63 $ 91 $121 $206
GROWTH & INCOME................................. $62 $ 89 $117 $197
EQUITY INDEX.................................... $64 $ 94 $125 $215
LARGE CAP VALUE................................. $69 $110 $152 $271
LARGE CAP GROWTH................................ $64 $ 94 $125 $215
MID CAP VALUE................................... $70 $111 $155 $276
MID CAP GROWTH.................................. $70 $112 $157 $281
SPECIAL OPPORTUNITIES........................... $68 $106 $146 $258
REAL ESTATE EQUITY.............................. $66 $101 $138 $242
SMALL CAP VALUE................................. $70 $111 $155 $276
SMALL CAP GROWTH................................ $69 $110 $152 $271
INTERNATIONAL BALANCED.......................... $70 $112 $157 $281
INTERNATIONAL EQUITIES.......................... $67 $103 $142 $249
INTERNATIONAL OPPORTUNITIES..................... $72 $117 $164 $296
SHORT TERM US GOVERNMENT........................ $65 $ 97 $130 $225
SOVEREIGN BOND.................................. $63 $ 89 $118 $200
STRATEGIC BOND.................................. $69 $110 $152 $271
MONEY MARKET.................................... $63 $ 90 $119 $201
</TABLE>
1 The Sales Load Imposed on Purchase falls with increasing purchase size. The
sales load is calculated as follows:
$50 Administrative Expense Deduction per sale PLUS
4.00% of the first $10,000 (minimum sale is $5,000)
3.00% of the next $15,000
2.00% of the next $75,000
1.00% of any amount over $100,000
2 John Hancock reimburses a Portfolio when the Portfolio's Other Expenses
exceed 0.25% of its average daily net asset value.
4
<PAGE>
SYNOPSIS OF EXPENSE INFORMATION
SINGLE PAYMENT DEFERRED CONTRACTS
The purpose of this synopsis is to assist the Owner in understanding the
various costs and expenses that an Owner will bear directly or indirectly on
single payment deferred contracts. This synopsis includes expenses of the Ac-
count as well as those of the Fund. This synopsis does not include any premium
taxes that may be applicable. For a more complete description of the Account
charges, see "Charges under Variable Annuity Contracts." For a more complete
description of the investment advisory fee charged each Portfolio and the an-
nual operating expenses of each Portfolio, see the prospectus for the Fund.
CONTRACT EXPENSES
<TABLE>
<S> <C>
Maximum Sales Load on Purchases/1/ (as a percentage of purchase pay-
ments).................................................................. 5.50%
Annual Contract Fee...................................................... $0
SEPARATE ACCOUNT ANNUAL EXPENSES
(as a percentage of average account value)
Mortality and Expense Risk Charge........................................ 0.75%
Administrative Services Charge........................................... 0.25%
----
Total Separate Account Annual Expenses................................... 1.00%
</TABLE>
ANNUAL FUND OPERATING EXPENSES (as a percentage of average daily net assets)
The figures in the following chart reflect the investment management fees
currently payable and the 1996 non-advisory expenses that would have been al-
located to the Fund under the allocation rules currently in effect.
<TABLE>
<CAPTION>
OTHER FUND OTHER FUND
EXPENSES EXPENSES
AFTER TOTAL ABSENT
MANAGE- EXPENSE FUND EXPENSE
MENT REIMBURSE- OPERATING REIMBURSE-
FUND NAME FEE MENT EXPENSES MENT/2/
--------- ------- ---------- --------- ----------
<S> <C> <C> <C> <C>
Managed................................. 0.34% 0.03% 0.37% N/A
Growth & Income......................... 0.25% 0.03% 0.28% N/A
Equity Index............................ 0.20% 0.25% 0.45% 1.61%
Large Cap Value......................... 0.75% 0.25% 1.00% 1.89%
Large Cap Growth........................ 0.40% 0.05% 0.45% N/A
Mid Cap Value........................... 0.80% 0.25% 1.05% 2.15%
Mid Cap Growth.......................... 0.85% 0.25% 1.10% 2.34%
Special Opportunities................... 0.75% 0.12% 0.87% N/A
Real Estate Equity...................... 0.60% 0.11% 0.71% N/A
Small Cap Value......................... 0.80% 0.25% 1.05% 2.06%
Small Cap Growth........................ 0.75% 0.25% 1.00% 1.55%
International Balanced.................. 0.85% 0.25% 1.10% 1.44%
International Equities.................. 0.60% 0.18% 0.78% N/A
International Opportunities............. 1.00% 0.25% 1.25% 2.76%
Short-Term U.S. Government.............. 0.30% 0.25% 0.55% 0.79%
Sovereign Bond.......................... 0.25% 0.06% 0.31% N/A
Strategic Bond.......................... 0.75% 0.25% 1.00% 1.57%
Money Market............................ 0.25% 0.07% 0.32% N/A
</TABLE>
The following examples should not be considered representations of past or
future expenses; actual expenses may be greater than or less than those shown
above.
5
<PAGE>
EXAMPLES
Whether or not you surrender your contract or annuitize at the end of the ap-
plicable time period, you would pay the following expenses on a $1000 invest-
ment, assuming 5% annual return on assets:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
MANAGED......................................... $68 $ 96 $126 $211
GROWTH & INCOME................................. $67 $ 93 $121 $201
EQUITY INDEX.................................... $69 $ 98 $130 $219
lARGE CAP VALUE................................. $74 $114 $157 $275
LARGE CAP GROWTH................................ $69 $ 98 $130 $219
MID CAP VALUE................................... $75 $116 $159 $280
MID CAP GROWTH.................................. $75 $117 $162 $285
SPECIAL OPPORTUNITIES........................... $73 $111 $151 $262
REAL ESTATE EQUITY.............................. $71 $106 $143 $246
SMALL CAP VALUE................................. $75 $116 $159 $280
SMALL CAP GROWTH................................ $74 $114 $157 $275
INTERNATIONAL BALANCED.......................... $75 $117 $162 $285
INTERNATIONAL EQUITIES.......................... $72 $108 $146 $253
INTERNATIONAL OPPORTUNITIES..................... $77 $121 $169 $299
SHORT TERM US GOVERNMENT........................ $70 $101 $135 $229
SOVEREIGN BOND.................................. $68 $ 94 $123 $204
STRATEGIC BOND.................................. $74 $114 $157 $275
MONEY MARKET.................................... $68 $ 95 $123 $205
</TABLE>
/1/The Sales Load Imposed on Purchase falls with increasing purchase size.
The sales load is calculated as follows:
$50 Administrative Expense Deduction PLUS:
4.50% of the first $10,000 (minimum sale is $5,000)
3.50% of the next $15,000
2.50% of the next $75,000
1.50% of any amount over $100,000
The minimum death benefit charge included in the above sales loads is
0.50%. Because no minimum death benefit is provided under single payment
immediate Contracts or under deferred Contracts where the single payment
is made on or after the Contract anniversary nearest the Annuitant's 65th
birthday, no deduction is made for such benefit from payments made on or
after such date.
/2John/Hancock reimburses a Portfolio when the Portfolio's Other Expenses ex-
ceed 0.25% of its average daily net asset value.
6
<PAGE>
SYNOPSIS OF EXPENSE INFORMATION
PERIODIC PAYMENT DEFERRED CONTRACTS
The purpose of this synopsis is to assist the Owner in understanding the
various costs and expenses that an Owner will bear directly or indirectly on
periodic payment deferred contracts. This synopsis includes expenses of the
Account as well as those of the Fund. This synopsis does not include any pre-
mium taxes that may be applicable. For a more complete description of the Ac-
count charges, see "Charges under Variable Annuity Contracts." For a more com-
plete description of the investment advisory fee charged each Portfolio and
the annual operating expenses of each Portfolio, see the prospectus for the
Fund.
CONTRACT EXPENSES
<TABLE>
<S> <C>
Maximum Sales Load on Purchases/1/ (as a percentage of purchase pay-
ments).................................................................. 8.00%
Annual Contract Fee/2/................................................... $10
SEPARATE ACCOUNT ANNUAL EXPENSES
(as a percentage of average account value)
Mortality and Expense Risk Charge........................................ 0.75%
Administrative Services Charge........................................... 0.25%
----
Total Separate Account Annual Expenses................................... 1.00%
</TABLE>
ANNUAL FUND OPERATING EXPENSES (as a percentage of average daily net assets)
The figures in the following chart reflect the investment management fees
currently payable and the 1996 non-advisory expenses that would have been al-
located to the Fund under the allocation rules currently in effect.
<TABLE>
<CAPTION>
OTHER FUND
EXPENSES
OTHER FUND TOTAL ABSENT
MANAGE- EXPENSES FUND EXPENSE
MENT AFTER EXPENSE OPERATING REIMBURSE-
FUND NAME FEE REIMBURSEMENT EXPENSES MENT/3/
--------- ------- ------------- --------- ----------
<S> <C> <C> <C> <C>
Managed.............................. 0.34% 0.03% 0.37% N/A
Growth & Income...................... 0.25% 0.03% 0.28% N/A
Equity Index......................... 0.20% 0.25% 0.45% 1.61%
Large Cap Value...................... 0.75% 0.25% 1.00% 1.89%
Large Cap Growth..................... 0.40% 0.05% 0.45% N/A
Mid Cap Value........................ 0.80% 0.25% 1.05% 2.15%
Mid Cap Growth....................... 0.85% 0.25% 1.10% 2.34%
Special Opportunities................ 0.75% 0.12% 0.87% N/A
Real Estate Equity................... 0.60% 0.11% 0.71% N/A
Small Cap Value...................... 0.80% 0.25% 1.05% 2.06%
Small Cap Growth..................... 0.75% 0.25% 1.00% 1.55%
International Balanced............... 0.85% 0.25% 1.10% 1.44%
International Equities............... 0.60% 0.18% 0.78% N/A
International Opportunities.......... 1.00% 0.25% 1.25% 2.76%
Short-Term U.S. Government........... 0.30% 0.25% 0.55% 0.79%
Sovereign Bond....................... 0.25% 0.06% 0.31% N/A
Strategic Bond....................... 0.75% 0.25% 1.00% 1.57%
Money Market......................... 0.25% 0.07% 0.32% N/A
</TABLE>
The following examples should not be considered representations of past or
future expenses; actual expenses may be greater than or less than those shown
above.
7
<PAGE>
EXAMPLES
Whether or not you surrender your contract or annuitize the end of the appli-
cable time period, you would pay the following expenses on a $1000 investment,
assuming 5% annual return on assets:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
MANAGED......................................... $ 93 $122 $152 $238
GROWTH & INCOME................................. $ 93 $119 $148 $228
EQUITY INDEX.................................... $ 94 $124 $156 $246
LARGE CAP VALUE................................. $ 99 $139 $182 $300
LARGE CAP GROWTH................................ $ 94 $124 $156 $246
MID CAP VALUE................................... $100 $141 $184 $305
MID CAP GROWTH.................................. $100 $142 $187 $309
SPECIAL OPPORTUNITIES........................... $ 98 $136 $176 $287
REAL ESTATE EQUITY.............................. $ 97 $131 $168 $272
SMALL CAP VALUE................................. $100 $141 $184 $305
SMALL CAP GROWTH................................ $ 99 $139 $182 $300
INTERNATIONAL BALANCED.......................... $100 $142 $187 $309
INTERNATIONAL EQUITIES.......................... $ 97 $133 $172 $279
INTERNATIONAL OPPORTUNITIES..................... $102 $146 $194 $323
SHORT TERM US GOVERNMENT........................ $ 95 $127 $161 $256
SOVEREIGN BOND.................................. $ 93 $120 $149 $231
STRATEGIC BOND.................................. $ 99 $139 $182 $300
MONEY MARKET.................................... $ 93 $120 $149 $232
</TABLE>
/1/The Sales Load Imposed on Purchases falls with increasing purchase size.
The sales load is calculated as follows:
8.00% of the first $10,000 (minimum sale is $5,000)
7.00% of the next $15,000
3.00% of any amount over $25,000
The minimum death benefit charge included in the above sales loads is
0.50%. Because no minimum death benefit is provided on or after the contract
anniversary nearest the Annuitant's 65th birthday, no deduction is made for
such benefit from payments made on or after such date.
/2The/Annual Contract Fee will be the lesser of $10 or 2% of the value of a
Contract's Accumulation Shares. The annual contract fee is assessed only
during the Accumulation Period. In the preceding Examples, the annual con-
tract fee has been expressed as an annual percentage of assets based on the
average Contract size during the year ended December 31, 1996.
/3/John Hancock reimburses a Portfolio when the Portfolio's Other Expenses
exceed 0.25% of its average daily net asset value.
These examples should not be considered representations of past or future ex-
penses; actual expenses may be greater than or less than those shown.
The purpose of the above synopsis is to assist the Owner in understanding the
various costs and expenses that an Owner will bear directly or indirectly.
This synopsis includes expenses of the Separate Account as well as those of
the Fund for the year ended December 31, 1996. For a more complete description
of the Separate Account charges, see "Charges under Variable Annuity Con-
tracts." For a more complete description of the investment advisory fee
charged each Portfolio and the annual operating expenses of each Portfolio,
see the Prospectus for the Fund. Any applicable premium taxes are not re-
flected in the foregoing examples.
8
<PAGE>
JOHN HANCOCK VARIABLE ANNUITY ACCOUNT U CONDENSED FINANCIAL INFORMATION
- -------------------------------------------------------------------------------
The tables below reflect the historical information for a share outstanding
throughout the period for John Hancock Variable Annuity Account U and for the
John Hancock Variable Account A and C (the stock accounts), A-1 and C-1 (the
bond accounts), and A-2 and C-2 (the money market accounts). Each of the for-
mer Stock (A and C), Bond (A-1 and C-1) and Money Market (A-2 and C-2) Ac-
counts held substantially the same investment portfolios since the investment
policies, objectives and restrictions applicable to the respective Accounts
were identical. They were also identical to those of the corresponding portfo-
lios of John Hancock Variable Series Trust I. Accordingly, the combined infor-
mation on a historical basis, as if John Hancock Variable Annuity Account U
had invested the net assets of the Accounts in the John Hancock Variable Se-
ries Trust I Growth & Income Portfolio, Sovereign Bond Portfolio and Money
Market Portfolio from its inception, would not vary materially from the his-
torical results.
SELECTED DATA FOR EACH ACCUMULATION SHARE OUTSTANDING THROUGHOUT EACH PERIOD:
<TABLE>
<CAPTION>
Year Ended Year Ended Year Ended Year Ended Year Ended Year Ended Year Ended Year Ended
December 31, December 31, December 31, December 31, December 31, December 31, December 31, December 31,
1996 1995 1994 1993 1992 1991 1990 1989
------------ ------------ ------------ ------------ ------------- ------------ ------------ ------------
<CAPTION>
Period from
February 21,
Year Ended 1987 to
December 31, December 31,
1988 1987
------------ ------------
GROWTH & INCOME SUBACCOUNT
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Accumulation
share value:
Beginning of
period......... $ 93.721 $70.532 $71.638 $63.844 $59.218 $47.482 $46.043 $36.714
End of period... $111.437 $93.721 $70.532 $71.638 $63.844 $59.218 $47.482 $46.043
Number of
Accumulation
Shares outstanding
at end of
period.......... 2,065,540 2,225,393 2,417,577 2,566,107 2,736,951 2,924,816 3,193,137 3,523,823
<S> <C> <C>
Accumulation
share value:
Beginning of
period......... $31.474 $35.395
End of period... $36.714 $31.474
Number of
Accumulation
Shares outstanding
at end of
period.......... 4,108,528 4,943,324
SOVEREIGN BOND SUBACCOUNT
Accumulation
share value:
Beginning of
period......... $ 43.188 $36.491 $37.828 $34.492 $32.360 $28.016 $26.350 $23.666
End of period... $ 44.514 $43.188 $36.491 $37.828 $34.492 $32.360 $28.016 $26.350
Number of
Accumulation
Shares
outstanding at
end of period... 1,980,126 2,205,467 2,486,013 2,730,735 2,953,463 3,166,240 3,455,875 3,913,241
Accumulation
share value:
Beginning of
period......... $22.052 $22.082
End of period... $23.666 $22.052
Number of
Accumulation
Shares
outstanding at
end of period... 4,557,497 5,164,334
MONEY MARKET SUBACCOUNT
Accumulation
share value:
Beginning of
period......... $21.627 $20.649 $20.036 $19.636 $19.136 $18.238 $17.015 $15.718
End of period... $22.554 $21.627 $20.649 $20.036 $19.636 $19.136 $18.238 $17.015
Number of
Accumulation
Shares
outstanding at
end of period... 857,514 972,149 1,068,017 1,171,917 1,598,576 2,013,162 2,357,840 2,653,748
Accumulation
share value:
Beginning of
period......... $14.755 $14.063
End of period... $15.718 $14.755
Number of
Accumulation
Shares
outstanding at
end of period... 2,948,321 2,916,769
</TABLE>
<TABLE>
<CAPTION>
Period from
January 1,
1987 to Year Ended
February 20, December 31,
1987**** 1986
------------ ------------
JOHN HANCOCK VARIABLE ACCOUNT A (STOCK ACCOUNT)
<S> <C> <C>
Accumulation share value:
Beginning of period................................. $30.593 $26.702
End of period....................................... $35.395 $30.593
Number of Accumulation Shares outstanding at end of
period.............................................. 2,346,758 2,255,969
JOHN HANCOCK VARIABLE ACCOUNT C (STOCK ACCOUNT)
Accumulation share value:
Beginning of period................................. $32.966 $28.763
End of period....................................... $38.092 $32.966
Number of Accumulation Shares outstanding at end of
period.............................................. 1,771,606 1,675,871
</TABLE>
9
<PAGE>
<TABLE>
<CAPTION>
Period from
January 1,
1987 to Year Ended
February 20, December 31,
1987**** 1986
------------ ------------
JOHN HANCOCK VARIABLE ACCOUNT A-1 (BOND ACCOUNT)
<S> <C> <C>
Accumulation share value:
Beginning of period................................. $21.698 $19.307
End of period....................................... $22.082 $21.698
Number of Accumulation Shares outstanding
at end of period.................................... 2,288,161 2,190,684
JOHN HANCOCK VARIABLE ACCOUNT C-1 (BOND ACCOUNT)
Accumulation share value:
Beginning of period................................. $20.872 $18.573
End of period....................................... $21.252 $20.872
Number of Accumulation Shares outstanding at end of
period.............................................. 2,895,151 2,776,975
</TABLE>
<TABLE>
<CAPTION>
Period from
January 1,
1987 to Year Ended
February 20, December 31,
1987**** 1986
------------ ------------
JOHN HANCOCK VARIABLE ACCOUNT A-2 (MONEY MARKET ACCOUNT)
<S> <C> <C>
Accumulation share value:
Beginning of period................................. $13.968 $13.222
End of period....................................... $14.063 $13.968
Number of Accumulation Shares outstanding at end of
period.............................................. 982,168 1,002,016
JOHN HANCOCK VARIABLE ACCOUNT C-2 (MONEY MARKET ACCOUNT)
Accumulation share value:
Beginning of period................................. $14.302 $13.535
End of period....................................... $14.400 $14.302
Number of Accumulation Shares outstanding at end of
period.............................................. 1,188,858 1,203,443
</TABLE>
<TABLE>
<CAPTION>
Period from
***May 1,
Year Ended Year Ended Year Ended Year Ended Year Ended Year Ended 1990 to
December 31, December 31, December 31, December 31, December 31, December 31, December 31,
1996 1995 1994 1993 1992 1991 1990
------------ ------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
LARGE CAP GROWTH
SUBACCOUNT
Accumulation Share Val-
ue:
Beginning of Period.... $21.295 $16.339 $16.666 $14.791 $13.589 $10.941 $10.000
End of Period.......... $24.935 $21.295 $16.339 $16.666 $14.791 $13.589 $10.941
Number of Accumulation
Shares outstanding at
end of period.......... 159,241 159,494 141,064 110,712 86,619 58,121 36,358
INTERNATIONAL EQUITIES
SUBACCOUNT
Accumulation Share Val-
ue:
Beginning of Period.... $15.028 $14.053 $15.117 $11.559 $11.871 $ 9.719 $10.000
End of Period.......... $16.246 $15.028 $14.053 $15.117 $11.559 $11.871 $ 9.719
Number of Accumulation
Shares outstanding at
end of period.......... 131,774 133,791 156,006 89,934 33,160 27,855 28,024
REAL ESTATE EQUITY
SUBACCOUNT
Accumulation Share Val-
ue:
Beginning of Period.... $16.628 $14.955 $14.684 $12.644 $11.009 $ 8.328 $10.000
End of Period.......... $21.908 $16.628 $14.955 $14.684 $12.644 $11.009 $ 8.328
Number of Accumulation
Shares outstanding at
end of period.......... 103,394 92,870 130,412 131,016 25,136 8,004 7,621
MANAGED SUBACCOUNT
Accumulation Share Val-
ue:
Beginning of Period.... $18.655 $14.826 $15.316 $13.861 $11.962 $10.763 $10.000
End of Period.......... $20.449 $18.655 $14.826 $15.316 $13.861 $11.962 $10.763
Number of Accumulation
Shares outstanding at
end of period.......... 1,053,821 1,072,417 1,100,811 1,115,432 806,671 451,945 262,273
</TABLE>
- --------
*** Date of initial public offering of Accumulation Shares.
**** Date of reorganization.
10
<PAGE>
<TABLE>
<CAPTION>
PERIOD FROM
MAY 1, 1996
(COMMENCEMENT OF
OPERATIONS) TO
DECEMBER 31, 1996
-----------------
<S> <C>
EQUITY INDEX SUBACCOUNT
Accumulation Share Value
Beginning of Period......................................... $10.000
End of Period............................................... $11.317
Number of Accumulation Shares outstanding at end of period.... 391,237
LARGE CAP VALUE
Accumulation Share Value
Beginning of Period......................................... $10.000
End of Period............................................... $11.284
Number of Accumulation Shares outstanding at end of period.... 254,841
MID CAP GROWTH SUBACCOUNT
Accumulation Share Value
Beginning of Period......................................... $10.000
End of Period............................................... $10.173
Number of Accumulation Shares outstanding at end of period.... 266,458
MID CAP VALUE SUBACCOUNT
Accumulation Share Value
Beginning of Period......................................... $10.000
End of Period............................................... $11.510
Number of Accumulation Shares outstanding at end of period.... 93,392
SMALL CAP GROWTH SUBACCOUNT
Accumulation Share Value
Beginning of Period......................................... $10.000
End of Period............................................... $ 9.857
Number of Accumulation Shares outstanding at end of period.... 429,750
SMALL CAP VALUE SUBACCOUNT
Accumulation Share Value
Beginning of Period......................................... $10.000
End of Period............................................... $10.931
Number of Accumulation Shares outstanding at end of period.... 160,674
STRATEGIC BOND SUBACCOUNT
Accumulation Share Value
Beginning of Period......................................... $10.000
End of Period............................................... $10.572
Number of Accumulation Shares outstanding at end of period.... 239,685
INTERNATIONAL OPPORTUNITIES SUBACCOUNT
Accumulation Share Value
Beginning of Period......................................... $10.000
End of Period............................................... $10.573
Number of Accumulation Shares outstanding at end of period.... 218,939
INTERNATIONAL BALANCED SUBACCOUNT
Accumulation Share Value
Beginning of Period......................................... $10.000
End of Period............................................... $10.573
Number of Accumulation Shares outstanding at end of period.... 72,243
</TABLE>
11
<PAGE>
SPECIAL TERMS
As used in this prospectus, the following terms have the indicated meanings:
ACCUMULATION SHARE: a unit of measurement used in determining the value of a
Contract prior to the commencement of annuity payments or, if earlier, con-
tract lapse. The value of an Accumulation Share for each subaccount will re-
flect the investment performance of that subaccount and will vary in dollar
amount.
ANNUITANT: the person on whose life the Contract is issued.
ANNUITY OPTION: the provisions under which a series of annuity payments is
made to the Annuitant or other payee, such as the Life Annuity with Twenty
Years Certain.
ANNUITY UNIT: a unit of measurement used in determining the amount of each
variable annuity payment. The value of an Annuity Unit for each subaccount
will depend upon the assumed investment rate and the investment performance of
that subaccount and will vary in dollar amount.
BENEFICIARY: the person who receives the proceeds in the event of the death of
the Owner or the Annuitant.
CODE: the Internal Revenue Code of 1986, as amended.
OWNER: the person or entity, usually the one to whom the Contract is issued,
who has the sole right to exercise all rights and privileges under the Con-
tract except as otherwise provided in the Contract.
DATE OF MATURITY OF A DEFERRED CONTRACT: the date elected by the Owner as of
which annuity payments will commence. The election is subject to certain con-
ditions described in "The Annuity Period--Deferred Variable Annuity Con-
tracts".
MAJORITY VOTE OF THE OUTSTANDING CONTRACTS: the vote of Owners, at any meeting
of Owners duly called, having more than 50% of the number of votes represented
by outstanding contracts or, if it is less, having 67% or more of the votes
represented at a meeting at which more than 50% of such a number of votes are
present or represented by proxy.
MINIMUM DEATH BENEFIT: the undertaking of John Hancock under a deferred Con-
tract to make a payment on the death of the Annuitant at any time before the
contract anniversary nearest the Annuitant's 65th birthday equal to the
greater of the aggregate amount of the purchase payments made under the Con-
tract (reduced to reflect redemptions of Accumulation Shares, if any, previ-
ously made as partial withdrawals) or the value of the Accumulation Shares
credited to the Contract next determined following John Hancock's receipt of
due proof of death. See "The Accumulation Period--Death Benefit Before Date of
Maturity".
NET PURCHASE PAYMENT: the amount of any purchase payment reduced by (i) appli-
cable taxes, if any, based on the amount of the purchase payment, (ii) the de-
duction to compensate John Hancock for its minimum death benefit undertaking,
if any, and (iii) the deduction for sales and administrative expenses.
SERVICING OFFICE: P.O. Box 111, Boston, MA 02117.
SURRENDER VALUE: a cash payment, made prior to a Contract's maturity, equal to
all or part of the Accumulation Shares credited to the Contract.
12
<PAGE>
SUMMARY INFORMATION
The Contracts are designed both for purchase by individuals doing their own
retirement planning, including plans and trusts not qualifying under the In-
ternal Revenue Code of 1986 ("Code") and for purchase for persons participat-
ing in (1) pension and profit-sharing plans qualified under Section 401(c) of
the Code, known as "H.R. 10 plans", (2) pension or profit-sharing plans quali-
fied under Sections 401(a) or 403(a) of the Code, known as "corporate plans",
(3) annuity purchase plans adopted under the provisions of Section 403(b) of
the Code by public school systems and certain other tax-exempt organizations,
(4) individual retirement annuity plans satisfying the requirements of Section
408 of the Code, and (5) deferred compensation plans maintained by a state or
political subdivision under Section 457 of the Code.
In order to accommodate "employer-related" plans funded by the Contracts,
contract forms using "unisex" purchase rates, i.e. rates the same for males
and females, are available. Any questions you have as to whether you are par-
ticipating in an employer-related plan should be directed to your employer.
Any other question you or your employer may have with respect to this topic
can be asked of John Hancock by calling 800-REAL LIFE (732-5543) or by writing
John Hancock Servicing Office, Post Office Box 111, Boston, MA 02117.
WHAT ARE THE VARIABLE ANNUITIES BEING OFFERED?
Three kinds of Contracts are offered: (1) a periodic payment deferred Con-
tract under which purchase payments may be made at intervals until the matu-
rity date selected by the Owner at which time annuity payments by John Hancock
will begin; (2) a single payment deferred Contract under which one purchase
payment is made and annuity payments begin as of the maturity date; and (3) a
single payment immediate Contract under which one purchase payment is made and
annuity payments begin immediately thereafter.
An application for a Contract is available from a sales representative. Upon
completion, it is transmitted along with the purchase payment to John
Hancock's Servicing Office for review. (See "Distribution of the Contracts.")
WHAT IS JOHN HANCOCK VARIABLE ANNUITY ACCOUNT U?
The Account is a separate investment account of John Hancock, operated as a
unit investment trust, which supports benefits payable under its Contracts.
There are currently eighteen subaccounts within the Account: Growth & Income,
Sovereign Bond, Money Market, Large Cap Growth, Managed, Real Estate Equity,
International Equities, Short-Term U.S. Government, Special Opportunities, Eq-
uity Index, Large Cap Value, Mid Cap Growth, Mid Cap Value, Small Cap Growth,
Small Cap Value, Strategic Bond, International Opportunities, and Interna-
tional Balanced. The assets of each subaccount are invested in the correspond-
ing Portfolio of the Fund.
Each Portfolio has a different investment objective. As stated below, John
Hancock receives a fee from the Fund for providing investment management serv-
ices. Independence Investment Associates, Inc., ("IIA") provides sub-invest-
ment management services with respect to the Growth & Income, Large Cap
Growth, Managed, Real Estate Equity, and Short-Term U.S. Government Portfo-
lios.
John Hancock Advisers, Inc., and John Hancock Advisers International Limited
provide sub-investment management services for the International Equities
Portfolio. John Hancock Advisers provides sub-investment management services
for the Sovereign Bond, Small Cap Growth and Special Opportunities Portfolios.
T. Rowe Price Associates, Inc., provides sub-investment advice to the Large
Cap Value Portfolio and its subsidiary, Rowe Price-Fleming International,
Inc., provides sub-investment advice with respect to the International Oppor-
tunities Portfolio.
13
<PAGE>
State Street Bank & Trust, N.A., is the sub-investment adviser to the Equity
Index Portfolio. INVESCO Management & Research is the sub-investment adviser
to the Small Cap Value Portfolio. Janus Capital Corporations the sub-invest-
ment adviser to the Mid Cap Growth Portfolio. Neuberger & Berman, LLC, pro-
vides sub-investment advice with respect to the Mid Cap Value Portfolio. J.P.
Morgan Investment Management Inc., provides sub-investment advice with respect
to the Strategic Bond Portfolio and Brinson Partners, Inc., does likewise with
respect to the International Balanced Portfolio. Each sub-investment manager
receives an annual percentage fee from John Hancock for its services which in
no way increases the costs borne by the Fund, the Account, or Owners.
For a full description of the Fund, see the prospectus for the Fund attached
to this prospectus.
HOW ARE PURCHASE PAYMENTS ALLOCATED?
Purchase payments received under Contracts, after certain deductions, are al-
located by John Hancock to any one or more of the subaccounts of the Account,
as directed by the Owner. The assets in each subaccount are invested in shares
of the corresponding Portfolio of the Fund.
Purchase payments should be mailed to John Hancock Servicing Office, John
Hancock Place, Post Office Box 111, Boston, MA 02117.
WHAT FEES ARE CHARGED TO THE ACCOUNT?
The charges made directly to the Account aggregate approximately 1% per annum
of the net asset value of the Account and are made up of daily charges aggre-
gating 0.75% annually for mortality and expense risks assumed (0.50% on an an-
nual basis for mortality risks and 0.25% on an annual basis for expense risks)
and 0.25% for certain administrative services. (See "Charges Under Variable
Annuity Contracts".)
WHAT FEES ARE CHARGED TO THE FUND?
Investment management fees at annual rates ranging from 0.20% to 1.00% of av-
erage daily net assets are paid by the Portfolios to John Hancock. The Portfo-
lios also incur charges for other expenses incurred in their operations. In-
vestment management fees and other expenses are reflected in the net asset
value of each Portfolio's shares. For a description of these charges and ex-
penses, see the prospectus for the Fund. (See also "Synopsis of Expense Infor-
mation" in this prospectus.)
WHO IS THE PRINCIPAL UNDERWRITER OF THE ACCOUNT?
John Hancock Distributors, Inc., a registered broker-dealer since 1968, makes
Contracts available through its registered representatives licensed to sell
life insurance policies and annuity contracts.
WHAT ARE THE AMOUNTS DEDUCTED FROM PURCHASE PAYMENTS FOR SALES AND
ADMINISTRATIVE EXPENSES?
For periodic payment deferred Contracts the deduction (including 0.50% for
the minimum death benefit) is 8% of the first $10,000 paid (8.7% of the net
amount invested), 7% of the next $15,000, and 3% of any amount over $25,000.
For single payment immediate and deferred Contracts the deduction is 4% of
the first $10,000 paid, 3% of the next $15,000, 2% of the next $75,000 and 1%
of any amount over $100,000, plus an administrative expense deduction of $50
in any event. An additional deduction of 0.5% of the purchase payment is made
under single payment deferred Contracts for the minimum death benefit. These
deductions total 5.82% of the net amount invested under a minimum single pay-
ment deferred Contract. (See "Charges Under Variable Annuity Contracts.")
