<PAGE>
FILE NOS. 33-34813
811-2143
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
FORM N-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
[_]
----------------
PRE-EFFECTIVE AMENDMENT NO. [_]
POST-EFFECTIVE AMENDMENT NO. 8 [X]
AND/OR
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
[X]
AMENDMENT NO. 24
(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 become effective (check appropriate box)
[_] immediately upon filing pursuant to paragraph (b) of Rule 485
[X] on May 1, 1998 pursuant to paragraph (b) of Rule 485
[_] 60 days after filing pursuant to paragraph (a)(1) of Rule 485
[_] on (date) pursuant to paragraph (a)(1) of Rule 485
If appropriate check the following box
[_] this post-effective amendment designates a new effective date for a
previously filed post-effective amendment
Pursuant to the provisions of Rule 24f-2, Registrant has registered an indefi-
nite amount of the securities being offered and filed its Notice for fiscal
year 1997 pursuant to Rule 24f-2 on February 26, 1998.
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<PAGE>
JOHN HANCOCK VARIABLE ANNUITY ACCOUNT U
CROSS REFERENCE SHEET
<TABLE>
<CAPTION>
FORM N-4 ITEM NO. SECTION IN PROSPECTUS
----------------- ---------------------
<S> <C>
1.Cover Page..................... Cover Page
2.Definitions.................... Special Terms; Variable Account Valuation
Procedures
3.Synopsis or Highlights......... Summary Information
4.Condensed Financial Informa-
tion......................... Condensed Financial Information
5.General Description of
Registrant, Depositor and John Hancock, The Account and the Series
Portfolio Companies.......... Fund; Distribution of the Contracts; Voting
Privileges
6.Deductions..................... Charges Variable Annuity Contracts
7.General Description of Variable
Annuity Contracts............ The Contracts; The Accumulation Period;
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 Values.. The Contracts; The Accumulation Period;
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 Information.... Table of Contents of Statement of Additional
Information
</TABLE>
<PAGE>
[LOGO OF JOHN HANCOCK APPEARS HERE]
Mutual Life
Insurance Company
INDIVIDUAL COMBINATION FIXED/VARIABLE ANNUITY CONTRACTS
JOHN HANCOCK VARIABLE ANNUITY ACCOUNT U
JOHN HANCOCK SERVICING OFFICE:
P.O. Box 111
Boston, Massachusetts 02117
TELEPHONE 800-REAL LIFE (732-5543)
FAX 617-886-3048
PROSPECTUS MAY 1, 1998
The individual deferred 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 twenty-three subaccounts of John Hancock Variable Annuity Account
U ("Account"), a fixed annuity account (the "Fixed Account"), or a combination
of the Fixed Account and up to nine of the subaccounts. The assets of each
subaccount will be invested in a corresponding Portfolio of John Hancock
Variable Series Trust I ("Fund"), a "series" type mutual fund advised by John
Hancock Mutual Life Insurance Company ("John Hancock"). The Fixed Account is a
part of the general account of John Hancock.
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, 1998, has been filed with the
Securities and Exchange Commission ("Commission") and is incorporated herein by
reference. This statement, the table of contents of which appears at page 31 of
this prospectus, is available upon request and without charge from the Account
at the address or telephone number above.
Only the variable features of the Contracts are described in this prospectus.
For a summary of the fixed features, see "Appendix--The Fixed Account and Fixed
Account Value".
For additional information pertaining to the purchase of a Contract as an
Individual Retirement Annuity, see "Appendix--Variable Annuity Information for
Individual Retirement Annuities".
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: Managed, Growth & Income, Equity Index, Large Cap Value, Large Cap
Growth, Mid Cap Value, Mid Cap Growth, Diversified Mid Cap Growth (formerly,
Special Opportunities), Real Estate Equity, Small/Mid Cap CORE, Small Cap Value,
Small Cap Growth, Global Equity, International Balanced, International Equity
Index (formerly, International Equities), International Opportunities, Emerging
Markets Equity, Short-Term Bond (formerly, Short-Term U.S. Government), Bond
Index, Sovereign Bond, Strategic Bond, High Yield Bond, and Money Market. (The
Small/Mid Cap CORE, Global Equity, Emerging Markets Equity, Bond Index, and High
Yield Bond Portfolios are not currently available to Owners but are expected to
be made available later in 1998.)
THIS PROSPECTUS SHOULD BE READ AND RETAINED FOR FUTURE REFERENCE. IT IS NOT
VALID UNLESS ATTACHED TO A CURRENT PROSPECTUS FOR THE FUND.
THE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
SYNOPSIS OF EXPENSE INFORMATION . . . . . . . . . . . . . . . . 3
CONDENSED FINANCIAL INFORMATION . . . . . . . . . . . . . . . . 6
SPECIAL TERMS . . . . . . . . . . . . . . . . . . . . . . . . . 8
SUMMARY INFORMATION . . . . . . . . . . . . . . . . . . . . . . 9
THE VARIABLE ANNUITY . . . . . . . . . . . . . . . . . . . . . . 12
JOHN HANCOCK, THE ACCOUNT AND THE SERIES FUND . . . . . . . . . 12
CHARGES UNDER VARIABLE ANNUITY CONTRACTS . . . . . . . . . . . . 16
Charges For Mortality And Expense Risks . . . . . . . . . . . 16
Charges for Administrative Services . . . . . . . . . . . . . 16
Withdrawal Charge . . . . . . . . . . . . . . . . . . . . . . 16
Premium or Similar Taxes . . . . . . . . . . . . . . . . . . . 18
THE CONTRACTS . . . . . . . . . . . . . . . . . . . . . . . . . 18
Purchase of Contracts . . . . . . . . . . . . . . . . . . . . 18
THE ACCUMULATION PERIOD . . . . . . . . . . . . . . . . . . . . 18
Accumulation Shares . . . . . . . . . . . . . . . . . . . . . 18
Value of Accumulation Shares . . . . . . . . . . . . . . . . . 19
Transfers To and From Subaccounts . . . . . . . . . . . . . . 19
Surrender of Contract; Partial Withdrawals . . . . . . . . . . 19
Death Benefit Before Date of Maturity . . . . . . . . . . . . 20
THE ANNUITY PERIOD . . . . . . . . . . . . . . . . . . . . . . . 21
Variable Monthly Annuity Payments . . . . . . . . . . . . . . 21
Assumed Investment Rate . . . . . . . . . . . . . . . . . . . 22
Calculation of Annuity Units . . . . . . . . . . . . . . . . . 22
Annuity Options . . . . . . . . . . . . . . . . . . . . . . . 22
VARIABLE ACCOUNT VALUATION PROCEDURES . . . . . . . . . . . . . 23
MISCELLANEOUS PROVISIONS . . . . . . . . . . . . . . . . . . . . 24
Restriction on Assignment . . . . . . . . . . . . . . . . . . 24
Deferment of Payment . . . . . . . . . . . . . . . . . . . . . 24
Reservation of Rights . . . . . . . . . . . . . . . . . . . . 24
Owner and Beneficiary . . . . . . . . . . . . . . . . . . . . 24
FEDERAL INCOME TAXES . . . . . . . . . . . . . . . . . . . . . . 24
The Account and John Hancock . . . . . . . . . . . . . . . . . 24
Contracts Purchased Other Than to Fund a Tax Qualified Plan . 25
Contracts Purchased to Fund a Tax Qualified Plan . . . . . . . 26
PERFORMANCE . . . . . . . . . . . . . . . . . . . . . . . . . . 29
STATE REGULATION . . . . . . . . . . . . . . . . . . . . . . . . 30
REPORTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
VOTING PRIVILEGES . . . . . . . . . . . . . . . . . . . . . . . 30
The Account . . . . . . . . . . . . . . . . . . . . . . . . . 30
John Hancock . . . . . . . . . . . . . . . . . . . . . . . . . 31
CHANGES IN APPLICABLE LAW--FUNDING AND OTHERWISE . . . . . . . . 31
LEGAL MATTERS . . . . . . . . . . . . . . . . . . . . . . . . . 31
DISTRIBUTION OF THE CONTRACTS . . . . . . . . . . . . . . . . . 31
IMPACT OF YEAR 2000 ISSUE. . . . . . . . . . . . . . . . . . . .
REGISTRATION STATEMENT . . . . . . . . . . . . . . . . . . . . . 31
EXPERTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . . . . . . . 32
TABLE OF CONTENTS OF STATEMENT OF ADDITIONAL INFORMATION . . . . 32
APPENDIX--THE FIXED ACCOUNT AND FIXED ACCOUNT VALUE . . . . . . 33
APPENDIX--VARIABLE ANNUITY INFORMATION FOR INDIVIDUAL RETIREMENT
ANNUITIES . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
APPENDIX--ILLUSTRATIVE ACCUMULATED VALUE AND ANNUITY PAYMENT
TABLES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
</TABLE>
THE CONTRACTS OFFERED BY THIS PROSPECTUS ARE NOT AVAILABLE IN ALL STATES. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER
TO BUY, SECURITIES IN ANY STATE TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE OR
SOLICIT AN OFFER IN THAT STATE.
2
<PAGE>
SYNOPSIS OF EXPENSE INFORMATION
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. This
synopsis includes expenses of the Account 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 annual operating expenses of each Portfolio, see
the prospectus for the Fund.
<TABLE>
<CAPTION>
<S> <C>
CONTRACT EXPENSES
Maximum Withdrawal Charge (as a percentage of amount surrendered)/1/ 8.00%
Annual Contract Fee (for Contracts having an Accumulated Value of
$10,000 or less)/2/ . . . . . . . . . . . . . . . . . . . . . . . . $30
SEPARATE ACCOUNT ANNUAL EXPENSES
(as a percentage of average account value)
Mortality and Expense Risk Charge . . . . . . . . . . . . . . . . . . 0.90%
Administrative Services Charge . . . . . . . . . . . . . . . . . . . 0.50%
----
Total Separate Account Annual Expenses . . . . . . . . . . . . . . . 1.40%
</TABLE>
FUND OPERATING EXPENSES (as a percentage of average daily net assets)
The figures in the following chart and the Examples which follow reflect the
investment management fees currently payable and the 1997 other fund expenses
allocated to the Fund (except that other fund expenses for the Small/Mid Cap
CORE, Global Equity, Emerging Markets Equity, Bond Index, and High Yield Bond
Portfolios are based upon estimates for the current fiscal year).
<TABLE>
<CAPTION>
Other
Fund
Other Fund Total Expenses
Expenses Fund Absent
Management After Expense Operating Expense
Fund Name Fee Reimbursement Expenses Reimbursement/3/
--------- ---------- ------------- --------- ----------------
<S> <C> <C> <C> <C>
Managed . . . . . . . 0.33% 0.04 % 0.37% N/A
Growth & Income . . . 0.25% 0.03 % 0.28% N/A
Equity Index. . . . . 0.15% 0.25 % 0.40% 0.40%
Large Cap Value . . . 0.75% 0.25 % 1.00% 0.31%
Large Cap Growth. . . 0.39% 0.05 % 0.44% N/A
Mid Cap Value . . . . 0.80% 0.25 % 1.05% 0.34%
Mid Cap Growth. . . . 0.85% 0.25 % 1.10% 0.57%
Diversified Mid Cap
Growth . . . . . . . 0.75% 0.10% 0.85% N/A
Real Estate Equity. . 0.60% 0.09 % 0.69% N/A
Small/Mid Cap CORE. .
Small Cap Value . . . 0.80% 0.25 % 1.05% 0.50%
Small Cap Growth. . . 0.75% 0.25 % 1.00% 0.37%
Global Equity . . . .
International Balanced 0.85% 0.25 % 1.10% 0.71%
International Equity
Index. . . . . . . . 0.18% 0.19 % 0.37% N/A
International
Opportunities. . . . 0.97% 0.25 % 1.22% 0.60%
Emerging Markets
Equity . . . . . . .
Short-Term Bond . . . 0.30% 0.21% 0.51%
Bond Index. . . . . .
Sovereign Bond. . . . 0.25% 0.06 % 0.31% N/A
Strategic Bond. . . . 0.75% 0.25 % 1.00% 0.57%
High Yield Bond . . .
Money Market. . . . . 0.25% 0.08 % 0.33% N/A
</TABLE>
3
<PAGE>
/1 /Actual Withdrawal Charges may be lower, as the Withdrawal Charge decreases
each year on each anniversary of the date of deposit and limited free partial
withdrawals are allowed.
<TABLE>
<CAPTION>
Years from date
of deposit to Withdrawal
date of withdrawal Charge
------------------ ----------
<S> <C>
7 or more . . . . . . . . . . . . . . . . . . . . 0%
5 but less than 7 . . . . . . . . . . . . . . . . 6%
3 but less than 5 . . . . . . . . . . . . . . . . 7%
less than 3 . . . . . . . . . . . . . . . . . . . 8%
</TABLE>
An Owner may withdraw in any Contract Year up to 10% of the Accumulated Value
of the Contract as of the beginning of the Contract Year without any charges.
/2 /The annual contract fee is deducted on Contracts having an Accumulated Value
of less than $10,000. The contract fee is deducted at the beginning of each
Contract year after the first and at a full surrender during a Contract Year.
The contract fee is assessed only during the Accumulation Period. In the
following Examples, the annual contract fee has been expressed as an annual
percentage of assets based on the average Contract size at December 31, 1997.
/3 /John Hancock reimburses a Portfolio when the Portfolio's Other Expenses
exceed 0.25% of its average daily net asset value.
EXAMPLES
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.
If you surrender your contract at the end of the applicable time period, you
would pay the following current expenses on a $1,000 investment, assuming 5%
annual return on assets:
<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
<S> <C> <C> <C> <C>
MANAGED . . . . . . . . . . . . . . . . $ 90 $128 $160 $212
GROWTH & INCOME . . . . . . . . . . . . $ 89 $125 $155 $202
EQUITY INDEX . . . . . . . . . . . . . $ 91 $129 $161 $215
LARGE CAP VALUE . . . . . . . . . . . . $ 97 $147 $192 $277
LARGE CAP GROWTH . . . . . . . . . . . $ 91 $130 $163 $219
MID CAP VALUE . . . . . . . . . . . . . $ 97 $149 $194 $282
MID CAP GROWTH. . . . . . . . . . . . . $ 98 $150 $197 $287
DIVERSIFIED MID CAP GROWTH. . . . . . . $ 95 $143 $184 $262
REAL ESTATE EQUITY . . . . . . . . . . $ 94 $138 $176 $245
SMALL/MID CAP CORE. . . . . . . . . . . $ 97 $149 $194 $282
SMALL CAP VALUE . . . . . . . . . . . . $ 97 $149 $194 $282
SMALL CAP GROWTH . . . . . . . . . . . $ 97 $147 $192 $277
GLOBAL EQUITY . . . . . . . . . . . . . $ 98 $152 $199 $291
iNTERNATIONAL BALANCED. . . . . . . . . $ 98 $150 $197 $287
INTERNATIONAL EQUITY INDEX. . . . . . . $ 91 $130 $163 $218
INTERNATIONAL OPPORTUNITIES . . . . . . $ 99 $154 $203 $298
EMERGING MARKETS EQUITY . . . . . . . . $102 $164 $219 $330
SHORT-TERM BOND . . . . . . . . . . . . $ 92 $132 $167 $226
BOND INDEX. . . . . . . . . . . . . . . $ 91 $129 $161 $215
SOVEREIGN BOND . . . . . . . . . . . . $ 90 $126 $156 $205
STRATEGIC BOND. . . . . . . . . . . . . $ 97 $147 $192 $277
HIGH YIELD BOND . . . . . . . . . . . . $ 96 $144 $187 $267
MONEY MARKET . . . . . . . . . . . . . $ 90 $127 $157 $207
</TABLE>
4
<PAGE>
If you annuitize at the end of the applicable time period, or if you do not
surrender your Contract, you would pay the following current expenses on a
$1,000 investment, assuming 5% annual return on assets:
<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
<S> <C> <C> <C> <C>
$ $
MANAGED . . . . . . . . . . . . . . . . . . . . . . . . 18 57 $97 $212
GROWTH & INCOME . . . . . . . . . . . . . . . . . . . . $17 $54 $93 $202
EQUITY INDEX . . . . . . . . . . . . . . . . . . . . . . $19 $58 $99 $215
LARGE CAP VALUE . . . . . . . . . . . . . . . . . . . . $25 $76 $130 $277
LARGE CAP GROWTH . . . . . . . . . . . . . . . . . . . . $19 $59 $101 $219
MID CAP VALUE . . . . . . . . . . . . . . . . . . . . . $25 $77 $132 $282
MID CAP GROWTH . . . . . . . . . . . . . . . . . . . . . $26 $79 $135 $287
DIVERSIFIED MID CAP GROWTH . . . . . . . . . . . . . . . $23 $71 $122 $262
REAL ESTATE EQUITY . . . . . . . . . . . . . . . . . . . $22 $66 $114 $245
SMALL/MID CAP CORE . . . . . . . . . . . . . . . . . . . $25 $77 $132 $282
SMALL CAP VALUE . . . . . . . . . . . . . . . . . . . . $25 $77 $132 $282
$
SMALL CAP GROWTH . . . . . . . . . . . . . . . . . . . . 25 $76 $130 $277
GLOBAL EQUITY. . . . . . . . . . . . . . . . . . . . . . $26 $80 $137 $291
INTERNATIONAL BALANCED . . . . . . . . . . . . . . . . . $26 $79 $135 $287
INTERNATIONAL EQUITY INDEX . . . . . . . . . . . . . . . $19 $58 $101 $218
INTERNATIONAL OPPORTUNITIES . . . . . . . . . . . . . . $27 $82 $141 $298
EMERGING MARKETS EQUITY. . . . . . . . . . . . . . . . . $30 $92 $157 $330
SHORT TERM BOND. . . . . . . . . . . . . . . . . . . . . $20 $61 $105 $226
BOND INDEX . . . . . . . . . . . . . . . . . . . . . . . $19 $58 $99 $215
SOVEREIGN BOND . . . . . . . . . . . . . . . . . . . . . $18 $55 $94 $205
STRATEGIC BOND . . . . . . . . . . . . . . . . . . . . . $25 $76 $130 $277
HIGH YIELD BOND. . . . . . . . . . . . . . . . . . . . . $24 $73 $125 $267
MONEY MARKET . . . . . . . . . . . . . . . . . . . . . . $18 $55 $95 $207
</TABLE>
- ----
5
<PAGE>
JOHN HANCOCK VARIABLE ANNUITY ACCOUNT U CONDENSED FINANCIAL INFORMATION
- -------------------------------------------------------------------------
The table below reflects the historical information for a share outstanding
throughout the period for John Hancock Variable Account U.
SELECTED DATA FOR EACH ACCUMULATION SHARE OUTSTANDING THROUGHOUT THE PERIOD:
<TABLE>
<CAPTION>
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,
1997 1996 1995 1994 1993 1992 1991
------------ ------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
GROWTH & INCOME SUBACCOUNT
Accumulation share
value:
Beginning of period $22.505 $19.003 $14.359 $14.642 $13.101 $12.211 $9.821
End of period . . . $28.815 $22.505 $19.003 $14.359 $14.642 $13.101 $12.211
Number of Accumulation
Shares outstanding at
end of period. . . . 19,890,513 20,011,363 19,861,908 17,864,128 13,460,804 8,177,334 3,993,249
SOVEREIGN BOND SUBACCOUNT
Accumulation share
value:
Beginning of period $16,119 $15.701 $13.320 $13.863 $12.690 $11.951 $10.390
End of period . . . $17.502 $16.119 $15.701 $13.320 $13.863 $12.690 $11.951
Number of Accumulation
Shares outstanding at
end of period. . . . 11,346,956 12,517,535 13,974,544 14,093,236 14,069,545 9,659,805 4,799,666
MONEY MARKET SUBACCOUNT
Accumulation share
value:
Beginning of period $12.414 $11.952 $11.457 $11.161 $10.982 $10.736 $10.282
End of period . . . $12.910 $12.414 $11.952 $11.457 $11.161 $10.982 $10.736
Number of Accumulation
Shares outstanding at
end of period. . . . 3,202,804 3,579,555 3,658,467 3,625,288 1,718,995 1,300,491 1,002,412
LARGE CAP GROWTH SUBACCOUNT
Accumulation share
value:
Beginning of period $22.456 $19.225 $14.833 $15.191 $13.535 $12.484 $10.091
End of period . . . $28.999 $22.456 $19.225 $14.833 $15.191 $13.535 $12.484
Number of Accumulation
Shares outstanding at
end of period. . . . 8,116,652 8,238,974 8,352,298 7,394,451 4,898,376 2,478,872 1,108,775
MANAGED SUBACCOUNT
Accumulation share
value
Beginning of period $18.686 $17.115 $13.656 $14.164 $12.869 $12.116 $10.072
End of period . . . $21.878 $18.686 $17.115 $13.656 $14.164 $12.869 $12.116
Number of Accumulation
Shares outstanding at
end of period. . . . 56,556,644 61,132,257 64,645,449 65,922,648 56,174,089 33,205,067 12,531,323
REAL ESTATE EQUITY SUBACCOUNT
Accumulation share
value
Beginning of period $21.764 $16.586 $14.977 $14.764 $12.763 $11.157 $8.474
End of period . . . $25.157 $21.764 $16.586 $14.977 $14.764 $12.763 $11.157
Number of Accumulation
Shares outstanding at
end of period. . . . 3,777,452 3,847,062 4,042,426 5,146,666 3,724,118 652,599 187,260
INTERNATIONAL EQUITIES SUBACCOUNT
Accumulation share
value
Beginning of period $14.404 $13.387 $12.560 $13.565 $10.413 $10.737 $8.825
End of period . . . $13.491 $14.404 $13.387 $12.560 $13.565 $10.413 $10.737
Number of Accumulation
Shares outstanding at
end of period. . . . 3,879,212 4,551,590 4,932,128 5,764,133 2,508,258 609,805 274,463
<CAPTION>
Period from
July 27,
1990 to
December 31,
1990
------------
<S> <C>
GROWTH & INCOME SUBACCOUNT
Accumulation share
value:
Beginning of period $10.000
End of period . . . $9.821
Number of Accumulation 632,144
Shares outstanding at
end of period. . . .
SOVEREIGN BOND SUBACCOUNT
Accumulation share
value:
Beginning of period $10.000
End of period . . . $10.390
Number of Accumulation 570,608
Shares outstanding at
end of period. . . .
MONEY MARKET SUBACCOUNT
Accumulation share
value:
Beginning of period $10.000
End of period . . . $10.282
Number of Accumulation 382,238
Shares outstanding at
end of period. . . .
LARGE CAP GROWTH SUBACCOUN
Accumulation share
value:
Beginning of period $10.000
End of period . . . $10.091
Number of Accumulation 75,602
Shares outstanding at
end of period. . . .
MANAGED SUBACCOUNT
Accumulation share
value
Beginning of period $10.000
End of period . . . $10.072
Number of Accumulation 1,779,949
Shares outstanding at
end of period. . . .
REAL ESTATE EQUITY SUBACCO
Accumulation share
value
Beginning of period $10.000
End of period . . . $8.474
Number of Accumulation 8,341
Shares outstanding at
end of period. . . .
INTERNATIONAL EQUITIES SUB
Accumulation share
value
Beginning of period $10.000
End of period . . . $08.825
Number of Accumulation 92,726
Shares outstanding at
end of period. . . .
</TABLE>
<TABLE>
<CAPTION>
Period from
Year ended Year ended Year ended September 23, 1995
December 31, December 31, December 31, to December 31,
1997 1996 1995 1995
------------ ------------ ------------ ------------------
<S> <C> <C> <C> <C>
SHORT-TERM U.S. GOVERNMENT SUBACCOUNT
Accumulation share
value
Beginning of period $11.136 $10.899 $9.913 $10.000
End of period . . . $11.685 $11.136 $10.899 $9.913
Number of Accumulation
Shares outstanding at
end of period . . . 536,972 585,831 533,029 58,767
SPECIAL OPPORTUNITIES
SUBACCOUNT
Accumulation share
value
Beginning of period $17.080 $13.289 $9.912 $10.000
End of period . . . $17.435 $17.080 $13.289 $9.912
Number of Accumulation
Shares outstanding at
end of period . . . 2,114,374 2,635,223 1,038,790 155,604
</TABLE>
6
<PAGE>
<TABLE>
<CAPTION>
Period from
Year ended May 1, 1996 to
December 31, 1997 December 31, 1996
----------------- -------------------
<S> <C> <C>
EQUITY INDEX SUBACCOUNT
Accumulation Share Value
Beginning of Period . . . . . . . . $11.317 $10.000
End of Period . . . . . . . . . . . $14.819 $11.317
Number of Accumulation Shares
outstanding at end of period . . . . 1,094,405 391,237
LARGE CAP VALUE
Accumulation Share Value
Beginning of Period . . . . . . . . $11.284 $10.000
End of Period . . . . . . . . . . . $14.306 $11.284
Number of Accumulation Shares
outstanding at end of period . . . . 575,770 254,841
MID CAP GROWTH SUBACCOUNT
Accumulation Share Value
Beginning of Period . . . . . . . . $10.173 $10.000
End of Period . . . . . . . . . . . $11.707 $10.173
Number of Accumulation Shares
outstanding at end of period . . . . 435,918 266,458
MID CAP VALUE SUBACCOUNT
Accumulation Share Value
Beginning of Period . . . . . . . . $11.510 $10.000
End of Period . . . . . . . . . . . $15.012 $11.510
Number of Accumulation Shares
outstanding at end of period . . . . 646,027 93,392
SMALL CAP GROWTH SUBACCOUNT
Accumulation Share Value
Beginning of Period . . . . . . . . $ 9.857 $10.000
End of Period . . . . . . . . . . . $11.107 $ 9.857
Number of Accumulation Shares
outstanding at end of period . . . . 889,006 429,750
SMALL CAP VALUE SUBACCOUNT
Accumulation Share Value
Beginning of Period . . . . . . . . $10.931 $10.000
End of Period . . . . . . . . . . . $13.543 $10.931
Number of Accumulation Shares
outstanding at end of period . . . . 516,651 160,674
STRATEGIC BOND SUBACCOUNT
Accumulation Share Value
Beginning of Period . . . . . . . . $10.572 $10.000
End of Period . . . . . . . . . . . $11.369 $10.572
Number of Accumulation Shares
outstanding at end of period . . . . 252,183 239,685
INTERNATIONAL OPPORTUNITIES SUBACCOUNT
Accumulation Share Value
Beginning of Period . . . . . . . . $10.573 $10.000
End of Period . . . . . . . . . . . $10.628 $10.573
Number of Accumulation Shares
outstanding at end of period . . . . 313.120 218,939
INTERNATIONAL BALANCED SUBACCOUNT
Accumulation Share Value
Beginning of Period . . . . . . . . $10.573 $10.000
End of Period . . . . . . . . . . . $10.701 $10.573
Number of Accumulation Shares
outstanding at end of period . . . . 163,070 72,243
</TABLE>
7
<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, contract
lapse. The value of an Accumulation Share for each subaccount will reflect the
investment performance of that subaccount and will vary in dollar amount.
ACCUMULATED VALUE OF A CONTRACT: total value of the Accumulation Shares in that
Contract plus the Fixed Account Value of that Contract, if any.
ANNULTANT: 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.
CONTRACT YEAR: a period between anniversaries of the date of issue of the
Contract.
FIXED ACCOUNT: an account that is part of John Hancock's general account in
which all or part of the Accumulated Value may be held for accumulation at fixed
rates of interest (not less than an effective annual rate of 3.0%) declared by
John Hancock periodically at its discretion. OWNER: the person(s) or entity,
usually the person(s) or entity to whom the Contract is issued, who has the sole
right to exercise all rights and privileges under the Contract except as
otherwise provided in the Contract.
DATE OF MATURITY OF A CONTRACT: the date elected by the Owner as of which
annuity payments will commence. The election is subject to certain conditions
described in "The Annuity Period".
MINIMUM DEATH BENEFIT: the undertaking of John Hancock under a Contract to make
a payment on the death of the Annuitant at any time before the Contract
anniversary nearest the Annuitant's 75th birthday equal to the greater of the
aggregate amount of the purchase payments made under the Contract (reduced to
reflect partial withdrawals) or the Accumulated Value of 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 applicable
taxes, if any, based on the amount of the purchase payment.
SERVICING OFFICE: P.O. Box 111, Boston, Massachusetts 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, less any
Withdrawal Charge and contract fee.
8
<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
Internal Revenue Code of 1986 ("Code") and for purchase for persons
participating 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 qualified 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
participating 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 John Hancock by calling 800-REAL LIFE (732-5543) or by writing John
Hancock Servicing Office, Post Office Box 111, Boston, MA 02117.
THE CONTRACTS
The Contracts offered are deferred annuity Contracts under which purchase
payments may be made in a lump sum or at intervals until the maturity date
selected by the Owner, at which time annuity payments by John Hancock will
begin, if so elected by the Owner.
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".)
John Hancock also issues variable annuity contracts that charge a front-end
sales load and other forms of variable annuity contracts that an annual deferred
sales load. These contracts are offered by means of other prospectuses, but use
the same underlying Fund.
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 twenty-three subaccounts within the Account: Managed, Growth
& Income, Equity Index, Large Cap Value, Large Cap Growth, Mid Cap Value, Mid
Cap Growth, Diversified Mid Cap Growth, Real Estate Equity, Small/Mid Cap CORE,
Small Cap Value, Small Cap Growth, Global Equity, International Balanced,
International Equity Index, International Opportunities, Emerging Markets
Equity, Short-Term Bond, Bond Index, Sovereign Bond, Strategic Bond, High Yield
Bond, and Money Market. The assets of each subaccount are invested in the
corresponding Portfolio of the Fund.
Each Portfolio has a different investment objective. John Hancock receives a
fee from each Portfolio for providing investment management services. In turn,
John Hancock pays a fee to the following sub-investment managers for providing
sub-investment services to the various Portfolios:
<TABLE>
<CAPTION>
NAME OF FUND NAME OF SUB-INVESTMENT MANAGER
------------ ------------------------------
<S> <C>
Managed Independence Investment Associates, Inc.
Growth & Income. . . . . . . . . . . . . . . . . . Independence Investment Associates, Inc.
Equity Index State Street Bank & Trust, N.A.
Large Cap Value. . . . . . . . . . . . . . . . . . T. Rowe Price Associates, Inc.
Large Cap Growth. . . . . . . . . . . . . . . . . . Independence Investment Associates, Inc.
Mid Cap Value Neuberger & Berman Management, Inc.
Mid Cap Growth Janus Capital Corporation
Diversified Mid Cap Growth. . . . . . . . . . . . . John Hancock Advisers, Inc.
Real Estate Equity Independence Investment Associates, Inc.
Small/Mid Cap CORE Goldman Sachs Asset Management
Small Cap Value INVESCO Management & Research, Inc.
Small Cap Growth. . . . . . . . . . . . . . . . . . John Hancock Advisers, Inc.
Global Equity. . . . . . . . . . . . . . . . . . . Scudder Kemper Investments
International Balanced Brinson Partners, Inc.
International Equity Index Independence Investment International Associates, Inc.
International Opportunities Rowe Price-Fleming International, Inc.
Emerging Markets Equity. . . . . . . . . . . . . . Montgomery Asset Management, LLC
Short-Term Bond Independence Investment Associates, Inc.
Bond Index Mellon Bond Associates
Sovereign Bond. . . . . . . . . . . . . . . . . . . John Hancock Advisers, Inc.
Strategic Bond. . . . . . . . . . . . . . . . . . . J.P. Morgan Investment Management, Inc.
High Yield Bond Wellington Management Company, LLP
</TABLE>
9
<PAGE>
The fee paid by John Hancock to the sub-investment managers for these services
is borne by John Hancock and is not charged to the Fund, the Account, or Owners.
For a full description of the Fund, see the prospectus for the Fund following
at the end of this prospectus.
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.
INVESTMENT OF PURCHASE PAYMENTS
Purchase payments received under Contracts, after deduction of premium or
similar taxes, if applicable, are allocated by John Hancock to one or more of
the variable subaccounts and the Fixed Account, as directed by the Owner.
Purchase payments should be mailed to John Hancock Servicing Center, Post
Office Box 111, Boston, MA 02117.
MINIMUM AND MAXIMUM PURCHASE PAYMENTS
The initial purchase payment under a Contract must be at least $1,000;
thereafter any periodic payment must be at least $50.
The maximum amount that can be deposited in or transferred to any one of the
subaccounts per Contract Year is $500,000. The maximum amount that can be
deposited in or transferred to the Fixed Account per Contract Year is $100,000,
exclusive of the initial deposit which can be as large as $500,000. Deposits in
or transfers to the Fixed Account can only be made during the first 10 Contract
Years. These limits may be waived by John Hancock.
10
<PAGE>
ACCOUNT FEES
The charges made directly to the Account aggregate 1.40% per annum of the
average daily net asset value of the Account and are made up of daily charges
aggregating .90% annually for mortality and expense risks assumed (0.45% on an
annual basis for mortality risks and 0.45% on an annual basis for expense risks)
and 0.50% for certain administrative services. (See "Charges Under Variable
Annuity Contracts--Charges for Administrative Services.")
FUND CHARGES
Investment management fees at annual rates ranging from 0.15% to 1.30% of
average daily net assets are paid by the Portfolios to John Hancock. The
Portfolios also incur charges for other expenses incurred in their operations.
Investment management fees and other expenses are reflected in the net asset
value of each Portfolio's shares. For a description of these charges and
expenses, see the prospectus for the Fund. (See also "Synopsis of Expense
Information" in this prospectus.)
SALES DEDUCTIONS UPON WITHDRAWALS
A Withdrawal Charge (a contingent deferred sales charge), if applicable, is
deducted from amounts withdrawn prior to maturity. The aggregate Withdrawal
Charges assessed against a Contract will never exceed 8% of the total purchase
payments received. (See "Charges Under Variable Annuity Contracts--Withdrawal
Charge.")
OTHER CHARGES OR DEDUCTIONS
Deductions are made for any applicable taxes based on the amount of a purchase
payment; currently such taxes in certain states are no more than 3% of each
purchase payment. (See "Charges Under Variable Annuity Contracts--Premium or
Similar Taxes.")
Charges are made for any taxes or interest expense attributable to the
Account. An annual contract fee of $30 is deducted on Contracts having an
Accumulated Value of less than $10,000. John Hancock reserves the right to
increase the contract fee up to $50, subject to state regulations. (See "Charges
Under Variable Annuity Contracts--Charges for Administrative Services.")
WITHDRAWAL PRIOR TO MATURITY
At any time before annuity payments begin, if the Annuitant is living, a
Contract may be surrendered in full for its Surrender 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 Withdrawals.") A 10% penalty
tax may be applicable to the taxable portion (earnings) withdrawn before the
Owner attains age59 1/2.