14
<PAGE>
ARE THERE ANY OTHER CHARGES OR DEDUCTIONS?
Deductions are made for any applicable taxes based on the amount of a pur-
chase payment: currently such taxes in certain states may be as high as 3% of
each purchase payment. (See "Charges Under Variable Annuity Contracts.")
Charges are made for any taxes or interest expense attributable to the Ac-
count. (See "Charges Under Variable Annuity Contracts.")
Under periodic payment Contracts, a maintenance charge equal to the lesser of
$10 or 2% of the value of the Contract will be deducted from each Contract an-
nually. (See "Charges Under Variable Annuity Contracts.")
WHAT ARE THE MINIMUMS APPLICABLE TO PURCHASE PAYMENTS?
The minimum for a single payment Contract is $5,000. The minimum for a pay-
ment under a periodic payment Contract is $50. One additional payment of at
least $2,500 can be made prior to maturity under a single payment deferred
Contract. The initial purchase payment under any periodic payment Contract
must be at least $1,000; thereafter any periodic payment must be at least $50.
(See "The Contracts--Purchase of Contracts.")
CAN MONEY BE WITHDRAWN PRIOR TO MATURITY?
At any time before annuity payments begin, if the Annuitant is living, a de-
ferred Contract may be surrendered in full for its then value or a portion of
the value of the Contract may be withdrawn, subject to certain limits. (See
"The Accumulation Period--Surrender of Contract; Partial Withdrawal.") A 10
percent penalty tax is generally applicable to premature withdrawals.
DOES THE CONTRACT PROVIDE A DEATH BENEFIT?
Deferred Contracts include a death benefit. The amount depends upon whether
the Annuitant dies before or after the contract anniversary nearest his or her
65th birthday. If before that date, the death benefit is the greater of (a)
the then value of the Accumulation Shares credited to the Contract or (b) the
purchase payments made under the Contract, adjusted for any prior partial
withdrawals. If after that date, the death benefit is equal to the then value
of the Accumulation Shares credited to the Contract.
However, if the Contract is used to fund an annuity purchase plan adopted un-
der Section 403(b) of the Code by a public school system or by a tax-exempt
organization as defined in Section 501(c)(3) of the Code, or is purchased
other than to fund a tax-qualified plan, the death benefit payable may be pay-
able on the death of the Owner of the Contract and in an amount different than
that which would have been payable on the Annuitant's death.
IS THERE A SHORT-TERM CANCELLATION RIGHT?
An Owner may surrender the Contract for any reason within 10 days after its
receipt and receive in cash the total purchase payment. An Owner of a periodic
payment Contract in Illinois, Minnesota, New York, Pennsylvania, Arizona or
South Dakota will receive the sum of the Contract's current value and all de-
ductions from the purchase payment.
15
<PAGE>
THE VARIABLE ANNUITY
A variable annuity is significantly different from a fixed annuity in that it
is the Owner and Annuitant under a variable annuity who assume the risk of in-
vestment gain or loss rather than the insurance company. While under a fixed
annuity the insurance company guarantees a specified interest rate and spe-
cific monthly annuity payments, the amounts of annuity payments under a vari-
able annuity are not guaranteed and will vary with the investment performance
of the portfolio securities in the underlying Fund.
The Owner will be determining the investment objective of each contract on a
continuing basis by directing the allocation of purchase payments, and possi-
bly accumulated values, between the subaccounts. There can be no assurance
that these investment objectives will be achieved.
JOHN HANCOCK, THE ACCOUNT AND THE SERIES FUND
JOHN HANCOCK
John Hancock is a mutual life insurance company chartered in Massachusetts in
1862. Its Home Office is at 200 Clarendon Street, Boston, Massachusetts 02117.
It conducts a conventional life insurance business in all of the United
States, the District of Columbia and Puerto Rico. John Hancock sells insurance
policies and annuity contracts directly to customers or through a career
agency system, banks, or broker/dealers.
THE ACCOUNT
The Account is a separate account established in its current form under Mas-
sachusetts Law on January 14, 1985. The Account, although an integral part of
John Hancock, meets the definition of "separate account" under the Federal Se-
curities laws and is registered as a unit investment trust under the Invest-
ment Company Act of 1940, as amended ("1940 Act"). Three of the Account's
subaccounts replaced the six management-type investment companies previously
established by John Hancock. Pursuant to a reorganization as of February 20,
1987, the investment assets formerly held in these Accounts were contributed
to the Stock (renamed Growth & Income), Bond (renamed Sovereign Bond), and
Money Market Portfolios, as appropriate, of the Fund. This reorganization was
accomplished by dividing the former Variable Account A into three subaccounts
and renaming it the John Hancock Variable Annuity Account U ("Account").
The Account's assets are the property of John Hancock and the obligations un-
der the Contracts are the obligations of John Hancock. Each Contract provides
that the portion of the Account's assets equal to the reserves and other lia-
bilities under the Contract with respect to the Account shall not be charge-
able with liabilities arising out of any other business John Hancock may con-
duct. In addition to the net assets and other liabilities for Contracts, the
Account's assets include assets derived from charges made by John Hancock and,
possibly, funds contributed by John Hancock to commence operation of the
subaccounts or their predecessors. From time to time these additional assets
may be transferred in cash by John Hancock to its general account. Before mak-
ing any such transfer, John Hancock will consider any possible adverse impact
the transfer might have on any subaccount.
Income, gains and losses, whether or not realized, from assets allocated to
the Account are, in accordance with the Contracts, credited to or charged
against the Account without regard to other income, gains or losses of John
Hancock.
There currently are eighteen subaccounts in the Account: Growth & Income,
Sovereign Bond, Money Market, Large Cap Growth, Managed, Real Estate Equity,
International Equities, Short-Term U.S. Government, Special Opportunities, Eq-
uity Index, Large Cap Value, Mid Cap Growth, Mid Cap Value, Small Cap Growth,
Small Cap Value, Strategic Bond, International Opportunities, and Interna-
tional Balanced.The assets in each are invested in shares of beneficial inter-
est issued by each Portfolio of the Fund, but the
16
<PAGE>
assets of one subaccount are not necessarily legally insulated from liabili-
ties associated with another subaccount. New subaccounts may be added and made
available to Owners.
THE SERIES FUND
The Fund is a "series" type of mutual fund which is registered under the 1940
Act as an open-end diversified management investment company and organized as
a Massachusetts business trust. The Fund serves as the investment medium for
the Account and for various unit investment trust separate accounts estab-
lished by John Hancock and John Hancock Variable Life Insurance Company for
variable life insurance policies and variable annuity contracts. A full de-
scription of the Fund, its investment objectives, policies and restrictions,
its charges, expenses and all other aspects of its operation is contained in
the attached prospectus (which should be read carefully before investing) and
the statement of additional information referred to therein, which should be
read together with this prospectus. Among other items, note the description of
the need to monitor events on the part of the Fund's Board of Trustees for
possible conflicts between separate accounts and other consequences.
A very brief summary of the investment objectives of each Portfolio is set
forth below.
Growth & Income Portfolio
The investment objective of this Portfolio is to achieve intermediate and
long-term growth of capital, with income as a secondary consideration. This
objective will be pursued by investments principally in common stocks (and se-
curities convertible into or with rights to purchase common stocks) of compa-
nies believed to offer growth potential over both the intermediate and the
long-term.
Sovereign Bond Portfolio
The investment objective of this Portfolio is to provide as high a level of
long-term total rate of return as is consistent with prudent investment risk,
through investment primarily in a diversified portfolio of freely marketable
debt securities. Total rate of return consists of current income, including
interest and discount accruals, and capital appreciation.
Money Market Portfolio
The investment objective of this Portfolio is to provide maximum current in-
come consistent with capital preservation and liquidity. It seeks to achieve
this objective by investing in a managed portfolio of high quality money mar-
ket instruments.
Large Cap Growth Portfolio
The investment objective of this Portfolio is to achieve above-average capi-
tal appreciation through the ownership of common stocks of companies believed
by management to offer above-average capital appreciation opportunities. Cur-
rent income is not an objective of the Portfolio.
Managed Portfolio
The investment objective of this Portfolio is to achieve maximum long-term
total return consistent with prudent investment risk. Investments will be made
in common stocks, convertibles and other equity investments, in bond and other
fixed income securities and in money market instruments.
Real Estate Equity Portfolio
The investment objective of this Portfolio is to provide above-average income
and long-term growth of capital by investment principally in equity securities
of companies in the real estate and related industries.
International Equities Portfolio
The investment objective of this Portfolio is to achieve long-term growth of
capital by investing primarily in foreign equity securities.
17
<PAGE>
Short-Term U.S. Government Portfolio:
The investment objective of this Portfolio is to provide a high level of cur-
rent income consistent with the maintenance of principal, through investment
in a portfolio of short-term U.S. Treasury securities and U.S. Government
agency securities
Special Opportunities Portfolio:
The investment objective of this Portfolio is to achieve long-term capital
appreciation by emphasizing investments in equity securities of issuers in
various economic sectors.
Equity Index Portfolio
The investment objective of this Portfolio is to provide investment results
that correspond to the total return of the U.S. market as represented by the
S&P 500 utilizing common stocks that are publicly traded in the United States.
Large Cap Value Portfolio
The investment objective of this Portfolio is to provide substantial dividend
income, as well as long-term capital appreciation, through investment in the
common stocks of established companies believed to offer favorable prospects
for increasing dividends and capital appreciation.
Mid Cap Growth Portfolio
The investment objective of this Portfolio is to provide long-term growth of
capital through a non-diversified portfolio investing largely in common stocks
of medium capitalization companies.
Mid Cap Value Portfolio
The investment objective of this Portfolio is to provide long-term growth of
capital primarily through investment in the common stocks of medium capital-
ization companies believed to sell at a discount to their intrinsic value.
Small Cap Growth Portfolio
The investment objective of this Portfolio is to provide long-term growth of
capital through a diversified portfolio investing primarily in common stocks
of small capitalization emerging growth companies.
Small Cap Value Portfolio
The investment objective of this Portfolio is to provide long-term growth of
capital by investing in a well diversified portfolio of equity securities of
small capitalization companies exhibiting value characteristics.
Strategic Bond Portfolio
The investment objective of this Portfolio is to provide a high total return
consistent with moderate risk of capital and maintenance of liquidity, from a
portfolio of domestic and international fixed income securities.
International Opportunities Portfolio
The investment objective of this Portfolio is to provide capital appreciation
through investment in common stocks of primarily well-established, non-United
States companies.
18
<PAGE>
International Balanced Portfolio
The investment objective of this Portfolio is to maximize total U.S. dollar
return, consisting of capital appreciation and current income, through invest-
ment in non-U.S. equity and fixed income securities.
John Hancock acts as the investment manager for the Fund. Independence In-
vestment Associates, Inc. ("IIA"), an indirectly owned subsidiary of John Han-
cock with its principal place of business at 53 State Street, Boston, MA
02109, provides sub-investment advice with respect to the Growth & Income,
Large Cap Growth, Managed, Real Estate Equity, and Short-Term U.S. Government
Portfolios.
John Hancock Advisers, Inc., another indirectly owned subsidiary, located at
101 Huntington Avenue, Boston, MA 02199, and its subsidiary, John Hancock Ad-
visers International, Limited, located at 34 Dover Street, London, England,
provide sub-investment advice with respect to the International Equities Port-
folio. John Hancock Advisers provides sub-investment advice with respect to
the Sovereign Bond, Small Cap Growth, and Special Opportunities Portfolios.
T. Rowe Price Associates, Inc., located at 100 East Pratt St., Baltimore, MD
21202, provides sub- investment advice with respect to the Large Cap Value
Portfolio and its subsidiary, Rowe Price-Fleming International, Inc., also lo-
cated at 100 East Pratt St., Baltimore, MD 21202, provides sub- investment ad-
vice with respect to the International Opportunities Portfolio.
State Street Bank & Trust, N.A., at Two International Place, Boston, MA
02110, is the sub-investment adviser to the Equity Index Portfolio. INVESCO
Management & Research located at 101 Federal Street, Boston, MA 02110, is the
sub-investment adviser to the Small Cap Value Portfolio. Janus Capital Corpo-
ration, with its principal place of business at 100 Filmore Street, Denver, CO
80206, is the sub-investment adviser to the Mid Cap Growth Portfolio. Neu-
berger & Berman, LLC, of 605 Third Avenue, New York, NY 10158, provides sub-
investment advice to the Mid Cap Value Portfolio. J.P. Morgan Investment Man-
agement Inc., located at 522 Fifth Avenue, New York, NY 10036, provides in-
vestment advice with respect to the Strategic Bond Portfolio and Brinson Part-
ners, Inc., of 209 South LaSalle Street, Chicago, IL 60604, does likewise with
respect to the International Balanced Portfolio.
John Hancock will purchase and redeem Fund shares for the Account at their
net asset value without any sales or redemption charges. Shares of the Fund
represent an interest in one of the Portfolios of the Fund which corresponds
to the subaccount of the Account. Any dividend or capital gains distributions
received by the Account will be reinvested in Fund shares at their net asset
value as of the dates paid. Any such distribution will result in a reduction
in the value of the Fund shares of the Portfolio from which the distribution
was made. The total net asset value of the Account will not change because of
such distribution, however.
On each Valuation Date, shares of each Portfolio are purchased or redeemed by
John Hancock for each subaccount based on, among other things, the amount of
net purchase payments allocated to the subaccount, dividends and distributions
reinvested, transfers to, from and among subaccounts, all to be effected as of
that date. Such purchases and redemptions are effected at the net asset value
per Fund share for each Portfolio determined on that same Valuation Date.
CHARGES UNDER VARIABLE ANNUITY CONTRACTS
Charges under Contracts are assessed in two ways: as deductions from purchase
payments for sales and administrative expenses and John Hancock's minimum
death benefit undertaking and as daily charges to the Account for mortality
and expense risks and administrative services. Under a periodic payment Con-
tract, there is also an annual maintenance charge equal to the lesser of $10
or 2% of the value of the Contract. These charges (which are exclusive of
taxes based on the amount of a purchase payment) and the Contract's annuity
purchase rates will apply for the duration of each Contract and will not be
increased by John Hancock.
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<PAGE>
As illustrated above, John Hancock is compensated and reimbursed for adminis-
trative services and expenses through the deduction from purchase payments and
in part through charges, described below. John Hancock makes no allocation of
administrative costs of this character as between the two sources of payment.
John Hancock believes that the principal administrative costs result from ac-
counting for the interest of each Owner, Annuitant or beneficiary and from
other phases of contract administration. The aggregate of the deductions from
purchase payments for administration services is expected by John Hancock not
to exceed the average expected cost of administrative services for the life of
the Contracts.
The foregoing charges do not include all of the expenses which may be in-
curred for the account of Owners and Annuitants. Additional charges will be
made directly to the Account for taxes, if any, based on the income of, capi-
tal gains of, assets in, or the existence of, the Account and interest on
funds borrowed. Moreover, the Account purchases and redeems shares of the Fund
at net asset value, a value which reflects the deduction from the assets of
the Fund of its investment management fee and of certain operating expenses
described, above, under "Summary Information--What fees are charged to the
Fund?".
DEDUCTIONS FOR SALES AND ADMINISTRATIVE EXPENSES AND MINIMUM DEATH BENEFIT
John Hancock Distributors, Inc. acts as "principal underwriter" (as defined
in the 1940 Act) for the Account.
As compensation for sales and administrative expenses and for providing the
minimum death benefit, John Hancock currently makes the deductions from pur-
chase payments set forth in the tables below (expressed as a percentage of the
purchase payments except where stated as a percentage of the amount invested).
To the extent that the proceeds from the explicit sales charges deducted from
the purchase payments may be insufficient to cover distribution costs, John
Hancock will recover them from its general account assets, which may consist
of, among other things, proceeds derived from mortality and expense risk
charges deducted from the Account.
In the case of a purchase payment for a single payment Contract which is de-
rived from proceeds (maturity benefit, cash surrender values, sums due under
optional methods of settlement and the like) of fixed dollar insurance poli-
cies and annuity contracts issued by John Hancock, the deduction for sales ex-
penses is at one-half the rate otherwise applicable and the $50 administrative
expense deduction will be waived; the other deductions, however, are made from
such a purchase payment. No deductions for sales expenses will be made from
purchase payments received from any officer or member of the Board of Trustees
of the Fund or from any sales representative of John Hancock who has acted as
such for not less than 90 days. Deductions other than for sales expenses are
nevertheless made from such purchase payments.
- -------------------------------------------------------------------------------
SINGLE PAYMENT CONTRACT TABLE (IMMEDIATE AND DEFERRED)
<TABLE>
<CAPTION>
Percentage Total Deductions including
Percentage Percentage Deduction Deduction for $50 Administrative
Amount of Deduction for Sales for Administrative Minimum Death Total Percentage Deduction as a Percentage of
Payment Expenses Expenses Benefita Deductionb Amount Investedb
- --------- ------------------- -------------------- ------------- ---------------- ----------------------------
<S> <C> <C> <C> <C> <C>
First $10,000 3.5% .5% .5% 4.5% 5.82-5.26%
Next $15,000 2.5% .5% .5% 3.5% 5.26-4.27%
Next $75,000 2.0% -- .5% 2.5% 4.27-2.99%
Over $100,000 1.0% -- .5% 1.5% 2.99-1.81%
</TABLE>
a Because no minimum death benefit is provided under single payment immediate
Contracts or under deferred Contracts where the single payment is made on or
after the contract anniversary nearest the Annuitant's 65th birthday, no de-
duction is made from such payments.
b Percentages do not include any deduction for taxes based on the amount of
the purchase payment.
- -------------------------------------------------------------------------------
20
<PAGE>
- -------------------------------------------------------------------------------
PERIODIC PAYMENT DEFERRED CONTRACT TABLE
<TABLE>
<CAPTION>
Percentage Percentage Deduction Percentage Deduction Total Deductions as a
Cumulative Deduction for Sales for Administrative for Minimum Death Total Percentage Percentage of Amount
Purchase Payments Expenses Expenses Benefita Deductionb Investedb
- ----------------- ------------------- -------------------- -------------------- ---------------- ---------------------
<S> <C> <C> <C> <C> <C>
First $10,000 6% 1.5% .5% 8% 8.7%
Next $15,000 5% 1.5% .5% 7% 8.70-7.99%
Over $25,000 1.5% 1.0% .5% 3% 7.99-3.33%
</TABLE>
a Because no minimum death benefit is provided on or after the contract anni-
versary nearest the Annuitant's 65th birthday, no deduction is made for such
benefit from payments made on or after such date.
b Percentages do not include any deduction for taxes based on the amount of
the purchase payment.
- -------------------------------------------------------------------------------
PREMIUM OR SIMILAR TAXES
In addition, any applicable taxes based on the amount applied to an annuity
option will be deducted normally from the amount applied to an Annuity Option,
but the right is reserved to deduct such taxes from the purchase payments. The
deductions in states having such a tax may currently be as high as 3%.
CHARGES FOR MORTALITY AND EXPENSE RISKS
While the variable annuity payments to Annuitants will vary in accordance
with the investment performance of the Account, the amount of such payments
will not be decreased because of adverse mortality experience of Annuitants as
a class or because of an increase in actual expenses of John Hancock over the
expense charges provided for in the Contracts. John Hancock assumes the risk
that Annuitants as a class may live longer than expected (necessitating a
greater number of annuity payments) and that its expenses may be higher than
the deductions for such expenses.
In return for the assumption for these mortality and expense risks, John Han-
cock charges the Account daily 0.00137% (0.5% on an annual basis) of the cur-
rent value of Account net assets for mortality risks and 0.000685% (0.25% on
an annual basis) for expense risks.
CHARGES FOR ADMINISTRATIVE SERVICES
John Hancock maintains an account for each Owner and Annuitant and makes all
disbursements of benefits. John Hancock also furnishes such administrative and
clerical services, including the calculation of net asset values and the val-
ues and interests determined thereby, as are required for each subaccount.
John Hancock makes disbursements from Account funds to pay obligations charge-
able to the Account and maintains the accounts, records, and other documents
relating to the business of the Account required by regulatory authorities.
For these and other administrative services, John Hancock makes a daily
charge to the Account of 0.000685% (0.25% on an annual basis) of the current
value of its net assets, and with respect to periodic payment contracts, an
annual maintenance charge equal to the lesser of $10 or 2% of the value of a
Contract's Accumulation Shares will be deducted from such value (on the con-
tract anniversary) each year prior to the Contract's date of maturity. The an-
nual maintenance charge will be allocated among the subaccounts in the propor-
tion that the value of the Accumulation Shares in each subaccount bears to the
total value of the Accumulation Shares. The annual maintenance charge is as-
sessed only during the Accumulation Period.
The administrative service charges were not designed, nor are they expected,
to exceed John Hancock's cost in providing these services.
21
<PAGE>
THE CONTRACTS
This section is based on certain provisions of the Contracts offered by this
Prospectus. Reference should be made to the actual Contracts and to the terms
and limitations of any tax-qualified plan which is to be funded by such Con-
tracts. Tax-qualified plans are subject to several requirements and limita-
tions which may affect the terms of any particular Contract or the advisabil-
ity of taking certain action permitted thereby.
PURCHASE OF CONTRACTS
The sales representative will assist in the completion of the application for
the Contract and will be responsible for its transmittal, together with the
necessary purchase payment, to John Hancock's Servicing Office. If the appli-
cation is complete and the Contract applied for is suitable, the Contract will
be issued and thereafter delivered by the sales representative. If a completed
application is received in proper order, the purchase payment accompanying the
application is applied within two business days after receipt. If an initial
purchase payment is not applied within five business days after receipt, it
will be refunded unless John Hancock has received the consent of the applicant
to retain the purchase payment until receipt of information necessary to com-
plete the issuance of the Contract.
Single payment deferred and immediate Contracts may be purchased by a single
purchase payment of $5,000 or more. However, in the case of a single payment
deferred Contract being purchased with the proceeds of fixed dollar insurance
policies and annuity contracts issued by John Hancock the single purchase pay-
ment may be $2,000 or more. One additional payment of at least $2,500 can be
made prior to maturity under a single payment deferred Contract.
Under periodic payment deferred Contracts, the initial purchase payment must
be at least $1,000, subsequent scheduled payments payable on a monthly basis
must be at least $50 in amount, and, if subsequent purchase payments are
scheduled to be made less frequently, purchase payments must total at least
$600 on an annual basis, except where a lower amount is required under the
terms of a plan or arrangement of an employer or organization. Although an
amount is specified in the Contract for the purchase payments, each purchase
payment after the first must be at least $50. Payments for the first contract
year may exceed the specified amount but shall not be more than twice the
amount of the specified payments for a contract year, and payments for any
contract year after the first shall not be more than twice the total payments
actually made with respect to any prior contract year. Increases in purchase
payments beyond the foregoing limits may be made only with John Hancock's
written consent. If a specified purchase payment is not made on its due date
or within 31 days thereafter, the Contract will nevertheless remain in force
as a paid-up annuity. While the Annuitant is living and the Contract is in
force purchase payments may be resumed at any time before maturity.
THE ACCUMULATION PERIOD
ACCUMULATION SHARES
Net purchase payments are allocated by John Hancock to any one or more of the
subaccounts or allocated among the subaccounts in the proportion specified in
the application for the Contract or as directed by the Owner from time to
time. Any change in the election will be effective as to purchase payments
made after the receipt by John Hancock at its Servicing Office of notice in
form satisfactory to John Hancock.
Each net purchase payment allocated to a subaccount under a deferred Contract
purchases Accumulation Shares of that subaccount at the value of such shares
next determined after the receipt of such net purchase payment at the Servic-
ing Office of John Hancock. See "Variable Account Valuation Procedures." The
number of Accumulation Shares of a subaccount purchased with a specific pur-
chase payment will be determined
22
<PAGE>
by dividing the net purchase payment by the value of an Accumulation Share in
that subaccount when the net purchase payment is applied. The value of the Ac-
cumulation Shares so purchased will vary in amount thereafter depending upon
the investment performance of the subaccount and the charges and deductions
made against the subaccount.
VALUE OF ACCUMULATION SHARES
At any date prior to a Contract's maturity date, the total value of the Accu-
mulation Shares in a subaccount which have been credited to a Contract can be
computed by multiplying the number of such Accumulation Shares by the appro-
priate Accumulation Share Value in effect for such date.
TRANSFERS AMONG SUBACCOUNTS
Not more often than four times in each contract year, the Owner may elect to
transfer all or any part of the Accumulation Shares or Annuity Units credited
to a Contract from one subaccount to another. Any such transfer will result in
the redemption and purchase of Accumulation Shares or Annuity Units, whichever
is applicable, on the basis of the respective values next determined after re-
ceipt of notice satisfactory to John Hancock at its Servicing Office. Current-
ly, there is no charge for transfers, and John Hancock has no present inten-
tion of imposing a charge on transfers among subaccounts.
An Owner may request a transfer in writing or, once a written telephone
transfer authorization form is completed by the Owner, the Owner may request a
transfer by telephoning John Hancock at 800-REAL LIFE (732-5543) or sending a
written request to John Hancock via the John Hancock fax machine at 617-572-
5410. Any written request should include the Owner's name, daytime telephone
number, and contract number as well as the names of the subaccounts from which
and to which money will be transferred. John Hancock reserves the right to
discontinue telephone transfers at any time without notice to the Owners. If
the fax request option becomes unavailable, another means of telecommunication
will be substituted.
An Owner who authorizes telephone transfers will be liable for any loss, ex-
pense or cost arising out of any unauthorized or fraudulent telephone transfer
instructions which John Hancock reasonably believes to be genuine, unless such
loss, expense or cost is the result of John Hancock's mistake or negligence.
John Hancock employs procedures which provide safeguards against the execution
of unauthorized transfers, and which are reasonably designed to confirm that
transfer instructions received by telephone are genuine. These procedures in-
clude requiring personal identification, tape recording calls, and providing
written confirmation to the Owner. If John Hancock does not employ reasonable
procedures to confirm that instructions communicated by telephone are genuine,
it may be liable for any loss due to unauthorized or fraudulent instructions.
SURRENDER OF CONTRACT; PARTIAL WITHDRAWALS
Prior to its date of maturity, if the Annuitant is living, a deferred Con-
tract may be surrendered for a cash payment representing all or part of the
total value of Accumulation Shares credited to the Contract. The appropriate
number of Accumulation Shares will be redeemed at their value next determined
after the receipt by John Hancock at its Servicing Office of notice in form
satisfactory to John Hancock. Unless directed otherwise by the Owner, the Ac-
cumulation Shares redeemed in a partial withdrawal will be redeemed in each
subaccount in the same proportion as the Accumulation Share Value of the Con-
tract is then allocated among the subaccounts. The redemption value may be
more or less than the net purchase payments applied under the Contract to pur-
chase the Accumulation Shares, depending upon the market value of the Fund
shares held in the subaccount at the time. The resulting cash payment will be
made in a single sum, ordinarily within seven days after receipt of such no-
tice. As described under "Miscellaneous Provisions--Deferment of Payment,"
however, redemption and payment may be delayed under certain circumstances.
23
<PAGE>
See "Federal Income Taxes" for possible adverse tax consequences of certain
surrenders and partial withdrawals.
Any request for a surrender or partial withdrawal should be mailed to John
Hancock Servicing Office, Post Office Box 111, Boston, MA 02117.
A partial withdrawal is not permitted in an amount less than $100 or if the
total value of all Accumulation Shares credited to a Contract remaining after
the withdrawal would be less than $500. A partial withdrawal is not a loan
and, once made, cannot be repaid.
DEATH BENEFIT BEFORE DATE OF MATURITY
If the Annuitant dies before the date of maturity of a deferred Contract or
the redemption or conversion of all of the Accumulation Shares credited to
such Contract, a death benefit is payable. If the death occurs at any time be-
fore the contract anniversary nearest the Annuitant's 65th birthday, the death
benefit will be greater of (a) the value of all Accumulation Shares credited
to the Contract next determined following receipt at the Servicing Office of
John Hancock of due proof of death or (b) the amount of the purchase payments
made under the Contract reduced to reflect redemptions of Accumulation Shares,
if any, previously made as partial withdrawals. The reduction in purchase pay-
ments to reflect a prior withdrawal is in the proportion to which the number
of Accumulation Shares of each subaccount redeemed bore to the number of Accu-
mulation Shares of each subaccount to the credit of the Contract at the date
of receipt of the withdrawal request. In the event of a partial withdrawal
when the value of the Accumulation Shares in a subaccount is less than the
amount of the purchase payments made, the reduction in death benefit will be
greater than the amount of the withdrawal. If the death occurs on or subse-
quent to the contract anniversary nearest the Annuitant's 65th birthday, the
death benefit will be equal to the value of all the Accumulation Shares cred-
ited to the Contract next determined following receipt at the Servicing Office
of John Hancock of due proof of death.
Payment of the death benefit will be made in a single sum to the beneficiary
designated by the Owner prior to the Annuitant's death unless an optional
method of settlement has been elected by the Owner. If an optional method of
settlement has not been elected by the Owner, the beneficiary may elect an op-
tional method of settlement in lieu of a single sum. No deduction is made for
sales or other expenses upon such election. Payment will be made in single sum
in any event if the death benefit is less than $2,000. (See "Annuity Period--
Annuity Options".) If there is no surviving beneficiary, the Owner, or his or
her estate is the beneficiary.
Some Contracts are subject to different provisions than those outlined above,
however. The Code requires certain distribution provisions to be included in
any Contract used to fund other than a tax-qualified plan (see "Federal Income
Taxes"). Failure to include the required distribution provisions results in
the Contract not being treated as an annuity for Federal tax purposes. These
required provisions will be reflected by means of an "endorsement" to the Con-
tract furnished by John Hancock.
The Code distribution requirements are expected to present no practical prob-
lems when the Annuitant and Owner are the same person. Nevertheless, all Own-
ers for whom these endorsements are required should be aware that the follow-
ing distribution requirements are applicable notwithstanding any provision to
the contrary in the Contract (or in this prospectus) relating to payment of
the death benefit or death of the Annuitant.
If the Owner dies: (1) on or after annuity payments have begun, any remaining
benefit must be paid out at least as rapidly as under the method of making an-
nuity payments then in effect; or (2) before annuity payments have begun: (a)
if the beneficiary is the spouse of the Owner, the beneficiary may continue
the Contract in force as Owner; or (b) otherwise, the entire interest in the
Contract on the date of death of the Owner must be: (i) paid out in full
within 5 years of the Owner's death; or (ii) applied in full towards the pur-
chase of a life annuity on the beneficiary with payments commencing within 1
year of the Owner's death. The Code imposes comparable distribution require-
ments on tax-qualified plans.
24
<PAGE>
Note that "the entire interest in the Contract on the date of death of the
Owner" which is payable if the Owner dies before annuity payments have begun
may be an amount less than the death benefit which would have been payable if
the Annuitant had died instead. Note also that notice should be furnished
promptly to John Hancock upon the death of the Owner.
THE ANNUITY PERIOD
DEFERRED VARIABLE ANNUITY CONTRACTS
During the annuity period, the total value of any one Contract must be allo-
cated among no more than four subaccounts.
Annuity payments will commence on the date of maturity of the Contract if the
Annuitant is then living and the Contract is then in force. Each deferred Con-
tract will provide at the time of its issuance for a Life Annuity with Ten
Years Certain. Under this form of annuity, variable annuity payments are made
monthly to the Annuitant for life and, if the Annuitant dies within ten years
after the date of maturity of the Contract, the beneficiary will be paid a
single sum equal in amount to the commuted value of the payments remaining in
the ten-year period, based upon the appropriate Annuity Unit Values next de-
termined after receipt at the Servicing Office of John Hancock of due proof of
death of the Annuitant. A different form of annuity may be elected by the Own-
er, as described in "Annuity Options", prior to the date of maturity of the
Contract. Once a given form of annuity takes effect, it may not be changed.
If the initial monthly annuity payment under a Contract would be less than
$20, John Hancock may make a single sum payment equal to the total value of
the Accumulation Shares credited to the Contract on the date the initial pay-
ment would be payable, in place of all other benefits, or, if agreed to by the
Owner, make periodic payments at quarterly, semi-annual or annual intervals in
place of monthly payments.