GUARANTEED MINIMUM DEATH BENEFIT
Contracts include a death benefit. The amount depends upon whether the
Annuitant dies before or after the Contract anniversary nearest his or her 75th
birthday. If before that date, the death benefit is the greater of (a) the
Accumulated Value of 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 Accumulated Value of the Contract.
However, if the Contract is used to fund an annuity purchase plan adopted
under 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 may be payable 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. (See "The Accumulation Period--Death
Benefit Before Date of Maturity.")
11
<PAGE>
10 DAY FREE-LOOK PROVISION
An Owner may surrender the Contract for any reason within 10 days after its
receipt and receive in cash the Accumulated Value of the Contract, plus any
deductions previously made from purchase payments for premium or similar taxes.
Owners surrendering Contracts issued in Hawaii, Idaho, Missouri, Nebraska, North
Carolina, Oklahoma, Oregon, South Carolina, Washington, West Virginia, and Utah
will receive gross purchase payments made. If the Contract is issued in
California to an Owner 60 years of age or older, the Owner may surrender the
Contract within 30 days after its receipt, and, in that event, the gross
purchase payments made will be refunded to the Owner. If a Contract is issued in
North Dakota, the Owner may surrender the Contract within 20 days after its
receipt and, in that event, the gross purchase payments made will be refunded.
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
investment gain or loss rather than the insurance company. While under a fixed
annuity the insurance company guarantees a specified interest rate and specified
monthly annuity payments, the amounts of annuity payments under a variable
annuity are not guaranteed and will vary with the investment performance of the
portfolio securities in the underlying Fund.
Based upon the Owner's investment objective, the Owner directs the allocation
of purchase payments and Accumulated Values among the subaccounts on a
continuing basis. 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 under Massachusetts law on
January 14, 1985. The Account, although an integral part of John Hancock, meets
the definition of a "separate account" under the Federal securities laws and is
registered as a unit investment trust under the Investment 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 Growth & Income
(formerly, Stock), Sovereign Bond (formerly, 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
under 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
liabilities under the Contract with respect to the Account shall not be
chargeable with liabilities arising out of any other business John Hancock may
conduct. 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
12
<PAGE>
general account. Before making 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 twenty-three subaccounts in the Account: Managed, Growth &
Income, Equity Index, Large Cap Value, Large Cap Growth, Mid Cap Value, Mid Cap
Growth, Diversified Mid Cap Growth, Real Estate Equity, Small/Mid Cap CORE,
Small Cap Value, Small Cap Growth, Global Equity, International Balanced,
International Equity Index, International Opportunities, Emerging Markets
Equity, Short-Term Bond, Bond Index, Sovereign Bond, Strategic Bond, High Yield
Bond, and Money Market. The assets in each are invested in a separate class of
shares issued by the Fund, but the assets of one subaccount are not necessarily
legally insulated from liabilities associated with another subaccount. New
subaccounts may be added and made available to Owners.
There is a limitation on the number of subaccounts that may be utilized over
the lifetime of a Contract. At the current time that limit is eighteen.
However, it is John Hancock's intention to raise that limit later in 1998 to
ninety-nine subaccounts. For purposes of this limit, each deposit or transfer of
funds into a subaccount will count as one "use" of a subaccount even if the
subaccount has been used before.
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 other unit investment trust separate accounts established by John
Hancock and John Hancock Variable Life Insurance Company for variable life
insurance policies and variable annuity contracts. A full description of the
Fund, its investment objectives, policies and restrictions, its charges and
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.
The following is a brief summary of the investment objectives of each
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 bonds and other
fixed income securities and in money market instruments.
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
securities convertible into or with rights to purchase common stocks) of
companies believed to offer growth potential over both the intermediate and the
long term.
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.
13
<PAGE>
Large Cap Value Portfolio
The investment objective of this Portfolio is to provide substantial dividend
income, as well as long-term capital appreciation, through investments in the
common stocks of established companies believed to offer favorable prospects for
increasing dividends and capital appreciation.
Large Cap Growth Portfolio
The investment objective of this Portfolio is to achieve above-average capital
appreciation through the ownership of common stocks (and securities convertible
into with rights to purchase common stocks) of companies believed to offer
above-average capital appreciation opportunities. Current income is not an
objective of the Portfolio.
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
capitalization companies believed to sell at a discount to their intrinsic
value.
Mid Cap Growth Portfolio
The investment objective of this Portfolio is to provide long-term growth of
capital through a non-diversified portfolio investing primarily in common stocks
of medium capitalization companies.
Diversified Mid 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
medium capitalization growth companies.
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.
Small/Mid Cap CORE Portfolio
The investment objective of this Portfolio is to achieve long-term growth of
capital through a broadly diversified portfolio of equity securities of U.S.
issuers which are included in the Russell 2500 Index at the time of investment.
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.
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.
Global Equity Portfolio
The investment objective of this Portfolio is to achieve long-term growth of
capital through a diversified portfolio of marketable securities, primarily
equity securities, of both U.S. and foreign issuers.
14
<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
investment in non-U.S. equity and fixed income securities.
International Equity Index Portfolio
The investment objective of this Portfolio is to provide investment results
that correspond to the total return of the major developed international
(non-U.S.) equity markets, as represented by the MSCI AEFE GDP Index.
International Opportunities Portfolio
The investment objective of this Portfolio is to provide capital appreciation
through investments in common stocks of primarily well-established, non-United
States companies.
Emerging Markets Equity Portfolio
The investment objective of this Portfolio is to achieve capital appreciation
by investing primarily in equity securities of companies in countries having
economies and markets generally considered by the World Bank or the United
Nations to be emerging or developing.
Short-Term Bond Portfolio
The investment objective of this Portfolio is to provide a high level of
current income consistent with a low degree of share price fluctuation through
investment primarily in a diversified portfolio of short- and intermediate-term
investment-grade debt obligations.
Bond Index Portfolio
The investment objective of this Portfolio is to provide investment results
that correspond to the total return and risk characteristics of the U.S.
investment grade fixed income market, as represented by a Lehman Brothers bond
index that tracks the performance of investment grade debt securities.
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.
Strategic Bond Portfolio
The investment objective of this Portfolio is to provide total return
consistent with moderate risk of capital and maintenance of liquidity, through a
portfolio of domestic and international fixed income securities.
High Yield Bond Portfolio
The investment objective of this Portfolio is to provide high current income
and capital appreciation with capital preservation through investing primarily
in high yield (below investment grade) debt securities.
15
<PAGE>
Money Market Portfolio
The investment objective of this Portfolio is to provide maximum current income
consistent with capital preservation and liquidity, through investment in high
quality money market instruments.
John Hancock acts as the investment manager for the Fund. Independence
Investment Associates, Inc. ("IIA"), an indirectly-owned subsidiary of John
Hancock with its principal place of business at 53 State Street, Boston, MA
02109, provides sub-investment advice with respect to the Managed, Growth &
Income, Large Cap Growth, Real Estate Equity, and Short-Term Bond Portfolios.
Independence International Associates, Inc., a subsidiary of IIA located at the
same address as IIA, is a sub-investment adviser to the International Equity
Index Portfolio.
John Hancock Advisers, Inc., another directly-owned subsidiary of John
Hancock, located at 101 Huntington Avenue, Boston, MA 02199 provides
sub-investment advice with respect to the Sovereign Bond, Diversified Mid Cap
Growth, Small Cap Growth 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
located at 100 East Pratt St., Baltimore, MD 21202, provides sub-investment
advice 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
Corporation, with its principal place of business at 100 Filmore Street, Denver,
CO 80206, is the sub-investment adviser to the Mid Cap Growth Portfolio.
Neuberger & Berman, LLC of 605 Third Avenue, New York, NY 10158, provides
sub-investment advice to the Mid Cap Value Portfolio. J.P. Morgan Investment
Management Inc., located at 522 Fifth Avenue, New York, NY 10036, provides
investment advice with respect to the Strategic Bond Portfolio and Brinson
Partners, Inc., of 209 South LaSalle Street, Chicago, IL 60604, does likewise
with respect to the International Balanced Portfolio.
Goldman Sachs & Company, located at One New York Plaza, New York, New York
10004, is sub-investment adviser to the Small/Mid Cap CORE Portfolio. Scudder
Kemper Investments, Inc., located at 345 Park Avenue, New York, New York 10154,
is the sub-investment adviser to the Global Equity Portfolio. Montgomery Asset
Management, LLC, located at 101 California Street, San Francisco, California
94111, is the sub-investment adviser to the Emerging Markets Equity Portfolio.
Mellon Bond Associates, located at One Mellon Bank Center, Suite 4135,
Pittsburgh, Pennsylvania 15258, is the sub-investment adviser to the Bond Index
Portfolio. Wellington Management Company, LLC, located at 75 State Street,
Boston, Massachusetts 02109, is the sub-investment adviser to the High Yield
Bond 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.
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CHARGES UNDER VARIABLE ANNUITY CONTRACTS
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. John Hancock also provides a minimum death benefit
and waives Withdrawal Charges upon the death of the Annuitant.
In return for the assumption of these mortality and expense risks, John
Hancock charges the Account daily 0.001233% (0.45% on an annual basis) of the
current value of Account net assets for mortality risks and 0.001233% (0.45% 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 Accumulation Share values and
the values and interests determined thereby, as are required for each
subaccount. John Hancock makes disbursements from Account funds to pay
obligations chargeable 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 0.001370% (0.50% on an annual basis) of the current value of
its net assets and assesses, during the Accumulation Period, a contract fee of
$30 on Contracts having an Accumulated Value of less than $10,000. The contract
fee will be deducted at the beginning of each Contract Year after the first and
at a full surrender during a Contract Year. John Hancock reserves the right to
increase this fee up to a maximum of $50 subject to state regulations. The
contract fee will be deducted from each subaccount and the Fixed Account in the
same proportion that the Accumulated Value of the Contract in that subaccount or
Fixed Account bears to the full Accumulated Value of the Contract. However, the
portion of the contract fee allocated to the Fixed Account will not be deducted
from the Fixed Account to the extent it would result in an accumulation of
purchase payments or other amounts allocated to the Fixed Account at less than
the guaranteed minimum rate of 3 percent. In such case, the unpaid portion of
the contract fee allocable to the Fixed Account will be deducted proportionately
from the subaccounts, if any.
The administrative services charges were not designed, nor are they expected,
to exceed John Hancock's cost in providing these services.
WITHDRAWAL CHARGE
A Withdrawal Charge, a contingent deferred sales charge, may be assessed
whenever a Contract is surrendered for cash prior to maturity ("total
withdrawal" or "surrender") or whenever an amount less than the total
Accumulated Value of the Contract is withdrawn from a Contract prior to maturity
("partial withdrawal"). This charge is used to help defray expenses relating to
the sales of the Contracts, including commissions paid to selling agents and
other distribution costs.
An Owner may withdraw in any one Contract Year up to 10% of the Accumulated
Value of the Contract as of the beginning of the Contract Year without the
assessment of any charges. If in any Contract Year the Owner withdraws an
aggregate amount in excess of 10% of the Accumulated Value of the Contract as of
the beginning of the Contract Year, the amount withdrawn in excess of 10%
subjects the Contract to a
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Withdrawal Charge to the extent that the excess is attributable to purchase
payments made within seven years of the date of withdrawal or surrender.
Withdrawal Charges are based upon the purchase payments made to date and are
assessed as follows:
<TABLE>
<CAPTION>
Years from date of
deposit to date of Withdrawal
withdrawal Charge
------------------ ----------
<S> <C>
7 or more . . . . . . . . . . . . . . . . . . 0%
5 but less than 7 . . . . . . . . . . . . . . 6%
3 but less than 5 . . . . . . . . . . . . . . 7%
less than 3 . . . . . . . . . . . . . . . . . 8%
</TABLE>
In no event will the aggregate Withdrawal Charges against a Contract ever
exceed 8% of the total purchase payments received.
Whenever a Withdrawal Charge is imposed, it is deducted from each of the
subaccounts and the Fixed Account in the proportion that the Accumulated Value
from each bears to the total Accumulated Value. All amounts withdrawn plus all
contract fees and Withdrawal Charges are assumed to be deducted first from the
earliest purchase payment, and then from the next earliest purchase payment, and
so forth until all payments have been exhausted, satisfying the first in--first
out ("FIFO") method of accounting. Further withdrawals will be deducted from
earnings, to which no Withdrawal Charge will apply. For a discussion of the
taxation of partial withdrawals, see "Federal Income Taxes--Partial Withdrawals
Before Annuity Starting Date."
To the extent that any Withdrawal Charge is applicable when a total or partial
withdrawal is requested, the Accumulated Value of the Contract will be reduced
by the amount of the Withdrawal Charge in addition to the actual dollar amount
sent to the recipient. The Withdrawal Charge is calculated based upon the full
amount by which the Accumulated Value is reduced, subject to the conditions
noted above.
For example, assume a Contract is issued on January 1, 1991, that the Owner
makes purchase payments of $5,000 on January 1, 1991, $1,000 on January 1, 1992,
and $1,000 on January 1, 1993. Assume that the Accumulated Value of the Contract
on January 1, 1994, is $9,000 and that a partial withdrawal is made by the Owner
in the amount of $6,000 (no tax withholding) on June 1, 1994. The Withdrawal
Charge in this case, assuming no prior partial withdrawals, would equal $399.89.
In calculating the Withdrawal Charge under the FIFO method, the January 1,
1991, $5,000 purchase payment is first reduced by the three $30 Contract Fees on
January 1, 1992, 1993, and 1994, i.e., to $4,910. Ten percent of the Accumulated
Value on January 1, 1994, i.e., $900 is then deducted.
The remaining balance of the $5,000 January 1, 1991, purchase payment, i.e.,
$4,010, is then withdrawn in its entirety and is assessed a Withdrawal Charge of
$280.70 (.07 x $4,010). All of the $1,000 January 1, 1992, purchase payment is
to be withdrawn and is assessed a Withdrawal Charge of $80 (.08 x $1,000). To
make up the remainder of the $6,000 paid to the Owner, $489.89 is withdrawn from
the January 1, 1993, purchase payment. This is assessed a Withdrawal Charge of
$39.19 (.08 x $489.89).
Therefore, the total amount paid to the Owner is $6,000 and the total
Withdrawal Charge is $399.89.
Withdrawals made prior to the Owner attaining age59 1/2 may be subject to
certain adverse tax consequences. An IRS excise tax of 10% is generally
applicable to the taxable portion (earnings) of a premature withdrawal from the
Contract. (See "Federal Income Taxes--Penalty for Premature Withdrawals.")
To the extent that the proceeds from the Withdrawal Charges may be
insufficient to cover distribution costs, John Hancock may 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.
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<PAGE>
PREMIUM OR SIMILAR TAXES
Several states and local governments impose a premium or similar tax on
annuities. Currently, such taxes range up to 3% of Accumulated Value applied to
an Annuity Option. Ordinarily, any state-imposed premium or similar tax will be
deducted from the Accumulated Value of the Contract at the time of
annuitization. Where required by local law, these taxes will be deducted from
premiums.
The charges described above (exclusive of taxes) and the Contracts' annuity
purchase rates will apply for the duration of each Contract and, except as noted
above, will not be increased by John Hancock. However, these charges do not
include all of the expenses which may be incurred 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, capital 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 briefly under "Summary Information."
THE CONTRACTS
The descriptions herein are 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 Contracts. Tax-qualified plans are subject to several requirements and
limitations which may affect the terms of any particular Contract or the
advisability 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
application is complete and the Contract applied for is suitable, the Contract
will be issued and thereafter delivered by the sales representative. If the
completed application is received in proper order, the initial purchase payment
accompanying the completed 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 complete the issuance of the Contract.
The initial purchase payment must be at least $1,000 and subsequent scheduled
payments must be at least $50 in amount, except where otherwise permitted by
John Hancock. Maximum transfers and payments to any one subaccount in a single
Contract Year are $500,000. 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, the Contract will nevertheless
remain in force. 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 the Fixed Account or allocated among the subaccounts and the
Fixed Account 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.
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<PAGE>
Each net purchase payment allocated to a subaccount purchases Accumulation
Shares of that subaccount at the value of such shares next determined after the
receipt of such net purchase payment at the Servicing Office of John Hancock.
See "Variable Account Valuation Procedures." The number of Accumulation Shares
of a subaccount purchased with a specific purchase payment will be determined 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
Accumulation 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
Accumulation Shares in a subaccount which have been credited to a Contract can
be computed by multiplying the number of such Accumulation Shares by the
appropriate Accumulation Share Value in effect for such date.
TRANSFERS TO AND FROM SUBACCOUNTS
Not more often than twelve times in each Contract Year, but not on or within
30 days prior to the date of maturity, 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 receipt of notice
satisfactory to John Hancock at its Servicing Office. (For Fixed Account
transfers, see "Appendix--Fixed Account and Fixed Account Value.")
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
617-886-3048. 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,
expense 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
include 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 Contract may be
surrendered for a cash payment representing all or part of the total Accumulated
Value of 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, that portion of the Accumulated Value of the Contract
redeemed in a partial withdrawal will be redeemed in each subaccount and in the
Fixed Account in the same proportion as the Accumulated Value of the Contract is
then allocated among the subaccounts and the Fixed Account. The redemption value
may be more or less than the net purchase payments applied under the Contract to
purchase the Accumulation Shares, depending upon the market value of the Fund
shares held in the subaccount at the time, minus any applicable Withdrawal
Charge and any unpaid contract fees. The resulting cash payment will be made in
a single sum, ordinarily within
20
<PAGE>
seven days after receipt of such notice. As described under "Miscellaneous
Provisions--Deferment of Payment," however, redemption and payment may be
delayed under certain circumstances. 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 $250 or if the
total Accumulated Value of a Contract remaining after the withdrawal would be
less than $1000. A partial withdrawal is not a loan and, once made, cannot be
repaid.
In the event the Accumulated Value of the Contract becomes zero, the Contract
will terminate.
DEATH BENEFIT BEFORE DATE OF MATURITY
If the Annuitant dies before the date of maturity or the surrender or
termination of a Contract, a death benefit is payable. If the death occurs at
any time before the Contract anniversary nearest the Annuitant's 75th birthday,
the death benefit will be the greater of (a) the Accumulated Value of 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 by all prior partial withdrawals (including
Withdrawal Charges), if any. If the death occurs on or subsequent to the
Contract anniversary nearest the Annuitant's 75th birthday, the death benefit
will be equal to the Accumulated Value of the Contract next determined following
receipt at the Servicing Office of John Hancock of due proof of death. In the
event that the Owner is different from the Annuitant, the distribution rules
required by the Code will apply.
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 optional 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 a single sum in any event
if the death benefit is less than $5000. (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
Contract furnished by John Hancock.
The Code distribution requirements are expected to present no practical
problems when the Annuitant and Owner are the same person. Nevertheless, all
Owners for whom these endorsements are required should be aware that the
following 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
annuity 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 purchase of a
life annuity on the beneficiary with payments commencing within 1 year of the
Owner's death. The Code imposes comparable distribution requirements on
tax-qualified plans.
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<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
During the annuity period, the total value of any one Contract must be
allocated among no more than four "accounts" (i.e., the subaccounts and/or the
Fixed Account). Amounts allocated to the Fixed Account will provide annuity
payments on a fixed basis; amounts allocated to the subaccounts will provide
annuity payments on a variable basis. If more than four accounts are being used
on the maturity date, John Hancock will divide the total Accumulated Value of
the Contract proportionately among the four accounts with the largest
Accumulated Values. Only variable annuity payments are described in this
prospectus.
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 Contract 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 payments remaining in the ten-year period will be
made to the contingent payee, subject to the terms of any supplementary
agreement issued. A different form of annuity may be elected by the Owner, 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
$50, John Hancock may make a single sum payment equal to the total Surrender
Value of the Contract on the date the initial payment 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 Contract, except those Contracts issued in the State of Washington,
specifies a provisional date of maturity at the time of its issuance, which date
may be no earlier than six months after the date the first payment is applied to
the Contract. The Owner may subsequently elect a different date of maturity,
however. Unless otherwise permitted by John Hancock, such subsequently elected
date may be no earlier than six months after the date the first payment is
applied to the Contract, nor later than the maximum maturity age specified in
the Contract. The election is made by written notice received by John Hancock at
its Servicing Office before 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 maturity is not elected by the Owner, the provisional date
of maturity shall be the date of maturity of the Contract. In Washington, at the
time of issuance, each Contract specifies a date of maturity which cannot be
changed by the Owner. Particular care should be taken in electing the date of
maturity of Contracts issued under tax-qualified plans. (See "Federal Income
Taxes.")
VARIABLE MONTHLY ANNUITY PAYMENTS
Variable monthly annuity payments under a 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. (See "Calculation of Annuity Units.")
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
investment return (after deducting all charges) of a subaccount during the
period 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.
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<PAGE>
On the other hand, if the actual net investment return is less than the assumed
investment rate, the latter monthly payment will be smaller than the former.
ASSUMED INVESTMENT RATE
The assumed investment rate for all Contracts will be3 1/2% per year except as
provided below. The assumed investment rate is significant in determining the
amount of the initial variable monthly annuity payment and the amount by which
subsequent 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 6%, 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
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 Accumulation Share Value as of ten
calendar days prior to the date the initial variable 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
age and possibly sex 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 initial 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.
ANNUITY OPTIONS
The Owner may elect an Annuity Option during the lifetime of the Annuitant by
written notice received by John Hancock at its Home Office prior to the date of
maturity of the Contract. If no option is selected, Option A 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 Home Office prior to the date the proceeds become payable. No
option may be elected if the Accumulated Value of the Contract to be applied is
less than $5,000. Two basic Annuity Options are available.
OPTION A: 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 period, whichever is
applicable, payments will continue for the remainder of the guaranteed period to
a contingent payee, subject to the terms of any supplementary agreement issued.
OPTION B: 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.
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<PAGE>
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 individual
retirement annuity plans provide that the period of years guaranteed under
Option A 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," below) dies on or
after annuity payments have begun, the remaining benefit payments must be
distributed at least as rapidly as under the method of making annuity payments
then in effect.
VARIABLE ACCOUNT VALUATION PROCEDURES
VALUATION DATE--A Valuation Date is any date on which the New York Stock
Exchange 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 Valuation
Date.
ACCUMULATION SHARE VALUE--The Accumulation Share Value is calculated separately
for each subaccount. The value of one Accumulation Share on any Valuation 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 of3 1/2% per year is .99990575. The
assumed investment rate is neutralized by applying the adjustment factor so that
the variable annuity payments will increase only if the actual net investment
rate of the subaccount exceeds3 1/2% per year and will decrease only if it is
less than3 1/2% per year.
NET INVESTMENT FACTOR--The Net Investment Factor for each subaccount for any
Valuation Period is equal to 1 plus the applicable net investment rate for such
Valuation Period. A Net Investment Factor may be more or less than 1. 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 0.003836% of the value of each subaccount at
the beginning of the Valuation Period, the result then being divided by (c) the
value of the total net assets of each subaccount at the beginning of the
Valuation Period.
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, provided
strict equity is preserved and the change does not otherwise affect the
benefits, provisions or investment return of the Contract.
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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,
unless the Owner is the trustee of a trust described in Section 401(a) of the
Code. Because an assignment, pledge or other 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
surrender 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 applicable,
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 registration may
be terminated only upon majority vote of Owners, and certain other changes may,
under applicable laws and regulations, require notice to or approval 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
privileges 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
conditions. While the Annuitant is alive, the Owner may be changed by written
notice. 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.
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
Contracts or the Account. No specific charge is currently made against the
Account for any such taxes. John Hancock pays such taxes out of its general
account 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
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taxes because of the level of such taxes. If the level of current tax is
increased, 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 Owner 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 Contract Value until
payments are made to the Owner or other payee under such Contract. However, a
Contract owned other than by a natural person is not generally an annuity for
tax purposes and any increase in 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 Owner or other payee as ordinary income to the
extent that such payment exceeds any allocable portion of the Owner's
"investment in the contract" (as defined in the Code). In general, an Owner'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 refund 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 Owner or other payee to the extent it
exceeds the Owner'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 payment
(the partial withdrawal) may be taxed to the Owner 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.
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 Owner or other payee after the Owner attains age59
1/2, or on account of death or disability. If the withdrawal is made in
substantially 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.
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Diversification Requirements
Each of the Portfolios of the Fund intends to qualify as a regulated
investment company under Subchapter M of the Code and will have to meet the
investment 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
underlying Portfolios, causing the Owner to be taxed currently on income
credited 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 distribution
will be reduced by the 20% mandatory income tax. Consult a qualified tax adviser
before taking such a distribution.
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 example, 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 contributed amount.
However, not more than $2,000 can be allocated to either person's account. If an
individual and his or her spouse is an active participant in an
employer-sponsored retirement plan, the individual is permitted to make a
deductible 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 Owner has attained the age of70 1/2 years nor is a deduction
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 Owner attains age70 1/2. The Owner may
incur adverse tax consequences if a distribution on surrender of the Contract or
by partial withdrawal is made prior to his attaining age59 1/2, except in the
event of death or total disability or certain other circumstance.
Contracts Purchased under Non-Deductible IRAs (Roth IRAs)
In general, for years after 1997, an individual may make purchase payments of
up to $2,000 each year for a new type of non-deductible IRA, known as a Roth
IRA. This $2,000 maximum on purchase payments applies to all of an individual's
annual IRA contributions (deductible and non-deductible), except for rollover
contributions. The maximum amount that can be made to a Roth IRA is phased out
for adjusted gross incomes between $95,000 and $110,000 in the case of single
taxpayers, between $150,000 and $160,000 in the case of married taxpayers filing
jointly, and between $0 and $15,000 in the case of married taxpayers filing
separately.
"Qualified distributions" for Roth IRAs are not includible in gross income or
subject to the penalty tax on early withdrawals. As defined in Section 408A of
the Code, a qualified distribution requires that the individual has held the
Roth IRA for at least five years and, in addition, that the distribution is made
after the individual reaches age 59-1/2, on the individual's death or
disability, or to a qualified first-time home
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purchaser, subject to a $10,000 lifetime maximum, for the individual, a spouse,
a child, a grandchild, or an ancestor. Non-qualified distributions are treated
as being made from contributions first. When all distributions exceed the amount
of contributions, the excess is includible in gross income. The age 70-1/2
pre-death distribution rules do not apply to Roth IRAs.
An individual may make a rollover contribution from a non-Roth IRA, unless the
individual has adjusted gross income over $100,000 or the individual is a
married taxpayer filing a separate return. The individual must pay tax on any
portion of the IRA being rolled over that represents income on a previously
deductible IRA contribution. For rollovers in 1998, the individual may pay that
tax ratably in 1998 and over the succeeding three years. There are no similar
limitations on rollovers from a Roth IRA to another Roth IRA.
Contracts Purchased under SIMPLE Retirement Accounts (SIMPLE IRAs)
In general, premium payments may be made to a SIMPLE IRA retirement plan
established 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 annuity
purchase arrangements described in Section 403(b) of the Code are not taxable
currently to the Owner, to the extent that the aggregate of such amounts does
not exceed the Owner's "exclusion allowance" (as defined in the Code). In
general, an Owner'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 Owner 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 Owner generally are limited to an aggregate of $9500 annually.
When payments under a Contract are made in the form of an annuity, such
payments are taxed to the Owner or other payee under the same rules that apply
to such payments under corporate plans (discussed below), 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 Owner in a Section 403(b) plan does not have any "investment in
the contract" and, thus, any distribution is fully taxed as ordinary income.
Distributions are prohibited before the Owner is age59 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.
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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
contract" is the aggregate amount of purchase payments made by him. If an
Annuitant 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 a 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 age59 1/2, or on account of his death, retirement 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 age70 1/2 even if the
Annuitant has not retired.
Contracts Purchased under H.R. 10 Plans (Self-Employed)
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 payments
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 employees.
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.
When payments under a Contract are made in the form of an annuity, such
payments are taxed to the Annuitant or other payee under the same rules that
apply to such payments under corporate plans (discussed earlier).
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 the "key employees" (as defined in
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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 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 by
tax-exempt organizations and tax-exempt employers are permitted to exclude a
portion of their compensation from gross income. Amounts so deferred (including
any income thereon) shall be includible in gross income only for the taxable
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 $7500 or33 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 service
(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.
When payment under a Contract is 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.
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
nature and the amount of the distribution. John Hancock will notify the Owner 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 order 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 consequences.
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
withdrawals 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
purchaser 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
HISTORICAL INVESTMENT EXPERIENCE OF THE SUBACCOUNTS AND DOES NOT INDICATE OR
REPRESENT 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
Portfolio 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
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the value of the investment at the end of the period, assuming the deduction of
any contingent deferred sales charge which would be payable 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)--contingent deferred sales charges, mortality and expense risk charges,
administrative service charge, and the annual contract fee (as reflected under
"Synopsis of Expense Information")--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 reinvested in
the subaccount and thus compounded in the course of a 52-week period. 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 annualization 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 effective yield reflect the recurring charges on the Account level including
the annual contract fee but do not reflect any premium tax charge or any
contingent deferred sales charge.
Performance information for the subaccounts may be compared to other variable
annuity separate accounts or other investment products surveyed by Lipper
Analytical Services, Inc., an independent service which monitors and ranks the
performance of investment companies, or tracked by other rating services,
companies, 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 supervision
by the Massachusetts Commissioner of Insurance. John Hancock is also subject to
the applicable insurance laws of all the other states and jurisdictions 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 instructions from
owners are not received will be represented by John Hancock at the meeting and
will
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be voted for and against each matter in the same proportion 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
Portfolio 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
instructions 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 auditors,
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 members
of the Board of Directors of John Hancock and 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 contract 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
eliminate 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 Contracts
belong from the Account to another separate account or subaccount by withdrawing
the same percentage of each investment in the Account with appropriate
adjustments to avoid odd lots and fractions.
LEGAL MATTERS
The legal validity of the Contracts has been passed upon by Ronald J. Bocage,
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 registered
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 Contracts,
pursuant to a distribution agreement it has entered into with John Hancock. The
Contracts may be purchased through either the Distributors' registered
representatives who are licensed to sell John Hancock life insurance policies
and annuity contracts or other registered broker-dealers whose representatives
are authorized by applicable law to sell variable annuity contracts. The
compensation paid to such broker-dealers is not expected to exceed 3% of
purchase payments.
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Distributors' registered representatives are compensated for sales of the
Contracts on a commission and service fee basis by Distributors, and John
Hancock 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 underwriting
and determines whether to accept or reject the application for a Contract.
IMPACT OF YEAR 2000 ISSUE
The advent of the Year 2000 presents a technological challenge to John
Hancock. Responding to this challenge, John Hancock has developed a plan to
modify or replace significant portions of its computer information and automated
technologies so that its systems will function properly with respect to dates in
the year 2000 and thereafter. The plan also involves coordination and testing
with business partners to ensure that external factors do not adversly impact
John Hancock's systems. John Hancock presently believes that with modifications
to existing systems. and conversions to new technologies, the year 2000 issue
will not pose significant operational problems for its computer systems.
However, if certain modifications and conversions are not made or are not
completely on time, the year 2000 issue could have an adverse impact on the
operations of John Hancock.
John Hancock expects the project to be substantially complete by early 1999.
This completion target was derived utilizing numerous assumptions of future
events, including availability of certain resources and other factors. However,
there can be no guarantee that this estimate will be achieved, that these steps
will be sufficient, or that actual results may not differ materially from those
anticipated.
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 prescribed 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
Additional Information and have been so included in reliance on their reports
given on their authority as experts in accounting and auditing.
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.
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TABLE OF CONTENTS OF STATEMENT OF ADDITIONAL INFORMATION
<TABLE>
<CAPTION>
Cross Reference to
Page Page in Prospectus
----- ------------------
<S> <C> <C>
Business History . . . . . . . . . . . . . . 1 12-13
Distribution Agreement and Other Services . . 1 14, 18, 30
Distribution Agreement . . . . . . . . . . 1 18, 30
Investment Advisory Agreement . . . . . . . 1 15
Custodian Agreement . . . . . . . . . . . . 2 --
Independent Auditors . . . . . . . . . . . 2 30
Calculation of Performance Data . . . . . . . 3 28-29
Calculation of Annuity Payments . . . . . . . 4 22-23
Financial Statements . . . . . . . . . . . . 5 31
</TABLE>
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Because of exemptive and exclusionary provisions, interests in John Hancock's
general account have not been registered under the Securities Act of 1933 and
the general account has not been registered as an investment company under the
1940 Act. Accordingly, neither the general account nor any interests therein are
subject to the provisions of these Acts, and John Hancock has been advised that
the staff of the Commission has not reviewed the disclosure in the Prospectus
relating to the Fixed Account. Disclosure regarding the Fixed Account may,
however, be subject to certain generally-applicable provisions of the Federal
securities laws relating to accuracy and completeness of statements made in
prospectuses.
APPENDIX--THE FIXED ACCOUNT AND FIXED ACCOUNT VALUE
INVESTMENTS IN THE FIXED ACCOUNT
Net purchase payments will be allocated to the Fixed Account in accordance
with the selection made by the Owner in the application. The Owner may change
such selection by notice satisfactory to John Hancock at its Servicing Office.
Any selection must specify what percentage of the purchase payment is to be
allocated to the Fixed Account. The percentage must be a whole number.
The Value in the Fixed Account, at any time prior to annuitization, is equal
to:
(a) net purchase payments allocated to the Fixed Account; plus
(b) Variable Account Value (amounts held in the subaccounts of the Variable
Account) transferred to the Fixed Account; plus
(c) interest credited on amounts held in the Fixed Account; less
(d) any prior partial withdrawals from the Fixed Account; less
(e) amounts transferred out of the Fixed Account to the Variable Account;
less
(f) any applicable charges deducted from the Fixed Account.
INTEREST TO BE CREDITED
Prior to annuitization, John Hancock will credit interest (calculated on a
compound basis) to purchase payments allocated to the Fixed Account at rates
declared by John Hancock, subject to a minimum rate of 3%. Under current
practice, the interest rate credited to amounts held in the Fixed Account will
be based on the size of the initial payment to the Contract. If the initial
payment was $10,000 or more, a higher interest rate will be credited. The rate
of interest credited on each amount may vary based upon when that amount was
first allocated to the Fixed Account. For purposes of this section, Variable
Account Value transferred to the Fixed Account shall be treated as a purchase
payment.
TRANSFER AND REDUCTIONS OF FIXED ACCOUNT VALUE
The Owner may transfer Fixed Account Value to one or more subaccounts of the
Variable Account or may transfer Variable Account Value into the Fixed Account.