Each deferred Contract specifies a provisional date of maturity at the time
of its issuance. The Owner may subsequently elect a different date of maturi-
ty, however, which may be any earlier date or a date not later than five years
after the provisional date of maturity specified in the Contract. The election
is made by written notice received by John Hancock at its Servicing Office be-
fore the provisional date of maturity and at least 31 days prior to the date
of maturity. If a date of maturity different from the provisional date of ma-
turity is not elected by the Owner, the provisional date of maturity shall be
the date of maturity of the Contract. Particular care should be taken in
electing the date of maturity of Contracts issued under tax-qualified plans.
(See "Federal Income Taxes").
IMMEDIATE VARIABLE ANNUITY CONTRACTS
Variable annuity payments under immediate Contracts will commence on a date
mutually agreed upon by the Owner and John Hancock, which date normally is one
month and may not be more than one year after the receipt of the purchase pay-
ment at the Servicing Office of John Hancock. The Annuity Options available
under such Contracts are Life Annuity without Refund, Life Annuity with Ten or
Twenty Years Certain (see "Annuity Options") and Joint and Last Survivor Life
Annuity. A Joint and Last Survivor Life Annuity provides variable monthly an-
nuity payments during the joint lifetime of the two persons on whose survival
payments depend and thereafter during the lifetime of the survivor. No minimum
number of payments is guaranteed. Immediate Contracts may not be surrendered.
VARIABLE MONTHLY ANNUITY PAYMENTS
Variable monthly annuity payments under any deferred Contract are determined
by converting each subaccount's Accumulation Shares credited to the Contract
(less any applicable premium tax) into the respective Annuity Units of each
subaccount on the date of maturity of the Contract or some other date elected
for commencement of variable annuity payments. Variable monthly annuity pay-
ments under any immediate Contract are determined by converting the net pur-
chase payment allocated to each subaccount into the respective Annuity Units
of each subaccount as of the date of issuance, which will be the later of (a)
the date of approval by John Hancock of the application for the Contract and
(b) the date of receipt of the purchase payment at the Servicing Office of
John Hancock. (See "Calculation of Annuity Units".)
25
<PAGE>
The amount of each annuity payment after the first payment will depend on the
investment performance of the subaccounts being used. If the actual net in-
vestment return (after deducting all charges) of a subaccount during the pe-
riod between the dates for determining two monthly payments based on that
subaccount exceeds the "assumed investment rate" (explained below), the latter
monthly payment will be larger than the former. On the other hand, if the ac-
tual net investment return is less than the assumed investment rate, the lat-
ter monthly payment will be smaller than the former.
ASSUMED INVESTMENT RATE
The assumed investment rate for all Contracts will be 3 1/2% per year except
as provided below. The assumed investment rate is significant in determining
the amount of the initial monthly annuity payment and the amount by which sub-
sequent variable monthly payments are more or less than the initial variable
monthly payment.
Where applicable state law so provides, an Owner may elect a variable annuity
option with a different assumed investment rate, not in excess of 5%, if such
a rate is made available by John Hancock in the Owner's state. Election of a
higher assumed investment rate produces a larger initial annuity payment but
also means that eventually the monthly annuity payments would be smaller than
if a lower assumed investment rate had been elected.
CALCULATION OF ANNUITY UNITS
Under a deferred Contract, Accumulation Shares are converted into Annuity
Units by first multiplying the number of each subaccount's Accumulation Shares
credited to the Contract on the date of conversion by the appropriate Accumu-
lation Share Value as of ten calendar days prior to the date the initial vari-
able monthly annuity payment is due. For each subaccount the resulting value
(less any applicable premium tax) is then multiplied by the applicable annuity
purchase rate, which reflects the sex and age of the Annuitant and the assumed
investment rate, specified in the Contract. This computation determines the
amount of each subaccount's initial monthly variable annuity payment to the
Annuitant. The number of each subaccount's Annuity Units to be credited to the
Contract is then determined by dividing the amount of each subaccount's ini-
tial variable monthly annuity payment by each subaccount's Annuity Unit Value
as of ten calendar days prior to the date the initial payment is due.
Under an immediate Contract, the number of each subaccount's Annuity Units to
be credited to the Contract is determined by first multiplying the net pur-
chase payment allocated to each subaccount by the applicable annuity purchase
rate, which reflects the sex and age of the Annuitant and the assumed invest-
ment rate, for the Annuity Option elected, and then dividing the result by the
appropriate Annuity Unit Value on the date of issuance of the immediate Con-
tract.
ANNUITY OPTIONS
The Owner may elect an Annuity Option during the lifetime of the Annuitant by
written notice received by John Hancock at its Servicing Office prior to the
date of maturity of the Contract. If no option is selected, Option VA-1 with
Ten Years Certain will be used. A beneficiary entitled to payment of a death
benefit in a single sum may, if no election has been made by the Owner prior
to the Annuitant's death, elect an Annuity Option by written notice received
by John Hancock at its Servicing Office prior to the date the proceeds become
payable. No option may be elected if the value of the Accumulation Shares to
be applied is less than $2,000. Two basic Annuity Options are available under
deferred Contracts.
OPTION VA-1 LIFE ANNUITY WITH FIVE, TEN OR TWENTY YEARS CERTAIN
Variable monthly payments will be made for a designated period of 5, 10 or 20
years and thereafter as long as the payee lives, with the guarantee that if
the payee dies prior to the end of the 5, 10 or 20 year
26
<PAGE>
period, whichever is applicable, the commuted value of the remaining payments
during the guaranteed period, based upon the applicable Annuity Unit Values
next determined after receipt by John Hancock of due proof of death of the
payee, will then be paid within seven days of such determination in a single
sum as a final payment to the payee's estate or to another person designated
as contingent payee.
OPTION VA-2 LIFE ANNUITY WITHOUT REFUND
Variable monthly payments will be made to the payee as long as he lives. No
minimum number of payments is guaranteed.
OTHER CONDITIONS
John Hancock reserves the right at its sole discretion to make available to
Owners and other payees optional methods of payment in addition to the Annuity
Options described in this Prospectus and the applicable Contract.
Federal income tax requirements currently applicable to H.R. 10 and individ-
ual retirement annuity plans provide that the period of years guaranteed under
Option VA-1 cannot be any greater than the joint life expectancies of the
payee and his or her designated beneficiary.
If the Owner of a Contract used to fund an annuity purchase plan or to fund
other than a tax-qualified plan (See "Federal Income Taxes") dies on or after
annuity payments have begun, the remaining benefit payments must be distrib-
uted at least as rapidly as under the method of making annuity payments then
in effect.
If the initial monthly annuity payment under an Annuity Option would be less
than $20, John Hancock may make a single sum payment equal to the total value
of the Accumulation Shares on the date the initial payment would be payable,
in place of all other benefits provided by the Contract, or if agreed to by
the Owner, may make periodic payments at quarterly, semi-annual or annual in-
tervals in place of monthly payments.
VARIABLE ACCOUNT VALUATION PROCEDURES
VALUATION DATE--A Valuation Date is any date on which the New York Stock Ex-
change is open for trading and on which the Fund values its shares. On any
date other than a Valuation Date, the Accumulation Share Value or Annuity Unit
Value will be the same as that on the next following Valuation Date.
VALUATION PERIOD--A Valuation Period is that period of time from the beginning
of the day following a Valuation Date to the end of the next following Valua-
tion Date.
ACCUMULATION SHARE VALUE--The Accumulation Share Value is calculated sepa-
rately for each subaccount. The value of one Accumulation Share on any Valua-
tion Date is determined for each subaccount by multiplying the immediately
preceding Accumulation Share Value by the applicable Net Investment Factor for
the Valuation Period ending on such Valuation Date.
ANNUITY UNIT VALUE--The Annuity Unit Value is calculated separately for each
subaccount. The value of one Annuity Unit on any Valuation Date is determined
for each subaccount by first multiplying the immediately preceding Annuity
Unit Value by the applicable Net Investment Factor for the Valuation Period
ending on such date and then multiplying this product by an adjustment factor
which will neutralize the assumed investment rate used in determining the
amounts of annuity payable. The adjustment factor for a Valuation Period of
one day for Contracts with an assumed investment rate of 3 1/2% per year is
.99990575. The assumed investment rate is neutralized by applying the adjust-
ment factor so that the variable annuity payments will reflect only the actual
net investment rate of the subaccount.
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NET INVESTMENT FACTOR--The Net Investment Factor for each subaccount for any
Valuation Period is equal to 1.00000000 plus the applicable net investment
rate for such Valuation Period. A Net Investment Factor may be more or less
than 1.00000000. The net investment rate for each subaccount for any Valuation
Period is equal to (a) the accrued investment income and capital gains and
losses, whether realized or unrealized, of the subaccount for such Valuation
Period less (b) the sum of a deduction for any applicable income taxes and,
for each calendar day in the Valuation Period, a deduction of 0.002740% of the
value of each subaccount at the beginning of the Valuation Period, as de-
scribed under "Charges for Mortality and Expense Risks and Administrative
Services" the result then being divided by (c) the value of the total net as-
sets of each subaccount at the beginning of the Valuation Period determined as
described below under "Valuation of Assets".
ADJUSTMENT OF UNITS AND VALUES--John Hancock reserves the right to change the
number and value of the Accumulation Shares or Annuity Units or both credited
to any Contract, without the consent of the Owner or any other person, pro-
vided strict equity is preserved and the change does not otherwise affect the
benefits, provisions or investment return of the Contract.
MISCELLANEOUS PROVISIONS
RESTRICTION ON ASSIGNMENT
In order to qualify for favorable tax treatment, certain Contracts may not be
sold, assigned, discounted or pledged as collateral for a loan or as security
for the performance of an obligation or for any other purpose, to any person
other than John Hancock, unless the Owner is the trustee of a trust described
in Section 401(a) of the Code. Because an assignment, pledge or transfer may
be a taxable event, an Owner should consult a competent tax adviser before
taking any such action.
DEFERMENT OF PAYMENT
Payment of the value of any Accumulation Shares in a single sum upon a sur-
render or partial withdrawal will ordinarily be made within seven days after
receipt of the written request therefor by John Hancock at its Home Office.
However, redemption may be suspended and payment may be postponed at times (a)
when the New York Stock Exchange is closed, other than customary week-end and
holiday closings, (b) when trading on that Exchange is restricted, (c) when an
emergency exists as a result of which disposal of securities in a subaccount
is not reasonably practicable or it is not reasonably practicable to determine
the value of the net assets of a subaccount or (d) when a governmental body
having jurisdiction over the Account by order permits such suspension. Rules
and regulations of the Securities and Exchange Commission, if any are applica-
ble, will govern as to whether conditions described in (b) or (c) exist.
RESERVATION OF RIGHTS
John Hancock reserves the right to add or delete subaccounts, to change the
underlying investments of any subaccount, to operate the Account in any form
permitted by law and to terminate the Account's registration under the 1940
Act if such registration should no longer be legally required. Such registra-
tion may be terminated only upon majority vote of Owners, and certain other
changes may, under applicable laws and regulations, require notice to or ap-
proval of Owners. Otherwise, changes do not require such notice or approval.
OWNER AND BENEFICIARY
The Owner has the sole and absolute power to exercise all rights and privi-
leges under the Contract, except as otherwise provided by the Contract or by
written notice of the Owner. The Owner and the beneficiary are designated in
the application and may be changed by the Owner, effective upon receipt of
written notice at the Home Office, subject to the rights of any assignee of
record, any action taken prior to receipt of the notice and certain other con-
ditions. While the Annuitant is alive, the Owner may be changed by written no-
tice. The beneficiary may be changed by written notice no later than receipt
of due proof of the Annuitant's death. The change will take effect whether or
not the Owner or the Annuitant is then alive.
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FEDERAL INCOME TAXES
THE ACCOUNT AND JOHN HANCOCK
John Hancock is taxed as a life insurance company under the Code. The Account
is part of John Hancock's total operations and is not taxed separately as a
"regulated investment company" or otherwise.
The Contracts permit John Hancock to charge against the Account any taxes, or
provisions for taxes, attributable to the operation or existence of the Con-
tracts or the Account. No specific charge is currently made against the Ac-
count for any such taxes. John Hancock pays such taxes out of its general ac-
count assets which may consist of, among other things, proceeds derived from
mortality and expense risk charges deducted from the Account. Currently, John
Hancock does not anticipate making a separate charge for income and other
taxes because of the level of such taxes. If the level of current tax is in-
creased, or is expected to increase in the future, John Hancock reserves the
right to make such a charge in the future.
John Hancock assumes no responsibility for determining whether a particular
retirement plan satisfies the applicable requirements of the Code or whether a
particular employee is eligible for inclusion under a plan.
CONTRACTS PURCHASED OTHER THAN TO FUND A TAX QUALIFIED PLAN
THE ANNUITANT OR OTHER PAYEE
The Contracts are considered annuity contracts under Section 72 of the Code.
Currently no Federal income tax is payable on increases in value of Accumula-
tion Shares or Annuity Units credited to a variable annuity contract until
payments are made to the Annuitant or other payee under such Contract. Howev-
er, a Contract owned other than by a natural person is not generally an annu-
ity for tax purposes and any increase in the value thereunder is taxable as
ordinary income as accrued.
When payments under a Contract are made in the form of an annuity, the amount
of each payment is taxed to the Annuitant or other payee as ordinary income to
the extent that such payment exceeds any allocable portion of the Annuitant's
"investment in the contract" (as defined in the Code). In general, an
Annuitant's "investment in the contract" is the aggregate amount of purchase
payments made by him, reduced by any amounts previously distributed from the
Contract that were not subject to tax. The portion of each variable annuity
payment to be excluded from income is determined by dividing the "investment
in the contract", adjusted by any refund feature, by the number of periodic
payments anticipated during the time that periodic payments are to be made. In
the case of a fixed annuity payment, the amount to be excluded in each year is
determined by dividing the "investment in the contract," adjusted by any re-
fund feature, by the amount of "expected return" during the time that periodic
payments are to be made, and then multiplying by the amount of the payment.
When a payment under a Contract is made in a single sum, the amount of the
payment is taxed as ordinary income to the Annuitant or other payee to the ex-
tent it exceeds the Annuitant's "investment in the contract".
PARTIAL WITHDRAWALS BEFORE ANNUITY STARTING DATE
When a payment under a Contract is less than the amount that would be paid
upon the Contract's complete surrender and such payment is made prior to the
commencement of annuity payments under the Contract, part or all of the pay-
ment (the partial withdrawal) may be taxed to the Annuitant or other payee as
ordinary income.
On the date of the partial withdrawal, if the cash value of the Contract is
greater than the investment in the Contract, any part of such excess value so
withdrawn is subject to tax as ordinary income.
If an individual assigns or pledges any part of the value of a Contract, the
value so pledged or assigned is taxed as ordinary income to the same extent as
a partial withdrawal.
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<PAGE>
PENALTY FOR PREMATURE WITHDRAWALS
In addition to being included in ordinary income, the taxable portion of any
withdrawal will be subject to a 10-percent penalty tax. The penalty tax does
not apply to payments made to the Annuitant or other payee after age 59 1/2,
or on account of death or disability. If the withdrawal is made in substan-
tially equal periodic payments over the life of the Annuitant or other payee
or over the joint lives of the Annuitant and the Annuitant's beneficiary, the
penalty will also not apply.
DIVERSIFICATION REQUIREMENTS
Each of the Portfolios of the Fund intends to qualify as a regulated invest-
ment company under Subchapter M of the Code and will have to meet the invest-
ment diversification tests of Section 817(h) of the Code and the underlying
regulations. The Treasury Department and the Internal Revenue Service may, at
some future time, issue a ruling or a regulation presenting situations in
which it will deem "investor control" to be present over the assets of the un-
derlying Portfolios, causing the Owner to be taxed currently on income cred-
ited to the Contracts. In such a case, John Hancock reserves the right to
amend the Contract or the choice of underlying portfolios to avoid current
taxation to the Owners.
CONTRACTS PURCHASED TO FUND A TAX QUALIFIED PLAN
WITHHOLDING ON ELIGIBLE ROLLOVER DISTRIBUTIONS
Recent legislation requires 20% withholding on certain distributions from tax
qualified plans. An Owner wishing to rollover his entire distribution should
have it paid directly to the successor plan. Otherwise, the Owner's distribu-
tion will be reduced by the 20% mandatory income tax. Consult a qualified tax
adviser before taking such a distribution.
CONTRACTS PURCHASED UNDER CORPORATE PLANS
In general, purchase payments made by a corporation under a qualified pension
or profit-sharing plan described in Section 401(a) of the Code or a qualified
annuity plan described in Section 403(a) of the Code are deductible by the
corporation and are not taxable currently to the employees.
When payments under a Contract are made in the form of an annuity, the amount
of each payment is taxed to the Annuitant or other payee as ordinary income
except in those cases where the Annuitant has an "investment in the contract"
(as defined in the Code). In general, an Annuitant's "investment in the con-
tract" is the aggregate amount of purchase payments made by him. If an Annui-
tant has an "investment in the contract," a portion of each annuity payment is
excluded from income until the investment in the contract is recovered. The
amount to be excluded in each year, in the case of a variable annuity payment,
is determined by dividing the "investment in the contract," adjusted by any
refund feature, by the number of periodic payments anticipated during the time
that periodic payments are to be made.
When payment under a Contract is made in a single sum or total distribution
is made within one taxable year of the Annuitant or other payee, the amount of
the payment is taxed to the Annuitant or other payee to the extent it exceeds
the Annuitant's "investment in the contract." If such payment is made after
the Annuitant has attained the age of 59 1/2, or on account of his death, re-
tirement or other termination of employment or on account of his death after
termination of employment, five year averaging and a phase-out of capital
gains treatment for pre-1974 contributions may be available with respect to
one distribution. Other rules may be available to taxpayers who have attained
age 50 prior to January 1, 1986.
IRS required minimum distributions must begin no later than April 1 of the
year following the year in which the Annuitant attains age 70 1/2 even if the
Annuitant has not retired.
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<PAGE>
CONTRACTS PURCHASED UNDER SIMPLE RETIREMENT ACCOUNTS (SIMPLE IRAS)
In general, premium payments may be made to a SIMPLE IRA retirement plan es-
tablished by a small business employer who employs 100 or fewer employees on
any day during the preceding calendar year. An eligible employee may specify
the percentage of compensation the employee elects to contribute not to exceed
$6,000 a year. The employer must elect to make a matching contribution of up
to 3% of the employee's compensation or a non-elective contribution equal to
2% of the employee's compensation.
CONTRACTS PURCHASED UNDER SECTION 403(B) PLANS (TSA)
Purchase payments made by an employer which is a public school system or a
tax-exempt organization described in Section 501(c)(3) of the Code under annu-
ity purchase arrangements described in Section 403(b) of the Code are not tax-
able currently to the Annuitant, to the extent that the aggregate of such
amounts does not exceed the Annuitant's "exclusion allowance" (as defined in
the Code). In general, an Annuitant's "exclusion allowance" is determined by
multiplying 20% of his "includible compensation" (as defined in the Code) by
the number of years of his service with the employer and then subtracting from
that product the aggregate amount of purchase payments previously excluded
from income and certain other employer payments to retirement plans in which
the Annuitant is a participant. Additional limitations applicable to purchase
payments are described in Section 415 of the Code. Deferrals under all plans
made at the election of the Annuitant generally are limited to an aggregate of
$9,500 annually.
When payments under a Contract are made in the form of an annuity, such pay-
ments are taxed to the Annuitant or other payee under the same rules that ap-
ply to such payments under corporate plans (discussed earlier), except that
five-year averaging and capital gain phase-out are not available.
When payment under a Contract is made in a single sum, such as on surrender
of the Contract or by partial withdrawal, the taxable portion of the payment
is taxed as ordinary income and the penalty for premature withdrawals may be
applicable.
Ordinarily an Annuitant in a Section 403(b) plan does not have an "investment
in the contract" and, thus, any distribution is fully taxed as ordinary in-
come.
Distributions are prohibited before the Owner is age 59 1/2, except on the
Owner's separation from service, death, or disability and except with respect
to distributions attributable to assets held as of December 31, 1988. This
prohibition does not (1) preclude transfers and exchanges to other products
that qualify under Section 403 (b) and (2) restrict withdrawals of certain
amounts attributable to pre-January 1, 1989, premium payments.
CONTRACTS PURCHASED UNDER H.R. 10 PLANS
Self-employed persons, including partnerships, may establish tax-qualified
pension and profit sharing plans and annuity plans for themselves and for
their employees. Generally, the maximum amount of purchase payments deductible
each year with respect to variable annuity contracts issued on the life of
self-employed persons is $30,000 or 25% of "earned income" (as defined in the
Code), whichever is less. Self-employed persons must also make purchase pay-
ments for their employees (who have met certain eligibility requirements) at
least at the same rate as they do for themselves. In general, such purchase
payments are deductible in full and are not taxable currently to such employ-
ees.
Tax-qualified plans may permit self-employed persons and their employees to
make additional purchase payments themselves (which are not deductible) of up
to 10% of earned income or compensation (discussed earlier).
When payments under a Contract are made in the form of an annuity, such pay-
ments are taxed to the Annuitant or other payee under the same rules that ap-
ply to such payments under corporate plans.
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<PAGE>
The tax treatment of single sum payments is also the same as under corporate
plans except that five year averaging may be unavailable to a self-employed
Annuitant on termination of service for reasons other than disability.
The same rules that apply to commencement of annuity payments under corporate
plans apply to H.R. 10 plans.
CONTRACTS PURCHASED BY TOP-HEAVY PLANS
Certain corporate and H.R. 10 plans may be characterized under Section 416 of
the Code as "top-heavy plans" if a significant portion of the plan assets is
held for the benefit of "key employees" (as defined in the Code). Care must be
taken to consider the special limitations applicable to top-heavy plans and
the potentially adverse tax consequences to key employees.
CONTRACTS PURCHASED UNDER INDIVIDUAL RETIREMENT ANNUITY PLANS (IRA)
In general, the maximum amount of purchase payments deductible each year with
respect to an individual retirement annuity contract (as defined in Section
408 of the Code) issued on the life of an eligible purchaser is the lesser of
$2,000 or 100% of compensation includible in gross income. A person may also
purchase a Contract for the benefit of his or her spouse (including, for exam-
ple, a homemaker who does not work outside the home). Where an individual
elects to deduct amounts contributed on his or her own behalf and on behalf of
a spouse, the maximum amount of purchase payments deductible is $2,000 for
each spouse if their combined compensation is at least equal to the contrib-
uted amount. However, not more than $2,000 can be allocated to either person's
account. If an individual or his or her spouse is an active participant in an
employer-sponsored retirement plan, the individual is permitted to make a de-
ductible purchase payment only if the adjusted gross incomes of the individual
and his or her spouse are below certain amounts.
No deduction is allowed for purchase payments made in or after the taxable
year in which the annuitant has attained the age of 70 1/2 years nor is a de-
duction allowed for a "rollover contribution" as defined in the Code.
When payments under a Contract are made in the form of an annuity, or in a
single sum such as on surrender of the Contract or by partial withdrawal, the
payment is taxed as ordinary income.
IRS required minimum distributions must begin no later than April 1 of the
year following the year in which the Annuitant attains age 70 1/2. The Annui-
tant can suffer adverse tax consequences if a distribution or surrender of the
Contract or partial withdrawal is made prior to his attaining age 59 1/2, ex-
cept in the event of death or total disability or certain other circumstances.
CONTRACTS PURCHASED UNDER GOVERNMENT DEFERRED COMPENSATION PLANS (SECTION
457)
Participants in certain deferred compensation plans maintained by a state, a
political subdivision of a state, or their agencies or instrumentalities or
tax-exempt organizations and tax-exempt employers are permitted to exclude a
portion of their compensation from gross income. Amounts so deferred (includ-
ing any income thereon) shall be includible in gross income only for the tax-
able year in which such amounts are paid or otherwise made available to the
Annuitant or other payee.
In general, the maximum amount of compensation which may be deferred under
such tax-favored plans is the lesser of $7,500 or 33 1/3% of the participant's
"includible compensation" (as defined in the Code). The deferred compensation
plan itself must satisfy several conditions, among which are that the plan
must not permit distributions prior to the participant's separation from serv-
ice (except in the case of an unforeseen emergency), and that all compensation
deferred under the plan shall remain solely the employer's property and may be
subject to the claims of its creditors.
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When payment under a Contract is made in the form of an annuity, or in a sin-
gle sum such as on surrender of the Contract or by partial withdrawal, the
payment is taxed as ordinary income.
WITHHOLDING OF TAXES
John Hancock is obligated to withhold taxes from certain payments unless the
recipient elects otherwise. The withholding rate varies depending upon the na-
ture and the amount of the distribution. John Hancock will notify the Annui-
tant or other payee in advance of the first payment of his or her right to
elect out of withholding and furnish a form on which the election may be made.
Any election must be received by John Hancock in advance of the payment in or-
der to avoid withholding.
SEE YOUR OWN TAX ADVISER
The above description of Federal income tax consequences of owning a Contract
and of the different kinds of tax-qualified plans which may be funded by the
Contracts is only a brief summary and is not intended as tax advice. Nor does
it include a discussion of Federal estate or gift tax or state tax conse-
quences. Tax laws and regulations are subject to change and such changes may
be retroactive. The rules governing the provisions of tax-qualified plans are
extremely complex and often difficult to understand. Anything less than full
compliance with the applicable rules, all of which are subject to change from
time to time, can have adverse tax consequences. For example, premature with-
drawals are generally subject to a 10-percent penalty tax. The taxation of an
Annuitant or other payee has become so complex and confusing that great care
must be taken to avoid pitfalls. For further information, a prospective pur-
chaser should consult a qualified tax adviser.
PERFORMANCE
The Account may, from time to time, advertise certain performance information
with respect to its subaccounts. THE PERFORMANCE INFORMATION IS BASED ON HIS-
TORICAL INVESTMENT EXPERIENCE OF THE SUBACCOUNTS AND DOES NOT INDICATE OR REP-
RESENT FUTURE PERFORMANCE.
The subaccounts may include total return in advertisements. When a subaccount
advertises its total return, it will usually be calculated for one year, five
years, and ten years or some other relevant period, if the corresponding Port-
folio has not been in existence for at least ten years. Total return is the
percentage change between the value of a hypothetical investment in the
subaccount at the beginning of the relevant period to the value of the invest-
ment at the end of the period, if the Owner surrendered the Contract at the
end of the period indicated. Total return at the Account level reflects all
Contract charges (other than any premium tax charges)--mortality and expense
risk charges, administrative service charge, (including the annual maintenance
charge in the case of a periodic payment Contract), and the sales charges--and
is therefore lower than total return at the Fund level where no comparable
charges have been deducted.
The Money Market Subaccount may advertise "current yield" and "effective
yield." Current yield refers to the income earned by the subaccount over a
seven-day period and then annualized; i.e., the income earned in the period is
assumed to be earned every seven days over a 52-week period and stated as a
percentage of the investment. Effective yield is calculated similarly but,
when annualized, the income earned by the investment is assumed to be rein-
vested in the subaccount and thus compounded in the course of a 52-week peri-
od. The effective yield will be slightly higher than the current yield because
of this compounding effect of the assumed reinvestment.
The other subaccounts may also advertise current yield. For these
subaccounts, the current yield will be calculated by dividing the annualiza-
tion of the income earned by the subaccount during a recent thirty-day period
by the maximum offering price per unit at the end of such period. In all
cases, current yield and
33
<PAGE>
effective yield reflect the recurring charges on the Account level including
the periodic administrative expense charges, but do not include any premium
tax charges or any charges for minimum death benefit, sales expenses, or ad-
ministrative expenses that are deducted from premium payments.
Performance information for the subaccounts may be compared to other variable
annuity separate accounts or other investment products surveyed by Lipper Ana-
lytical Services, Inc., an independent service which monitors and ranks the
performance of investment companies, or tracked by other rating services, com-
panies, publications, or persons who independently monitor and rank investment
company performance. Performance figures are calculated in accordance with
standardized methods established by each reporting service.
STATE REGULATION
John Hancock is subject to the provisions of the Massachusetts insurance laws
applicable to mutual life insurance companies and to regulation and supervi-
sion by the Massachusetts Commissioner of Insurance. John Hancock is also sub-
ject to the applicable insurance laws of all the other states and jurisdic-
tions in which it does an insurance business.
REPORTS
Reports will be furnished at least annually to an Owner showing the number
and value of Accumulation Shares credited to the variable annuity contract and
containing the financial statements of the Fund.
VOTING PRIVILEGES
THE ACCOUNT
All of the assets in the subaccounts of the Account are invested in shares of
the corresponding Portfolios of the Fund. John Hancock will vote the shares of
each of the Portfolios of the Fund which are deemed attributable to qualifying
variable annuity contracts or variable life insurance policies at meetings of
the Fund's shareholders in accordance with instructions received from owners
of such contracts or policies. Shares of the Fund held in the Account which
are not attributable to such contracts or policies and those for which in-
structions from owners are not received will be represented by John Hancock at
the meeting and will be voted for and against each matter in the same propor-
tion as the votes based upon the instructions received from the owners of all
such contracts and policies.
The number of Fund shares held in each subaccount deemed attributable to each
owner is determined by dividing a Contract's Accumulation Share Value (or for
a Contract under which annuity payments have commenced, the equivalent) in the
subaccount by the net asset value of one share in the corresponding Fund Port-
folio in which the assets of that subaccount are invested. Fractional votes
will be counted. The number of shares as to which the owner may give instruc-
tions will be determined as of the record date for the Fund's meeting.
Owners of Contracts may give instructions regarding the election of the Board
of Trustees of the Fund, ratification of the selection of independent audi-
tors, approval of the Fund's investment management agreement and other matters
requiring a vote under the 1940 Act. Owners will be furnished information and
forms by John Hancock in order that voting instructions may be given.
JOHN HANCOCK
An Owner (or the Annuitant if a different person) will have the right to vote
at annual meetings of all John Hancock policyholders for the election of mem-
bers of the Board of Directors of John Hancock and
34
<PAGE>
on other corporate matters, if any, where a policyholders' vote is taken. The
Owner (or the Annuitant if a different person) may cast only one vote as the
holder of a variable annuity contract, irrespective of the value of the con-
tract or the number of variable annuity contracts held.
CHANGES IN APPLICABLE LAW--FUNDING AND OTHERWISE
The voting privileges described in this prospectus are afforded based on John
Hancock's understanding of applicable Federal securities law requirements. To
the extent that applicable law, regulations or interpretations change to elim-
inate or restrict the need for such voting privileges, John Hancock reserves
the right to proceed in accordance with any such revised requirements. John
Hancock also reserves the right, subject to compliance with applicable law,
including approval of owners if so required, to transfer assets determined by
John Hancock to be associated with the class of contracts to which the Con-
tracts belong from the Account to another separate account by withdrawing the
same percentage of each investment in the Account with appropriate adjustments
to avoid odd lots and fractions.
LEGAL MATTERS
Legal matters in connection with the Contracts and Federal laws and regula-
tions relating to their issue and sale have been passed upon by Ronald J.
Bosage, Vice President and Counsel of John Hancock.
DISTRIBUTION OF THE CONTRACTS
John Hancock Distributors, Inc. ("Distributors"), a wholly-owned subsidiary
of John Hancock, located at 197 Clarendon Street, Boston, MA 02117, is regis-
tered as a broker-dealer with the Commission under the Securities Exchange Act
of 1934 and is a member of the National Association of Securities Dealers,
Inc. Distributors acts as principal underwriter and distributor of the Con-
tracts, pursuant to a distribution agreement it has entered into with John
Hancock. The Contracts may be purchased through either the Distributors' reg-
istered representatives who are licensed to sell John Hancock life insurance
policies and annuity contracts or other registered broker-dealers whose repre-
sentatives are authorized by applicable law to sell variable annuity con-
tracts. The compensation paid to such broker-dealers is not expected to exceed
3% of purchase payments.
Distributors' registered representatives are compensated for sales of the
Contracts on a commission and service fee basis by Distributors, and John Han-
cock reimburses Distributors for such compensation and for other direct and
indirect expenses actually incurred in connection with the marketing and sale
of the Contracts. In addition, John Hancock performs certain insurance under-
writing and determines whether to accept or reject the application for a Con-
tract.
REGISTRATION STATEMENT
This Prospectus omits certain information contained in the Registration
Statement which has been filed with the Securities and Exchange Commission.
More details may be obtained from the Commission upon payment of the pre-
scribed fee.