The maximum amount that may be deposited or transferred to the Fixed Account in
a Contract Year is $100,000, exclusive of any initial deposit made to the Fixed
Account at the time the Contract is issued; such initial deposit may be as large
as $500,000. After the tenth Contract Year, no deposits or transfers may be made
into the Fixed Account. John Hancock may waive these limits.
Sums on deposit in the subaccounts may be transferred into the Fixed Account
up to twelve times within a Contract Year during the accumulation period, but
not within six months of a transfer out of the Fixed Account. Transfers out of
the Fixed Account may be made only once in a Contract Year and only on or within
30 days after a Contract anniversary. The greater of 20% of the Fixed Account
Value or $500 may be transferred out of the Fixed Account. After annuitization,
the amount of any fixed annuity payment may not be changed.
35
<PAGE>
Transfers will be made after receipt of notice satisfactory to John Hancock at
its Servicing Office. Transfer requests received by John Hancock before 4:00
p.m. Eastern Time on a business day will be valued as of the close of that day.
Any requests received after 4:00 p.m. or on a non-business day will be valued as
of the close of the next business day.
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
617-886-3048. Any written request should include the Owner's name, daytime
telephone number, and contract number as well as the names of the subaccounts or
Fixed Account 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,
expense 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
include 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.
FIXED ANNUITY PAYMENT VALUES
The dollar amount of each fixed annuity payment will be determined by dividing
the amount applied under the fixed annuity option (net of any applicable premium
taxes) by $1,000 and multiplying the result by the greater of: (a) the
applicable factor shown in the appropriate table in the Contract; or (b) the
factor currently offered by John Hancock at the time of annuitization. This
current factor may be based on the sex of the payee unless prohibited by law.
36
<PAGE>
APPENDIX--VARIABLE ANNUITY INFORMATION FOR INDIVIDUAL RETIREMENT ANNUITIES
To help you understand your purchase of this Contract as an Individual
Retirement Annuity (IRA), we are providing the following summary.
I. Accumulation Shares--Each net purchase payment you make into your
Contract is allocated to the subaccounts you select, and Accumulation Shares
are purchased. This is the unit of measurement used to determine the value of
your Contract. The number of shares purchased in any subaccount is based on
the share value of that subaccount next determined after receipt of the
payment at our Servicing Office. The values of shares fluctuate with the daily
investment performance of the corresponding subaccount. The growth in the
value of your Contract, to the extent invested in the Separate Account, is
neither guaranteed nor projected and varies with the investment Portfolio you
have selected. Each net purchase payment allocated to the Fixed Account will
be credited interest, as determined by John Hancock. The minimum guarantee
rate is 3%. More details appear under "Accumulation Shares" in this Prospectus
and in the "Appendix--The Fixed Account and Fixed Account Value."
II. Separate Account and Series Fund Charges--The assets of the Separate
Account are charged for services and guarantees. The annualized charge equals
1.40%. Fees varying by Portfolio are charged against the Series Fund for
investment management and advisory services. Details appear under "Charges
Under the Annuity Contracts" in this Prospectus and "Management of the Fund"
in the accompanying Series Fund prospectus.
III. Deductions from the Contract--The full amount of each deposit is
applied to the Contract. At or after the purchase date, one or more of the
following charges may be made, depending on circumstances.
1. WITHDRAWAL CHARGE--In each Contract Year, you may withdraw as much as
10% of the Accumulated Value of your Contract as of the beginning of the
Contract Year without charge. Withdrawals in excess of this amount will be
subject to the following charges:
<TABLE>
<CAPTION>
Years from Date of Deposit Withdrawal
to Date of Withdrawal Charge
-------------------------- ----------
<S> <C>
7 or more . . . . . . . . . . . . . . . . 0%
5 but less than 7 . . . . . . . . . . . . 6%
3 but less than 5 . . . . . . . . . . . . 7%
less than 3 . . . . . . . . . . . . . . . 8%
</TABLE>
For the purpose of calculating the withdrawal charge, deposits are
considered to be withdrawn on a "first-in first-out" basis. Earnings are
considered to be withdrawn last and without charge. This is described in
more detail under "Withdrawal Charge" in this Prospectus.
2. CONTRACT FEE--John Hancock currently deducts $30 from the Accumulated
Value of the Contract as a contract fee if the Accumulated Value is less
than $10,000. This occurs annually or at the time of surrender. Please
refer to "Charges for Administrative Services" in this Prospectus.
3. STATE PREMIUM TAX--Some states and local governments impose a premium
or similar tax on annuities. John Hancock only deducts this tax when
required to do so. Please refer to "Premium or Similar Taxes" in this
Prospectus.
37
<PAGE>
APPENDIX--ILLUSTRATIVE ACCUMULATED VALUE AND ANNUITY PAYMENT TABLES
The following Tables present illustrative periodic Accumulated 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
investment experience of the specified subaccounts and their predecessors during
the periods shown. The other subaccounts are not illustrated, because of the
limited time that they have been available. The Contracts described in this
prospectus were first offered in 1990.
John Hancock reorganized its variable annuity separate accounts on February
20, 1987, as described under "John Hancock, the Account and the Series Fund."
Figures for the Growth & Income, Sovereign Bond, and Money Market Subaccounts
are based on the pre-reorganization financial results of John Hancock's separate
accounts, which combined and ceased their separate operations pursuant to the
reorganization (i.e., John Hancock Variable Accounts A, A-1, A-2, C, C-1 and
C-2).
The Tables assume investment of a single purchase payment of $10,000, net of
any deductions from purchase payments, and that charges under the Contracts have
been made at an annual rate of 1.40% for mortality and expense risks and
administrative services. The tables also reflect actual investment management
fees and other portfolio expenses for the periods illustrated. Absent expense
reimbursement by John Hancock to certain of the Portfolios for some periods, the
values illustrated would have been lower.
WHAT THE TABLES ILLUSTRATE
Subject to the foregoing, Table I presents for the periods shown the
illustrative periodic Accumulated Values for each Account which would have
resulted at yearly intervals under a Contract where a net single purchase
payment of $10,000 was made, based upon the investment performance of the
applicable funding medium.
Subject to the foregoing, the Tables II indicate, at annual intervals,
illustrative 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.
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
protect against depreciation in declining markets.
38
<PAGE>
ILLUSTRATIVE PERIODIC ACCUMULATED VALUES AND ANNUITY PAYMENTS
GROWTH & INCOME SUBACCOUNT
TABLE I--ACCUMULATION PERIOD--ILLUSTRATIVE ACCUMULATED VALUES WHICH WOULD HAVE
RESULTED IF A $10,000 NET PURCHASE PAYMENT CONTRACT HAD BEEN ISSUED JANUARY 2,
1975
<TABLE>
<CAPTION>
Accumulated Value
on December 31
Contract Year Commencing of the same year
- ------------------------ -----------------
<S> <C>
January 1975 . . . . . . . . . . . . . . 12,768.53
January 1976 . . . . . . . . . . . . . . 14,847.74
January 1977 . . . . . . . . . . . . . . 13,070.47
January 1978 . . . . . . . . . . . . . . 13,674.30
January 1979 . . . . . . . . . . . . . . 15,670.05
January 1980 . . . . . . . . . . . . . . 20,154.18
January 1981 . . . . . . . . . . . . . . 20,054.68
January 1982 . . . . . . . . . . . . . . 25,323.38
January 1983 . . . . . . . . . . . . . . 30,428.51
January 1984 . . . . . . . . . . . . . . 31,429.08
January 1985 . . . . . . . . . . . . . . 41,769.30
January 1986 . . . . . . . . . . . . . . 47,665.34
January 1987 . . . . . . . . . . . . . . 48,842.45
January 1988 . . . . . . . . . . . . . . 56,368.07
January 1989 . . . . . . . . . . . . . . 71,995.40
January 1990 . . . . . . . . . . . . . . 72,809.18
January 1991 . . . . . . . . . . . . . . 90,446.27
January 1992 . . . . . . . . . . . . . . 97,127.06
January 1993 . . . . . . . . . . . . . . 108,553.53
January 1994 . . . . . . . . . . . . . . 106,452.30
January 1995 . . . . . . . . . . . . . . 140,886.25
January 1996 . . . . . . . . . . . . . . 166,849.35
January 1997. . . . . . . . . . . . . . . 213,632.01
</TABLE>
TABLE II--ANNUITY PERIOD--ILLUSTRATIVE MONTHLY VARIABLE ANNUITY PAYMENTS AN
ANNUITANT WOULD HAVE RECEIVED ASSUMING A FIRST ANNUITY PAYMENT OF $100 IN
JANUARY 1975.
<TABLE>
<CAPTION>
Payment
Month For Month
- ----- ---------
<S> <C>
January 1975 . . . . . . . . . . . . . . . . . 100.00
January 1976 . . . . . . . . . . . . . . . . . 126.05
January 1977 . . . . . . . . . . . . . . . . . 139.99
January 1978 . . . . . . . . . . . . . . . . . 121.58
January 1979 . . . . . . . . . . . . . . . . . 123.59
January 1980 . . . . . . . . . . . . . . . . . 136.47
January 1981 . . . . . . . . . . . . . . . . . 168.49
January 1982 . . . . . . . . . . . . . . . . . 163.12
January 1983 . . . . . . . . . . . . . . . . . 198.05
January 1984 . . . . . . . . . . . . . . . . . 227.32
January 1985 . . . . . . . . . . . . . . . . . 228.10
January 1986 . . . . . . . . . . . . . . . . . 294.22
January 1987 . . . . . . . . . . . . . . . . . 331.86
January 1988 . . . . . . . . . . . . . . . . . 330.06
January 1989 . . . . . . . . . . . . . . . . . 363.60
January 1990 . . . . . . . . . . . . . . . . . 429.63
January 1991 . . . . . . . . . . . . . . . . . 432.97
January 1992 . . . . . . . . . . . . . . . . . 496.00
January 1993 . . . . . . . . . . . . . . . . . 543.10
January 1994 . . . . . . . . . . . . . . . . . 585.08
January 1995 . . . . . . . . . . . . . . . . . 556.35
January 1996 . . . . . . . . . . . . . . . . . 706.64
January 1997 . . . . . . . . . . . . . . . . . 813.93
January 1998 . . . . . . . . . . . . . . . . . 965.18
</TABLE>
39
<PAGE>
The amounts shown are based on the investment performance of the Growth &
Income 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 of3 1/2% per annum. The amounts shown do
not reflect the deduction for any applicable premium tax. See text preceding
these Tables.
40
<PAGE>
SOVEREIGN BOND SUBACCOUNT
TABLE I--ACCUMULATION PERIOD--ILLUSTRATIVE ACCUMULATED VALUES WHICH WOULD HAVE
RESULTED IF A $10,000 NET PURCHASE PAYMENT CONTRACT HAD BEEN ISSUED JUNE 2, 1980
<TABLE>
<CAPTION>
Accumulated Value
on December 31
Contract year Commencing of the same year
- ------------------------ ------------------
<S> <C>
June 1980 . . . . . . . . . . . . . . . . 10,229.93
June 1981 . . . . . . . . . . . . . . . . 10,496.01
June 1982 . . . . . . . . . . . . . . . . 13,331.26
June 1983 . . . . . . . . . . . . . . . . 13,948.51
June 1984 . . . . . . . . . . . . . . . . 15,749.99
June 1985 . . . . . . . . . . . . . . . . 18,880.47
June 1986 . . . . . . . . . . . . . . . . 21,134.54
June 1987 . . . . . . . . . . . . . . . . 21,393.33
June 1988 . . . . . . . . . . . . . . . . 22,818.87
June 1989 . . . . . . . . . . . . . . . . 25,363.52
June 1990 . . . . . . . . . . . . . . . . 26,898.56
June 1991 . . . . . . . . . . . . . . . . 30,947.25
June 1992 . . . . . . . . . . . . . . . . 32,856.05
June 1993 . . . . . . . . . . . . . . . . 35,891.25
June 1994 . . . . . . . . . . . . . . . . 34,484.11
June 1995 . . . . . . . . . . . . . . . . 40,650.17
June 1996 . . . . . . . . . . . . . . . . 41,731.05
June 1997 . . . . . . . . . . . . . . . . 45,310.84
</TABLE>
TABLE II--ANNUITY PERIOD--ILLUSTRATIVE MONTHLY VARIABLE ANNUITY PAYMENTS AN
ANNUITANT WOULD HAVE RECEIVED ASSUMING A FIRST ANNUITY PAYMENT OF $100 IN JUNE
1980.
<TABLE>
<CAPTION>
Payment
Month For Month
- ----- ---------
<S> <C>
June 1980 . . . . . . . . . . . . . . . . . . 100.00
June 1981 . . . . . . . . . . . . . . . . . . 96.02
June 1982 . . . . . . . . . . . . . . . . . . 104.33
June 1983 . . . . . . . . . . . . . . . . . . 124.70
June 1984 . . . . . . . . . . . . . . . . . . 119.06
June 1985 . . . . . . . . . . . . . . . . . . 142.91
June 1986 . . . . . . . . . . . . . . . . . . 161.39
June 1987 . . . . . . . . . . . . . . . . . . 161.44
June 1988 . . . . . . . . . . . . . . . . . . 166.85
June 1989 . . . . . . . . . . . . . . . . . . 175.39
June 1990 . . . . . . . . . . . . . . . . . . 179.74
June 1991 . . . . . . . . . . . . . . . . . . 192.24
June 1992 . . . . . . . . . . . . . . . . . . 205.19
June 1993 . . . . . . . . . . . . . . . . . . 219.34
June 1994 . . . . . . . . . . . . . . . . . . 212.72
June 1995 . . . . . . . . . . . . . . . . . . 224.64
June 1996 . . . . . . . . . . . . . . . . . . 228.63
June 1997. . . . . . . . . . . . . . . . . . . 235.28
</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 of3 1/2% per annum. The amounts shown do not
reflect the deduction for any applicable premium tax. See text preceding these
Tables.
41
<PAGE>
MONEY MARKET SUBACCOUNT
TABLE I--ACCUMULATION PERIOD--ILLUSTRATIVE ACCUMULATED VALUES WHICH WOULD HAVE
RESULTED IF A $10,000 NET PURCHASE PAYMENT CONTRACT HAD BEEN ISSUED MAY 13, 1982
<TABLE>
<CAPTION>
Accumulated Value
on December 31
Contract Year Commencing of the same year
- ------------------------ -----------------
<S> <C>
May 1982 . . . . . . . . . . . . . . . . 10,454.08
May 1983 . . . . . . . . . . . . . . . . 11,209.15
May 1984 . . . . . . . . . . . . . . . . 12,215.99
May 1985 . . . . . . . . . . . . . . . . 13,028.02
May 1986 . . . . . . . . . . . . . . . . 13,707.73
May 1987 . . . . . . . . . . . . . . . . 14,422.37
May 1988 . . . . . . . . . . . . . . . . 15,314.17
May 1989 . . . . . . . . . . . . . . . . 16,504.28
May 1990 . . . . . . . . . . . . . . . . 17,639.99
May 1991 . . . . . . . . . . . . . . . . 18,435.21
May 1992 . . . . . . . . . . . . . . . . 18,841.95
May 1993 . . . . . . . . . . . . . . . . 19,150.05
May 1994 . . . . . . . . . . . . . . . . 19,657.28
May 1995 . . . . . . . . . . . . . . . . 20,506.13
May 1996 . . . . . . . . . . . . . . . . 21,299.24
May 1997. . . . . . . . . . . . . . . . . 22,149.45
</TABLE>
TABLE II--ANNUITY PERIOD--ILLUSTRATIVE MONTHLY VARIABLE ANNUITY PAYMENTS AN
ANNUITANT WOULD HAVE RECEIVED ASSUMING A FIRST ANNUITY PAYMENT OF $100 IN MAY
1982.
<TABLE>
<CAPTION>
Payment For
Month Month
- ----- -----------
<S> <C>
May 1982 . . . . . . . . . . . . . . . . . . 100.00
May 1983 . . . . . . . . . . . . . . . . . . 103.34
May 1984 . . . . . . . . . . . . . . . . . . 107.59
May 1985 . . . . . . . . . . . . . . . . . . 112.85
May 1986 . . . . . . . . . . . . . . . . . . 115.94
May 1987 . . . . . . . . . . . . . . . . . . 117.28
May 1988 . . . . . . . . . . . . . . . . . . 119.52
May 1989 . . . . . . . . . . . . . . . . . . 123.57
May 1990 . . . . . . . . . . . . . . . . . . 128.27
May 1991 . . . . . . . . . . . . . . . . . . 131.70
May 1992 . . . . . . . . . . . . . . . . . . 131.78
May 1993 . . . . . . . . . . . . . . . . . . 129.76
May 1994 . . . . . . . . . . . . . . . . . . 127.42
May 1995 . . . . . . . . . . . . . . . . . . 127.48
May 1996 . . . . . . . . . . . . . . . . . . 128.26
May 1997. . . . . . . . . . . . . . . . . . . 128.76
</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 of3 1/2% per annum. The amounts shown do not
reflect the deduction for any applicable premium tax. See text preceding these
Tables.
42
<PAGE>
MANAGED SUBACCOUNT
TABLE I--ACCUMULATION PERIOD--ILLUSTRATIVE ACCUMULATED VALUES WHICH WOULD HAVE
RESULTED IF A $10,000 NET PURCHASE PAYMENT CONTRACT HAD BEEN ISSUED NOVEMBER 9,
1987.