EXPERTS
The financial statements of the Account and of John Hancock included in the
Statement of Additional Information have been audited by Ernst & Young LLP,
independent auditors, whose reports thereon appear in the Statement of Addi-
tional Information and have been so included in reliance on their reports
given on their authority as experts in accounting and auditing.
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<PAGE>
FINANCIAL STATEMENTS
Financial statements of the Account and John Hancock may be found in the
Statement of Additional Information. The financial statements of John Hancock
should be distinguished from the financial statements of the Account and
should be considered only as bearing upon the ability of John Hancock to meet
its obligations under the Contracts.
TABLE OF CONTENTS OF STATEMENT OF ADDITIONAL INFORMATION
<TABLE>
<CAPTION>
CROSS REFERENCE TO
PAGE PAGE IN PROSPECTUS
---- ------------------
<S> <C> <C>
Business History........................................ 1 15-16
Distribution Agreement and Other Services............... 1 18, 19-20, 34
Distribution Agreement................................ 1 19-20, 34
Investment Advisory Agreement......................... 2 18
Custodian Agreement................................... 2 --
Independent Auditors.................................. 3 34
Calculation of Performance Data......................... 3 32
Calculation of Annuity Payments......................... 4 25-27
Financial Statements.................................... 6 35
</TABLE>
36
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APPENDIX--ILLUSTRATIVE ACCUMULATION VALUE AND ANNUITY PAYMENT TABLES
The following Tables present illustrative periodic accumulation values and
annuity payments that would have resulted under a Contract described in this
prospectus had such values and payments been based exclusively upon the in-
vestment experience of the predecessors of each of the three Subaccounts dur-
ing the periods shown.
Since 1980 the Contracts may have participated in more than one investment
option. Moreover, Contracts offered prior to 1980 differ somewhat from the
Contracts described in this current prospectus. Accordingly, the results shown
in the Tables applicable to each investment option are illustrative only, but
reflect the actual investment performance of each investment option.
John Hancock reorganized its variable annuity separate accounts on February
20, 1987, as described under "John Hancock, the Account and the Series Fund."
Figures are based on the pre-reorganization financial results of John
Hancock's separate accounts which combined and ceased their separate opera-
tions pursuant to the reorganization (i.e., John Hancock Variable Accounts A,
A-1, A-2, C, C-1 and C-2) are, for illustrative purposes, shown separately in
the following Tables.
Pro forma adjustments were unnecessary for all of the years shown in Tables I
and II even though the contract forms described in this prospectus are not ex-
actly the same as those available in those years. The current forms differ,
for example, in that the deductions from a $10,000 single purchase payment for
sales expenses and administrative expense now total 4% (plus an administrative
expense deduction of $50) rather than 7%. They also differ in that the annuity
purchase rates were liberalized for the years 1980 and thereafter so that a
greater amount of annuity is now purchased by the same amount of net purchase
payment.
The Tables assume investment of a single purchase payment of $10,000, net of
all deductions from purchase payments for sales and administrative expenses,
any minimum death benefit guarantee and premium taxes, and that charges have
been made at an annual rate of 1.00% for mortality and expense risks and in-
vestment advisory services. A gross purchase payment of $10,450, in a state in
which no premium tax was applicable, would result in a $10,000 net purchase
payment. The Tables also reflect actual investment management fees and other
portfolio expenses for the periods illustrated.
WHAT THE TABLES ILLUSTRATE
Subject to the foregoing, Table I presents for the periods shown the illus-
trative periodic accumulation values for each Account which would have re-
sulted at yearly intervals under a Contract where a net single purchase pay-
ment of $10,000 was made. The Tables indicate the accumulation value which
would have resulted upon a full surrender of the Contract, based upon the in-
vestment performance of the applicable funding medium.
Subject to the foregoing, the Tables II indicate, at yearly intervals, illus-
trative monthly variable annuity payments for each subaccount which would have
been received by an Annuitant, assuming that an initial annuity payment of
$100 was received in the month and year indicated in the respective Tables.
The form of annuity illustrated is a life annuity with payments guaranteed for
10 years.
CAUTION
The following Tables do not necessarily represent the operating results of an
actual contract of the single payment form described in this prospectus and
are qualified by, and should be read with, the foregoing introductory materi-
als.
The results shown should not be considered a representation of the future. A
program of the type illustrated in the Tables does not assure a profit or pro-
tect against depreciation in declining markets.
37
<PAGE>
GROWTH & INCOME SUBACCOUNT
ILLUSTRATIVE PERIODIC ACCUMULATION VALUES
AND ANNUITY PAYMENTS
TABLE I--ACCUMULATION PERIOD--ILLUSTRATIVE ACCUMULATION VALUES RESULTING FROM
A $10,000 NET PURCHASE PAYMENT CONTRACT ISSUED JANUARY 2, 1975
<TABLE>
<CAPTION>
ACCUMULATION
VALUE ON
DECEMBER 31
CONTRACT YEAR COMMENCING OF THE SAME YEAR
------------------------ ----------------
<S> <C>
January 1975........................................... $12,819.53
January 1976........................................... 14,966.77
January 1977........................................... 13,228.07
January 1978........................................... 13,894.65
January 1979........................................... 15,986.35
January 1980........................................... 20,643.34
January 1981........................................... 20,623.76
January 1982........................................... 26,146.27
January 1983........................................... 31,543.15
January 1984........................................... 32,710.95
January 1985........................................... 43,647.00
January 1986........................................... 50,007.66
January 1987........................................... 51,890.42
January 1988........................................... 59,612.93
January 1989........................................... 76,444.82
January 1990........................................... 77,614.58
January 1991........................................... 96,797.30
January 1992........................................... 104,360.13
January 1993........................................... 117,099.31
January 1994 .......................................... 115,292.09
January 1995........................................... 153,196.33
January 1996........................................... 182,154.78
</TABLE>
TABLE II--ANNUITY PERIOD--ILLUSTRATIVE MONTHLY VARIABLE ANNUITY PAYMENTS--
GROWTH & INCOME SUBACCOUNT
This Table shows, at annual intervals, the illustrative monthly variable an-
nuity payments an annuitant would receive assuming the annuitant received a
first annuity payment of $100 in January 1975.
<TABLE>
<CAPTION>
PAYMENT
MONTH FOR MONTH
----- ---------
<S> <C>
January 1975.................................................... $100.00
January 1976.................................................... 126.56
January 1977.................................................... 141.12
January 1978.................................................... 123.05
January 1979.................................................... 125.58
January 1980.................................................... 139.22
January 1981.................................................... 172.58
January 1982.................................................... 167.75
January 1983.................................................... 204.49
January 1984.................................................... 235.65
January 1985.................................................... 237.41
January 1986.................................................... 307.45
</TABLE>
38
<PAGE>
<TABLE>
<CAPTION>
PAYMENT
MONTH FOR MONTH
----- ---------
<S> <C>
January 1987.................................................... $348.17
January 1988.................................................... 347.67
January 1989.................................................... 384.54
January 1990.................................................... 456.19
January 1991.................................................... 462.95
January 1992.................................................... 530.83
January 1993.................................................... 583.54
January 1994.................................................... 631.13
January 1995 ................................................... 602.56
January 1996.................................................... 768.39
January 1997.................................................... 888.58
</TABLE>
The amounts shown are based on the investment performance of the Growth & In-
come Subaccount and its predecessors. All amounts reflect the provisions of
the contracts described in this prospectus, including annuity tables based on
the standard assumed investment rate of 3 1/2% per annum. The amounts shown do
not reflect the deduction for any applicable premium tax. See text preceding
these Tables.
SOVEREIGN BOND SUBACCOUNT
ILLUSTRATIVE PERIODIC ACCUMULATION VALUES
AND ANNUITY PAYMENTS
TABLE I--ACCUMULATION PERIOD--ILLUSTRATIVE ACCUMULATION VALUES RESULTING FROM
A $10,000 NET PURCHASE PAYMENT CONTRACT ISSUED JUNE 2, 1980
<TABLE>
<CAPTION>
ACCUMULATION
VALUE ON DECEMBER
CONTRACT YEAR COMMENCING 31 OF THE SAME YEAR
------------------------ -------------------
<S> <C>
June 1980........................................... $10,253.83
June 1981........................................... 10,562.69
June 1982........................................... 13,469.69
June 1983........................................... 14,149.33
June 1984........................................... 16,041.33
June 1985........................................... 19,306.75
June 1986........................................... 21,698.31
June 1987........................................... 22,052.03
June 1988........................................... 23,615.72
June 1989........................................... 26,354.41
June 1990........................................... 28,015.98
June 1991........................................... 32,360.46
June 1992........................................... 34,492.94
June 1993........................................... 37,828.50
June 1994 .......................................... 36,490.86
June 1995........................................... 43,187.99
June 1996........................................... 44,514.03
</TABLE>
39
<PAGE>
TABLE II--ANNUITY PERIOD--ILLUSTRATIVE MONTHLY VARIABLE ANNUITY PAYMENTS--
SOVEREIGN BOND SUBACCOUNT
This Table shows, at annual intervals, the illustrative monthly variable an-
nuity payments an annuitant would receive assuming the annuitant received a
first annuity payment of $100 in June 1980.
<TABLE>
<CAPTION>
PAYMENT
MONTH FOR MONTH
----- ---------
<S> <C>
June 1980....................................................... $100.00
June 1981....................................................... 96.41
June 1982....................................................... 105.17
June 1983....................................................... 126.21
June 1984....................................................... 120.98
June 1985....................................................... 145.80
June 1986....................................................... 165.31
June 1987....................................................... 166.02
June 1988....................................................... 172.28
June 1989....................................................... 181.81
June 1990....................................................... 187.02
June 1991....................................................... 200.83
June 1992....................................................... 215.21
June 1993....................................................... 230.96
June 1994....................................................... 224.68
June 1995....................................................... 238.43
June 1996....................................................... 243.64
</TABLE>
The amounts shown are based on the investment performance of the Sovereign
Bond Subaccount and its predecessors. All amounts reflect the provisions of
the contracts described in this prospectus, including annuity tables based on
the standard assumed investment rate of 3 1/2% per annum. The amounts shown do
not reflect the deduction for any applicable premium tax. See text preceding
these Tables.
MONEY MARKET SUBACCOUNT
ILLUSTRATIVE PERIODIC ACCUMULATION VALUES
AND ANNUITY PAYMENTS
TABLE I--ACCUMULATION PERIOD--ILLUSTRATIVE ACCUMULATION VALUES RESULTING FROM
A $10,000 NET PURCHASE PAYMENT CONTRACT ISSUED MAY 13, 1982
<TABLE>
<CAPTION>
ACCUMULATION
VALUE ON DECEMBER
31 OF THE SAME
CONTRACT YEAR COMMENCING YEAR
------------------------ -----------------
<S> <C>
May 1982.............................................. $10,482.07
May 1983.............................................. 11,284.20
May 1984.............................................. 12,347.06
May 1985.............................................. 13,220.57
May 1986.............................................. 13,966.07
May 1987.............................................. 14,753.07
May 1988.............................................. 15,728.09
May 1989.............................................. 17,018.30
May 1990.............................................. 18,236.49
May 1991.............................................. 19,134.07
May 1992.............................................. 19,633.92
May 1993.............................................. 20,034.00
May 1994.............................................. 20,646.91
May 1995.............................................. 21,624.81
May 1996.............................................. 22,551.19
</TABLE>
40
<PAGE>
TABLE II--ANNUITY PERIOD--ILLUSTRATIVE MONTHLY VARIABLE ANNUITY PAYMENTS--
MONEY MARKET SUBACCOUNT
This Table shows, at annual intervals, the illustrative monthly variable an-
nuity payments an annuitant would receive assuming that annuitant received a
first annuity payment of $100 in May 1982.
<TABLE>
<CAPTION>
PAYMENT FOR
MONTH MONTH
----- -----------
<S> <C>
May 1982...................................................... $100.00
May 1983...................................................... 103.76
May 1984...................................................... 108.45
May 1985...................................................... 114.21
May 1986...................................................... 117.81
May 1987...................................................... 119.65
May 1988...................................................... 122.42
May 1989...................................................... 127.07
May 1990...................................................... 132.40
May 1991...................................................... 136.49
May 1992...................................................... 137.10
May 1993...................................................... 135.53
May 1994...................................................... 133.62
May 1995...................................................... 134.22
May 1996...................................................... 135.58
</TABLE>
The amounts shown are based on the investment performance of the Money Market
Subaccount and its predecessors. All amounts reflect the provisions of the
contracts described in this prospectus, including annuity tables based on the
standard assumed investment rate of 3 1/2% per annum. The amounts shown do not
reflect the deduction for any applicable premium tax. See text preceding these
Tables.
41
<PAGE>
JOHN HANCOCK MUTUAL LIFE INSURANCE COMPANY
LOGO
ANNUITY TRANSFERLINE
AUTHORIZATION FORM
INSTRUCTIONS: Please complete and sign where indicated. If your Contract
will be jointly owned, each Owner must sign. An acknowledgement letter
will be sent as soon as your Contract is issued.
THIS COMPLETED FORM MUST BE SUBMITTED WITH THE APPLICATION.
( ) Yes! I want TRANSFERLINE, John Hancock's telephone transfer program that
permits fast and toll-free transfers of funds within my Contract, as con-
ditions dictate.
As the applicant for a Contract funded by John Hancock Variable Series Trust I
(the "Fund"), I hereby authorize John Hancock, on behalf of the Fund, to act
upon my telephone instructions to:
(1) reallocate my then current value held in any one or more Subaccounts,
and
(2) to change the allocation of future purchase payments to the
Subaccounts.
I understand that John Hancock employs the following procedures reasonably de-
signed to confirm that the instructions received by telephone are genuine: re-
quiring disclosure of personal identification; tape recording calls; and pro-
viding the Owner with a confirmation of the transfer. As long as John Hancock
follows such procedures, I will not hold John Hancock or the Fund (or any of
their successors) liable for any loss, expense, or cost resulting from any un-
authorized or fraudulent telephone instructions.
I further understand that this authorization is limited by the conditions and
procedures for telephone account transfers and investment option changes set
forth in the prospectus describing my contract.
I further understand that this authorization will continue in force unless and
until the earlier of (a) written revocation received by John Hancock at its
Servicing Office or (b) John Hancock discontinues this service.
Signature(s) of Prospective
Contract Owner(s)
Date: _______________________________ /s/__________________________________
Date: _______________________________ /s/__________________________________
Questions call: 1-800-REAL LIFE (732-5543)
Mail to: John Hancock Servicing Office P.O. Box
111 Boston, MA 02117
<PAGE>
LOGO
POLICIES ISSUED BY JOHN HANCOCK MUTUAL LIFE INSURANCE COMPANY JOHN HANCOCK
PLACE, BOSTON, MASSACHUSETTS 02117
S8136 5/97
<PAGE>
LOGO
Mutual Life
Insurance Company
INDIVIDUAL VARIABLE ANNUITY CONTRACTS
JOHN HANCOCK VARIABLE ANNUITY ACCOUNT U
STATEMENT OF ADDITIONAL INFORMATION
This statement of additional information is not a prospectus. It is intended
that this statement of additional information be read in conjunction with the
prospectus of John Hancock Variable Annuity Account U, dated May 1, 1997. A
copy of the prospectus may be obtained from John Hancock Variable Annuity
Account U, John Hancock Servicing Office, P.O. Box 111, Boston Massachusetts,
02117, telephone number (800) REAL LIFE (732-5543), fax number (888-553-4732).
This statement of additional information is dated May 1, 1997.
<PAGE>
JOHN HANCOCK VARIABLE ANNUITY ACCOUNT U
CROSS REFERENCE SHEET
----------------
<TABLE>
<CAPTION>
SECTION IN STATEMENT OF
FORM N-4 ITEM NO. ADDITIONAL INFORMATION
----------------- -----------------------
<C> <S> <C>
15. Cover Page..................... Cover Page
16. Table of Contents.............. Table of Contents
17. General Information and
History....................... Business History
18. Services....................... Distribution Agreement and Other Services
19. Purchase of Securities Being Not Applicable (relevant information in
Offered....................... prospectus)
20. Underwriters................... Distribution Agreement and Other Services
21. Calculation of Yield Quotations
of Money Market Subaccounts... Calculation of Performance Data
22. Annuity Payments............... Calculation of Annuity Payments
23. Financial Statements........... Financial Statements
</TABLE>
<PAGE>
TABLE OF CONTENTS
----------------
<TABLE>
<CAPTION>
CROSS REFERENCE TO
PAGE PAGE IN PROSPECTUS
---- ------------------
<S> <C> <C>
Business History........................................ 1 15-16
Distribution Agreement and Other Services............... 1 18, 19-20, 34
Distribution Agreement................................ 1 19-20, 34
Investment Advisory Agreement......................... 2 18
Custodian Agreement................................... 3 --
Independent Auditors.................................. 3 34
Calculation of Performance Data......................... 3 32
Calculation of Annuity Payments......................... 5 25-27
Financial Statements.................................... 7 35
</TABLE>
<PAGE>
BUSINESS HISTORY
John Hancock Variable Annuity Account U (the "Account") is a separate
account of John Hancock Mutual Life Insurance Company ("John Hancock"),
established under the laws of the State of Massachusetts. The Account is
organized as a unit investment trust and registered with the Securities and
Exchange Commission under the Investment Company Act of 1940 (the "Act") and
the Securities Act of 1933. The Account currently has eighteen separate
subaccounts (Growth & Income, Sovereign Bond, Money Market, Large Cap Growth,
Managed, Real Estate Equity, International Equities, Short-Term U.S.
Government, Special Opportunities, Equity Index, Large Cap Value, Mid Cap
Growth, Mid Cap Value, Small Cap Growth, Small Cap Value, Strategic Bond,
International Opportunities, and International Balanced) through which John
Hancock's individual variable annuity contracts are funded, at the discretion
of the individual contract owner (the "Owner"). The assets of each subaccount
are, in turn, invested in a corresponding Portfolio of John Hancock Variable
Series Trust I (the "Fund"), a registered open-end diversified management
investment company advised by John Hancock.
The Account is the successor to six separate investment accounts of John
Hancock: John Hancock Variable Accounts A and C (the stock accounts), John
Hancock Variable Accounts A-1 and C-1 (the bond accounts), and John Hancock
Variable Accounts A-2 and C-2 (the money market accounts). These six accounts
(collectively, the "Variable Accounts") had investment objectives, policies,
and restrictions which were the same as those of the respective subaccounts of
the Account. On February 20, 1987, John Hancock, on behalf of the Variable
Accounts, combined the stock accounts to form the Account's newly-created
stock subaccount, combined the bond accounts to form the Account's newly-
created bond subaccount, and combined the money market accounts to form the
Account's newly-created money market subaccount. The newly created subaccounts
were established within John Hancock Variable Annuity Account A, the name of
which was changed to John Hancock Variable Annuity Account U.
Simultaneously with the transactions described above, John Hancock, on
behalf of the Variable Accounts, transferred all of the portfolio assets of
the newly-created stock, bond, and money market subaccounts of Account A to
the Fund's Stock (renamed Growth & Income), Bond (renamed Sovereign Bond), and
Money Market Portfolios, respectively, in exchange for shares of the
corresponding Fund Portfolio. In addition, the Fund assumed, in effect, any
unsatisfied liability incurred by the corresponding Variable Account.
All of these transactions are referred to as the "Reorganization." They were
effected pursuant to an Agreement and Plan of Reorganization, dated June 10,
1986, entered into by John Hancock, the Variable Accounts, and the Fund.
DISTRIBUTION AGREEMENT AND OTHER SERVICES
DISTRIBUTION AGREEMENT
Pursuant to a Distribution Agreement, dated May 1, 1997, John Hancock
Distributors, Inc. ("Distributors"), a registered broker-dealer, acts as
"principal underwriter" for the Account. Tables showing Distributors'
compensation for sales are included in the Account's Prospectus under "Charges
Under Variable Annuity Contracts." Distributors' major responsibility as
underwriter is to perform all sales and marketing functions relating to the
Contracts. The offering of the Account's interests is continuous, but
Distributors is not obligated to sell any particular amount of the Account's
interests.
1
<PAGE>
INVESTMENT ADVISORY AGREEMENT
The Fund, in which the Contracts are invested, has contracted with John
Hancock for investment advisory services. Pursuant to two Investment
Management Agreements, both dated as of April 12, 1988, one Investment
Management Agreement, dated as of April 15, 1994, and one Investment
Management Agreement dated as of March 14, 1996, John Hancock, a registered
investment adviser under the Act, advises the Fund in connection with policy
decisions; provides administration of day-to-day operations; negotiates the
quantity or price of its investments; provides personnel, office space,
equipment, and supplies for the Fund; maintains records required by the Act;
values assets and liabilities of the Fund; computes income, net asset value,
and yield of each Portfolio; and supervises activities of the sub-investment
managers referred to below.
John Hancock has day-to-day responsibility for making investment decisions
and placing investment orders for the Money Market Portfolio. However, with
respect to the other Portfolios, John Hancock has contracted with the
following registered investment advisors to perform these and certain other
recordkeeping functions as sub-investment manager pursuant to sub-investment
agreements dated as indicated:
<TABLE>
<C> <S> <C>
Independence
Investment
Associates,
Growth & Income Inc. 4/15/88
John Hancock
Sovereign Bond Advisers, Inc. 5/01/95
Independence
Investment
Associates,
Large Cap Growth Inc. 4/15/88
Independence
Investment
Associates,
Managed Inc. 4/15/88
Independence
Investment
Associates,
Real Estate Equity Inc. 4/15/94
John Hancock
International Equities Advisers, Inc. 4/15/88
John Hancock
Advisers
International,
Inc. 4/15/88
Independence
Investment
Associates,
Short-Term U.S. Government Inc. 4/15/94
State Street
Bank & Trust,
Equity Index N.A. 3/18/97
T. Rowe Price
Associates,
Large Cap Value Inc. 3/29/96
Janus Capital
Mid Cap Growth Corporation 3/29/96
Neuberger &
Mid Cap Value Berman, LLC 5/01/96
John Hancock
Small Cap Growth Advisers, Inc. 3/29/96
INVESCO
Management &
Small Cap Value Research 3/22/96
J.P. Morgan
Investment
Management,
Strategic Bond Inc. 3/29/96
T. Rowe Price
Associates,
International Opportunities Inc. 3/29/96
Rowe Price-
Fleming
International,
Inc. 3/29/96
Brinson
International Balanced Partners, Inc. 3/29/96
</TABLE>
John Hancock pays the sub-investment management fees pursuant to the
Agreements and, therefore, the sub-investment management arrangements result
in no additional charge or expense to the Fund or to contractholders. A more
complete description of the Fund's management and the investment advisory fees
is included under "Management of the Fund" in the Fund's Prospectus and under
"Investment Advisory and Other Services" in the Fund's Statement of Additional
Information.
2
<PAGE>
CUSTODIAN AGREEMENT
The Fund's custodian with respect to the Growth & Income, Money Market,
Large Cap Growth, Managed, Real Estate Equity, and Short-Term U.S. Government
Portfolios is Chemical Banking Corporation of 4 New York Plaza, New York, New
York, pursuant to a Custodian Agreement, dated January 15, 1988, and amended
April 29, 1988. The Fund's custodian with respect to the Sovereign Bond
Portfolio is Investors Bank & Trust Company, 24 Federal Street, Boston,
Massachusetts; dated May 2, 1995. The Fund's custodian with respect to the
other Portfolios is State Street Bank and Trust, 225 Franklin Street, Boston,
Massachusetts, pursuant to a Custodian Agreement, dated January 30, 1995, and
amended March 18, 1996. The custodian's duties include safeguarding and
controlling the Fund's cash investments, handling the receipt and delivery of
securities, and collecting interest and dividends on the Fund's investments.
INDEPENDENT AUDITORS
Ernst & Young LLP, 200 Clarendon Street, Boston, Massachusetts, has been
selected as the independent auditors of the Account. The firm is responsible
for auditing the financial statements of the Account and JHMLICO.
CALCULATION OF PERFORMANCE DATA
The Account will show the average annual total return for each Subaccount,
according to the following formula prescribed by the Securities and Exchange
Commission:
P(1 + T)n = ERV
where: P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value of a hypothetical $1,000 payment,
made at the beginning of a period (or fractional portion
thereof)
Average annual total return is the annual compounded rate of return that
would have produced the cash redemption value under a Contract had the
subaccount been invested in a specified Portfolio of the Fund (or its
predecessor) over the stated period had the performance remained constant
throughout. The calculation assumes a single $1,000 payment made at the
beginning of the period and full redemption at the end of the period. It
reflects a deduction for sales charges and all other Fund and Contract level
charges except premium taxes, if any.
3
<PAGE>
The following table shows the average annual total return for each
Subaccount for the period ended December 31, 1996:
<TABLE>
<CAPTION>
AVERAGE
ANNUALIZED
RETURNS
-------------------------
YEAR TO 1 5 10 DATE OF
SUBACCOUNT*** DATE YEAR YEAR* YEAR* INCEPTION**
------------- ------- ----- ----- ----- -----------
<S> <C> <C> <C> <C> <C>
Managed.............................. 4.1% 4.1% 8.4% 10.5% 11/09/87
Growth & Income...................... 13.0% 13.0% 12.3% 13.2% 04/03/72
Equity Index......................... 7.9% NA NA NA 04/30/96
Large Cap Value...................... 7.6% NA NA NA 04/30/96
Large Cap Growth..................... 11.2% 11.2% 11.7% 14.4% 11/24/87
Mid Cap Value........................ 9.7% NA NA NA 04/30/96
Mid Cap Growth....................... -3.0% NA NA NA 04/30/96
Special Opportunities................ 22.6% NA NA NA 04/30/96
Real Estate Equity................... 25.2% 25.2% 13.6% 9.3% 02/01/89
Small Cap Value...................... 4.2% NA NA NA 04/30/96
Small Cap Growth..................... -6.0% NA NA NA 04/30/96
International Balanced............... 0.8% NA NA NA 04/30/96
International Equities............... 2.7% 2.7% 5.4% 6.2% 02/01/89
International Opportunities.......... 0.8% NA NA NA 04/30/96
Short-Term U.S. Gov't................ -2.6% NA NA NA 04/30/96
Sovereign Bond....................... -2.1% -2.1% 5.5% 6.9% 06/02/80
Strategic Bond....................... 0.8% NA NA NA 04/30/96
Money Market......................... -0.9% -0.9% 2.3% 4.4% 05/13/82
</TABLE>
- --------
* or since inception of the applicable Portfolio or its predecessor.
** of the Portfolio or its predecessor.
*** Absent reimbursement from John Hancock to certain Portfolios for some
periods, total return figures related to the subaccounts would have been
lower.
The Account will show current yield and effective yield figures for the
Money Market Subaccount. The current yield of the Money Market Subaccount for
a seven-day period (the "base period") will be computed by determining the
"net change in value" (calculated as set forth below) of a hypothetical
account having a balance of one share at the beginning of the period, dividing
the net change in account value by the value of the account at the beginning
of the base period to obtain the base period return, and multiplying the base
period return by 365/7 with the resulting yield figure carried to the nearest
hundredth of one percent. Net changes in value of a hypothetical account will
include net investment income of the account (accrued daily dividends as
declared by the Money Market Portfolio, less daily expense charges of the
account) for the period, but will not include realized gains or losses or
unrealized appreciation or depreciation on the underlying fund shares.
Mortality and expense risk and periodic charges are reflected, but charges for
premium taxes and charges deducted from premiums for sales expenses,
administrative expenses and minimum death benefit are not reflected.
The effective yield reflects the effects of compounding and represents an
annualization of the current return with all dividends reinvested. The formula
for effective yield, as prescribed by the SEC, is:
Effective yield [(Base period return + 1) /3//6//5///7/] - 1
4
<PAGE>
For the 7-day period ending December 31, 1996, the Money Market Subaccount's
current yield was 4.38% and its effective yield was 4.47%.
The Account will calculate current yield for each of the other Subaccounts
according to the following formula prescribed by the SEC:
Yield = 2[([(a-b)/cd]+1)/6/-1
where: a= dividends and interest earned during the period
b= expenses accrued for the period (net of reimbursement)
c= the average daily number of shares outstanding during the
period that were entitled to receive dividends
d= the maximum offering price per share on the last day of the
period.
According to this formula, yield is determined by dividing the net
investment income per Accumulation Shared earned during the period (minus the
deduction for mortality and expense risk charge, contract fee, administrative
services charge) by the Accumulation Share Value on the last day of the period
and annualizing the resulting figure. The calculation is based on specified
30-day period identified in the advertisement. No sales loads are assumed.
CALCULATION OF ANNUITY PAYMENTS
The variable monthly annuity payment to an Annuitant under a Contract is
equal to the sum of the products of the number of each subaccount's "Annuity
Units" credited to the Contract multiplied by the applicable "Annuity Unit
Value," as these terms are defined under "Special Terms" and "Variable Account
Valuation Procedures," respectively, in the Account's prospectus. The number
of each subaccount's Annuity Units credited to the Contract is multiplied by
the applicable Annuity Unit Value as of ten calendar days prior to the date
the payment is due. The value of the Annuity Units varies from day to day,
depending on the investment performance of the subaccount, the deductions made
against the subaccount, and the assumed investment rate used in computing
Annuity Unit Values. Thus, the variable monthly annuity payments vary in
amount from month to month.
The amount of the initial variable monthly payment is determined on the
assumption that the actual net investment rate of each subaccount used in
calculating the Net Investment Factor (as described under "Variable Account
Valuation Procedures--Net Investment Factor" in the Account's prospectus) will
be equal on an annual basis to the assumed investment rate. If the actual net
investment rate between the dates for determining two monthly annuity payments
is greater than the assumed investment rate, the latter monthly payment will
be larger in amount than the former. On the other hand, if the actual net
investment rate between the dates for determining two monthly annuity payments
is less than the assumed investment rate, the latter monthly payment will be
smaller in amount than the former.
The mortality table used as a basis for the annuity purchase rates of the
Contracts is the 1971 Individual Annuity Mortality Table, with a five-year
setback for females and with certain age adjustments based on the calendar
year of birth. The annuity purchase rates used in a Contract purchased in
connection with certain employer-related plans and used in all Contracts
issued in Montana and Massachusetts will be the annuity
5
<PAGE>
purchase rates for females. The impact of this change will be lower benefits
(5% to 15%) from a male's viewpoint than would otherwise be the case.
The following outline is an illustration of the method of calculating
variable monthly annuity payments and the number of Annuity Units under the
deferred Contracts.
A. GENERAL FORMULAE TO DETERMINE ACCUMULATION SHARE VALUES AND ANNUITY UNIT
VALUES
Net Investment Rate =
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Subaccount Charges (0.002740% per
Investment Capital Capital Taxes Day of the Value of the Subaccount at
Income + Gains - Losses - (if any) - the Beginning of the Valuation Period)
</TABLE>
-----------------------------------------------------------------
Value of the Subaccount at the Beginning of the Valuation Period
Net Investment Factor = 1.00000000 + Net Investment Rate
<TABLE>
<S> <C> <C> <C> <C>
Accumulation Share Value = Accumulation Share Value on X Net Investment
Preceding Valuation Date Factor
</TABLE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Annuity Unit Annuity Unit Net Factor to Neutralize
Value = Value on Preceding X Investment X the Assumed
Valuation Date Factor Investment Rate
</TABLE>
B. HYPOTHETICAL EXAMPLE ILLUSTRATING THE CALCULATION OF ACCUMULATION SHARE
VALUES AND ANNUITY UNIT VALUES
Assume at the beginning of the Valuation Period being considered, the value
of the Subaccount was $4,000,000. Investment income during the Valuation
Period totaled $2000 while capital gains were $3000 and capital losses were
$1000. No taxes accrued. Charges against the beginning value of the Subaccount
amount to $109.60 assuming a one day Valuation Period. The $109.60 was
computed by multiplying the beginning Subaccount value of $4,000,000 by the
factor 0.00002740. By substituting in the first formula above, the net
investment rate is equal to $3890.40 ($2000 + $3000 - $1000 - $109.60) divided
by $4,000,000 or 0.0009726. The Net Investment Factor would then be 1.0009726.
Assume further that each Accumulation Share had a value of $11.250000 on the
previous Valuation Date, and the value of an Annuity Unit on such date was
$1.0850000. Based upon the experience of the Subaccount during the Valuation
Period, the value of an Accumulation Share at the end of the Valuation Period
would be $11.260942 ($11.250000 X 1.0009726). The value of an Annuity Unit at
the end of the Valuation Period would be $1.0859529
($1.0850000 X 1.0009726 X .99990575). The final figure, .99990575, neutralizes
the effect of a 3 1/2% assumed investment rate so that the Annuity Unit
recognizes only the actual investment experience.
6
<PAGE>
C. GENERAL FORMULAE TO DETERMINE AMOUNT OF MONTHLY VARIABLE ANNUITY PAYMENTS
AND NUMBER OF ANNUITY UNITS FOR DEFERRED CONTRACTS
Amount of the First Variable Annuity Payment =
<TABLE>
<S> <C> <C> <C> <C>
Number of
Accumulation X X
Shares Accumulation Share Value First Monthly Annuity
Applied 10 Days Before Maturity Date Payment Factor
</TABLE>
---------------------------------------------
$1,000
Amount of First Variable Annuity Payment
Number of Annuity Units = -----------------------------------------------
Annuity Unit Value 10 Days Before Maturity Date
<TABLE>
<S> <C> <C> <C> <C>
Amount of Subsequent Number of Annuity Unit Value
Variable Annuity Payment = Annuity Units X 10 Days Before Payment Date
</TABLE>
D. HYPOTHETICAL EXAMPLE ILLUSTRATING THE CALCULATION OF THE AMOUNT OF MONTHLY
VARIABLE ANNUITY PAYMENT FOR DEFERRED CONTRACTS
Assume that 10 days before the date of maturity a Contract has credited to
it 4000.000 Accumulation Shares each having a value of $12.000000. The
appropriate annuity purchase rate in the contract for an assumed investment
rate of 3 1/2% is $6.35 per $1000 of proceeds for the Annuity Option elected.
The Annuitant's first monthly payment would then be $304.80.
4000.000 X $12.00000 X $6.35
-----------------------
$1000
If the value of an Annuity Unit 10 days before the date of maturity was
$1.4000000, the number of Annuity Units represented by the first and
subsequent payments would be 217.714 ($304.80/$1.4000000). If the Annuity Unit
Value 10 days before the due date of the second monthly payment was $1.405000,
the amount of the second payment would be $305.89 (217.714 X $1.405000).
FINANCIAL STATEMENTS
(SEE NEXT PAGE)
7
<PAGE>
JOHN HANCOCK VARIABLE ANNUITY ACCOUNT U
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1996
<TABLE>
<CAPTION>
LARGE CAP SOVEREIGN INTERNATIONAL SMALL CAP INTERNATIONAL MID CAP LARGE CAP MONEY MID CAP
GROWTH BOND EQUITIES GROWTH BALANCED GROWTH VALUE MARKET VALUE
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
------------ ------------ ------------- ---------- ------------- ---------- ---------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Investment in
shares of
portfolios of
John Hancock
Variable Series
Trust I, at
value........... $188,987,564 $290,503,205 $67,701,763 $4,388,830 $797,114 $2,859,666 $3,004,811 $64,096,778 $1,141,426
Receivable from
John Hancock
Variable Series
Trust I......... 60,094 214,334 56,357 22,780 4,674 11,316 30,159 41,874 21,750
------------ ------------ ----------- ---------- -------- ---------- ---------- ----------- ----------
Total assets.... 189,047,658 290,717,539 67,758,120 4,411,610 801,788 2,870,982 3,034,970 64,138,652 1,163,176
LIABILITIES
Payable to John
Hancock Variable
Series Trust I.. 52,828 204,158 53,800 22,616 4,644 11,210 30,045 39,646 21,708
Asset charges
payable......... 7,266 10,176 2,557 164 30 106 114 2,228 42
------------ ------------ ----------- ---------- -------- ---------- ---------- ----------- ----------
Total
liabilities..... 60,094 214,334 56,357 22,780 4,674 11,316 30,159 41,874 21,750
------------ ------------ ----------- ---------- -------- ---------- ---------- ----------- ----------
Net assets...... 188,987,564 290,503,205 67,701,763 4,388,830 797,114 2,859,666 3,004,811 64,096,778 1,141,426
============ ============ =========== ========== ======== ========== ========== =========== ==========
NET ASSETS:
Attributable to
John Hancock
Mutual Life
Insurance
Company......... -- 590,790 -- -- -- -- -- 318,480 --
Attributable to
contractowners.. 188,987,564 289,912,415 67,701,763 4,388,830 797,114 2,859,666 3,004,811 63,778,298 1,141,426
------------ ------------ ----------- ---------- -------- ---------- ---------- ----------- ----------
$188,987,564 $290,503,205 $67,701,763 $4,388,830 $797,114 $2,859,666 $3,004,811 $64,096,778 $1,141,426
============ ============ =========== ========== ======== ========== ========== ===========
</TABLE>
See accompanying notes.
8
<PAGE>
JOHN HANCOCK VARIABLE ANNUITY ACCOUNT U
STATEMENT OF ASSETS AND LIABILITIES (CONTINUED)
DECEMBER 31, 1996
<TABLE>
<CAPTION>
SHORT-TERM
SPECIAL REAL ESTATE GROWTH & U.S. SMALL CAP INTERNATIONAL EQUITY STRATEGIC
OPPORTUNITIES EQUITY INCOME MANAGED GOVERNMENT VALUE OPPORTUNITIES INDEX BOND
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
------------- ----------- ------------ -------------- ---------- ---------- ------------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Investment in
shares of
portfolios of
John Hancock
Variable Series
Trust I, at
value........... $45,847,219 $85,994,087 $682,184,704 $1,163,856,420 $6,689,381 $1,788,946 $2,385,098 $4,470,107 $2,615,248
Receivable from
John Hancock
Variable Series
Trust I......... 84,833 13,616 261,446 839,925 16,375 8,917 13,639 10,282 2,695
----------- ----------- ------------ -------------- ---------- ---------- ---------- ---------- ----------
Total assets.... 45,932,052 86,007,703 682,446,150 1,163,696,345 6,705,756 1,797,863 2,398,737 4,480,389 2,617,943
LIABILITIES
Payable to John
Hancock Variable
Series Trust I.. 83,094 10,381 237,553 795,138 16,120 8,849 13,549 10,109 2,595
Asset charges
payable......... 1,739 3,235 23,893 44,787 255 68 90 173 100
----------- ----------- ------------ -------------- ---------- ---------- ---------- ---------- ----------
Total
liabilities..... 84,833 13,616 261,446 839,925 16,375 8,917 13,639 10,282 2,695
----------- ----------- ------------ -------------- ---------- ---------- ---------- ---------- ----------
Net assets...... 45,847,219 85,994,087 682,184,704 1,163,856,420 6,689,381 1,788,946 2,385,098 4,470,107 2,615,248
=========== =========== ============ ============== ========== ========== ========== ========== ==========
NET ASSETS:
Attributable to
John Hancock
Mutual Life
Insurance
Company......... -- -- 1,654,605 -- -- -- -- -- --
Attributable to
contractowners.. 45,847,219 85,994,087 680,530,099 1,163,856,420 6,689,381 1,788,946 2,385,098 4,470,107 2,615,248
----------- ----------- ------------ -------------- ---------- ---------- ---------- ---------- ----------
$45,847,219 $85,994,087 $682,184,704 $1,163,856,420 $6,689,381 $1,788,946 $2,385,098 $4,470,107 $2,615,248
=========== =========== ============ ============== ========== ========== ========== ========== ==========
</TABLE>
See accompanying notes.
9
<PAGE>
JOHN HANCOCK VARIABLE ANNUITY ACCOUNT U
STATEMENT OF OPERATIONS
PERIOD ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
LARGE CAP SOVEREIGN INTERNATIONAL SMALL CAP INTERNATIONAL MID CAP LARGE CAP MONEY
GROWTH BOND EQUITIES GROWTH BALANCED GROWTH VALUE MARKET
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT* SUBACCOUNT* SUBACCOUNT* SUBACCOUNT* SUBACCOUNT
----------- ----------- ------------- ----------- ------------- ----------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Investment
income:
Distributions
received from
the portfolios
of John Hancock
Variable Series
Trust I......... $28,211,043 $22,408,938 $ 884,086 $ 3,067 $13,321 $ 9,454 $ 60,407 $3,303,454
Expenses:
Mortality and
expense risks... 2,445,319 3,790,287 956,141 22,779 3,949 13,394 12,205 806,237
----------- ----------- ---------- --------- ------- ------- -------- ----------
Net investment
income (loss).... 25,765,724 18,618,651 (72,055) (19,712) 9,372 (3,940) 48,202 2,497,217
Net realized and
unrealized gain
(loss) on
investments:
Net realized
gain (loss)..... 2,715,920 1,605,801 618,460 (38,209) 601 (2,933) 5,943 --
Net unrealized
appreciation
(depreciation)
during the
period.......... (1,342,699) (12,616,007) 4,480,521 (116,446) 22,914 53,641 155,009 --
----------- ----------- ---------- --------- ------- ------- -------- ----------
Net realized and
unrealized gain
(loss) on
investments...... 1,373,221 (11,010,206) 5,098,981 (154,655) 23,515 50,708 160,952 --
----------- ----------- ---------- --------- ------- ------- -------- ----------
Net increase
(decrease) in net
assets resulting
from operations.. $27,138,945 $ 7,608,445 $5,026,926 $(174,367) $32,887 $46,768 $209,154 $2,497,217
=========== =========== ========== ========= ======= ======= ======== ==========
<CAPTION>
MID CAP
VALUE
SUBACCOUNT*
-----------
<S> <C>
Investment
income:
Distributions
received from
the portfolios
of John Hancock
Variable Series
Trust I......... $23,396
Expenses:
Mortality and
expense risks... 4,252
-----------
Net investment
income (loss).... 19,144
Net realized and
unrealized gain
(loss) on
investments:
Net realized
gain (loss)..... 272
Net unrealized
appreciation
(depreciation)
during the
period.......... 75,961
-----------
Net realized and
unrealized gain
(loss) on
investments...... 76,233
-----------
Net increase
(decrease) in net
assets resulting
from operations.. $95,377
===========
</TABLE>
- -----
See accompanying notes.
10
<PAGE>
JOHN HANCOCK VARIABLE ANNUITY ACCOUNT U
STATEMENT OF OPERATIONS (CONTINUED)
PERIOD ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
SHORT-TERM
SPECIAL REAL ESTATE GROWTH & U.S. SMALL CAP INTERNATIONAL EQUITY
OPPORTUNITIES EQUITY INCOME MANAGED GOVERNMENT VALUE OPPORTUNITIES INDEX
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT* SUBACCOUNT* SUBACCOUNT*
------------- ----------- ------------ ------------ ---------- ----------- ------------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Investment
income:
Distributions
received from
the portfolios
of John Hancock
Variable Series
Trust I......... $1,764,490 $ 4,470,732 $ 85,637,160 $144,901,802 $343,472 $ 44,896 $ 7,131 $106,423
Expenses:
Mortality and
expense risks... 437,872 986,476 7,945,763 15,814,224 89,136 8,623 9,839 22,479
---------- ----------- ------------ ------------ -------- -------- ------- --------
Net investment
income (loss)... 1,326,618 3,484,256 77,691,397 129,087,578 254,336 36,273 (2,708) 83,944
Net realized and
unrealized gain
(loss) on
investments:
Net realized
gain (loss)..... 810,991 517,169 7,392,263 12,361,012 (9,939) 5,580 (1,023) 518
Net unrealized
appreciation
(depreciation)
during the
period.......... 4,973,647 16,386,139 22,898,637 (41,260,217) (104,619) 89,251 99,796 289,361
---------- ----------- ------------ ------------ -------- -------- ------- --------
Net realized and
unrealized gain
(loss) on
investments..... 5,784,638 16,903,308 30,290,900 (28,899,205) (114,558) 94,831 98,773 289,879
---------- ----------- ------------ ------------ -------- -------- ------- --------
Net increase in
net assets
resulting from
operations...... $7,111,256 $20,387,564 $107,982,297 $100,188,373 $139,778 $131,104 $96,065 $373,823
========== =========== ============ ============ ======== ======== ======= ========
<CAPTION>
STRATEGIC
BOND
SUBACCOUNT*
-----------
<S> <C>
Investment
income:
Distributions
received from
the portfolios
of John Hancock
Variable Series
Trust I......... $105,925
Expenses:
Mortality and
expense risks... 13,728
-----------
Net investment
income (loss)... 92,197
Net realized and
unrealized gain
(loss) on
investments:
Net realized
gain (loss)..... 317
Net unrealized
appreciation
(depreciation)
during the
period.......... 16,022
-----------
Net realized and
unrealized gain
(loss) on
investments..... 16,339
-----------
Net increase in
net assets
resulting from
operations...... $108,536
===========
</TABLE>
- -----
* From May 1, 1996 (commencement of operations).
See accompanying notes.
11
<PAGE>
JOHN HANCOCK VARIABLE ANNUITY ACCOUNT U
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE YEARS AND PERIODS ENDED DECEMBER 31,
<TABLE>
<CAPTION>
LARGE CAP INTERNATIONAL SMALL CAP INTERNATIONAL
GROWTH SOVEREIGN BOND EQUITIES GROWTH BALANCED
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
-------------------------- -------------------------- ------------------------ ---------- -------------
1996 1995 1996 1995 1996 1995 1996* 1996*
------------ ------------ ------------ ------------ ----------- ----------- ---------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Increase
(decrease) in net
assets from
operations:
Net investment
income (loss)... $ 25,765,724 $ 11,557,682 $ 18,618,651 $ 20,532,319 $ (72,055) $ (165,159) $ (19,712) $ 9,372
Net realized
gain (loss)..... 2,715,920 511,687 1,605,801 (625,195) 618,460 1,637,360 (38,209) 601
Net unrealized
appreciation
(depreciation)
during the year. (1,342,699) 23,842,221 (12,616,007) 29,341,954 4,480,521 2,920,738 (116,446) 22,914
------------ ------------ ------------ ------------ ----------- ----------- ---------- --------
Net increase
(decrease) in net
assets resulting
from operations.. 27,138,945 35,911,590 7,608,445 49,249,078 5,026,926 4,392,939 (174,367) 32,887
From
contractowner
transactions:
Net premiums
from
contractowners.. 17,826,148 29,927,518 13,004,399 25,381,525 9,354,294 12,868,780 5,472,927 793,707
Net benefits to
contractowners.. (20,197,834) (13,575,854) (45,346,956) (38,302,985) (14,672,328) (23,857,543) (909,730) (29,480)
------------ ------------ ------------ ------------ ----------- ----------- ---------- --------
Net increase
(decrease) in net
assets from
contractowner
transactions..... (2,371,686) 16,351,664 (32,342,557) (12,921,460) (5,318,034) (10,988,763) 4,563,197 764,227
------------ ------------ ------------ ------------ ----------- ----------- ---------- --------
Net increase
(decrease) in net
assets........... 24,764,259 52,263,254 (24,734,112) 36,327,618 (291,108) (6,595,824) 4,388,830 797,114
Net assets at
beginning of
year............. 164,220,305 111,957,051 315,237,317 278,909,699 67,992,871 74,588,695 -- --
------------ ------------ ------------ ------------ ----------- ----------- ---------- --------
Net assets at end
of year.......... $188,987,564 $164,220,305 $290,503,205 $315,237,317 $67,701,763 $67,992,871 $4,388,830 $797,114
============ ============ ============ ============ =========== =========== ========== ========
<CAPTION>
MID CAP LARGE CAP
GROWTH VALUE
SUBACCOUNT SUBACCOUNT
----------- -----------
1996* 1996*
----------- -----------
<S> <C> <C>
Increase
(decrease) in net
assets from
operations:
Net investment
income (loss)... $ (3,940) $ 48,202
Net realized
gain (loss)..... (2,933) 5,943
Net unrealized
appreciation
(depreciation)
during the year. 53,641 155,009
----------- -----------
Net increase
(decrease) in net
assets resulting
from operations.. 46,768 209,154
From
contractowner
transactions:
Net premiums
from
contractowners.. 3,061,875 2,921,725
Net benefits to
contractowners.. (248,977) (126,068)
----------- -----------
Net increase
(decrease) in net
assets from
contractowner
transactions..... 2,812,898 2,795,657
----------- -----------
Net increase
(decrease) in net
assets........... 2,859,666 3,004,811
Net assets at
beginning of
year............. -- --
----------- -----------
Net assets at end
of year.......... $2,859,666 $3,004,811
=========== ===========
</TABLE>
- -----
* From May 1, 1996 (commencement of operations).
See accompanying notes.
12
<PAGE>
JOHN HANCOCK VARIABLE ANNUITY ACCOUNT U
STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED)
FOR THE YEARS AND PERIODS ENDED DECEMBER 31,
<TABLE>
<CAPTION>
MID CAP
MONEY MARKET VALUE SPECIAL OPPORTUNITIES REAL ESTATE EQUITY
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
-------------------------- ---------- ------------------------ --------------------------
1996 1995 1996* 1996 1995 1996 1995
------------ ------------ ---------- ----------- ----------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Increase in net
assets from
operations:
Net investment
income.......... $ 2,497,217 $ 2,878,058 $ 19,144 $ 1,326,618 $ 243,648 $ 3,484,256 $ 3,874,779
Net realized
gain (loss)..... -- -- 272 810,991 428,216 517,169 (602,325)
Net unrealized
appreciation
during the year. -- -- 75,961 4,973,647 923,379 16,386,139 3,675,422
------------ ------------ ---------- ----------- ----------- ------------ ------------
Net increase in
net assets
resulting from
operations....... 2,497,217 2,878,058 95,377 7,111,256 1,595,243 20,387,564 6,947,876
From
contractowner
transactions:
Net premiums
from
contractowners.. 43,824,428 39,335,269 1,145,532 31,891,420 13,296,094 7,381,816 6,265,583
Net benefits to
contractowners.. (47,278,734) (41,035,536) (99,483) (6,960,327) (2,628,805) (10,368,714) (23,650,208)
------------ ------------ ---------- ----------- ----------- ------------ ------------
Net increase
(decrease) in net
assets from
contractowner
transactions..... (3,454,306) (1,700,267) 1,046,049 24,931,093 10,667,289 (2,986,898) (17,384,625)
------------ ------------ ---------- ----------- ----------- ------------ ------------
Net increase
(decrease) in net
assets........... (957,089) 1,177,791 1,141,426 32,042,349 12,262,532 17,400,666 (10,436,749)
Net assets at
beginning of
year............. 65,053,867 63,876,076 -- 13,804,870 1,542,338 68,593,421 79,030,170
------------ ------------ ---------- ----------- ----------- ------------ ------------
Net assets at end
of year.......... $ 64,096,778 $ 65,053,867 $1,141,426 $45,847,219 $13,804,870 $ 85,994,087 $ 68,593,421
============ ============ ========== =========== =========== ============ ============
<CAPTION>
GROWTH & INCOME
SUBACCOUNT
---------------------------
1996 1995
------------- -------------
<S> <C> <C>
Increase in net
assets from
operations:
Net investment
income.......... $ 77,691,397 $ 49,851,546
Net realized
gain (loss)..... 7,392,263 1,872,473
Net unrealized
appreciation
during the year. 22,898,637 90,535,270
------------- -------------
Net increase in
net assets
resulting from
operations....... 107,982,297 142,259,297
From
contractowner
transactions:
Net premiums
from
contractowners.. 50,653,091 64,442,746
Net benefits to
contractowners.. (63,828,426) (47,367,868)
------------- -------------
Net increase
(decrease) in net
assets from
contractowner
transactions..... (13,175,335) 17,074,878
------------- -------------
Net increase
(decrease) in net
assets........... 94,806,962 159,334,167
Net assets at
beginning of
year............. 587,377,742 428,043,575
------------- -------------
Net assets at end
of year.......... $682,184,704 $587,377,742
============= =============
</TABLE>
- -----
* From May 1, 1996 (commencement of operations)
See accompanying notes.
13
<PAGE>
JOHN HANCOCK VARIABLE ANNUITY ACCOUNT U
STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED)
FOR THE YEARS AND PERIODS ENDED DECEMBER 31,
<TABLE>
<CAPTION>
SHORT-TERM
U.S. SMALL CAP INTERNATIONAL EQUITY STRATEGIC
MANAGED GOVERNMENT VALUE OPPORTUNITIES INDEX BOND
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
------------------------------ ------------------------ ---------- ------------- ---------- ----------
1996 1995 1996 1995 1996* 1996* 1996* 1996*
-------------- -------------- ----------- ----------- ---------- ------------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Increase in net
assets from
operations:
Net investment
income (loss)... $ 129,087,578 $ 94,242,988 $ 254,336 $ 110,546 $ 36,273 $ (2,708) $ 83,944 $ 92,197
Net realized
gain (loss)..... 12,361,012 5,271,590 (9,939) 33,726 5,580 (1,023) 518 317
Net unrealized
appreciation
(depreciation)
during the year. (41,260,217) 129,134,123 (104,619) 54,822 89,251 99,796 289,361 16,022
-------------- -------------- ----------- ----------- ---------- ---------- ---------- ----------
Net increase in
net assets
resulting from
operations....... 100,188,373 228,648,701 139,778 199,094 131,104 96,065 373,823 108,536
From
contractowner
transactions:
Net premiums
from
contractowners.. 56,201,877 86,433,676 4,338,920 6,169,362 1,838,183 2,715,936 4,265,069 2,870,583
Net benefits to
contractowners.. (118,947,868) (105,246,492) (3,599,065) (1,141,269) (180,341) (426,903) (168,785) (363,871)
-------------- -------------- ----------- ----------- ---------- ---------- ---------- ----------
Net increase
(decrease) in net
assets from
contractowner
transactions..... (62,745,991) (18,812,816) 739,855 5,028,093 1,657,842 2,289,033 4,096,284 2,506,712
-------------- -------------- ----------- ----------- ---------- ---------- ---------- ----------
Net increase in
net assets....... 37,442,382 209,835,885 879,633 5,227,187 1,788,946 2,385,098 4,470,107 2,615,248
Net assets at
beginning of
year............. 1,126,414,038 916,578,153 5,809,748 582,561 -- -- -- --
-------------- -------------- ----------- ----------- ---------- ---------- ---------- ----------
Net assets at end
of year.......... $1,163,856,420 $1,126,414,038 $ 6,689,381 $ 5,809,748 $1,788,946 $2,385,098 $4,470,107 $2,615,248
============== ============== =========== =========== ========== ========== ========== ==========
</TABLE>
- -----
* From May 1, 1996 (commencement of operations).
See accompanying notes.
14
<PAGE>
JOHN HANCOCK VARIABLE ANNUITY ACCOUNT U
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996
1. ORGANIZATION
John Hancock Variable Annuity Account U (the Account) is a separate
investment account of John Hancock Mutual Life Insurance Company (JHMLICO or
John Hancock). The Account was formed to fund variable annuity contracts
(Contracts) issued by JHMLICO. Currently, the Account funds the Accommodator
and Independence Annuity Contracts. The Account is operated as a unit
investment trust registered under the Investment Company Act of 1940, as
amended, and currently consists of eighteen subaccounts. The assets of each
subaccount are invested exclusively in shares of a corresponding Portfolio of
John Hancock Variable Series Trust I (the Fund). New subaccounts may be added
as new Portfolios are added to the Fund or as other investment options are
developed and made available to contractowners. The eighteen Portfolios of the
Fund which are currently available are the Large Cap Growth, Sovereign Bond,
International Equities, Small Cap Growth, International Balanced, Mid Cap
Growth, Large Cap Value, Money Market, Mid Cap Value, Special Opportunities,
Real Estate Equity, Growth & Income, Managed, Short-Term U.S. Government,
Small Cap Value, International Opportunities, Equity Index and Strategic Bond
Subaccounts. Each Portfolio has a different investment objective.
The assets of the Account are the property of JHMLICO. The portion of the
Account's assets applicable to the Contracts may not be charged with
liabilities arising out of any other business JHMLICO may conduct.
2. SIGNIFICANT ACCOUNTING POLICIES
Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Valuation of Investments
Investment in shares of the Fund are valued at the reported net asset value
of the respective Portfolios. Investment transactions are recorded on the
trade date. Dividend income is recognized on the ex-dividend date. Realized
gains and losses on sales of Fund shares are determined on the basis of
identified cost.
Federal Income Taxes
The operations of the Account are included in the federal income tax return
of JHMLICO, which is taxed as a life insurance company under the Internal
Revenue Code. JHMLICO has the right to charge the Account any federal income
taxes, or provisions for federal income taxes, attributable to the operations
of the Account or to the Contracts funded in the Account. Currently, John
Hancock does not make a charge for income or other taxes. JHMLICO retains the
right to charge the Account for any federal income taxes arising from changes
in the tax law. Charges for state and local taxes, if any, attributable to the
Account may also be made.
15
<PAGE>
JOHN HANCOCK VARIABLE ANNUITY ACCOUNT U
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Expenses
JHMLICO assumes mortality and expense risks of the Contracts and provides
administrative services to the Account for which asset charges are deducted at
an annual rate of 1.00% and 1.40% of net assets of the Accommodator and
Independence Contracts, respectively.
JHMLICO makes certain other deductions from contractowner payments for
administrative expenses, premium taxes, guaranteed minimum death benefit,
sales charges on purchases (Accommodator only) and the surrender fee and
annual contract fee (Independence only), which are accounted for as a
reduction of net assets resulting from contractowner transactions.
3. DETAILS OF INVESTMENTS
The details of the shares owned and cost and value of investments in the
Portfolios of the Fund at December 31, 1996 were as follows:
<TABLE>
<CAPTION>
PORTFOLIO SHARES OWNED COST VALUE
--------- ------------ -------------- --------------
<S> <C> <C> <C>
Large Cap Growth................ 10,804,393 $ 170,140,933 $ 188,987,564
Sovereign Bond.................. 29,732,067 291,259,175 290,503,205
International Equities.......... 4,022,443 62,360,050 67,701,763
Small Cap Growth................ 441,785 4,505,276 4,388,830
International Balanced.......... 76,697 774,200 797,114
Mid Cap Growth.................. 279,747 2,806,025 2,859,666
Large Cap Value................. 270,961 2,849,802 3,004,811
Money Market.................... 6,409,678 64,096,778 64,096,778
Mid Cap Value................... 100,579 1,065,465 1,141,426
Special Opportunities........... 2,774,935 39,937,249 45,847,219
Real Estate Equity.............. 5,875,788 69,420,386 85,994,087
Growth & Income................. 46,551,524 577,688,055 682,184,704
Managed......................... 87,165,185 1,119,273,825 1,163,856,420
Short-Term U.S. Government...... 665,809 6,744,425 6,689,381
Small Cap Value................. 166,722 1,699,695 1,788,946
International Opportunities..... 225,070 2,285,302 2,385,098
Equity Index.................... 402,819 4,180,746 4,470,107
Strategic Bond.................. 257,448 2,599,226 2,615,248
</TABLE>
16
<PAGE>
JOHN HANCOCK VARIABLE ANNUITY ACCOUNT U
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Purchases, including reinvestment of dividend distributions and proceeds from
sales of shares in the Portfolios of the Fund during 1996, were as follows:
<TABLE>
<CAPTION>
PORTFOLIO PURCHASES SALES
--------- ----------- -----------
<S> <C> <C>
Large Cap Growth.................................. $34,272,417 $10,878,379
Sovereign Bond.................................... 23,275,272 36,999,178
International Equities............................ 4,550,110 9,940,199
Small Cap Growth.................................. 5,109,624 566,139
International Balanced............................ 818,807 45,208
Mid Cap Growth.................................... 3,007,489 198,531
Large Cap Value................................... 2,969,205 125,346
Money Market...................................... 29,006,499 29,963,588
Mid Cap Value..................................... 1,184,409 119,216
Special Opportunities............................. 28,722,744 2,465,032
Real Estate Equity................................ 8,239,725 7,742,366
Growth & Income................................... 96,667,401 32,151,339
Managed........................................... 151,241,248 84,899,661
Short-Term U.S. Government........................ 3,792,056 2,797,865
Small Cap Value................................... 1,838,524 144,408
International Opportunities....................... 2,633,277 346,952
Equity Index...................................... 4,339,120 158,892
Strategic Bond.................................... 2,974,070 375,161
</TABLE>
17
<PAGE>
JOHN HANCOCK VARIABLE ANNUITY ACCOUNT U
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
4. NET ASSETS
Accumulation shares attributable to net assets of contractowners and
accumulation share values for each subaccount at December 31, 1996 were as
follows:
<TABLE>
<CAPTION>
ACCOMMODATOR INDEPENDENCE
------------------------- -------------------------
ACCUMULATION ACCUMULATION ACCUMULATION ACCUMULATION
SUBACCOUNT SHARES SHARE VALUES SHARES SHARE VALUES
---------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Large Cap Growth........... 159,241 $24.935 8,238,974 $22.456
Sovereign Bond............. 1,980,126 44.514 12,517,535 16.119
International Equities..... 131,774 16.246 4,551,590 14.404
Small Cap Growth........... 15,438 9.884 429,750 9.857
International Balanced..... 3,139 10.602 72,243 10.573
Mid Cap Growth............. 14,603 10.200 266,458 10.173
Large Cap Value............ 11,411 11.315 254,841 11.284
Money Market............... 857,514 22.554 3,579,555 12.414
Mid Cap Value.............. 5,764 11.540 93,392 11.510
Special Opportunities...... 75,662 11.055 2,635,223 17.080
Real Estate Equity......... 103,394 21.908 3,847,062 21.764
Growth & Income............ 2,065,540 111.437 20,011,363 22.505
Managed.................... 1,053,821 20.449 61,132,257 18.686
Short-Term U.S. Government. 16,015 10.350 585,831 11.136
Small Cap Value............ 2,982 10.960 160,674 10.931
International
Opportunities............. 6,637 10.601 218,939 10.573
Equity Index............... 3,749 11.347 391,237 11.317
Strategic Bond............. 7,670 10.600 239,685 10.572
</TABLE>
The net assets attributable to JHMLICO represent JHMLICO's funds deposited in
the Account. At its discretion, these amounts may be transferred by JHMLICO to
its general account.
5. TRANSACTIONS WITH AFFILIATES
John Hancock acts as the distributor, principal underwriter and investment
advisor for the Fund.
Certain officers of the Account are officers and directors of JHMLICO or the
Fund.
18
<PAGE>
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
Contractowners
John Hancock Variable Annuity Account U
of John Hancock Mutual Life Insurance Company
We have audited the accompanying statement of assets and liabilities of John
Hancock Variable Annuity Account U (the Account) (comprising, respectively,
the Large Cap Growth, Sovereign Bond, International Equities, Small Cap
Growth, International Balanced, Mid Cap Growth, Large Cap Value, Money Market,
Mid Cap Value, Special Opportunities, Real Estate Equity, Growth & Income,
Managed, Short-Term U.S. Government, Small Cap Value, International
Opportunities, Equity Index and Strategic Bond Subaccounts) as of December 31,
1996, and the related statements of operations and changes in net assets for
each of the periods indicated therein. These financial statements are the
responsibility of the Account's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of each of the respective
subaccounts constituting John Hancock Variable Annuity Account U at December
31, 1996, and the results of their operations and changes in their net assets
for each of the periods indicated, in conformity with generally accepted
accounting principles.
ERNST & YOUNG LLP
Boston, Massachusetts
February 7, 1997
19
<PAGE>
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
To the Directors and Policyholders
John Hancock Mutual Life Insurance Company
We have audited the accompanying statutory-basis statements of financial
position of John Hancock Mutual Life Insurance Company as of December 31, 1996
and 1995, and the related statutory-basis summaries of operations, changes in
policyholders' contingency reserves and cash flows for the years then ended.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
As described in Note 1 to the financial statements, the Company presents its
financial statements in conformity with accounting practices prescribed or
permitted by the Commonwealth of Massachusetts Division
of Insurance, which practices differ from generally accepted accounting
principles. The variances between such practices and generally accepted
accounting principles also are described in Note 1. The effects on the
financial statements of these variances are not reasonably determinable but are
presumed to be material.
In our report dated February 7, 1996, we expressed an opinion that the 1995
financial statements of the Company fairly present, in all material respects,
the Company's financial position, results of operations, and cash flows in
conformity with generally accepted accounting principles for mutual life
insurance companies and with reporting practices prescribed or permitted by the
Commonwealth of Massachusetts Division of Insurance. As described in Note 1,
the accompanying statutory-basis financial statements are no longer considered
to be prepared in conformity with generally accepted accounting principles.
Accordingly, our present opinion on the 1995 financial statements, as presented
in the following paragraph, is different from that expressed in our previous
report.