<TABLE>
<CAPTION>
Accumulated Value
on December 31
Contract year Commencing of the same year
- ------------------------ ------------------
<S> <C>
November 1987 . . . . . . . . . . . . . . 10,226.76
November 1988 . . . . . . . . . . . . . . 11,240.26
November 1989 . . . . . . . . . . . . . . 13,380.15
November 1990 . . . . . . . . . . . . . . 13,629.51
November 1991 . . . . . . . . . . . . . . 16,394.96
November 1992 . . . . . . . . . . . . . . 17,414.83
November 1993 . . . . . . . . . . . . . . 19,167.24
November 1994 . . . . . . . . . . . . . . 18,479.74
November 1995 . . . . . . . . . . . . . . 23,160.13
November 1996 . . . . . . . . . . . . . . 25,285.76
November 1997 . . . . . . . . . . . . . . 29,606.13
</TABLE>
TABLE II--ANNUITY PERIOD--ILLUSTRATIVE MONTHLY VARIABLE ANNUITY PAYMENTS AN
ANNUITANT WOULD HAVE RECEIVED ASSUMING A FIRST ANNUITY PAYMENT OF $100 IN
NOVEMBER 1987.
<TABLE>
<CAPTION>
Payment
Month For Month
- ----- ---------
<S> <C>
November 1987 . . . . . . . . . . . . . . . . 100.00
November 1988 . . . . . . . . . . . . . . . . 109.87
November 1989 . . . . . . . . . . . . . . . . 121.52
November 1990 . . . . . . . . . . . . . . . . 114.66
November 1991 . . . . . . . . . . . . . . . . 136.05
November 1992 . . . . . . . . . . . . . . . . 142.02
November 1993 . . . . . . . . . . . . . . . . 156.17
November 1994 . . . . . . . . . . . . . . . . 146.42
November 1995 . . . . . . . . . . . . . . . . 168.78
November 1996 . . . . . . . . . . . . . . . . 180.91
November 1997. . . . . . . . . . . . . . . . . 201.84
</TABLE>
The amounts shown are based on the investment performance of the Managed
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 of3 1/2% per annum. The amounts shown do not
reflect the deduction for any applicable premium tax. See text preceding these
Tables.
43
<PAGE>
LARGE CAP GROWTH SUBACCOUNT
ABLE I--ACCUMULATION PERIOD--ILLUSTRATIVE ACCUMULATED VALUES WHICH WOULD HAVE
RESULTED IF A $10,000 NET PURCHASE PAYMENT CONTRACT HAD BEEN ISSUED NOVEMBER 24,
1987.
<TABLE>
<CAPTION>
Accumulated Value
on December 31
Contract year Commencing of the same year
- ------------------------ -----------------
<S> <C>
November 1987 . . . . . . . . . . . . . . 10,239.60
November 1988 . . . . . . . . . . . . . . 11,531.81
November 1989 . . . . . . . . . . . . . . 15,108.39
November 1990 . . . . . . . . . . . . . . 15,668.24
November 1991 . . . . . . . . . . . . . . 19,383.96
November 1992 . . . . . . . . . . . . . . 21,015.39
November 1993 . . . . . . . . . . . . . . 23,586.33
November 1994 . . . . . . . . . . . . . . 23,031.38
November 1995 . . . . . . . . . . . . . . 29,897.25
November 1996 . . . . . . . . . . . . . . 34,867.83
November 1997 . . . . . . . . . . . . . . 45,026.80
</TABLE>
TABLE II--ANNUITY PERIOD--ILLUSTRATIVE MONTHLY VARIABLE ANNUITY PAYMENTS AN
ANNUITANT WOULD HAVE RECEIVED ASSUMING A FIRST ANNUITY PAYMENT OF $100 IN
NOVEMBER, 1987.
<TABLE>
<CAPTION>
Payment
Month For Month
- ----- ---------
<S> <C>
November 1987 . . . . . . . . . . . . . . . . 100.00
November 1988 . . . . . . . . . . . . . . . . 109.59
November 1989 . . . . . . . . . . . . . . . . 135.20
November 1990 . . . . . . . . . . . . . . . . 135.73
November 1991 . . . . . . . . . . . . . . . . 164.04
November 1992 . . . . . . . . . . . . . . . . 168.91
November 1993 . . . . . . . . . . . . . . . . 189.46
November 1994 . . . . . . . . . . . . . . . . 182.81
November 1995 . . . . . . . . . . . . . . . . 218.63
November 1996 . . . . . . . . . . . . . . . . 253.37
November 1997. . . . . . . . . . . . . . . . . 310.32
</TABLE>
The amounts shown are based on the investment performance of the Large Cap
Growth 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 of3 1/2% per annum. The amounts shown do
not reflect the deduction for any applicable premium tax. See text preceding
these Tables.
44
<PAGE>
INTERNATIONAL EQUITY INDEX SUBACCOUNT
TABLE I--ACCUMULATION PERIOD--ILLUSTRATIVE ACCUMULATED VALUES WHICH WOULD HAVE
RESULTED IF A $10,000 NET PURCHASE PAYMENT CONTRACT HAD BEEN ISSUED FEBRUARY 10,
1989.
<TABLE>
<CAPTION>
Accumulated Value
on December 31
Contract year Commencing of the same year
- ------------------------ -----------------
<S> <C>
February 1989 . . . . . . . . . . . . . . 11,099.72
February 1990 . . . . . . . . . . . . . . 10,051.49
February 1991 . . . . . . . . . . . . . . 12,229.24
February 1992 . . . . . . . . . . . . . . 11,861.11
February 1993 . . . . . . . . . . . . . . 15,450.90
February 1994 . . . . . . . . . . . . . . 14,305.70
February 1995 . . . . . . . . . . . . . . 15,237.67
February 1996 . . . . . . . . . . . . . . 16,406.62
February 1997 . . . . . . . . . . . . . . 15,366.71
</TABLE>
TABLE II--ANNUITY PERIOD--ILLUSTRATIVE MONTHLY VARIABLE ANNUITY PAYMENTS AN
ANNUITANT WOULD HAVE RECEIVED ASSUMING A FIRST ANNUITY PAYMENT OF $100 IN
FEBRUARY 1989.
<TABLE>
<CAPTION>
Payment
Month For Month
- ----- ---------
<S> <C>
February 1989 . . . . . . . . . . . . . . . . 100.00
February 1990 . . . . . . . . . . . . . . . . 96.77
February 1991 . . . . . . . . . . . . . . . . 89.90
February 1992 . . . . . . . . . . . . . . . . 103.84
February 1993 . . . . . . . . . . . . . . . . 98.31
February 1994 . . . . . . . . . . . . . . . . 123.78
February 1995 . . . . . . . . . . . . . . . . 103.66
February 1996 . . . . . . . . . . . . . . . . 114.78
February 1997 . . . . . . . . . . . . . . . . 115.51
Februaru 1998. . . . . . . . . . . . . . . . . 108.73
</TABLE>
The amounts shown are based on the investment performance of the International
Equity Index 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 of3 1/2% per annum. The amounts shown do
not reflect the deduction for any applicable premium tax. See text preceding
these Tables.
45
<PAGE>
REAL ESTATE EQUITY SUBACCOUNT
TABLE I--ACCUMULATION PERIOD--ILLUSTRATIVE ACCUMULATED VALUES WHICH WOULD HAVE
RESULTED IF A $10,000 NET PURCHASE PAYMENT CONTRACT HAD BEEN ISSUED FEBRUARY 14,
1989.
<TABLE>
<CAPTION>
Accumulated Value
on December 31
Contract year Commencing of the same year
- ------------------------ ------------------
<S> <C>
February 1989 . . . . . . . . . . . . . . 10,442.26
February 1990 . . . . . . . . . . . . . . 8,035.55
February 1991 . . . . . . . . . . . . . . 10,579.75
February 1992 . . . . . . . . . . . . . . 12,103.83
February 1993 . . . . . . . . . . . . . . 14,001.34
February 1994 . . . . . . . . . . . . . . 14,202.33
February 1995 . . . . . . . . . . . . . . 15,728.80
February 1996 . . . . . . . . . . . . . . 20,639.15
February 1997 . . . . . . . . . . . . . . 23,856.53
</TABLE>
TABLE II--ANNUITY PERIOD--ILLUSTRATIVE MONTHLY VARIABLE ANNUITY PAYMENTS AN
ANNUITANT WOULD HAVE RECEIVED ASSUMING A FIRST ANNUITY PAYMENT OF $100 IN
FEBRUARY 1989.
<TABLE>
<CAPTION>
Payment
Month For Month
- ----- ---------
<S> <C>
February 1989 . . . . . . . . . . . . . . . . . . . 100.00
February 1990 . . . . . . . . . . . . . . . . . . . 95.91
February 1991 . . . . . . . . . . . . . . . . . . . 85.47
February 1992 . . . . . . . . . . . . . . . . . . . 99.80
February 1993 . . . . . . . . . . . . . . . . . . . 115.44
February 1994 . . . . . . . . . . . . . . . . . . . 118.80
February 1995 . . . . . . . . . . . . . . . . . . . 112.48
February 1996 . . . . . . . . . . . . . . . . . . . 124.74
February 1997 . . . . . . . . . . . . . . . . . . . 158.12
February 1998 . . . . . . . . . . . . . . . . . . . 170.24
</TABLE>
The amounts shown are based on the investment performance of the Real Estate
Equity 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 of3 1/2% per annum. The amounts shown do
not reflect the deduction for any applicable premium tax. See text preceding
these Tables.
<PAGE>
[LOGO OF JOHN HANCOCK APPEARS HERE]
JOHN HANCOCK MUTUAL LIFE INSURANCE COMPANY
ANNUITY TRANSFERLINE
AUTHORIZATION FORM
INSTRUCTIONS: Please complete and sign where indicated. If your Contract will
be jointly owned, each Owner must sign. An acknowledgment 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
conditions 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
designed to confirm that the instructions received by telephone are genuine:
requiring disclosure of personal identification; tape recording calls; and
providing 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
unauthorized 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)
<TABLE>
<CAPTION>
<S> <C> <C> <C>
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
</TABLE>
<PAGE>
[LOGO OF JOHN HANCOCK APPEARS HERE]
CONTRACTS ISSUED BY JOHN HANCOCK MUTUAL LIFE INSURANCE COMPANY 200 CLARENDON
STREET, BOSTON, MASSACHUSETTS 02117
S8139 5/98
48
<PAGE>
PART C. OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial Statements
1. Condensed Financial Information (Part A)
2. Statement of Assets and Liabilities, John Hancock Variable Annuity Ac-
count U, at December 31, 1997. (Part B)
3. Statement of Operations, John Hancock Variable Annuity Account U, year
ended December 31, 1997. (Part B)
4. Statement of Changes in Net Assets, John Hancock Variable Annuity Ac-
count U, for each of the two years in the period ended December 31,
1997. (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, 1997, and at December 31, 1996. (Part B)
7. Summary of Operations and Changes in Policyholder's Contingency Re-
serves, John Hancock Mutual Life Insurance Company, for each of the two
years in the period ended December 31, 1997. (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, 1997. (Part B)
9. Notes to Financial Statements, John Hancock Mutual Life Insurance Compa-
ny. (Part B)
(b) Exhibits:
1. John Hancock Board Resolution establishing the Continuing Separate Ac-
count, dated January 14, 1985 included in Post-Effective Amendment No.
5 to File No. 33-34813, filed April 26, 1995.
2. Not Applicable.
3. Form of Distribution and Servicing Agreement 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. Form of periodic payment deferred annuity contract (90- 70), included
in the original Form N-4 Registration Statement under the Securities
Act of 1933 of this Account (File No. 33-34813) filed on May 4, 1990.
5. Form of annuity contract application (Form 15648), included in the
original Form N-4 Registration Statement under the Securities Act of
1933 of this Account (File No. 33-34813) filed on May 4, 1990.
6. Charter and By-Laws of John Hancock Mutual Life Insurance Company in-
cluded in Post-Effective Amendment No. 5 to File No. 33-34813, filed
April 26, 1995.
7. Not Applicable.
8. Not Applicable.
9. Opinion and Consent of Counsel as to legality of interests being of-
fered, included in the original Form N-4 Registration Statement under
the Securities Act of 1933 of this Account (File No. 33-34813) filed
on May 4, 1990.
10.(a) Consent of Independent Auditor.
10.(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. 19 to the
Form N-1A Registration Statement of John Hancock Variable Series Trust
I (File No. 33-2081) filed February 27, 1998.
C-1
<PAGE>
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 May 1, 1996. Copies
of Powers of Attorney for all other directors included in Post-Effective
Amendment No. 5 to this File No. 33-34813, filed April 26, 1995.
27. Financial Data Schedule
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
Richard F. Syron........... Director
William L. Boyan........... Vice Chairman of the Board
E. James Morton............ Director
John F. Magee.............. Director
John M. Connors, Jr........ Director
Stephen L. Brown........... Chairman of the Board and Chief Executive Officer
Michael C. Hawley.......... Director
I. MacAllister Booth....... Director
C. Vincent Vappi........... Director
Wayne A. Budd.............. Director
Robert J. Tarr, Jr......... Director
David F. D'Alessandro...... President and Chief Operating Officer
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
Barry J. Rubenstein........ Senior Vice President, Counsel and Secretary
</TABLE>
All of the above-named officers and directors can be contacted at the follow-
ing business address: John Hancock Mutual Life Insurance Company, John Hancock
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. The purchasers of variable annuity and variable life insurance con-
tracts, in connection with which the Fund is used, will have the opportunity
to instruct John Hancock and JHVLICO with respect to the voting of the shares
of the Fund held by Registrant as to certain matters. Subject to the voting
instructions, John Hancock directly controls Registrant.
A diagram of the subsidiaries of John Hancock is incorporated by reference
from Exhibit 17 to Post-Effective Amendment No. 19 to the Form N-1A Registra-
tion Statement of John Hancock Variable Series Trust I (File No. 33-2081)
filed in February 27, 1998. All subsidiaries are included in John Hancock's
consolidated financial statements.
C-2
<PAGE>
ITEM 27. NUMBER OF CONTRACT OWNERS
As of March 30, 1998, the number of Contract Owners of variable annuity
contracts offered by the Account was 93,199.
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 indemni-
fy or advance any expenses to the trustees, shareholders, officers, or employ-
ees 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)
dated December 11, 1985), Section 14 of the Investment Management Agreement by
and between John Hancock Variable Series Trust I and John Hancock Mutual Life
C-3
<PAGE>
Insurance Company (Exhibit 5.g. to Post-Effective Amendment No. 9 to the Reg-
istration Statement (File 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 14 of the Investment Management Agreement
By and Between John Hancock Variable Series Trust I and John Hancock Mutual Life
Insurance Company (Exhibit 5.v. to Post-Effective Amendment No. 19 to the Fund's
Registration Statement (File No. 3-2081) dated April __, 1998, 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 Accounts 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 refer-
ence.
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 REPRESENTATIONS
(a) Registrant hereby undertakes to file a post-effective amendment to this
Registration Statement as frequently as is necessary to ensure that the
audited financial statements in the registration statement are never
more than 16 months old for so long as payments under the variable an-
nuity 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) 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.
C-4
<PAGE>
(d) Registrant represents that, in connection with the sale of the Con-
tracts offered pursuant to this registration statement, it has complied
with the conditions of the SEC no-action letter regarding the purchase
of variable annuity contracts under retirement plans meeting the re-
quirements 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 disclosure regarding the re-
demption restrictions imposed by Section 403(b)(11) in the prospectus;
(b) included appropriate disclosure regarding the redemption restric-
tions imposed by Section 403(b)(11) in any sales literature used in
connection with the offer of the Contracts; (3) instructed sales repre-
sentatives 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 re-
strictions on redemptions imposed by Section 403(b)(11) and (b) the in-
vestment alternatives available under the employer's Section 403(b) ar-
rangement 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-5
<PAGE>
SIGNATURES
AS REQUIRED BY THE SECURITIES ACT OF 1933 AND THE INVESTMENT COMPANY ACT OF
1940, REGISTRANT HAS CAUSED THIS REGISTRATION STATEMENT TO BE SIGNED ON ITS BE-
HALF, IN THE CITY OF BOSTON AND THE COMMONWEALTH OF MASSACHUSETTS ON THIS 29TH
DAY OF APRIL, 1998. 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.
John Hancock Variable Annuity Account
U (Registrant)
By John Hancock Mutual Life Insurance
Company
By /s/ Stephen L. Brown
------------------------------------
STEPHEN L. BROWN
CHAIRMAN OF THE BOARD AND CHIEF
EXECUTIVE OFFICER
John Hancock Mutual Life Insurance
Company (Depositor)
By /s/ Stephen L. Brown
------------------------------------
STEPHEN L. BROWN
CHAIRMAN OF THE BOARD AND CHIEF
EXECUTIVE OFFICER
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS REGISTRATION
STATEMENT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS IN THE CAPACITIES WITH
JOHN HANCOCK MUTUAL LIFE INSURANCE COMPANY AND ON THE DATES INDICATED.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ Thomas E. Moloney Chief Financial
- ------------------------------------ Officer (Principal April 29, 1997
THOMAS E. MOLONEY Financial Officer
and Principal
Accounting Officer)
/s/ Stephen L. Brown Chairman of the Board
- ------------------------------------ and Chief Executive April 29, 1997
STEPHEN L. BROWN Officer (Principal
FOR HIMSELF AND AS ATTORNEY-IN-FACT Executive Officer)
</TABLE>
FOR: Foster L. Aborn Vice Chairman of the Board
William L. Boyan Vice Chairman of the Board
David F. D'Alessandro President & Chief Operating Officer
Nelson S. Gifford Director E. James Morton Director
Richard F. Syron Director Michael C. Hawley
John F. Magee Director Joan T. Bok Director
John M. Connors, Jr. Director Robert E. Fast Director
Robert J. Tarr, Jr. Director Lawrence K. Fish Director
Kathleen F. Feldstein Director C. Vincent Vappi Director
I. MacAllister Booth Director Samuel W. Bodman Director
C-6
<PAGE>
LIST OF EXHIBITS
FORM N-4
JOHN HANCOCK VARIABLE ANNUITY ACCOUNT U
EXHIBITS
10.(a) Consent of Independent Auditor.