In our opinion, because of the effects of the matter described in the second
preceding paragraph, the financial statements referred to above do not present
fairly, in conformity with generally accepted accounting principles, the
financial position of John Hancock Mutual Life Insurance Company at December
31, 1996 and 1995, or the results of its operations or its cash flows for the
years then ended.
Also, in our opinion, the financial statements referred to above present
fairly, in all material respects, the consolidated financial position of John
Hancock Mutual Life Insurance Company at December 31, 1996 and 1995, and the
results of its operations and its cash flows for the years then ended in
conformity with accounting practices prescribed or permitted by the
Commonwealth of Massachusetts Division of Insurance.
ERNST & YOUNG LLP
Boston, Massachusetts
February 14, 1997
20
<PAGE>
JOHN HANCOCK MUTUAL LIFE INSURANCE COMPANY
STATUTORY-BASIS STATEMENTS OF FINANCIAL POSITION
<TABLE>
<CAPTION>
December 31
-------------------
1996 1995
--------- ---------
(In millions)
<S> <C> <C>
ASSETS
Bonds--Note 6............................................... $22,467.0 $21,108.5
Stocks:
Preferred................................................. 416.2 338.8
Common.................................................... 249.8 130.9
Investments in affiliates................................. 1,268.9 1,265.3
--------- ---------
1,934.9 1,735.0
Mortgage loans on real estate--Note 6....................... 7,964.0 8,801.5
Real estate:
Company occupied.......................................... 372.1 377.4
Investment properties..................................... 2,042.3 1,949.5
--------- ---------
2,414.4 2,326.9
Policy loans................................................ 1,589.3 1,621.3
Cash items:
Cash in banks and offices................................. 348.4 286.6
Temporary cash investments................................ 1,068.3 254.1
--------- ---------
1,416.7 540.7
Premiums due and deferred................................... 278.4 234.0
Investment income due and accrued........................... 547.8 597.5
Other general account assets................................ 1,009.9 883.0
Assets held in separate accounts............................ 13,969.1 12,928.2
--------- ---------
TOTAL ASSETS................................................ $53,591.5 $50,776.6
========= =========
Obligations and Policyholders' Contingency Reserves
OBLIGATIONS
Policy reserves........................................... $18,544.0 $17,711.4
Policyholders' and beneficiaries' funds................... 14,679.3 14,724.8
Dividends payable to policyholders........................ 395.5 378.6
Policy benefits in process of payment..................... 236.3 217.1
Other policy obligations.................................. 210.5 159.6
Asset valuation reserve--Note 1........................... 1,064.8 1,014.3
Federal income and other accrued taxes--Note 1............ 125.1 250.5
Other general account obligations......................... 1,521.7 873.2
Obligations related to separate accounts.................. 13,958.2 12,913.6
--------- ---------
TOTAL OBLIGATIONS........................................... 50,735.4 48,243.1
Policyholders' Contingency Reserves
Surplus notes--Note 2..................................... 450.0 450.0
Special contingency reserve for group insurance........... 194.8 193.1
General contingency reserve............................... 2,211.3 1,890.4
--------- ---------
TOTAL POLICYHOLDERS' CONTINGENCY RESERVES................... 2,856.1 2,533.5
--------- ---------
TOTAL OBLIGATIONS AND POLICYHOLDERS' CONTINGENCY RESERVES... $53,591.5 $50,776.6
========= =========
</TABLE>
The accompanying notes are an integral part of the statutory-basis financial
statements.
21
<PAGE>
JOHN HANCOCK MUTUAL LIFE INSURANCE COMPANY
STATUTORY-BASIS SUMMARY OF OPERATIONS AND CHANGES IN POLICYHOLDERS' CONTINGENCY
RESERVES
<TABLE>
<CAPTION>
Year ended December 31
------------------------
1996 1995
----------- -----------
(In millions)
<S> <C> <C>
Income
Premiums, annuity considerations and pension fund
contributions..................................... $ 8,003.1 $ 8,127.8
Net investment income--Note 4...................... 2,803.1 2,678.5
Other, net......................................... 68.6 90.8
----------- -----------
10,874.8 10,897.1
Benefits and Expenses
Payments to policyholders and beneficiaries:
Death benefits................................... 886.8 787.4
Accident and health benefits..................... 300.9 321.3
Annuity benefits................................. 1,539.4 1,342.7
Surrender benefits and annuity fund withdrawals.. 5,565.4 5,243.6
Matured endowments............................... 20.6 19.8
----------- -----------
8,313.1 7,714.8
Additions to reserves to provide for future
payments to policyholders and beneficiaries....... 880.5 1,497.0
Expenses of providing service to policyholders and
obtaining new insurance:
Field sales compensation and expenses............ 275.0 277.4
Home office and general expenses................. 514.8 455.8
Payroll, state premium and miscellaneous taxes..... 70.9 78.6
----------- -----------
10,054.3 10,023.6
----------- -----------
GAIN FROM OPERATIONS BEFORE DIVIDENDS TO
POLICYHOLDERS, FEDERAL INCOME TAXES AND NET
REALIZED CAPITAL GAINS (LOSSES)............... 820.5 873.5
Dividends to policyholders........................... 399.4 465.9
Federal income taxes--Note 1......................... 107.1 128.5
----------- -----------
506.5 594.4
----------- -----------
GAIN FROM OPERATIONS BEFORE NET REALIZED
CAPITAL GAINS (LOSSES)........................ 314.0 279.1
Net realized capital gains (losses)--Note 5.......... (43.6) 21.2
----------- -----------
NET INCOME..................................... 270.4 300.3
Other increases (decreases) in policyholders'
contingency reserves:
Net unrealized capital losses and other
adjustments--Note 5............................... $ 191.7 $ (85.1)
Valuation reserve changes--Note 1.................. (27.5) 0.0
Prior years' federal income taxes.................. (28.9) (36.8)
Other reserves and adjustments..................... (83.1) 25.19
----------- -----------
NET INCREASE IN POLICYHOLDERS' CONTINGENCY
RESERVES...................................... 322.6 203.5
Policyholders' contingency reserves at beginning of
year................................................ 2,533.5 2,330.0
----------- -----------
POLICYHOLDERS' CONTINGENCY RESERVES AT END OF YEAR... $ 2,856.1 $ 2,533.5
=========== ===========
</TABLE>
The accompanying notes are an integral part of the statutory-basis financial
statements.
22
<PAGE>
JOHN HANCOCK MUTUAL LIFE INSURANCE COMPANY
STATUTORY-BASIS STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year ended December 31
------------------------
1996 1995
----------- -----------
(In millions)
<S> <C> <C>
Cash Flows From Operating Activities:
Insurance premiums, annuity considerations and de-
posits............................................ $ 8,120.4 $ 8,280.3
Net investment income.............................. 2,965.5 2,756.9
Benefits to policyholders and beneficiaries........ (8,476.6) (7,917.6)
Dividends paid to policyholders.................... (382.6) (464.9)
Insurance expenses and taxes....................... (884.1) (795.1)
Net transfers from separate accounts............... 198.2 132.0
Other, net......................................... (602.7) (202.7)
----------- -----------
NET CASH PROVIDED FROM OPERATIONS................ 938.1 1,788.9
----------- -----------
Cash Flows Used In Investing Activities:
Bond purchases..................................... (7,590.7) (6,456.9)
Bond sales......................................... 2,812.4 2,874.9
Bond maturities and scheduled redemptions.......... 2,241.0 1,600.6
Bond prepayments................................... 1,223.2 795.9
Stock purchases.................................... (391.2) (224.3)
Proceeds from stock sales.......................... 573.2 131.4
Real estate purchases.............................. (447.7) (375.1)
Real estate sales.................................. 382.1 365.0
Other invested assets purchases.................... (214.7) (46.5)
Proceeds from the sale of other invested assets.... 183.6 251.1
Mortgage loans issued.............................. (1,582.7) (2,041.6)
Mortgage loan repayments........................... 2,247.3 1,277.9
Other, net......................................... 205.3 (506.6)
----------- -----------
NET CASH USED IN INVESTING ACTIVITIES............ (358.9) (2,354.2)
----------- -----------
Cash Flows From Financing Activities:
Issuance of short-term note payable................ 90.0 0.0
Issuance of REMIC notes payable.................... 292.0 213.1
Repayment of REMIC notes payable................... (85.2) 0.0
----------- -----------
NET CASH PROVIDED FROM FINANCING ACTIVITIES...... 296.8 213.1
----------- -----------
INCREASE (DECREASE) IN CASH AND TEMPORARY CASH
INVESTMENTS......................................... 876.0 (352.2)
Cash and temporary cash investments at beginning of
year................................................ 540.7 892.9
----------- -----------
CASH AND TEMPORARY CASH INVESTMENTS AT END OF YEAR... $ 1,416.7 $ 540.7
=========== ===========
</TABLE>
The accompanying notes are an integral part of the statutory-basis financial
statements.
23
<PAGE>
JOHN HANCOCK MUTUAL LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS
NOTE 1--NATURE OF OPERATIONS AND SIGNIFICANT ACCOUNTING PRACTICES
John Hancock Mutual Life Insurance Company (the Company) provides a broad
range of financial services and insurance products. The Company's insurance
operations focus principally in three segments: the Retail Sector, which
encompasses the Company's individual life, annuity, and long-term care
operations; Group Pension, which offers single premium annuity and guaranteed
investment contracts through both the general and separate accounts; and
Business Insurance, its group life, health, and long-term care operations
including administrative services provided to group customers. On October 10,
1996, the Company entered into an agreement to sell its group health and a
portion of its group life business to WellPoint Health Networks Inc. of
California during the first quarter of 1997. In addition, through its
subsidiaries and affiliates, the Company also offers a wide range of
investment management and advisory services and other related products
including life insurance products for the Canadian market, sponsorship and
distribution of mutual funds, real estate financing and management, and
various other financial services. Investments in these subsidiaries and other
affiliates are recorded on the statutory equity method.
The Company is domiciled in the Commonwealth of Massachusetts and licensed in
all fifty of the United States, the District of Columbia, Puerto Rico, Guam,
the US Virgin Islands, and Canada. The Company distributes its individual
products in North America primarily through a career agency system. The career
agency system is composed of company-owned, unionized branch offices and
independent general agencies. The Company also distributes its individual
products through several alternative distribution channels.
The Company markets pension and other investment-related products primarily to
sponsors of retirement and savings plans covering employees of private sector
companies, and plans covering public employees and collective bargaining
unions and non-profit organizations. Products are marketed and sold through a
combination of group pension field employee representatives, as well as
marketing personnel and investment professionals employed by the Company.
The Company distributes its group benefit products through group
representatives, who are John Hancock employees or through intermediaries, in
key markets nationwide.
The preparation of the financial statements requires management to make
estimates and assumptions that affect amounts reported in the financial
statements and accompanying notes. Such estimates and assumptions could change
in the future as more information becomes known, which could impact the
amounts reported and disclosed herein.
Basis of Presentation: The financial statements have been prepared using
accounting practices prescribed or permitted by the Commonwealth of
Massachusetts Division of Insurance and in conformity with the practices of
the National Association of Insurance Commissioners (NAIC), which practices
differ from generally accepted accounting principles (GAAP). The 1995
financial statements presented for comparative purposes were previously
described as being prepared in accordance with GAAP for mutual life insurance
companies. Pursuant to Financial Accounting Standards Board Interpretation 40,
"Applicability of Generally Accepted Accounting Principles to Mutual Life
Insurance and Other Enterprises" (FIN 40), as amended, which is effective for
1996 financial statements, financial statements based on statutory accounting
practices can no longer be described as prepared in conformity with GAAP.
Furthermore, financial statements prepared in conformity with statutory
accounting practices for periods prior to the effective date of FIN 40 are not
considered GAAP presentations
24
<PAGE>
JOHN HANCOCK MUTUAL LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS--CONTINUED
NOTE 1--NATURE OF OPERATIONS AND SIGNIFICANT ACCOUNTING PRACTICES-- CONTINUED
when presented in comparative form with financial statements for periods
subsequent to the effective date. Accordingly, the 1995 financial statements
are no longer considered to be presented in conformity with GAAP.
The significant differences from GAAP include: (1) policy acquisition costs
are charged to expense as incurred rather than deferred and amortized over the
related premium-paying period; (2) policy reserves are based on statutory
mortality, morbidity, and interest requirements without consideration of
withdrawals and Company experience; (3) certain assets designated as
"nonadmitted assets" are excluded from the balance sheet by direct charges to
surplus; (4) reinsurance recoverables are netted against reserves and claim
liabilities rather than reflected as an asset; (5) bonds held as available for
sale are recorded at amortized cost or market value as determined by the NAIC
rather than at fair value; (6) an Asset Valuation Reserve and Interest
Maintenance Reserve as prescribed by the NAIC are not calculated under GAAP.
Under GAAP, realized capital gains and losses are reported in the income
statement on a pretax basis as incurred and investment valuation allowances
are provided when there has been a decline in value deemed other than
temporary; (7) investments in affiliates are carried at their net equity value
with changes in value being recorded directly to policyholders' contingency
reserves rather than consolidated in the financial statements; (8) no
provision is made for the deferred income tax effects of temporary differences
between book and tax basis reporting; and (9) surplus notes are reported as
surplus rather than as liabilities. The effects of the foregoing variances
from GAAP have not been determined, but are presumed to be material.
The significant accounting practices of the Company are as follows:
Pending Statutory Standards: The NAIC currently is in the process of
recodifying statutory accounting practices, the result of which is expected to
constitute the only source of prescribed statutory accounting practices.
Accordingly, that project, which is expected to be completed in 1999 will
likely change, to some extent, prescribed statutory accounting practices, and
may result in changes to the accounting practices that the Company uses to
prepare its statutory-basis financial statements. The impact of any such
changes on the Company's statutory surplus cannot be determined at this time
and could be material.
Revenues and Expenses: Premium revenues are recognized over the premium-paying
period of the policies whereas expenses, including the acquisition costs of
new business, are charged to operations as incurred and policyholder dividends
are provided as paid or accrued.
Cash and Temporary Cash Investments: Cash includes currency on hand and demand
deposits with financial institutions. Temporary cash investments are short-
term, highly-liquid investments both readily convertible to known amounts of
cash and so near maturity that there is insignificant risk of changes in value
because of changes in interest rates.
Valuation of Assets: General account investments are carried at amounts
determined on the following bases:
Bond and stock values are carried as prescribed by the NAIC; bonds
generally at amortized amounts or cost, preferred stocks generally at cost
and common stocks at market. The discount or premium on bonds is amortized
using the interest method.
Investments in affiliates are included on the statutory equity method.
25
<PAGE>
JOHN HANCOCK MUTUAL LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS--CONTINUED
NOTE 1--NATURE OF OPERATIONS AND SIGNIFICANT ACCOUNTING PRACTICES-- CONTINUED
Mortgage loans are carried at outstanding principal balance or amortized
cost.
Investment and company-occupied real estate is carried at depreciated cost,
less encumbrances. Depreciation on investment and company-occupied real
estate is recorded on a straight-line basis. Accumulated depreciation
amounted to $393.5 million and $361.7 million at December 31, 1996 and
1995, respectively.
Real estate acquired in satisfaction of debt and held for sale, which is
classified with investment properties, is carried at the lower of cost or
fair value as of the date of foreclosure.
Policy loans are carried at outstanding principal balance, not in excess of
policy cash surrender value.
Other invested assets, which are classified with other general account
assets, include real estate and energy joint ventures and limited
partnerships and generally are valued based on the Company's equity in the
underlying net assets.
Asset Valuation and Interest Maintenance Reserves: The Asset Valuation Reserve
(AVR) is computed in accordance with the prescribed NAIC formula and
represents a provision for possible fluctuations in the value of bonds, equity
securities, mortgage loans, real estate and other invested assets. The Company
makes additional contributions to the AVR in excess of the required amounts to
account for potential losses and risks in the investment portfolio when the
Company believes such provisions are prudent. Changes to the AVR are charged
or credited directly to policyholders' contingency reserves.
The Company also records the NAIC prescribed Interest Maintenance Reserve
(IMR) that represents that portion of the after tax net accumulated
unamortized realized capital gains and losses on sales of fixed income
securities, principally bonds and mortgage loans, attributable to changes in
the general level of interest rates. Such gains and losses are deferred and
amortized into income over the remaining expected lives of the investments
sold. At December 31, 1996, the IMR, net of 1996 amortization of $18.9
million, amounted to $121.7 million which is included in other policy
obligations. The corresponding 1995 amounts were $16.4 million and $69.5
million, respectively.
Property and Equipment: Data processing equipment, which amounted to $41.6
million in 1996 and $52.9 million in 1995 and is included in other general
account assets, is reported at depreciated cost, with depreciation recorded on
a straight-line basis. Nonadmitted furniture and equipment also is depreciated
on a straight-line basis. The useful lives of these assets range from three to
twenty years. Depreciation expense was $31.0 million in 1996 and $38.0 million
in 1995.
Separate Accounts: Separate account assets and liabilities reported in the
accompanying statements of financial position represent funds that are
separately administered, principally for annuity contracts and variable life
insurance policies, and for which the contractholder, rather than the Company,
generally bears the investment risk. Separate account contractholders have no
claim against the assets of the general account of the Company. Separate
account assets are reported at market value. The operations of the separate
accounts are not included in the summary of operations; however, income earned
on amounts initially invested by the Company in the formation of new separate
accounts is included in other income.
26
<PAGE>
JOHN HANCOCK MUTUAL LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS--CONTINUED
NOTE 1--NATURE OF OPERATIONS AND SIGNIFICANT ACCOUNTING PRACTICES-- CONTINUED
Fair Values of Financial Instruments: Statement of Financial Accounting
Standards (SFAS) No. 107, "Disclosure about Fair Value of Financial
Instruments," requires disclosure of fair value information about financial
instruments, whether or not recognized in the statement of financial position,
for which it is practicable to estimate the value. In situations where quoted
market prices are not available, fair values are based on estimates using
present value or other valuation techniques. SFAS No. 107 excludes certain
financial instruments and all nonfinancial instruments from its disclosure
requirements. Therefore, the aggregate fair value amounts presented do not
represent the underlying value of the Company.
The methods and assumptions utilized by the Company in estimating its fair
value disclosures for financial instruments are as follows:
The carrying amounts reported in the statement of financial position for
cash and temporary cash investments approximate their fair values.
Fair values for public bonds are obtained from an independent pricing
service. Fair values for private placement securities and publicly traded
bonds not provided by the independent pricing service are estimated by the
Company by discounting expected future cash flows using current market
rates applicable to the yield, credit quality and maturity of the
investments. The fair values for common and preferred stocks, other than
subsidiary investments which are carried at equity values, are based on
quoted market prices.
The fair value for mortgage loans is estimated using discounted cash flow
analyses using interest rates adjusted to reflect the credit
characteristics of the underlying loans. Mortgage loans with similar
characteristics and credit risks are aggregated into qualitative categories
for purposes of the fair value calculations.
The carrying amounts in the statement of financial position for policy
loans approximates their fair value.
The fair value of interest rate swaps and currency rate swaps is estimated
using a discounted cash flow method adjusted for the difference between the
rate of the existing swap and the current swap market rate. Discounted cash
flows in foreign currencies are converted to U.S. dollars using current
exchange rates.
The fair value for outstanding commitments to purchase long-term bonds and
issue real estate mortgages is estimated using a discounted cash flow
method incorporating adjustments for the difference in the level of
interest rates between the dates the commitments were made and December 31,
1996. The fair value for commitments to purchase real estate approximates
the amount of the initial commitment.
Fair values for the Company's guaranteed investment contracts are estimated
using discounted cash flow calculations, based on interest rates currently
being offered for similar contracts with maturities consistent with those
remaining for the contracts being valued. The fair value for fixed-rate
deferred annuities is the cash surrender value, which represents the
account value less applicable surrender charges. Fair values for immediate
annuities without life contingencies and supplementary contracts without
life contingencies are estimated based on discounted cash flow calculations
using current market rates.
Capital Gains and Losses: Realized capital gains and losses are determined
using the specific identification basis. Realized capital gains and losses,
net of taxes and amounts transferred to the IMR, are included in net income.
Unrealized gains and losses, which consist of market value and book value
adjustments, are shown as adjustments to policyholders' contingency reserves.
27
<PAGE>
JOHN HANCOCK MUTUAL LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS--CONTINUED
NOTE 1--NATURE OF OPERATIONS AND SIGNIFICANT ACCOUNTING PRACTICES-- CONTINUED
Interest Rate and Currency Rate Swap Contracts and Financial Futures
Contracts: The net interest effect of interest rate and currency rate swap
transactions is recorded as an adjustment of interest income as incurred.
Gains and losses on financial futures contracts used as hedges against
interest rate fluctuations are deferred and recognized in income over the
period being hedged.
Foreign Exchange Gains and Losses: Foreign exchange gains and losses are
reflected as direct credits or charges to policyholders' contingency reserves
through unrealized capital gains and losses.
Policy Reserves: Life, annuity, and accident and health benefit reserves are
developed by actuarial methods and are determined based on published tables
using statutorily specified interest rates and valuation methods that will
provide, in the aggregate, reserves that are greater than or equal to the
minimum or guaranteed policy cash values or the amounts required by the
Commonwealth of Massachusetts Division of Insurance. Reserves for traditional
individual life insurance policies are maintained using the 1941, 1958 and
1980 Commissioner's Standard Ordinary and American Experience Mortality
Tables, with assumed interest rates ranging from 2 1/2% to 6%, and using
principally the net level premium method for policies issued prior to 1978 and
a modified preliminary term method for policies issued in 1979 and later.
Annuity and supplementary contracts with life contingency reserves are based
principally on modifications of the 1937 Standard Annuity Table, the Group
Annuity Mortality Tables for 1951, 1971 and 1983, the 1971 Individual Annuity
Mortality Table and the a-1983 Individual Annuity Mortality Table, with
interest rates ranging from 2% to 11 1/4%.
Reserves for deposit administration funds and immediate participation
guarantee funds are based on accepted actuarial methods at various interest
rates. Accident and health policy reserves generally are calculated using
either the two-year preliminary term or the net level premium method based on
various morbidity tables.
The statement value and fair value for investment-type insurance contracts are
as follows:
<TABLE>
<CAPTION>
December 31, 1996 December 31, 1995
------------------- -------------------
Statement Fair Statement Fair
Value Value Value Value
--------- --------- --------- ---------
(In millions)
<S> <C> <C> <C> <C>
Guaranteed investment contracts........ $11,921.6 $11,943.2 $12,014.3 $12,325.3
Fixed-rate deferred and immediate
annuities............................. 3,909.3 3,886.1 3,494.5 3,478.6
Supplementary contracts without life
contingencies......................... 45.6 46.0 39.6 40.7
--------- --------- --------- ---------
$15,876.5 $15,875.3 $15,548.4 $15,844.6
========= ========= ========= =========
</TABLE>
Federal Income Taxes: Federal income taxes are reported in the financial
statements based on amounts determined to be payable as a result of operations
within the current accounting period. The operations of the Company and its
subsidiaries and affiliates are combined in filing a consolidated federal
income tax return for the group. The federal income taxes of the Company are
determined on a separate return basis with certain adjustments.
28
<PAGE>
JOHN HANCOCK MUTUAL LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS--CONTINUED
NOTE 1--NATURE OF OPERATIONS AND SIGNIFICANT ACCOUNTING PRACTICES-- CONTINUED
Income before taxes differs from taxable income principally due to tax-exempt
investment income, dividends-received tax deductions, the limitation placed on
the tax deductibility of mutual companies' policyholder dividends, accelerated
depreciation, differences in policy and contract liabilities for tax return
and financial statement purposes, capitalization of policy acquisition
expenses for tax purposes and other adjustments prescribed by the Internal
Revenue Code.
Amounts for disputed tax issues relating to prior years are charged or
credited directly to policyholders' contingency reserves. No provision is
generally recognized for temporary differences that may exist between
financial reporting and taxable income.
When determining its consolidated federal income tax expense, the Company uses
a number of estimated amounts that may change when the actual tax return is
completed. In addition, the Company must also use an estimated differential
earnings rate (DER) to compute the equity tax portion of its federal income
tax expense. Because the DER is set by the Internal Revenue Service in the
second subsequent year, a true-up adjustment (i.e., effect of the difference
between the estimated and final DER) is necessary.
Certain subsidiaries acquired by the Company have potential tax loss
carryforwards of $114.1 million expiring through 1998. These amounts may be
used in the consolidated tax return, but only to offset future taxable income
related to those subsidiaries. The Company made federal tax payments of $309.9
million in 1996 and $211.5 million in 1995.
Adjustments to Policy Reserves and Policyholders' and Beneficiaries'
Funds: From time to time, the Company finds it appropriate to modify certain
required policy reserves because of changes in actuarial assumptions or
increased benefits. Reserve modifications resulting from such determinations
are recorded directly to policyholders' contingency reserves. During 1996, the
Company refined certain actuarial assumptions inherent in the calculation of
reserves related to guaranteed investment contracts resulting in a $27.5
million decrease in policyholders' contingency reserves at December 31, 1996.
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. Premiums ceded to other companies have been
reported as a reduction of premium income. Amounts applicable to reinsurance
ceded for future policy benefits, unearned premium reserves and claim
liabilities have been reported as reductions of these items.
Restructuring Charge: In 1994, the Company provided for restructuring charges
of $57.8 million in accordance with the Company's plan to reduce its cost
structure and consolidate operations. The restructuring charge includes
severance costs and facilities consolidation expenses. During 1996 and 1995,
the Company paid $8.6 million and $32.9 million, respectively, under its
restructuring plan. The remaining liability for restructuring charges at
December 31, 1996 was $5.7 million.
Guaranty Fund Assessments: Guaranty fund assessments are accrued when the
Company receives notice that an amount is payable to a guaranty fund.
29
<PAGE>
JOHN HANCOCK MUTUAL LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS--CONTINUED
NOTE 1--NATURE OF OPERATIONS AND SIGNIFICANT ACCOUNTING PRACTICES-- CONTINUED
Reclassifications: Certain 1995 amounts have been reclassified to permit
comparison with the corresponding 1996 amounts.
NOTE 2--SURPLUS NOTES
On February 25, 1994, the Company issued $450 million of surplus notes that
bear interest at 7 3/8% and are scheduled to mature on February 15, 2024. The
issuance of the surplus notes was approved by the Commonwealth of
Massachusetts Division of Insurance and any payment of interest on and
principal of the notes may be made only with the prior approval of the
Commissioner of the Commonwealth of Massachusetts Division of Insurance.
Surplus notes are reported as part of policyholders' contingency reserves
rather than liabilities. Interest of $33.2 million was paid on the notes
during each of 1996 and 1995.
NOTE 3--BORROWED MONEY
At December 31, 1996, the Company had a $500 million syndicated line of
credit. There are 26 banks who are part of the syndicate which is under the
leadership of Morgan Guaranty Trust Company of New York. The banks will
commit, when requested, to loan funds at prevailing interest rates as
determined in accordance with the line of credit agreement, which terminates
on June 30, 2001. The agreement does not contain a material adverse change
clause. Under the terms of the agreement, the Company is required to maintain
certain minimum levels of net worth and comply with certain other covenants.
As of December 31, 1996, these covenants were met; however, no amounts had
been borrowed under this agreement.
In 1995, the Company issued $213.1 million of debt through a Real Estate
Mortgage Investment Conduit (REMIC). As collateral to the debt, the Company
pledged $1,065.8 million of commercial mortgages to the REMIC Trust. In
addition, the Company has guaranteed the timely payment of principal and
interest on the debt. The debt was issued in two notes of equal amounts with
last scheduled payment dates on March 25, 1997 and June 25, 1998,
respectively. The interest rates on the two notes are calculated on a floating
basis, based on the monthly LIBOR rates plus 22 and 27 basis points,
respectively. The LIBOR rates were 5.50% and 5.9375%, respectively, at
December 31, 1996 and 1995. The outstanding balances of the notes totaled
$127.9 million and $213.1 million at December 31, 1996 and 1995, respectively,
and are included in other general account obligations.
In 1996, the Company issued $292.0 million of debt through a REMIC (REMIC II).
As collateral to the debt, the Company pledged $1,455.4 million of commercial
mortgages to the REMIC II Trust. The debt was issued in two notes. The class
A1 notes totaled $70.0 million with a last scheduled payment date of December
26, 1997. The class A2 notes totaled $222.0 million with a last scheduled
payment date of July 26, 1999. The interest rates on the two notes are
calculated on a floating basis, based on the monthly LIBOR rate plus 5 and 19
basis points, respectively. The outstanding balances of the notes totaled
$292.0 million at December 31, 1996 and are included in other general account
obligations.
On December 31, 1996, the Company had outstanding a short-term note of $90.0
million payable to an affiliate at 5.70%. The note, which is included in other
general account obligations, was repaid in early January 1997.
30
<PAGE>
JOHN HANCOCK MUTUAL LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS--CONTINUED
NOTE 4--NET INVESTMENT INCOME
Investment income has been reduced by the following amounts:
<TABLE>
<CAPTION>
1996 1995
------ ------
(In millions)
<S> <C> <C>
Investment expenses.............................................. $333.8 $332.9
Interest expense................................................. 48.1 38.3
Depreciation on real estate and other invested assets............ 73.3 62.7
Real estate and other investment taxes........................... 65.2 61.2
------ ------
$520.4 $495.1
====== ======
</TABLE>
NOTE 5--NET CAPITAL GAINS (LOSSES) AND OTHER ADJUSTMENTS
Net realized capital gains (losses) consist of the following items:
<TABLE>
<CAPTION>
1996 1995
------ -------
(In millions)
<S> <C> <C>
Net gains from asset sales and foreclosures................... $ 81.2 $ 118.6
Capital gains tax............................................. (53.7) (64.2)
Net capital gains transferred to the IMR...................... (71.1) (33.2)
------ -------
Net Realized Capital Gains (Losses)......................... $(43.6) $ 21.2
====== =======
Net unrealized capital gains (losses) and other adjustments consist of the
following items:
<CAPTION>
1996 1995
------ -------
(In millions)
<S> <C> <C>
Net gains from changes in security values and book value
adjustments.................................................. $242.2 $ 93.4
Increase in asset valuation reserve........................... (50.5) (178.5)
------ -------
Net Unrealized Capital Gains (Losses) and Other Adjustments. $191.7 $ (85.1)
====== =======
</TABLE>
31
<PAGE>
JOHN HANCOCK MUTUAL LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS--CONTINUED
NOTE 6--INVESTMENTS
The statement value and fair value of bonds are shown below:
<TABLE>
<CAPTION>
Gross Gross
Statement Unrealized Unrealized
Value Gains Losses Fair Value
--------- ---------- ---------- ----------
(In millions)
Year ended December 31, 1996
----------------------------
<S> <C> <C> <C> <C>
U.S. Treasury securities and
obligations of U.S. government
corporations and agencies.......... $ 430.2 $ 8.8 $ 4.2 $ 434.8
Obligations of states and political
subdivisions....................... 175.2 8.8 3.9 180.1
Debt securities issued by foreign
governments........................ 203.5 30.1 0.0 233.6
Corporate securities................ 16,902.1 1,083.2 112.6 17,872.7
Mortgage-backed securities.......... 4,756.0 116.3 54.5 4,817.8
--------- -------- ------ ---------
Total bonds $22,467.0 $1,247.2 $175.2 $23,539.0
========= ======== ====== =========
<CAPTION>
Year ended December 31, 1995
----------------------------
<S> <C> <C> <C> <C>
U.S. Treasury securities and
Obligations of U.S. government
corporations and agencies.......... $ 638.5 $ 42.5 $ 0.2 $ 680.8
Obligations of states and political
subdivisions....................... 194.1 20.6 0.1 214.6
Debt securities issued by foreign
governments........................ 297.7 42.2 0.0 339.9
Corporate securities................ 18,358.6 1,818.3 73.9 20,103.0
Mortgage-backed securities.......... 1,619.6 57.9 20.8 1,656.7
--------- -------- ------ ---------
Total bonds....................... $21,108.5 $1,981.5 $ 95.0 $22,995.0
========= ======== ====== =========
</TABLE>
The statement value and fair value of bonds at December 31, 1996, by
contractual maturity, are shown below. Maturities will differ from contractual
maturities because eligible borrowers may exercise their right to call or
prepay obligations with or without call or prepayment penalties.
<TABLE>
<CAPTION>
Statement Fair
Value Value
--------- ---------
(In millions)
<S> <C> <C>
Due in one year or less............................... $ 1,430.4 $ 1,463.8
Due after one year through five years................. 5,987.3 6,226.8
Due after five years through ten years................ 5,421.9 5,732.3
Due after ten years................................... 4,871.4 5,298.3
--------- ---------
17,711.0 18,721.2
Mortgage-backed securities............................ 4,756.0 4,817.8
--------- ---------
$22,467.0 $23,539.0
========= =========
</TABLE>
Proceeds from sales of bonds during 1996 and 1995 were $2.8 billion and $2.9
billion, respectively. Gross gains of $43.8 million in 1996 and $69.7 million
in 1995 and gross losses of $27.6 million in 1996 and $44.3 million in 1995
were realized on these transactions.
32
<PAGE>
JOHN HANCOCK MUTUAL LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS--CONTINUED
NOTE 6--INVESTMENTS--CONTINUED
The cost of common stocks was $136.1 million and $78.1 million at December 31,
1996 and 1995, respectively. At December 31, 1996, gross unrealized
appreciation on common stocks totaled $135.0 million, and gross unrealized
depreciation totaled $21.3 million. The fair value of preferred stock totaled
$416.2 million at December 31, 1996 and $338.8 million at December 31, 1995.
Mortgage loans with outstanding principal balances of $56.0 million, bonds
with amortized cost of $159.7 million and real estate with depreciated cost of
$23.0 million were nonincome producing for the twelve months ended December
31, 1996.
Restructured commercial mortgage loans aggregated $385.8 million and $466.0
million as of December 31, 1996 and 1995, respectively. The expected gross
interest income that would have been recorded had the loans been current in
accordance with the original loan agreements and the actual interest income
recorded were as follows:
<TABLE>
<CAPTION>
Year ended December 31
-----------------------
1996 1995
----------- -----------
(In millions)
<S> <C> <C>
Expected........................................... $ 46.3 $ 47.0
Actual............................................. 29.1 $ 26.8
</TABLE>
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.
At December 31, 1996, the mortgage loan portfolio was diversified by
geographic region and specific collateral property type as displayed below.
The Company controls credit risk through credit approvals, limits and
monitoring procedures.
<TABLE>
<CAPTION>
Property
Type Statement Value
-------- ---------------
(In millions)
<S> <C>
Apartments.............. $1,667.9
Hotels.................. 147.4
Industrial.............. 882.1
Office buildings........ 1,707.0
Retail.................. 1,489.8
1-4 Family.............. 7.4
Agricultural............ 1,608.1
Other................... 454.3
--------
$7,964.0
========
</TABLE>
<TABLE>
<CAPTION>
Property
Type Statement Value
-------- ---------------
(In millions)
<S> <C>
East North Central...... $ 734.6
East South Central...... 158.9
Middle Atlantic......... 1,543.3
Mountain................ 382.8
New England............. 843.9
Pacific................. 2,015.4
South Atlantic.......... 1,437.6
West North Central...... 240.6
West South Central...... 558.3
Other................... 48.6
--------
$7,964.0
========
</TABLE>
33
<PAGE>
JOHN HANCOCK MUTUAL LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS--CONTINUED
NOTE 6--INVESTMENTS--CONTINUED
At December 31, 1996, the fair values of the commercial and agricultural
mortgage loan portfolios were $6.6 billion and $1.8 billion, respectively. The
corresponding amounts as of December 31, 1995 were approximately $7.6 billion
and $1.8 billion, respectively.
The maximum and minimum lending rates for mortgage loans during 1996 were
9.92% and 7.0% for agricultural loans, 9.25% and 6.75% for other properties,
and 8.05% and 7.0% for purchase money mortgages. Generally, the percentage of
any loan to the value of security at the time of the loan, exclusive of
insured or guaranteed or purchase money mortgages, is 75%. For city mortgages,
fire insurance is carried on all commercial and residential properties at
least equal to the excess of the loan over the maximum loan which would be
permitted by law on the land without the building, except as permitted by
regulations of the Federal Housing Commission on loans fully insured under the
provisions of the National Housing Act. For agricultural mortgage loans, fire
insurance is not normally required on land based loans except in those
instances where a building is critical to the farming operation. Fire
insurance is required on all agri-business facilities in an aggregate amount
equal to the loan balance.
NOTE 7--REINSURANCE
Premiums, benefits and reserves associated with reinsurance assumed in 1996
were $742.0 million, $317.8 million, and $14.2 million, respectively. The
corresponding amounts in 1995 were $455.2 million, $276.7 million, and $12.7
million, respectively.
The Company cedes business to reinsurers to share risks under life, health and
annuity contracts for the purpose of reducing exposure to large losses.
Premiums, benefits and reserves ceded to reinsurers in 1996 were $304.0
million, $217.0 million and $251.2 million, respectively. The corresponding
amounts in 1995 were $281.0 million, $217.0 million and $185.4 million,
respectively.
Amounts recoverable on paid claims and funds held by reinsurers were as
follows:
<TABLE>
<CAPTION>
Year endedDecember 31
---------------------
1996 1995
---------- ----------
(In millions)
<S> <C> <C>
Reinsurance recoverables............................ $ 26.5 $ 30.7
Funds held by reinsurers............................ 23.4 2.6
</TABLE>
The Company has a coinsurance agreement with another insurer to cede 100% of
its individual disability business. Reserves ceded under this agreement,
included in the amount shown above, were $226.4 million at December 31, 1996
and $212.7 million at December 31, 1995.
Effective January 1, 1994, John Hancock Variable Life Insurance Company
(Variable Life, a wholly-owned affiliate) entered into a modified coinsurance
agreement with the Company to reinsure 50% of Variable Life's 1996, 1995 and
1994 issues of flexible premium variable life insurance and scheduled premium
variable life insurance policies. In connection with this agreement, the
Company transferred $24.5 million and $32.7 million of cash for tax,
commission, and expense allowances to Variable Life, which decreased the
Company's net gain from operations by $15.7 million and $20.3 million in 1996
and 1995, respectively.
34
<PAGE>
JOHN HANCOCK MUTUAL LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS--CONTINUED
NOTE 7--REINSURANCE--CONTINUED
Effective January 1, 1996, Variable Life entered into a modified coinsurance
agreement with the Company to reinsure 50% of Variable Life's 1995 and 1996
issues of retail annuity contracts (Independence Preferred and Declaration).
In connection with this agreement, the Company transferred $23.2 million of
cash for surrender benefits, tax, reserve increase, commission, expense
allowances and premium to Variable Life, which decreased the Company's net
gain from operations by $15.1 million in 1996.
To the extent that an assuming reinsurance company is unable to meet its
obligations under a reinsurance agreement, the Company remains liable as the
direct insurer on all risks reinsured.
No policies issued by the Company have been reinsured with a foreign company
which is controlled either directly or indirectly, by a party not primarily
engaged in the business of insurance.
The Company has not entered into any reinsurance agreements in which the
reinsurer may unilaterally cancel any reinsurance for reasons other than
nonpayment of premiums or other similar credits. The Company does not have any
reinsurance agreements in effect in which the amount of losses paid or accrued
through December 31, 1996 would result in a payment to the reinsurer of
amounts which, in the aggregate and allowing for offset of mutual credits from
other reinsurance agreements with the same reinsurer, exceed the total direct
premiums collected under the reinsured policies.
NOTE 8--BENEFIT PLANS
The Company provides retirement benefits to substantially all employees and
general agency personnel. These benefits are provided through both defined
benefit and defined contribution pension plans. Pension benefits under the
defined benefit plans are based on years of service and average compensation
generally during the five years prior to retirement. Benefits related to the
Company's defined pension plans paid to employees and retirees covered by
annuity contracts issued by the Company amounted to $84.4 million in 1996 and
$76.3 million in 1995. The Company's funding policy for qualified defined
benefit plans is to contribute annually an amount in excess of the minimum
annual contribution required under the Employee Retirement Income Security Act
(ERISA). This amount is limited by the maximum amount that can be deducted for
federal income tax purposes. The funding policy for nonqualified defined
benefit plans is to contribute the amount of the benefit payments made during
the year. Plan assets consist principally of listed equity securities,
corporate obligations and U.S. government securities.
Defined contribution plans include The Investment Incentive Plan (TIP) and the
Savings and Investment Plan (SIP). Employees are eligible to participate in
TIP after one year of service and may contribute up to the lesser of 15% of
their salary or $9,500 annually to the plan. The Company matches the first 2%
of pre-tax contributions and makes an additional annual profit sharing
contribution for employees who have completed at least two years of service.
Through SIP, marketing representatives, sales managers and agency managers are
eligible to contribute up to the lesser of 13% of their salary or $9,500. The
Company matches the first 3% of pretax contributions for marketing
representatives and the first 2% of pretax contributions for sales managers
and agency managers. The Company makes an annual profit sharing contribution
of up to 1% for sales managers and agency managers who have completed at least
two years of service.
35
<PAGE>
JOHN HANCOCK MUTUAL LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS--CONTINUED
NOTE 8--BENEFIT PLANS--CONTINUED
The Company provides additional compensation to certain employees based on
achievement of annual and long-term corporate financial objectives.
Pension expense is summarized as follows:
<TABLE>
<CAPTION>
Year ended December 31
------------------------
1996 1995
----------- -----------
(In millions)
<S> <C> <C>
Defined benefit plans:
Service cost--benefits earned during the period..... $ 32.4 $ 30.1
Interest cost on the projected benefit obligation... 107.4 103.5
Actual return on plan assets........................ (225.1) (369.5)
Net amortization and deferral....................... 85.0 260.5
----------- -----------
(0.3) 24.6
Defined contribution plans............................ 21.4 19.8
----------- -----------
Total pension expense................................. $ 21.1 $ 44.4
=========== ===========
</TABLE>
Assumptions used in accounting for the defined benefit pension plans were as
follows:
<TABLE>
<CAPTION>
1996 1995
----- -----
<S> <C> <C>
Discount rate....................................................... 7.25% 7.50%
Weighted rate of increase in compensation levels.................... 4.78% 5.10%
Expected long-term rate of return on assets......................... 8.50% 7.75%
</TABLE>
The following table sets forth the funded status and actuarially determined
amounts related to the Company's defined benefit pension plans:
<TABLE>
<CAPTION>
Year ended December 31
------------------------
1996 1995
----------- -----------
(In millions)
<S> <C> <C>
Actuarial present value of benefit obligations:
Vested benefit obligation.......................... $ (1,344.8) $ (1,242.9)
=========== ===========
Accumulated benefit obligation..................... $ (1,387.7) $ (1,300.3)
=========== ===========
Projected benefit obligation......................... $ (1,582.4) $ (1,480.0)
Plan assets fair value............................... 1,787.6 1,645.3
----------- -----------
Excess of plan assets over projected benefit
obligation.......................................... 205.2 165.3
Unrecognized net gain................................ (176.1) (139.1)
Prior service cost not yet recognized in net periodic
pension cost........................................ 42.8 50.0
Unrecognized net asset, net of amortization.......... (95.9) (111.2)
----------- -----------
Net pension liability................................ $ (24.0) $ (35.0)
=========== ===========
</TABLE>
Since 1988, the Massachusetts Division of Insurance has provided the Company
with approval to recognize the pension plan prepaid expense, if any, in
accordance with the requirements of SFAS No. 87, "Employers' Accounting for
Pensions." The Company furnishes the Division of Insurance with an actuarial
certification of the prepaid expense computation on an annual basis.
36
<PAGE>
JOHN HANCOCK MUTUAL LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS--CONTINUED
NOTE 9--OTHER POSTRETIREMENT BENEFIT PLANS
In addition to the Company's defined benefit pension plans, the Company has
employee welfare plans for medical, dental, and life insurance covering most
of its retired employees and general agency personnel. Substantially all
employees may become eligible for these benefits if they reach retirement age
while employed by the Company. The postretirement health care and dental
coverages are contributory based on service for post January 1, 1992 non-union
retirees. A small portion of pre-January 1, 1992 non-union retirees also
contribute. The applicable contributions are based on service.
In 1993, the Company changed its method of accounting for the costs of its
retiree benefit plans to the accrual method and elected to amortize its
transition liability for retirees and fully eligible or vested employees over
twenty years.
Since 1993, the Company funded a portion of the postretirement obligation. The
Company's policy is to fund postretirement benefits for non-union employees to
the maximum amount that can be deducted for federal income tax purposes and to
fund the benefits for union employees, which are fully tax qualified, at
sufficient amounts so that the total accrued liability related to
postretirement benefits is zero. As of December 31, 1996, plan assets related
to non-union employees were comprised of an irrevocable health insurance
contract to provide future health benefits to retirees while plan assets
related to union employees were comprised of approximately 70% equity
securities and 30% fixed income investments. The following table shows the
plans' combined funding status for vested benefits reconciled with the amounts
recognized in the Company's statements of financial position.
<TABLE>
<CAPTION>
December 31
-------------------------------------
1996 1995
------------------ ------------------
Medical Medical
and Life and Life
Dental Insurance Dental Insurance
Plans Plans Plans Plans
------- --------- ------- ---------
(In millions)
<S> <C> <C> <C> <C>
Accumulated postretirement benefit
obligation:
Retirees............................... $(234.2) $(100.6) $(236.5) $ (89.2)
Fully eligible active plan
participants.......................... (46.4) (19.4) (42.9) (20.1)
------- ------- ------- -------
(280.6) (120.0) (279.4) (109.3)
Plan assets at fair value................ 132.4 0.0 96.9 0.0
------- ------- ------- -------
Accumulated postretirement benefit
obligation in excess of plan assets..... (148.2) (120.0) (182.5) (109.3)
Unrecognized prior service cost.......... 16.7 5.3 18.2 5.8
Unrecognized prior net gain.............. (93.0) 4.0 (84.2) (4.2)
Unrecognized transition obligation....... 256.8 78.4 272.9 83.3
------- ------- ------- -------
Accrued postretirement benefit cost...... $ 32.3 $ (32.3) $ 24.4 $ (24.4)
======= ======= ======= =======
</TABLE>
37
<PAGE>
JOHN HANCOCK MUTUAL LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS--CONTINUED
NOTE 9--OTHER POSTRETIREMENT BENEFIT PLANS--CONTINUED
Net postretirement benefits costs for the years ended December 31, 1996 and
1995 were $47.4 million and $50.2 million, respectively, and include the
expected cost of such benefits for newly eligible or vested employees,
interest cost, and amortization of the transition liability.
Net periodic postretirement benefits cost included the following components:
<TABLE>
<CAPTION>
December 31
-------------------------------------
1996 1995
------------------ ------------------
Medical Medical
and Life and Life
Dental Insurance Dental Insurance
Plans Plans Plans Plans
------- --------- ------- ---------
(In millions)
<S> <C> <C> <C> <C>
Eligibility cost...................... $ 7.1 $ 1.8 $ 5.3 $ 1.5
Interest cost......................... 19.8 8.3 21.1 7.8
Actual return on plan assets.......... (15.9) 0.0 (15.5) 0.0
Net amortization and deferral......... 20.9 5.4 25.0 5.0
------ ----- ------ -----
Net periodic postretirement benefit
cost................................. $ 31.9 $15.5 $ 35.9 $14.3
====== ===== ====== =====
</TABLE>
The discount rate used in determining the accumulated postretirement benefit
obligation at December 31, 1996 was 7.25% (7.5% for 1995). The annual assumed
rate of increase in the health care cost trend rate for the medical coverages
is 8.0% for 1997 (8.25% was assumed for 1996) and is assumed to decrease
gradually to 5.25% in 2001 and remain at that level thereafter. The health
care cost trend rate assumption has a significant effect on the amounts
reported. For example, increasing the assumed health care cost trend rates by
one percentage point in each year would increase the accumulated post
retirement benefit obligation for the medical coverages as of December 31,
1996 by $28.1 million and the aggregate of the eligibility and interest cost
components of net periodic postretirement benefit cost by $2.9 million for
1996 and $3.6 million for 1995.
Postretirement welfare benefits for non-vested employees are not reflected in
the above expenses or accumulated postretirement benefit obligations. As of
December 31, 1996, the accumulated postretirement benefit obligations for non-
vested employees amounted to $69.4 million for medical and dental plans and
$10.7 million for life insurance plans. The corresponding amounts as of
December 31, 1995 were $67.7 million and $10.8 million, respectively.
NOTE 10--AFFILIATES
The Company has subsidiaries and affiliates in a variety of industries
including domestic and foreign life insurance and domestic property casualty
insurance, real estate, mutual funds, investment brokerage and various other
financial services entities.
Total assets of unconsolidated affiliates amounted to $9.6 billion at December
31, 1996 and $9.5 billion at December 31, 1995; total liabilities amounted to
$8.5 billion at December 31, 1996 and $8.3 billion at December 31, 1995; and
total net income was $193.0 million in 1996 and $89.5 million in 1995.
38
<PAGE>
JOHN HANCOCK MUTUAL LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS--CONTINUED
NOTE 10--AFFILIATES--CONTINUED
During 1996, the Company sold certain of its affiliates including its ongoing
property and casualty business and its broker-dealer operations to realign its
business objectives.
The Company customarily engages in transactions with its unconsolidated
affiliates, including the cession and assumption of certain insurance business
under the terms of established reinsurance agreements. Various services are
performed by the Company for certain affiliates for which the Company is
reimbursed on the basis of cost. Certain affiliates have entered into various
financial arrangements relating to borrowings and capital maintenance under
which agreements the Company would be obligated in the event of nonperformance
by an affiliate (see Note 15).
The Company received dividends of $9.4 million and $9.7 million in 1996 and
1995, respectively, from unconsolidated affiliates.
NOTE 11--FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK
The Company enters into interest rate swap contracts for the purpose of
converting the interest rate characteristics (fixed or variable) of certain
investments to match those of related insurance liabilities. Maturities of
current agreements range from 1997 to 2026. These swaps involve, to varying
degrees, interest rate risk in excess of amounts recognized in the statement
of financial position.
The Company enters into currency rate swap agreements to manage exposure to
foreign exchange rate fluctuations. Maturities of current agreements range
through 2009. Should the counterparty fail to meet the terms of the contract,
the Company's market risk is limited to the currency rate differential.
The Company enters into interest rate cap and floor contracts to manage
exposure on underlying security values due to a rise in interest rates.
Maturities of current agreements range through 2003.
The Company also uses financial futures contracts to hedge risks associated
with interest rate fluctuations on sales of guaranteed investment contracts.
The Company is subject to the risks associated with changes in the value of
the underlying securities; however, such changes in value generally are offset
by opposite changes in the value of the hedged items. The contract or notional
amounts of the contracts represent the extent of the Company's involvement but
not the future cash requirements, as the Company intends to close the open
positions prior to settlement. Net deferred losses on future contracts were
$0.5 million and $7.7 million at December 31, 1996 and 1995, respectively.
39
<PAGE>
JOHN HANCOCK MUTUAL LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS--CONTINUED
NOTE 11--FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK--CONTINUED
The contract or notional amount of the foregoing financial instruments, which
indicates the Company's involvement and, in certain instances, maximum credit
risk related to those instruments, is as follows:
<TABLE>
<CAPTION>
December 31
-----------------
1996 1995
-------- --------
(In millions)
<S> <C> <C>
Futures contracts to purchase securities.................... $ 117.6 $ 62.2
======== ========
Futures contracts to sell securities........................ $ 136.4 $ 299.9
======== ========
Notional amount of interest rate swaps, interest rate
swaptions, currency rate swaps, interest rate caps and
interest rate floors to:
Receive variable rates.................................... $3,822.8 $1,735.0
======== ========
Receive fixed rates....................................... $2,912.5 $1,756.3
======== ========
</TABLE>
The Company continually monitors its positions and the credit ratings of the
counterparties to these financial instruments. The Company believes the risk
of incurring losses due to nonperformance by its counterparties is remote and
that any such losses would be immaterial.
Based on market rates in effect at December 31, 1996, the Company's interest
rate swaps, interest rate swaptions, currency rate swaps, interest rate caps,
and interest rate floors represented (assets) liabilities to the Company with
fair values of $16.4 million, $0.0 million, $41.1 million, $(0.6) million and
$(0.1) million, respectively. The corresponding amounts as of December 31,
1995 were $37.0 million, $0.0 million, $23.3 million, $(0.3) million and $0.0
million, respectively.
NOTE 12--LEASES
The Company leases office space and furniture and equipment under various
operating leases including furniture and equipment leased under a series of
sales-leaseback agreements with a nonaffiliated organization. Rental expense
for all operating leases totaled $32.1 million in 1996 and $32.2 million in
1995. Future minimum rental commitments under noncancellable operating leases
for office space and furniture and equipment are as follows:
<TABLE>
<CAPTION>
December 31, 1996
-----------------
(In millions)
<S> <C>
1997..................................................... $23.2
1998..................................................... 18.8
1999..................................................... 15.3
2000..................................................... 12.3
2001..................................................... 7.8
Thereafter............................................... 17.0
-----
Total minimum payments................................... $94.4
=====
</TABLE>
40
<PAGE>
JOHN HANCOCK MUTUAL LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS--CONTINUED
NOTE 13--POLICY RESERVES, POLICYHOLDERS' AND BENEFICIARIES' FUNDS AND
OBLIGATIONS RELATED TO SEPARATE ACCOUNTS
The Company's annuity reserves and deposit fund liabilities that are subject
to discretionary withdrawal (with adjustment), subject to discretionary
withdrawal (without adjustment), and not subject to discretionary withdrawal
provisions are summarized as follows:
<TABLE>
<CAPTION>
December 31, 1996 Percent
----------------- -------
(In millions)
<S> <C> <C>
Subject to discretionary withdrawal (with adjust-
ment):
With market value adjustment....................... $ 1,748.9 4.9%
At book value less surrender charge................ 2,681.4 7.5
--------- -----
Total with adjustment.............................. 4,430.3 12.4
Subject to discretionary withdrawal (without ad-
justment) at book value........................... 815.7 2.3
Subject to discretionary withdrawal--separate ac-
counts............................................ 11,816.8 33.0
Not subject to discretionary withdrawal:
General account.................................... 17,422.1 48.7
Separate accounts.................................. 1,297.3 3.6
--------- -----
Total annuity reserves and deposit liabilities--be-
fore reinsurance.................................... 35,782.2 100.0%
=====
Less reinsurance ceded............................... (0.2)
---------
Net annuity reserves and deposit fund liabilities.... $35,782.0
=========
</TABLE>
Any liquidation costs associated with the $11.8 billion of separate accounts
subject to discretionary withdrawal are sustained by the separate account
contractholders and not by the general account.
NOTE 14--UNPAID CLAIMS
Activity in the liability for accident and health unpaid claims is as follows:
<TABLE>
<CAPTION>
1996 1995
------ ------
(In millions)
<S> <C> <C>
Balance at January 1............................................ $207.7 $216.2
Less reinsurance recoverables................................. 4.0 (7.3)
------ ------
Net balance at January 1........................................ 203.7 208.9
------ ------
Incurred related to:
Current year.................................................. 293.8 301.0
Prior years................................................... (36.1) (25.2)
------ ------
Total incurred.................................................. 257.7 275.8
------ ------
Paid related to:
Current year.................................................. 183.7 192.0
Prior years................................................... 71.7 89.0
------ ------
Total paid...................................................... 255.4 281.0
------ ------
Net balance at December 31...................................... 206.0 203.7
Plus reinsurance recoverable.................................. 3.0 4.0
------ ------
Balance at December 31.......................................... $209.0 $207.7
====== ======
</TABLE>
41
<PAGE>
JOHN HANCOCK MUTUAL LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS--CONTINUED
NOTE 14--UNPAID CLAIMS--CONTINUED
As a result of favorable changes in claim estimates and a decline in fully
insured business, the liability for prior year claims decreased in 1996 and
1995.
NOTE 15--COMMITMENTS AND CONTINGENCIES
The Company has extended commitments to purchase long-term bonds, preferred
and common stocks, and real estate and issue real estate mortgages totaling
$619.4 million, $14.7 million, $160.2 million and $275.4 million,
respectively, at December 31, 1996. If funded, loans related to real estate
mortgages would be fully collateralized by related properties. The Company
monitors the credit worthiness of borrowers under long-term bond commitments
and requires collateral as deemed necessary. The fair value of the commitments
described above is $1.1 billion at December 31, 1996. The majority of these
commitments expire in 1997.
The Company has contingent liabilities, pursuant to guarantee agreements
issued in connection with real estate joint ventures, in the amount of $43.3
million.
During 1996, the Company entered into a credit support and collateral pledge
agreement with the Federal National Mortgage Association (FNMA). Under the
agreement, the Company sold $532.8 million of commercial mortgage loans and
acquired an equivalent amount of FNMA securities. The Company completed
similar transactions with FNMA in 1991 for $1.042 billion and in 1993 for
$71.9 million. FNMA is guarantying the full face value of the bonds of the
three transactions to the bondholders. However, the Company has agreed to
absorb the first 12.25% of the principal and interest losses (less buy-backs)
for the pools of loans involved in the three transactions, based on the total
outstanding principal balance of $1.036 billion as of July 1, 1996, but is not
required to commit collateral to support this loss contingency. At December
31, 1996, the aggregate outstanding principal balance of all the remaining
pools of loans from 1991, 1993, and 1996 is $907.4 million.
Historically, the Company has experienced losses of less than one percent on
its multi-family mortgage portfolio. Mortgage loan buy-backs required by the
FNMA in 1996 and 1995 amounted to $3.4 million and $0.0 million, respectively.
During 1996, the Company entered into credit support and collateral pledge
agreement with the Federal Home Loan Mortgage Corporation (FHLMC). Under the
agreement, the Company sold $535.3 million of multi-family loans and acquired
and equivalent amount of FHLMC securities. FHLMC is guarantying the full face
value of the bonds to the bondholders. However, the Company has agreed to
absorb the first 10.5% of original principal and interest losses (less buy-
backs) for the pool of loans involved but is not required to commit collateral
to support this loss contingency. Historically, the Company has experienced
total losses of less than one percent on its multi-family loan portfolio. At
December 31, 1996, the aggregate outstanding principal balance of the pools of
loans was $535.3 million. There were no mortgage loans buy-backs in 1996.
The Company has a support agreement with JHVLICo under which the Company
agrees to continue directly or indirectly to own all of JHVLICo's common stock
and maintain JHVLICo's net worth at not less than $1 million.
42
<PAGE>
JOHN HANCOCK MUTUAL LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS--CONTINUED
NOTE 15--COMMITMENTS AND CONTINGENCIES--CONTINUED
The Company has a support agreement with John Hancock Capital Corporation
(JHCC) under which the Company agrees to continue directly or indirectly to
own all of JHCC's common stock and maintain JHCC's net worth at not less than
$1 million. JHCC's outstanding borrowings as of December 31, 1996 were $278.3
million for short-term borrowings and $145.1 million for notes payable.
The Company is subject to insurance guaranty fund laws in the states in which
it does business. These laws assess insurance companies amounts to be used to
pay benefits to policyholders and claimants of insolvent insurance companies.
Many states allow these assessments to be credited against future premium
taxes. The Company believes such assessments in excess of amounts accrued will
not materially affect its financial position.
Various lawsuits arise against the Company in the course of the Company's
business. Purported class actions and individual actions have been or could be
brought against the Company in its normal course of business. While the
Company specifically denies any wrongdoing, such litigation is subject to many
uncertainties, and given the current environment and complexity of various
types of litigation, their outcome can not be predicted. Accordingly, the
Company has established a litigation reserve. As appropriate, the reserve will
be used for legal and other costs related to opposing such litigation or in
the ultimate settlement of suits. The reserve has been charged directly to
policyholders' contingency reserves of the Company. The Company believes that
the ultimate outcome of pending litigation should not have a material adverse
effect on the Company's financial position.
43
<PAGE>
JOHN HANCOCK MUTUAL LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS--CONTINUED
NOTE 16--FAIR VALUE OF FINANCIAL INSTRUMENTS
The following table presents the carrying amounts and fair values of the
Company's financial instruments:
<TABLE>
<CAPTION>
Year ended December 31
----------------------------------------
1996 1995
------------------- -------------------
CARRYING Fair CARRYING Fair
AMOUNT Value AMOUNT Value
--------- --------- --------- ---------
(In millions)
<S> <C> <C> <C> <C>
Assets
Bonds--Note 6...................... $22,467.0 $23,539.0 $21,108.5 $22,995.0
Preferred stocks--Note 6........... 416.2 416.2 338.8 338.8
Common stocks--Note 6.............. 249.8 249.8 130.9 130.9
Mortgage loans on real estate--Note
6................................. 7,964.0 8,400.2 8,801.5 9,381.8
Policy loans--Note 1............... 1,589.3 1,589.3 1,621.3 1,621.3
Cash and cash equivalents--Note 1.. 1,416.7 1,416.7 540.7 540.7
Liabilities
Guaranteed investment contracts--
Note 1............................ 11,921.6 11,943.2 12,014.3 12,325.3
Fixed rate deferred and immediate
annuities--Note 1................. 3,909.3 3,886.1 3,494.5 3,478.6
Supplementary contracts without
life contingencies--Note 1........ 45.6 46.0 39.6 40.7
Derivatives liabilities relating
to:--Note 11
Interest rate swaps.................. -- 16.4 -- 37.0
Currency rate swaps.................. -- 41.1 -- 23.3
Interest rate caps................... -- (0.6) -- (0.3)
Interest rate floors................. -- (0.1) -- 0.0
Commitments--Note 15................. -- 1,095.7 -- 1,070.2
</TABLE>
The carrying amounts in the table are included in the statutory-basis
statements of financial position. The methods and assumptions utilized by the
Company in estimating its fair value disclosures are described in Note 1.
44
<PAGE>
PART C. OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial Statements
<TABLE>
<C> <C> <S>
1. Condensed Financial Information (Part A)
2. Statement of Assets and Liabilities, John Hancock Variable
Annuity Account U, at December 31, 1996. (Part B)
3. Statement of Operations, John Hancock Variable Annuity Account
U, year ended December 31, 1996. (Part B)
4. Statement of Changes in Net Assets, John Hancock Variable
Annuity Account U, for each of the two years in the period ended
December 31, 1996. (Part B)
5. Notes to Financial Statements, John Hancock Variable Annuity
Account U. (Part B)
6. Statements of Financial Position, John Hancock Mutual Life
Insurance Company, at December 31, 1995, and December 31, 1996.
(Part B)
7. Summary of Operations and Changes in Policyholder's Contingency
Reserves, John Hancock Mutual Life Insurance Company, for each
of the two years in the period ended December 31, 1996. (Part B)
8. Statement of Cash Flows, John Hancock Mutual Life Insurance
Company, for each of the two years in the period ended December
31, 1996. (Part B)
9. Notes to Financial Statements, John Hancock Mutual Life
Insurance Company. (Part B)
(b) Exhibits:
1. John Hancock Board Resolution establishing the Continuing
Separate Account, dated January 14, 1985, included in Post-
Effective Amendment No. 37 to this File No. 2-38827, filed April
26, 1995.
2. Not Applicable.
3. Form of Distribution Agreement and Servicing by and among John
Hancock Distributors, Inc., John Hancock Mutual Life Insurance
Company, and John Hancock Variable Life Insurance Company,
incorporated by reference from Pre-Effective Amendment No. 2 to Form
S-6 Registration Statement for John Hancock Variable Life Account S
(File No. 333-15075) filed April 23, 1997.
4. (a) Form of periodic payment deferred annuity contract (80-70),
included in Post-Effective Amendment No. 17 to Form N-1
Registration Statement of John Hancock Variable Account A (File
No. 2-38827) filed in December, 1979.
(b) Form of single premium deferred annuity contract (78-71),
included in Post-Effective Amendment No. 14 to Form N-1
Registration Statement of John Hancock Variable Account A (File
No. 2-38827) filed in April, 1978.
(c) Form of single premium immediate annuity contract (80-72),
included in Post-Effective Amendment No. 17 to Form N-1
Registration Statement of John Hancock Variable Account A (File
No. 2-38827) filed in December, 1979.
(d) Forms of endorsement (92-8 and 92-9) for periodic premium
deferred annuity contracts to reflect separate account
restructuring, included in Post-Effective Amendment No. 37 to
this File No. 2-38827, filed April 26, 1995.
</TABLE>
C-1
<PAGE>
<TABLE>
<C> <C> <S>
(e) Form of endorsement (92-10) for single premium deferred annuity
contract to reflect separate account restructuring, included in
Post-Effective Amendment No. 37 to this File No. 2-38827, filed
April 26, 1996.
(f) Forms of endorsement (92-11, 92-12 and 92-13) for single premium
immediate annuity contracts to reflect separate account
restructuring, included in Post-Effective Amendment No. 37 to
this File No. 2-38827, filed April 26, 1996.