10.(b) Representation of Counsel Pursuant to Rule 485(b).
27. Financial Data Schedule
C-7
<PAGE>
JOHN HANCOCK MUTUAL LIFE INSURANCE COMPANY
INDIVIDUAL COMBINATION FIXED/VARIABLE ANNUITY CONTRACTS
("CONTRACTS") OF
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, 1998. 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 (617-886-3048).
This statement of additional information is dated May 1, 1998.
<PAGE>
JOHN HANCOCK VARIABLE ANNUITY ACCOUNT U
CROSS REFERENCE SHEET
<TABLE>
<CAPTION>
SECTION IN STATEMENT OF
FORM N-4 ITEM NO. ADDITIONAL INFORMATION
----------------- -----------------------
<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 Offered......... Not Applicable (relevant information in 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 12-13
Distribution Agreement and Other Services............... 1 14, 18, 30
Distribution Agreement................................ 1 18, 30
Investment Advisory Agreement......................... 1 15
Custodian Agreement................................... 2 --
Independent Auditors.................................. 2 30
Calculation of Performance Data......................... 3 28-29
Calculation of Annuity Payments......................... 4 22-23
Financial Statements.................................... 6 31
</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 has twenty-three separate subaccounts
(Managed, Growth & Income, Equity Index, Large Cap Value, Large Cap Growth,
Mid Cap Value, Mid Cap Growth, Diversified Mid Cap Growth (formerly, Special
Opportunities), Real Estate Equity, Small/Mid Cap CORE, Small Cap Value, Small
Cap Growth, Global Equity, International Balanced, International Equity Index
(formerly, International Equities), International Opportunities, Emerging
Markets Equity, Short-Term Bond (formerly, Short-Term U.S. Government), Bond
Index, Sovereign Bond, Strategic Bond, High Yield Bond, and Money Market)
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 the 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 and administrative expenses and providing the minimum
death benefit 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.
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
1
<PAGE>
Management Agreement, dated April 15, 1994, and one Investment Management
Agreement, dated 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>
<S> <C> <C>
Growth & Income............ Independence Investment Associates, Inc. 4/15/88
Sovereign Bond............. John Hancock Advisers, Inc. 5/01/95
Large Cap Growth........... Independence Investment Associates, Inc. 4/15/88
Managed.................... Independence Investment Associates, Inc. 4/15/88
Real Estate Equity......... Independence Investment Associates, Inc. 4/15/94
International Equity Index. Independence Investment Associates, Inc. 5/1/98
Diversified Mid Cap Growth. John Hancock Advisers, Inc. 9/23/94
Short-Term Bond............ Independence Investment Associates, Inc. 4/15/94
Equity Index............... State Street Bank & Trust, N.A. 3/18/97
Large Cap Value............ T. Rowe Price Associates, Inc. 3/29/96
Mid Cap Growth............. Janus Capital Corporation 3/29/96
Mid Cap Value.............. Neuberger & Berman, LLC 5/01/96
Small Cap Growth........... John Hancock Advisers, Inc. 3/29/96
Small Cap Value............ INVESCO Management & Research 3/22/96
Strategic Bond............. J.P. Morgan Investment Management, Inc. 3/29/96
International
Opportunities............. T. Rowe Price Associates, Inc. 3/29/96
Rowe Price-Fleming International, Inc. 3/29/96
International Balanced..... Brinson Partners, Inc. 3/29/96
Small/Mid Cap CORE......... Goldman Sachs Asset Management 5/1/98
(a division of Goldman, Sachs & Co.)
High Yield Bond............ Wellington Management Company, LLP 4/20/98
Bond Index................. Mellon Bond Associates, LLP 4/20/98
Global Equity.............. Scudder Kemper Investments, Inc. 4/24/98
Emerging Markets Equity.... Montgomery Asset Management, LLC 5/1/98
</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.
Custodian Agreement
The Fund's custodian with respect to the 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, January 28,
1997, May 1, 1997, June 18, 1997, and April 14, 1998. 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.
2
<PAGE>
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 the contingent deferred sales charge and all other
Fund and Contract level charges except premium taxes, if any.
The following table shows the average annual total return for each
Subaccount for the period ended December 31, 1997:
<TABLE>
<CAPTION>
AVERAGE
ANNUALIZED
-----------------------
YEAR DATE
TO OF
SUBACCOUNT*** DATE 1 YEAR 5 YEAR* 10 YEAR* INCEPTION**
- ------------- ------ ------ ------- -------- -----------
<S> <C> <C> <C> <C> <C>
Managed............................. 10.0% 10.0% 10.5% 11.2% 11/09/87
Growth & Income..................... 21.0% 21.0% 16.5% 15.9% 04/03/72
Equity Index........................ 23.9% 23.9% 22.9% NA 04/30/96
Large Cap Value..................... 19.7% 19.7% 20.2% NA 04/30/96
Large Cap Growth.................... 22.1% 22.1% 15.9% 15.9% 11/24/87
Mid Cap Value....................... 23.4% 23.4% 23.9% NA 04/30/96
Mid Cap Growth...................... 7.9% 7.9% 5.8% NA 04/30/96
Diversified Mid Cap Growth.......... -5.2% -5.2% 17.2% NA 09/23/94
Real Estate Equity.................. 8.4% 8.4% 13.9% 10.2% 02/01/89
Small Cap Value..................... 16.8% 16.8% 16.1% NA 04/30/96
Small Cap Growth.................... 5.5% 5.5% 2.3% NA 04/30/96
International Balanced.............. -6.0% -6.0% -0.1% NA 04/30/96
International Equity Index.......... -13.7% -13.7% 4.4% 4.9% 02/01/89
International Opportunities......... -6.7% -6.7% -0.6% NA 04/30/96
Short Term Bond..................... -2.3% -2.3% 3.1% NA 09/23/94
Sovereign Bond...................... 1.4% 1.4% 5.8% 7.7% 06/02/80
Strategic Bond...................... 0.3% 0.3% 3.8% NA 04/30/96
Money Market........................ -3.2% -3.2% 2.3% 4.3% 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 for related 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
3
<PAGE>
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 administrative charges are
reflected, but the withdrawal charge and any charge for premium taxes are not.
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) 365/7]-1
For the 7-day period ending December 31, 1997, the Money Market Subaccount's
current yield was 4.07% and its effective yield was 4.16%.
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
4
<PAGE>
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 tables used as a basis for the annuity purchase rates of the
Contracts are the 1983a Mortality Tables, with projections of mortality
improvements and with certain age adjustments based on the Contract Year of
annuitization. The annuity purchase rates used in a Contract purchased in
connection with an employer-related plan and used in all Contracts issued in
Montana and Massachusetts will be the annuity 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 =
Investment + Capital _ Capital - Taxes - Subaccount Charges (0.003836%
Income Gains Losses (if any) per Day of the Value of the
Subaccount at the Beginning
of the Valuation Period)
- -------------------------------------------------------------------------------
Value of the Subaccount at the Beginning of the Valuation Period
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
Net Investment
Factor = 1.00000000 + Net Investment Rate
Accumulation Share Value
Accumulation Share Value = on Preceding Valuation Date X Net Investment Factor
Annuity Unit Value Factor to Neutralize
Annuity Unit Value = on Preceding Valuation Date X Net Investment Factor X the Assumed 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 $153.44 assuming a one day Valuation Period. The $153.44 was
computed by multiplying the beginning Portfolio value of $4,000,000 by the
factor 0.00003836. By substituting in the first formula above, the net
investment rate is equal to $3846.56 ($2000 +$3000 -$1000 -$153.44) divided by
$4,000,000 or 0.00096164. The Net Investment Factor would then be 1.00096164.
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 Portfolio during the Valuation
Period, the value of an Accumulation Share at the end of the Valuation Period
would be $11.260818 ($11.250000 x 1.00096164). The value of an Annuity Unit at
the end of the Valuation Period would be $1.0859410 ($1.0850000 x 1.00096164 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.
5
<PAGE>
C. GENERAL FORMULAE TO DETERMINE AMOUNT OF MONTHLY VARIABLE ANNUITY PAYMENTS
AND NUMBER OF ANNUITY UNITS FOR CONTRACTS
Amount of the First Variable Annuity Payment =
Number of Accumulation Accumulation Share Value First Monthly Annuity
Shares Applied X 10 Days Before Maturity Date X Payment Factor
- ------------------------------------------------------
$1,000
Number of Annuity Units
= Amount of First Variable Annuity Payment
--------------------------------------
Annuity Unit Value 10 Days Before Maturity Date
Amount of Subsequent
Variable Annuity Payment
= Number of Annuity Unit Value 10 Days Before
Annuity Units X Payment Date
D. HYPOTHETICAL EXAMPLE ILLUSTRATING THE CALCULATION OF THE AMOUNT OF MONTHLY
VARIABLE ANNUITY PAYMENT FOR 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 $5.79 per $1000 of proceeds for the Annuity Option elected.
The Annuitant's first monthly payment would then be $277.92.
4000.000 X $12.00000 X $5.79
--------------------
$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 198.514 ($277.92/$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 $278.91 (198.514 x $1.405000).
FINANCIAL STATEMENTS
(SEE NEXT PAGE)
6
<PAGE>
JOHN HANCOCK VARIABLE ANNUITY ACCOUNT U
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1997
<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........... $240,567,271 $284,138,042 $53,903,189 $10,274,715 $1,830,853 $5,301,436 $8,576,779 $59,200,386 $10,258,116
Receivable from
John Hancock
Variable Series
Trust I......... 59,821 225,702 101,066 21,049 386 18,023 7,549 88,512 20,874
------------ ------------ ----------- ----------- ---------- ---------- ---------- ----------- -----------
Total assets.... 240,627,092 284,363,744 54,004,255 10,295,764 1,831,239 5,319,459 8,584,328 59,288,898 10,278,990
LIABILITIES
Payable to John
Hancock Variable
Series Trust I.. 50,704 215,779 99,016 20,668 316 17,824 7,224 86,444 20,490
Asset charges
payable......... 9,117 9,923 2,050 381 70 199 325 2,068 384
------------ ------------ ----------- ----------- ---------- ---------- ---------- ----------- -----------
Total
liabilities..... 59,821 225,702 101,066 21,049 386 18,023 7,549 88,512 20,874
------------ ------------ ----------- ----------- ---------- ---------- ---------- ----------- -----------
Net assets...... $240,567,271 $284,138,042 $53,903,189 $10,274,715 $1,830,853 $5,301,436 $8,576,779 $59,200,386 $10,258,116
============ ============ =========== =========== ========== ========== ========== =========== ===========
NET ASSETS:
Attributable to
John Hancock
Mutual Life
Insurance
Company......... -- $ 650,509 -- -- -- -- -- $ 335,862 --
Attributable to
contractowners.. $240,567,271 283,487,533 $53,903,189 $10,274,715 $1,830,853 $5,301,436 $8,576,779 58,864,524 $10,258,116
------------ ------------ ----------- ----------- ---------- ---------- ---------- ----------- -----------
$240,567,271 $284,138,042 $53,903,189 $10,274,715 $1,830,853 $5,301,436 $8,576,779 $59,200,386 $10,258,116
============ ============ =========== =========== ========== ========== ========== =========== ===========
</TABLE>
See accompanying notes.
7
<PAGE>
JOHN HANCOCK VARIABLE ANNUITY ACCOUNT U
STATEMENT OF ASSETS AND LIABILITIES (CONTINUED)
DECEMBER 31, 1997
<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........... $37,824,519 $97,563,113 $845,376,480 $1,261,048,372 $6,508,724 $7,238,641 $3,420,865 $17,026,523 $3,138,971
Receivable from
John Hancock
Variable Series
Trust I......... 23,833 84,147 577,766 499,657 24,426 37,955 510 22,964 9,743
----------- ----------- ------------ -------------- ---------- ---------- ---------- ----------- ----------
Total assets.... 37,848,352 97,647,260 845,954,246 1,261,548,029 6,533,150 7,276,596 3,421,375 17,049,487 3,148,714
LIABILITIES
Payable to John
Hancock Variable
Series Trust I.. 22,403 80,431 548,507 451,669 24,178 37,683 380 22,321 9,626
Asset charges
payable......... 1,430 3,716 29,259 47,988 248 272 130 643 117
----------- ----------- ------------ -------------- ---------- ---------- ---------- ----------- ----------
Total
liabilities..... 23,833 84,147 577,766 499,657 24,426 37,955 510 22,964 9,743
----------- ----------- ------------ -------------- ---------- ---------- ---------- ----------- ----------
Net assets...... $37,824,519 $97,563,113 $845,376,480 $1,261,048,372 $6,508,724 $7,238,641 $3,420,865 $17,026,523 $3,138,971
=========== =========== ============ ============== ========== ========== ========== =========== ==========
NET ASSETS:
Attributable to
John Hancock
Mutual Life
Insurance
Company......... -- -- $ 2,148,367 -- -- -- -- -- --
Attributable to
contractowners.. $37,824,519 $97,563,113 843,228,113 $1,261,048,372 $6,508,724 $7,238,641 $3,420,865 $17,026,523 $3,138,971
----------- ----------- ------------ -------------- ---------- ---------- ---------- ----------- ----------
$37,824,519 $97,563,113 $845,376,480 $1,261,048,372 $6,508,724 $7,238,641 $3,420,865 $17,026,523 $3,138,971
=========== =========== ============ ============== ========== ========== ========== =========== ==========
</TABLE>
See accompanying notes.
8
<PAGE>
JOHN HANCOCK VARIABLE ANNUITY ACCOUNT U
STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1997
<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>
Investment
income:
Distributions
received from
the portfolios
of John Hancock
Variable Series
Trust I......... $21,835,728 $22,130,670 $ 2,759,991 $ 4,608 $ 89,074 $ -- $ 363,356 $3,229,468 $760,391
Expenses:
Mortality and
expense risks... 3,053,389 3,623,709 882,708 107,829 20,911 55,403 83,008 773,163 64,889
----------- ----------- ----------- ---------- -------- -------- ---------- ---------- --------
Net investment
income (loss).... 18,782,339 18,506,961 1,877,283 (103,221) 68,163 (55,403) 280,348 2,456,305 695,502
Net realized and
unrealized gain
(loss) on
investments:
Net realized
gain............ 4,209,410 1,989,278 710,358 416,721 15,353 85,944 169,949 -- 263,646
Net unrealized
appreciation
(depreciation)
during the
period.......... 31,899,270 3,166,027 (6,373,131) 620,276 (69,707) 647,694 935,367 -- (78,941)
----------- ----------- ----------- ---------- -------- -------- ---------- ---------- --------
Net realized and
unrealized gain
(loss) on
investments...... 36,108,680 5,155,305 (5,662,773) 1,036,997 (54,354) 733,638 1,105,316 -- 184,705
----------- ----------- ----------- ---------- -------- -------- ---------- ---------- --------
Net increase
(decrease) in net
assets resulting
from operations.. $54,891,019 $23,662,266 $(3,785,490) $ 933,776 $ 13,809 $678,235 $1,385,664 $2,456,305 $880,207
=========== =========== =========== ========== ======== ======== ========== ========== ========
</TABLE>
See accompanying notes.
9
<PAGE>
JOHN HANCOCK VARIABLE ANNUITY ACCOUNT U
STATEMENT OF OPERATIONS (CONTINUED)
YEAR ENDED DECEMBER 31, 1997
<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>
Investment
income:
Distributions
received from
the portfolios
of John Hancock
Variable Series
Trust I......... $ 3,777,662 $ 6,991,473 $107,751,940 $121,339,681 $374,739 $559,763 $ 55,262 $ 503,489 $226,369
Expenses:
Mortality and
expense risks... 580,819 1,254,411 9,844,006 16,880,108 89,504 61,933 47,803 148,483 38,193
----------- ----------- ------------ ------------ -------- -------- --------- ---------- --------
Net investment
income.......... 3,196,843 5,737,062 97,907,934 104,459,573 285,235 497,830 7,4598 355,006 188,176
Net realized and
unrealized gain
(loss) on
investments:
Net realized
gain (loss)..... 2,847,237 2,540,134 15,083,611 16,803,491 (28,515) 217,881 150,970 326,109 26,836
Net unrealized
appreciation
(depreciation)
during the
period.......... (5,553,611) 5,019,854 77,168,094 70,181,655 50,859 142,670 (185,289) 1,818,762 (25,510)
----------- ----------- ------------ ------------ -------- -------- --------- ---------- --------
Net realized and
unrealized gain
(loss) on
investments..... (2,706,374) 7,559,988 92,251,705 86,985,146 23,344 360,551 (34,319) 2,144,871 1,326
----------- ----------- ------------ ------------ -------- -------- --------- ---------- --------
Net increase in
net assets
resulting from
operations...... $ 490,469 $13,297,050 $190,159,639 $191,444,719 $307,579 $858,381 $ (26,860) $2,499,877 $189,502
=========== =========== ============ ============ ======== ======== ========= ========== ========
</TABLE>
See accompanying notes.