(g) Forms of endorsement (92-7) containing distribution provisions
applicable to certain plans, included in Post-Effective
Amendment No. 37 to this File No. 2-38827, filed April 26, 1996.
5. (a) Form of periodic premium deferred annuity contract application
(80-70), included in Post-Effective Amendment No. 17 to Form N-1
Registration Statement of John Hancock Variable Account A (File
No. 2-38827) filed in December, 1979.
(b) Form of single premium deferred annuity contract application
(78-71), included in Post-Effective Amendment No. 14 to Form N-1
Registration Statement of John Hancock Variable Account A (File
No. 2-38827) filed in April, 1978.
(c) Form of single premium immediate annuity contract application
(80-72), included in Post-Effective Amendment No. 17 to Form N-1
Registration Statement of John Hancock Variable Account A (File
No. 2-38827) filed in December, 1979.
6. Charter and By-Laws of John Hancock Mutual Life Insurance
Company, included in Post-Effective Amendment No. 27 to Form N-4
Registration Statement of John Hancock Variable Annuity Account
U (File No. 2-38827) filed on December 11, 1986.
7. Not Applicable.
8. Not Applicable.
9. Opinion and Consent of Counsel as to legality of interests being
offered, included in Post-Effective Amendment No. 28 to the Form
N-4 Registration Statement of John Hancock Variable Annuity
Account U (File No. 2-38827) filed February 2, 1987.
10. (a) Consent of Independent Auditor.
(b) Representation of Counsel Pursuant to Rule 485(b).
11. Not Applicable
12. Not Applicable.
13. Diagram of Subsidiaries of John Hancock Mutual Life Insurance
Company, incorporated by reference from Post-Effective Amendment
No. 13 to the Form N-1A Registration Statement of John Hancock
Variable Series Trust I (File No. 33-2081) filed April 24, 1996.
14. Power of Attorney of Robert J. Tarr, Jr., incorporated by reference
from Post-Effective Amendment No. 4 to Registration Statement of John
Hancock Mutual Variable Life Account UV (File No. 33-63900) filed
April 23, 1997. Copy of Power of Attorney for Michael C. Hawley filed
on April 30, 1997. Copies of Powers of Attorney for all other
directors, included in Post-Effective Amendment No. 37 to this File
No. 2-38827, filed April 26, 1996.
</TABLE>
C-2
<PAGE>
ITEM 25. DIRECTORS AND OFFICERS OF THE DEPOSITOR
DIRECTORS
<TABLE>
<CAPTION>
NAME POSITION WITH DEPOSITOR
- ---- -----------------------
<S> <C>
Samuel W. Bodman........... Director
Nelson S. Gifford.......... Director
Randolph W. Bromery........ Director
William L. Boyan........... President and Chief Operations Officer
E. James Morton............ Director
John F. Magee.............. Director
John M. Connors, Jr........ Director
Stephen L. Brown........... Chairman of the Board and Chief Executive Officer
Richard F. Syron........... Director
Michael C. Hawley.......... Director
I. MacAllister Booth....... Director
C. Vincent Vappi........... Director
Robert J. Tarr, Jr......... Director
David F. D'Alessandro...... Senior Executive Vice President and Director
Joan T. Bok................ Director
Robert E. Fast............. Director
Foster L. Aborn............ Vice Chairman of the Board
Lawrence K. Fish........... Director
Kathleen F. Feldstein...... Director
EXECUTIVE OFFICERS OTHER THAN DIRECTORS
Richard S. Scipione........ General Counsel
Thomas E. Moloney.......... Executive Vice President and Chief Financial Officer
Diane M. Capstaff.......... Executive Vice President
Bruce E. Skrine............ Senior Vice President, Counsel and Secretary
</TABLE>
All of the above-named officers and directors can be contacted at the fol-
lowing business address: John Hancock Mutual Life Insurance Company, John Han-
cock Place, P.O. Box 111, Boston, MA 02117.
ITEM 26. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT
Registrant is a separate account of John Hancock, operated as a unit invest-
ment trust. Registrant supports benefits payable under John Hancock's variable
annuity contracts by investing in shares of John Hancock Variable Series Trust
I (the "Fund") a "series" type of mutual fund, registered under the Investment
Company Act of 1940 (the "Act") as an open-end management investment company.
The Registrant and other separate accounts of John Hancock and John Hancock
Variable Life Insurance Company ("JHVLICO") own all of the Fund's outstanding
shares of beneficial interest. The purchasers of variable annuity and variable
life insurance contracts, in connection with which the Fund is used, will have
the opportunity to instruct John Hancock and JHVLICO with respect to the vot-
ing of the shares of the Fund held by Registrant as to certain matters. Sub-
ject to the voting instructions, John Hancock directly controls Registrant.
A diagram of the subsidiaries John Hancock is incorporated by reference from
Exhibit 17 to Post Effective Amendment No. 13 to the Form N-1A Registration
Statement of John Hancock Variable Series Trust I (File No. 33-2081) filed
April 24, 1996. All such subsidiaries are included in John Hancock's consoli-
dated financial statements.
C-3
<PAGE>
ITEM 27. NUMBER OF CONTRACT OWNERS
As of February 27, 1997, the number of Contract Owners of variable annuity
contracts offered by Account was 99,802.
ITEM 28. INDEMNIFICATION
Article 9a of the By-Laws of John Hancock provides indemnification to each
present and former director, officer, and employee of John Hancock against
litigation expenses and liabilities incurred while acting as such, subject to
limitations of law, including under the Act. No indemnification shall be paid
if a director or officer is finally adjudicated not to have acted in good
faith in the reasonable belief that his action was in the best interest of
John Hancock. John Hancock may pay expenses incurred in defending an action or
claim in advance of its final disposition, but only upon receipt of an under-
taking by the person indemnified to repay such amounts if he or she should be
determined not be entitled to indemnification.
Reference is made to Article VI of the ByLaws of the Fund, filed as Exhibit
2 to Post Effective Amendment No. 2 to the Fund's Registration Statement (File
No. 33-2081) dated April 12, 1988, which provides that the Fund shall indem-
nify or advance any expenses to the trustees, shareholders, officers, or em-
ployees of the Fund to the extent set forth in the Declaration of Trust.
Sections 6.3 through 6.17 of the Declaration of Trust, included as Exhibit 1
to the Fund's Post Effective Amendment No. 2, relate to the indemnification of
trustees, shareholders, officers, and employees. It is provided that the Fund
shall indemnify any trustee made a party to any proceeding by reason of serv-
ice in that capacity if the trustee (a) acted in good faith and (b) reasonably
believed, (1) in the case of conduct in the trustee's official capacity with
the Fund, that the conduct was in the best interest of the Fund and (2) in all
other cases, that the conduct was at least not opposed to the best interests
of the Fund, and (c) in the case of any criminal proceeding, the Fund shall
indemnify the trustee if the trustee acted in good faith and had no reasonable
cause to believe that the conduct was unlawful. Indemnification may not be
made by the Fund unless authorized in each case by a determination by the
Board of Trustees or by special legal counsel or by the shareholders. Neither
indemnification nor advancement of expenses may be made if the trustee or of-
ficer has incurred liability by reason of willful misfeasance, bad faith,
gross negligence, or reckless disregard of duties involved in the conduct of
his office ("Disabling Conduct"). The means for determining whether indemnifi-
cation shall be made shall be (1) a final decision on the merits by a court or
other body before whom the proceeding was brought that the person to be indem-
nified was not liable by reason of Disabling Conduct or (2) in the absence of
such a decision, a reasonable determination, based upon a review of the facts,
that such person was not liable by reason of Disabling Conduct. Such latter
determination may be made either (a) by the vote of a majority of a quorum of
Trustees of the Fund who are neither "interested" persons of the Fund (as de-
fined in the Act) nor parties to the proceeding or (b) by an independent legal
counsel in a written opinion. The advancement of legal expenses may not occur
unless the trustee or officer agrees to repay the advance (unless it is ulti-
mately determined that he is entitled to indemnification) and at least one of
three conditions is satisfied: (1) he provides security for his agreement to
repay, (2) the Fund is insured against loss by reason of lawful advances, or
(3) a majority of a quorum of the Trustees of the Fund who are not interested
persons and are not parties to the proceedings, or independent counsel in a
written opinion, determine that there is reason to believe that the trustee or
officer will be found entitled to indemnification.
Similar types of provisions dealing with the indemnification of the Fund's
officers and trustee are hereby incorporated by reference from documents pre-
viously filed with the Commission, specifically, Section 14 of the Investment
Management Agreement by and between John Hancock Variable Series Trust I and
John Hancock Mutual Life Insurance Company (Exhibit 5.f. to Post-Effective
Amendment No. 4 to the Registration Statement of the Fund (File No. 33-2081)
dated April, 1989), Section 14 of the Investment Management Agreement by and
between John Hancock Variable Series Trust I and John Hancock Mutual Life In-
surance Company (Exhibit 5.a. to the Registration Statement (File No. 33-2081)
C-4
<PAGE>
dated December 11, 1985), Section 14 of Investment Management Agreement by and
between John Hancock Variable Series Trust I and John Hancock Mutual Life In-
surance Company (Exhibit 5.g. to Post-Effective Amendment No. 9 to the Regis-
tration Statement of the Fund (File No. 33-2081) dated March 2, 1994), Section
14 of the Investment Management Agreement By and Between John Hancock Variable
Series Trust I and John Hancock Mutual Life Insurance Company (Exhibit 5.k. to
Post-Effective Amendment No. 13 to the Fund's Registration Statement (File No.
33-2081) dated April 30, 1996), Section 7 of the Underwriting and Administrative
Services Agreement by and between John Hancock Variable Series Trust I and John
Hancock Mutual Life Insurance Company (Exhibit 6 to Post-Effective Amendment No.
4 to the Registration Statement of the Fund (File No. 33-2081) dated April,
1989), Section 15 of the Transfer Agency Agreement by and between John Hancock
Variable Series Trust I and John Hancock Mutual Life Insurance Company (Exhibit
9 to Pre-Effective Amendment No. 1 to the Registration Statement of the Fund
(File No. 33-2081) dated March 13, 1986), and Section 6 of the Underwriting and
Indemnity Agreement By and Among John Hancock Series Trust, John Hancock
Distributors, Inc., and John Hancock Mutual Life Insurance Company (Exhibit 6.b.
to Post-Effective Amendment No. 14 to Form N-1A Registration Statement of the
Fund (File No. 33-2081) filed February 28, 1997).
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers, and controlling persons of
the Registrant pursuant to the foregoing provisions or otherwise, the Regis-
trant has been advised that, in the opinion of the Securities and Exchange
Commission, such indemnification is against public policy as expressed in that
Act and is, therefore, unenforceable. In the event that a claim for indemnifi-
cation against such liabilities (other than the payment by the Registrant of
expenses incurred or paid by a director, officer or controlling person of the
Registrant in the successful defense of any action, suit, or proceeding) is
asserted by such director, officer, or controlling person in connection with
the securities being registered, the Registrant will, unless in the opinion of
its counsel the matter has been settled by a controlling precedent, submit to
a court of appropriate jurisdiction the question of whether indemnification by
it is against public policy as expressed in that Act and will be governed by
the final adjudication of such issue.
ITEM 29. PRINCIPAL UNDERWRITERS
(a) John Hancock Distributors, Inc., is also the principal underwriter for the
Fund and John Hancock Variable Annuity Account V and I and John Hancock Variable
Life Ac-counts U, V, and S and John Hancock Mutual Variable Life Insurance
Account UV.
(b) Reference is made to the response to Item 25, above.
(c) The information under "Distribution Agreement and Other Services--Dis-
tribution Agreement" in the statement of additional information forming a part
of this registration statement is incorporated herein by reference.
ITEM 30. 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 and the Fund (as indicated below
through written agreements between the parties to the effect that such services
will be provided to the Registrant and/or the Fund 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, Inc., John Hancock Place, Boston, Massachusetts,
02117, serves as Registrant's distributor and principal underwriter, and in such
capacities, keeps records regarding shareholders account records and cancelled
stock certificates. John Hancock (at the same address), in its capacity as
Registrant's depositor, investment adviser, and transfer agent, keeps all other
records required by Section 31(a) of the Act.
ITEM 31. MANAGEMENT SERVICES
Not applicable.
ITEM 32. UNDERTAKINGS AND REPRESENTATIVES
(a) Registrant hereby undertakes to file a post-effective amendment to this
Registration Statement as frequently as is necessary to ensure that the au-
dited financial statements in the registration statement are never more than
16 months old for so long as payments under the variable annuity Contracts may
be accepted.
(b) Registrant hereby undertakes to include as part of any application to
purchase a Contract offered by the prospectus a space that an applicant can
check to request a Statement of Additional Information.
C-5
<PAGE>
(c) Registrant hereby undertakes to deliver any Statement of Additional In-
formation and any financial statements required to be made available under
Form N-4 promptly upon written or oral request.
(d) Registrant represents that, in connection with the sale of the Contracts
offered pursuant to this registration statement, it has complied with the con-
ditions of the SEC no-action letter regarding the purchase of variable annuity
contracts under retirement plans meeting the requirements of Section 403(b) of
the Internal Revenue Code (American Council of Life Insurance (pub. avail.
Nov. 28, 1988)). Specifically, Registrant has (1) included appropriate disclo-
sure regarding the redemption restrictions imposed by Section 403(b)(11) in
the prospectus; (b) included appropriate disclosure regarding the redemption
restrictions imposed by Section 403(b)(11) in any sales literature used in
connection with the offer of the Contracts; (3) instructed sales representa-
tives specifically to bring the redemption restrictions imposed by Section
403(b)(11) to the attention of potential plan participants; and (4) obtained
from each plan participant who purchases a Section 403(b) annuity contract,
prior to or at the time of such purchase, a signed statement acknowledging the
participant's understanding of (a) the restrictions on redemptions imposed by
Section 403(b)(11) and (b) the investment alternatives available under the em-
ployer's Section 403(b) arrangement to which the participant may elect to
transfer his contract value.
(e) John Hancock Mutual Life Insurance Company represents that the fees and
charges deducted under the Policies, in the aggregate, are reasonable in
relation to the services rendered, the expenses expected to be incurred, and the
risks assumed by the insurance company.
C-6
<PAGE>
SIGNATURES
As required by the Securities Act of 1933, the Registrant certifies that it
meets all of the requirements for effectiveness of this Registration Statement
pursuant to Rule 485(b) under the Securities Act of 1933 and has caused this
amended Registration Statement to be signed on its behalf, in the City of Bos-
ton and the Commonwealth of Massachusetts on this 22nd day of April, 1997.
John Hancock Variable Annuity Account U
(Registrant)
By John Hancock Mutual Life Insurance
Company
/s/ Stephen L. Brown
By______________________________________
Stephen L. Brown
Chairman of the Board and Chief
Executive Officer
John Hancock Mutual Life Insurance
Company (Depositor)
/s/ Stephen L. Brown
By______________________________________
Stephen L. Brown
Chairman of the Board and Chief
Executive Officer
C-7
<PAGE>
As required by the Securities Act of 1933 and the Investment Company Act of
1940, this amended Registration Statement has been signed by the following
persons in their capacities with John Hancock Mutual Life Insurance Company
and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <C> <S>
/s/ Thomas E. Moloney Chief Financial Officer (Principal 4/22/97
________________________________________ Financial Officer and Principal
Thomas E. Moloney Accounting Officer)
/s/ Stephen L. Brown Chairman of the Board and Chief 4/22/97
________________________________________ Executive Officer (Principal Executive
Stephen L. Brown Officer)
for himself and as
Attorney-in-Fact
</TABLE>
<TABLE>
<C> <C> <S>
FOR: Foster L. Aborn.................. Vice Chairman of the Board
Senior Executive Vice President &
David F. D'Alessandro............ Senior Executive Vice President
and Director
William L. Boyan................. President of the Board and
Chief Operations Officer
</TABLE>
<TABLE>
<S> <C>
Nelson S. Gifford...................... Director
Richard F. Syron....................... Director
John F. Magee.......................... Director
John M. Connors, Jr.................... Director
Lawrence K. Fish....................... Director
Joan T. Bok............................ Director
Robert E. Fast......................... Director
I. MacAllister Booth................... Director
</TABLE>
<TABLE>
<S> <C>
E. James Morton........................ Director
Michael C. Hawley...................... Director
Samuel W. Bodman....................... Director
Robert J. Tarr, Jr..................... Director
C. Vincent Vappi....................... Director
Randolph W. Bromery.................... Director
Kathleen F. Feldstein.................. Director
</TABLE>
C-8
<PAGE>
LIST OF EXHIBITS
FORM N-4
JOHN HANCOCK VARIABLE ANNUITY ACCOUNT U
EXHIBITS
10.(a) Consent of Independent Auditors
10.(b) Representation of Counsel pursuant to Rule 485(b)
27. Financial Data Schedule
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 1
<NAME> LARGE CAP GROWTH
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<INVESTMENTS-AT-COST> 170,140,933
<INVESTMENTS-AT-VALUE> 188,987,564
<RECEIVABLES> 0
<ASSETS-OTHER> 60,094
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 189,044,658
<PAYABLE-FOR-SECURITIES> 52,828
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 7,266
<TOTAL-LIABILITIES> 60,094
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 0
<SHARES-COMMON-STOCK> 0
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 118,987,564
<DIVIDEND-INCOME> 28,211,043
<INTEREST-INCOME> 0
<OTHER-INCOME> 0
<EXPENSES-NET> 2,445,319
<NET-INVESTMENT-INCOME> 25,765,724
<REALIZED-GAINS-CURRENT> 2,715,920
<APPREC-INCREASE-CURRENT> (1,342,699)
<NET-CHANGE-FROM-OPS> 27,138,945
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 34,272,417
<NUMBER-OF-SHARES-REDEEMED> 10,878,379
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 24,764,259
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 2,445,319
<AVERAGE-NET-ASSETS> 0
<PER-SHARE-NAV-BEGIN> 0
<PER-SHARE-NII> 0
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 0
<EXPENSE-RATIO> 0
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 2
<NAME> SOVEREIGN BOND
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<INVESTMENTS-AT-COST> 291,259,175
<INVESTMENTS-AT-VALUE> 290,503,205
<RECEIVABLES> 0
<ASSETS-OTHER> 214,334
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 290,717,539
<PAYABLE-FOR-SECURITIES> 204,158
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 10,176
<TOTAL-LIABILITIES> 214,334
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 0
<SHARES-COMMON-STOCK> 0
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 290,503,205
<DIVIDEND-INCOME> 22,408,938
<INTEREST-INCOME> 0
<OTHER-INCOME> 0
<EXPENSES-NET> 3,790,287
<NET-INVESTMENT-INCOME> 18,618,651
<REALIZED-GAINS-CURRENT> 1,605,801
<APPREC-INCREASE-CURRENT> (12,616,007)
<NET-CHANGE-FROM-OPS> 7,608,445
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 23,275,272
<NUMBER-OF-SHARES-REDEEMED> 36,999,178
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> (24,734,112)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 3,790,287
<AVERAGE-NET-ASSETS> 0
<PER-SHARE-NAV-BEGIN> 0
<PER-SHARE-NII> 0
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 0
<EXPENSE-RATIO> 0
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 3
<NAME> INTERNATIONAL EQUITIES
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<INVESTMENTS-AT-COST> 62,360,050
<INVESTMENTS-AT-VALUE> 67,701,763
<RECEIVABLES> 0
<ASSETS-OTHER> 56,357
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 67,758,120
<PAYABLE-FOR-SECURITIES> 53,800
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 2,557
<TOTAL-LIABILITIES> 56,357
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 0
<SHARES-COMMON-STOCK> 0
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 67,701,763
<DIVIDEND-INCOME> 884,086
<INTEREST-INCOME> 0
<OTHER-INCOME> 0
<EXPENSES-NET> 956,141
<NET-INVESTMENT-INCOME> (72,055)
<REALIZED-GAINS-CURRENT> 618,460
<APPREC-INCREASE-CURRENT> 4,480,521
<NET-CHANGE-FROM-OPS> 5,026,926
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 4,550,110
<NUMBER-OF-SHARES-REDEEMED> 9,940,199
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> (291,108)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 956,141
<AVERAGE-NET-ASSETS> 0
<PER-SHARE-NAV-BEGIN> 0
<PER-SHARE-NII> 0
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 0
<EXPENSE-RATIO> 0
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 4
<NAME> SMALL CAP GROWTH
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<INVESTMENTS-AT-COST> 4,505,276
<INVESTMENTS-AT-VALUE> 4,388,830
<RECEIVABLES> 0
<ASSETS-OTHER> 22,780
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 4,411,610
<PAYABLE-FOR-SECURITIES> 22,616
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 164
<TOTAL-LIABILITIES> 22,780
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 0
<SHARES-COMMON-STOCK> 0
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 4,388,830
<DIVIDEND-INCOME> 3,067
<INTEREST-INCOME> 0
<OTHER-INCOME> 0
<EXPENSES-NET> 22,779
<NET-INVESTMENT-INCOME> (19,712)
<REALIZED-GAINS-CURRENT> (38,209)
<APPREC-INCREASE-CURRENT> (116,446)
<NET-CHANGE-FROM-OPS> (174,367)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 5,109,624
<NUMBER-OF-SHARES-REDEEMED> 566,139
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 4,388,830
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 22,779
<AVERAGE-NET-ASSETS> 0
<PER-SHARE-NAV-BEGIN> 0
<PER-SHARE-NII> 0
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 0
<EXPENSE-RATIO> 0
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 5
<NAME> INTERNATIONAL BALANCED
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<INVESTMENTS-AT-COST> 774,200
<INVESTMENTS-AT-VALUE> 797,114
<RECEIVABLES> 0
<ASSETS-OTHER> 4,674
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 801,788
<PAYABLE-FOR-SECURITIES> 4,644
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 30
<TOTAL-LIABILITIES> 4,674
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 0
<SHARES-COMMON-STOCK> 0
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 797,114
<DIVIDEND-INCOME> 13,321
<INTEREST-INCOME> 0
<OTHER-INCOME> 0
<EXPENSES-NET> 3,949
<NET-INVESTMENT-INCOME> 9,372
<REALIZED-GAINS-CURRENT> 601
<APPREC-INCREASE-CURRENT> 22,914
<NET-CHANGE-FROM-OPS> 32,887
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 818,807
<NUMBER-OF-SHARES-REDEEMED> 45,208
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 797,114
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 3,949
<AVERAGE-NET-ASSETS> 0
<PER-SHARE-NAV-BEGIN> 0
<PER-SHARE-NII> 0
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 0
<EXPENSE-RATIO> 0
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 6
<NAME> MID CAP GROWTH
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<INVESTMENTS-AT-COST> 2,806,025
<INVESTMENTS-AT-VALUE> 2,859,666
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</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 7
<NAME> LARGE CAP VALUE
<S> <C>
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<NUMBER-OF-SHARES-SOLD> 2,969,205
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</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 8
<NAME> MONEY MARKET
<S> <C>
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<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
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<INVESTMENTS-AT-VALUE> 64,096,778
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<PAYABLE-FOR-SECURITIES> 39,646
<SENIOR-LONG-TERM-DEBT> 0
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<TOTAL-LIABILITIES> 41,874
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<NET-ASSETS> 64,096,778
<DIVIDEND-INCOME> 3,303,454
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<EXPENSES-NET> 806,237
<NET-INVESTMENT-INCOME> 2,497,217
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<NUMBER-OF-SHARES-SOLD> 29,006,449
<NUMBER-OF-SHARES-REDEEMED> 29,963,588
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> (957,089)
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</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 9
<NAME> MID CAP VALUE
<S> <C>
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<TOTAL-LIABILITIES> 21,750
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<NET-ASSETS> 1,141,426
<DIVIDEND-INCOME> 23,396
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<EXPENSES-NET> 4,252
<NET-INVESTMENT-INCOME> 19,144
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<APPREC-INCREASE-CURRENT> 75,961
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<NUMBER-OF-SHARES-SOLD> 1,184,409
<NUMBER-OF-SHARES-REDEEMED> 119,216
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 1,141,426
<ACCUMULATED-NII-PRIOR> 0
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</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 10
<NAME> SPECIAL OPPORTUNITIES
<S> <C>
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<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
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<TOTAL-LIABILITIES> 84,833
<SENIOR-EQUITY> 0
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<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
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<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 45,847,219
<DIVIDEND-INCOME> 1,764,490
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<OTHER-INCOME> 0
<EXPENSES-NET> 437,872
<NET-INVESTMENT-INCOME> 1,326,618
<REALIZED-GAINS-CURRENT> 810,991
<APPREC-INCREASE-CURRENT> 4,973,647
<NET-CHANGE-FROM-OPS> 7,111,256
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<NUMBER-OF-SHARES-SOLD> 28,722,744
<NUMBER-OF-SHARES-REDEEMED> 2,465,032
<SHARES-REINVESTED> 0
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<GROSS-EXPENSE> 437,872
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</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 11
<NAME> REAL ESTATE EQUITY
<S> <C>
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<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<INVESTMENTS-AT-COST> 69,420,386
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<TOTAL-LIABILITIES> 13,616
<SENIOR-EQUITY> 0
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<ACCUMULATED-NII-CURRENT> 0
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<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 85,994,087
<DIVIDEND-INCOME> 4,470,732
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<EXPENSES-NET> 986,476
<NET-INVESTMENT-INCOME> 3,484,256
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<APPREC-INCREASE-CURRENT> 16,386,139
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<NUMBER-OF-SHARES-SOLD> 8,239,725
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<ACCUMULATED-NII-PRIOR> 0
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<GROSS-EXPENSE> 986,476
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</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 12
<NAME> GROWTH & INCOME
<S> <C>
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<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
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<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 682,184,704
<DIVIDEND-INCOME> 85,637,160
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<NUMBER-OF-SHARES-SOLD> 96,667,401
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</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 13
<NAME> MANAGED
<S> <C>
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<NET-ASSETS> 1,163,856,420
<DIVIDEND-INCOME> 144,901,802
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<EXPENSES-NET> 15,814,224
<NET-INVESTMENT-INCOME> 129,087,578
<REALIZED-GAINS-CURRENT> 12,361,012
<APPREC-INCREASE-CURRENT> (41,260,217)
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<NUMBER-OF-SHARES-SOLD> 151,241,248
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</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 14
<NAME> SHORT-TERM U.S. GOVERNMENT
<S> <C>
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<NET-INVESTMENT-INCOME> 254,336
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</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 15
<NAME> SMALL CAP VALUE
<S> <C>
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<TOTAL-LIABILITIES> 8,917
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<PAID-IN-CAPITAL-COMMON> 0
<SHARES-COMMON-STOCK> 0
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 1,788,946
<DIVIDEND-INCOME> 44,896
<INTEREST-INCOME> 0
<OTHER-INCOME> 0
<EXPENSES-NET> 8,623
<NET-INVESTMENT-INCOME> 36,273
<REALIZED-GAINS-CURRENT> 5,580
<APPREC-INCREASE-CURRENT> 89,251
<NET-CHANGE-FROM-OPS> 131,104
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1,838,524
<NUMBER-OF-SHARES-REDEEMED> 144,408
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 1,788,946
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 8,623
<AVERAGE-NET-ASSETS> 0
<PER-SHARE-NAV-BEGIN> 0
<PER-SHARE-NII> 0
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 0
<EXPENSE-RATIO> 0
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 16
<NAME> INTERNATIONAL OPPORTUNITIES
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<INVESTMENTS-AT-COST> 2,285,302
<INVESTMENTS-AT-VALUE> 2,385,098
<RECEIVABLES> 0
<ASSETS-OTHER> 13,639
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 2,398,737
<PAYABLE-FOR-SECURITIES> 13,549
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 90
<TOTAL-LIABILITIES> 13,639
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 0
<SHARES-COMMON-STOCK> 0
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 2,385,098
<DIVIDEND-INCOME> 7,131
<INTEREST-INCOME> 0
<OTHER-INCOME> 0
<EXPENSES-NET> 9,839
<NET-INVESTMENT-INCOME> (2,708)
<REALIZED-GAINS-CURRENT> (1,023)
<APPREC-INCREASE-CURRENT> 99,796
<NET-CHANGE-FROM-OPS> 96,065
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 2,633,277
<NUMBER-OF-SHARES-REDEEMED> 346,952
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 2,385,098
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 9,839
<AVERAGE-NET-ASSETS> 0
<PER-SHARE-NAV-BEGIN> 0
<PER-SHARE-NII> 0
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 0
<EXPENSE-RATIO> 0
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 17
<NAME> EQUITY INDEX
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<INVESTMENTS-AT-COST> 4,180,746
<INVESTMENTS-AT-VALUE> 4,470,107
<RECEIVABLES> 0
<ASSETS-OTHER> 10,282
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 4,480,389
<PAYABLE-FOR-SECURITIES> 10,109
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 173
<TOTAL-LIABILITIES> 10,282
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 0
<SHARES-COMMON-STOCK> 0
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 4,470,107
<DIVIDEND-INCOME> 106,423
<INTEREST-INCOME> 0
<OTHER-INCOME> 0
<EXPENSES-NET> 22,479
<NET-INVESTMENT-INCOME> 83,944
<REALIZED-GAINS-CURRENT> 518
<APPREC-INCREASE-CURRENT> 289,361
<NET-CHANGE-FROM-OPS> 373,823
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 4,339,120
<NUMBER-OF-SHARES-REDEEMED> 158,892
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 4,470,107
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 22,479
<AVERAGE-NET-ASSETS> 0
<PER-SHARE-NAV-BEGIN> 0
<PER-SHARE-NII> 0
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 0
<EXPENSE-RATIO> 0
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 18
<NAME> STRATEGIC BOND
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<INVESTMENTS-AT-COST> 2,599,226
<INVESTMENTS-AT-VALUE> 2,615,248
<RECEIVABLES> 0
<ASSETS-OTHER> 2,695
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 2,617,943
<PAYABLE-FOR-SECURITIES> 2,595
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 100
<TOTAL-LIABILITIES> 2,695
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 0
<SHARES-COMMON-STOCK> 0
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 2,615,248
<DIVIDEND-INCOME> 105,925
<INTEREST-INCOME> 0
<OTHER-INCOME> 0
<EXPENSES-NET> 13,728
<NET-INVESTMENT-INCOME> 92,197
<REALIZED-GAINS-CURRENT> 317
<APPREC-INCREASE-CURRENT> 16,022
<NET-CHANGE-FROM-OPS> 108,536
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 2,974,070
<NUMBER-OF-SHARES-REDEEMED> 375,161
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 2,615,248
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 13,728
<AVERAGE-NET-ASSETS> 0
<PER-SHARE-NAV-BEGIN> 0
<PER-SHARE-NII> 0
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 0
<EXPENSE-RATIO> 0
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<PAGE>
EXHIBIT 10(A)
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the references to our firm under the captions "Experts" in the
Prospectus and "Independent Auditors" in the Statement of Additional Informa-
tion in Post-Effective Amendment Number 39 to the Registration Statement (Form
N-4, No. 2-38827) of John Hancock Variable Annuity Account U.
We also consent to the incorporation of our reports dated February 7, 1997
on the financial statements included in the Annual Report of the John Hancock
Variable Annuity Account U, and February 14, 1997 on financial statements
included in the Annual Report of the John Hancock Mutual Life Insurance Com-pany
for the year ended December 31, 1996.
/s/ ERNST & YOUNG LLP
ERNST & YOUNG LLP
Boston, Massachusetts
April 30, 1997
<PAGE>
EXHIBIT 10(B)
[JOHN HANCOCK MUTUAL LIFE
INSURANCE COMPANY LETTERHEAD]
April 29, 1997
SECURITIES & EXCHANGE COMMISSION
450 FIFTH STREET, N.W.
WASHINGTON, DC 20549
RE: John Hancock Variable Annuity Account U
File Nos. 2-38827 and 811-2143
Dear Commissioners:
This opinion is being furnished with respect to the filing of Post-Effective
Amendment No. 39 under the Securities Act of 1933 (Post-Effective Amendment
No. 21 under the Investment Company Act of 1940) of the Form N-4 Registration
Statement of John Hancock Variable Annuity Account U 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 my opinion this Post-
Effective Amendment does not contain disclosures which would render it ineli-
gible to become effective pursuant to paragraph (b).
We 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 Com-
mission.
Very truly yours,
/s/ SANDRA M. DADALT
Sandra DaDalt
Counsel
SD0103.DOC (Acct U)