10
<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 GROWTH SOVEREIGN BOND INTERNATIONAL EQUITIES SMALL CAP GROWTH
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
-------------------------- -------------------------- ------------------------ -----------------------
1997 1996 1997 1996 1997 1996 1997 1996*
------------ ------------ ------------ ------------ ----------- ----------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Increase
(decrease) in net
assets from
operations:
Net investment
income (loss)... $ 18,782,339 $ 25,765,724 $ 18,506,961 $ 18,618,651 $ 1,877,283 $ (72,055) $ (103,221) $ (19,712)
Net realized
gain (loss)..... 4,209,410 2,715,920 1,989,278 1,605,801 710,358 618,460 416,721 (38,209)
Net unrealized
appreciation
(depreciation)
during the
period.......... 31,899,270 (1,342,699) 3,166,027 (12,616,007) (6,373,131) 4,480,521 620,276 (116,446)
------------ ------------ ------------ ------------ ----------- ----------- ----------- ----------
Net increase
(decrease) in net
assets resulting
from operations.. 54,891,019 27,138,945 23,662,266 7,608,445 (3,785,490) 5,026,926 933,776 (174,367)
From
contractowner
transactions:
Net premiums
from
contractowners.. 19,578,896 17,826,148 11,697,439 13,004,399 5,183,180 9,354,294 9,176,028 5,472,927
Net benefits to
contractowners.. (22,890,208) (20,197,834) (41,724,868) (45,346,956) (15,196,264) (14,672,328) (4,223,919) (909,730)
------------ ------------ ------------ ------------ ----------- ----------- ----------- ----------
Net increase
(decrease) in net
assets from
contractowner
transactions..... (3,311,312) (2,371,686) (30,027,429) (32,342,557) (10,013,084) (5,318,034) 4,952,109 4,563,197
------------ ------------ ------------ ------------ ----------- ----------- ----------- ----------
Net increase
(decrease) in net
assets........... 51,579,707 24,767,259 (6,365,163) (24,734,112) (13,798,574) (291,108) 5,885,885 4,388,830
Net assets at
beginning of
period........... 188,987,564 164,220,305 290,503,205 315,237,317 67,701,763 67,992,871 4,388,830 --
------------ ------------ ------------ ------------ ----------- ----------- ----------- ----------
Net assets at end
of period........ $240,567,271 $188,987,564 $284,138,042 $290,503,205 $53,903,189 $67,701,763 $10,274,715 $4,388,830
============ ============ ============ ============ =========== =========== =========== ==========
<CAPTION>
INTERNATIONAL
BALANCED MID CAP GROWTH
SUBACCOUNT SUBACCOUNT
--------------------- -----------------------
1997 1996* 1997 1996*
----------- --------- ----------- -----------
<S> <C> <C> <C> <C>
Increase
(decrease) in net
assets from
operations:
Net investment
income (loss)... $ 68,163 $ 9,372 $ (55,403) $ (3,940)
Net realized
gain (loss)..... 15,353 601 85,944 (2,933)
Net unrealized
appreciation
(depreciation)
during the
period.......... (69,707) 22,914 647,694 53,641
----------- --------- ----------- -----------
Net increase
(decrease) in net
assets resulting
from operations.. 13,809 32,887 678,235 46,768
From
contractowner
transactions:
Net premiums
from
contractowners.. 1,237,961 793,707 3,001,006 3,061,875
Net benefits to
contractowners.. (218,031) (29,480) (1,237,471) (248,977)
----------- --------- ----------- -----------
Net increase
(decrease) in net
assets from
contractowner
transactions..... 1,019,930 764,227 1,763,535 2,812,898
----------- --------- ----------- -----------
Net increase
(decrease) in net
assets........... 1,033,739 797,114 2,441,770 2,859,666
Net assets at
beginning of
period........... 797,114 -- 2,859,666 --
----------- --------- ----------- -----------
Net assets at end
of period........ $1,830,853 $797,114 $5,301,436 $2,859,666
=========== ========= =========== ===========
</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 (CONTINUED)
FOR THE YEARS AND PERIODS ENDED DECEMBER 31,
<TABLE>
<CAPTION>
LARGE CAP VALUE MONEY MARKET MID CAP VALUE SPECIAL OPPORTUNITIES
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
---------------------- ------------------------ ----------------------- ------------------------
1997 1996* 1997 1996 1997 1996* 1997 1996
---------- ---------- ----------- ----------- ----------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Increase in net
assets from
operations:
Net investment
income.......... $ 280,348 $ 48,202 $ 2,456,305 $ 2,497,217 $ 695,502 $ 19,144 $ 3,196,843 $ 1,326,618
Net realized
gain............ 169,949 5,943 -- -- 263,646 272 2,847,237 810,991
Net unrealized
appreciation
(depreciation)
during the
period.......... 935,367 155,009 -- -- (78,941) 75,961 (5,553,611) 4,973,647
---------- ---------- ----------- ----------- ----------- ---------- ----------- -----------
Net increase in
net assets
resulting from
operations....... 1,385,664 209,154 2,456,305 2,497,217 880,207 95,377 490,469 7,111,256
From
contractowner
transactions:
Net premiums
from
contractowners.. 5,113,182 2,921,725 44,946,257 43,824,428 9,849,138 1,145,532 9,378,682 31,891,420
Net benefits to
contractowners.. (926,878) (126,068) (52,298,954) (47,278,734) (1,612,655) (99,483) (17,891,851) (6,960,327)
---------- ---------- ----------- ----------- ----------- ---------- ----------- -----------
Net increase
(decrease) in net
assets from
contractowner
transactions..... 4,186,304 2,795,657 (7,352,697) (3,454,306) 8,236,483 1,046,049 (8,513,169) 24,931,093
---------- ---------- ----------- ----------- ----------- ---------- ----------- -----------
Net increase
(decrease) in net
assets........... 5,571,968 3,004,811 (4,896,392) (957,089) 9,116,690 1,141,426 (8,022,700) 32,042,349
Net assets at
beginning of
period........... 3,004,811 -- 64,096,778 65,053,867 1,141,426 -- 45,847,219 13,804,870
---------- ---------- ----------- ----------- ----------- ---------- ----------- -----------
Net assets at end
of period........ $8,576,779 $3,004,811 $59,200,386 $64,096,778 $10,258,116 $1,141,426 $37,824,519 $45,847,219
========== ========== =========== =========== =========== ========== =========== ===========
<CAPTION>
REAL ESTATE EQUITY GROWTH & INCOME
SUBACCOUNT SUBACCOUNT
------------------------- ---------------------------
1997 1996 1997 1996
------------ ------------ ------------- -------------
<S> <C> <C> <C> <C>
Increase in net
assets from
operations:
Net investment
income.......... $ 5,737,062 $ 3,484,256 $ 97,907,934 $ 77,691,397
Net realized
gain............ 2,540,134 517,169 15,083,611 7,392,263
Net unrealized
appreciation
(depreciation)
during the
period.......... 5,019,854 16,386,139 77,168,094 22,898,637
------------ ------------ ------------- -------------
Net increase in
net assets
resulting from
operations....... 13,297,050 20,387,564 190,159,639 107,982,297
From
contractowner
transactions:
Net premiums
from
contractowners.. 13,495,907 7,381,816 56,381,596 50,653,091
Net benefits to
contractowners.. (15,223,931) (10,368,714) (83,349,459) (63,828,426)
------------ ------------ ------------- -------------
Net increase
(decrease) in net
assets from
contractowner
transactions..... (1,728,024) (2,986,898) (26,967,863) (13,175,335)
------------ ------------ ------------- -------------
Net increase
(decrease) in net
assets........... 11,569,026 17,400,666 163,191,776 94,806,962
Net assets at
beginning of
period........... 85,994,087 68,593,421 682,184,704 587,377,742
------------ ------------ ------------- -------------
Net assets at end
of period........ $97,563,113 $85,994,087 $845,376,480 $682,184,704
============ ============ ============= =============
</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>
SHORT-TERM U.S. INTERNATIONAL
GOVERNMENT SMALL CAP VALUE OPPORTUNITIES
MANAGED SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
------------------------------ ---------------------- ---------------------- ----------------------
1997 1996 1997 1996 1997 1996* 1997 1996*
-------------- -------------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Increase
(decrease) in net
assets from
operations:
Net investment
income (loss).... $ 104,459,573 $ 129,087,578 $ 285,235 $ 254,336 $ 497,830 $ 36,273 $ 7,459 $ (2,708)
Net realized gain
(loss)........... 16,803,491 12,361,012 (28,515) (9,939) 217,881 5,580 150,970 (1,023)
Net unrealized
appreciation
(depreciation)
during the
period........... 70,181,655 (41,260,217) 50,859 (104,619) 142,670 89,251 (185,289) 99,796
-------------- -------------- ---------- ---------- ---------- ---------- ---------- ----------
Net increase
(decrease) in net
assets resulting
from operations.. 191,444,719 100,188,373 307,579 139,778 858,381 131,104 (26,860) 96,065
From
contractowner
transactions:
Net premiums
from
contractowners.. 38,902,658 56,201,877 1,859,772 4,338,920 6,113,599 1,838,183 3,587,133 2,715,936
Net benefits to
contractowners.. (133,155,425) (118,947,868) (2,348,008) (3,599,065) (1,522,285) (180,341) (2,524,506) (426,903)
-------------- -------------- ---------- ---------- ---------- ---------- ---------- ----------
Net increase
(decrease) in net
assets from
contractowner
transactions..... (94,252,767) (62,745,991) (488,236) 739,855 4,591,314 1,657,842 1,062,627 2,289,033
-------------- -------------- ---------- ---------- ---------- ---------- ---------- ----------
Net increase
(decrease) in net
assets........... 97,191,952 37,442,382 (180,657) 879,633 5,449,695 1,788,946 1,035,767 2,385,098
Net assets at
beginning of
period........... 1,163,856,420 1,126,414,038 6,689,381 5,809,748 1,788,946 -- 2,385,098 --
-------------- -------------- ---------- ---------- ---------- ---------- ---------- ----------
Net assets at end
of period........ $1,261,048,372 $1,163,856,420 $6,508,724 $6,689,381 $7,238,641 $1,788,946 $3,420,865 $2,385,098
============== ============== ========== ========== ========== ========== ========== ==========
<CAPTION>
EQUITY INDEX STRATEGIC BOND
SUBACCOUNT SUBACCOUNT
------------------------ -----------------------
1997 1996* 1997 1996*
------------ ----------- ----------- -----------
<S> <C> <C> <C> <C>
Increase
(decrease) in net
assets from
operations:
Net investment
income (loss).... $ 355,006 $ 83,944 $ 188,176 $ 92,197
Net realized gain
(loss)........... 326,109 518 26,836 317
Net unrealized
appreciation
(depreciation)
during the
period........... 1,818,762 289,361 (25,510) 16,022
------------ ----------- ----------- -----------
Net increase
(decrease) in net
assets resulting
from operations.. 2,499,877 373,823 189,502 108,536
From
contractowner
transactions:
Net premiums
from
contractowners.. 12,934,274 4,265,069 2,335,426 2,870,583
Net benefits to
contractowners.. (2,877,735) (168,785) (2,001,205) (363,871)
------------ ----------- ----------- -----------
Net increase
(decrease) in net
assets from
contractowner
transactions..... 10,056,539 4,096,284 334,221 2,506,712
------------ ----------- ----------- -----------
Net increase
(decrease) in net
assets........... 12,556,416 4,470,107 523,723 2,615,248
Net assets at
beginning of
period........... 4,470,107 -- 2,615,248 --
------------ ----------- ----------- -----------
Net assets at end
of period........ $17,026,523 $4,470,107 $3,138,971 $2,615,248
============ =========== =========== ===========
</TABLE>
- -----
* From May 1, 1996 (commencement of operations).
See accompanying notes.
13
<PAGE>
JOHN HANCOCK VARIABLE ANNUITY ACCOUNT U
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
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
Portfolios. 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.
14
<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
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, 1997 were as follows:
<TABLE>
<CAPTION>
SUBACCOUNT SHARES OWNED COST VALUE
---------- ------------ -------------- --------------
<S> <C> <C> <C>
Large Cap Growth................ 11,555,234 $ 189,821,369 $ 240,567,271
Sovereign Bond.................. 28,559,516 281,727,985 284,138,042
International Equities.......... 3,546,300 54,934,607 53,903,189
Small Cap Growth................ 905,746 9,770,884 10,274,715
International Balanced.......... 181,089 1,877,651 1,830,853
Mid Cap Growth.................. 444,545 4,600,101 5,301,436
Large Cap Value................. 632,057 7,486,403 8,576,779
Money Market.................... 5,920,039 59,200,359 59,200,386
Mid Cap Value................... 739,799 10,261,096 10,258,116
Special Opportunities........... 2,458,514 37,468,160 37,824,519
Real Estate Equity.............. 6,131,999 75,969,559 97,563,113
Growth & Income................. 50,909,403 663,711,917 845,376,480
Managed......................... 87,881,678 1,146,284,121 1,261,048,372
Short-Term U.S. Government...... 645,492 6,512,909 6,508,724
Small Cap Value................. 583,700 7,006,720 7,238,641
International Opportunities..... 321,898 3,506,358 3,420,865
Equity Index.................... 1,197,939 14,918,400 17,026,523
Strategic Bond.................. 306,460 3,148,459 3,138,971
</TABLE>
Purchases, including reinvestment of dividend distributions and proceeds from
sales of shares in the Portfolios of the Fund during 1997, were as follows:
<TABLE>
<CAPTION>
SUBACCOUNT PURCHASES SALES
---------- --------- -----
<S> <C> <C>
Large Cap Growth ...............$ 28,376,144 $ 8,695,708
Sovereign Bond ................. 23,428,294 32,873,992
International Equities ......... 4,281,322 11,605,567
Small Cap Growth ............... 8,515,209 3,230,598
International Balanced ......... 1,374,893 271,102
Mid Cap Growth ................. 2,722,417 928,341
Large Cap Growth ............... 5,316,202 679,601
Money Market ................... 27,005,086 31,847,137
Mid Cap Value .................. 9,992,772 779,742
Special Opportunities .......... 7,671,700 10,124,458
Real Estate Equity ............. 14,941,245 8,392,073
Growth & Income ................ 116,679,798 30,579,505
Managed ........................ 122,430,470 95,140,648
Short-Term U.S. Government ..... 2,034,257 2,245,928
Small Cap Value ................ 6,144,817 837,788
International Opportunities .... 3,426,300 2,205,173
Equity Index ................... 12,124,766 1,387,112
Strategic Bond ................. 2,445,068 1,895,835
</TABLE>
15
<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, 1997 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........... 160,590 $ 32.329 8,116,652 $28.999
Sovereign Bond............. 1,749,513 48.526 11,346,956 17.502
International Equities..... 102,698 15.277 3,879,212 13.491
Small Cap Growth........... 35,818 11.181 889,006 11.107
International Balanced..... 7,961 10.773 163,070 10.701
Mid Cap Growth............. 16,957 11.785 435,918 11.707
Large Cap Value............ 23,612 14.401 575,770 14.306
Money Market............... 743,856 23.548 3,202,804 12.910
Mid Cap Value.............. 37,067 15.112 646,027 15.012
Special Opportunities...... 84,779 11.330 2,114,374 17.435
Real Estate Equity......... 99,634 25.424 3,777,452 25.157
Growth & Income............ 1,901,446 143.253 19,890,513 28.815
Managed.................... 984,740 24.039 56,556,644 21.878
Short-Term U.S. Government. 21,481 10.904 536,972 11.685
Small Cap Value............ 17,720 13.634 516,651 13.543
International Opportuni-
ties...................... 8,683 10.700 313,120 10.628
Equity Index............... 54,198 14.918 1,094,405 14.819
Strategic Bond............. 23,759 11.445 252,183 11.369
</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.
6. IMPACT OF YEAR 2000 (UNAUDITED)
John Hancock Variable Annuity Account U, along with John Hancock Mutual Life
Insurance Company, its ultimate parent (together, John Hancock), have
developed a plan to modify or replace significant portions of the Account's
computer information and automated technologies so that its systems will
function properly with respect to the dates in the year 2000 and thereafter.
The Account presently believes that with modifications to existing systems and
conversions to new technologies, the year 2000 will not pose significant
operational problems for its computer systems. However, if certain
modifications and conversions are not made, or are not completed timely, the
year 2000 issue could have an adverse impact on the operations of the Account.
16
<PAGE>
JOHN HANCOCK VARIABLE ANNUITY ACCOUNT U
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
John Hancock as early as 1994 had begun assessing, modifying and converting
the software related to its significant systems and has initiated formal
communications with its significant business partners and customers to
determine the extent to which John Hancock's interface systems are vulnerable
to those third parties' failure to remediate their own year 2000 issues. While
John Hancock is developing alternative third party processing arrangements as
it deems appropriate, there is no guarantee that the systems of other
companies on which the Account's systems rely will be converted timely or will
not have an adverse effect on the Account's systems.
The Account expects the project to be substantially complete by early 1999.
This completion target was derived utilizing numerous assumptions of future
events, including availability of certain resources and other factors.
However, there can be no guarantee that this completion target will be
achieved.
17
<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,
1997, and the related statements of operations for the year then ended, and
statements of 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, 1997, the results of their operations for the year then ended and the
changes in their net assets for each of the periods indicated, in conformity
with generally accepted accounting principles.
ERNST & YOUNG LLP
Boston, Massachusetts
February 6, 1998
18
<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, 1997
and 1996, and the related statutory-basis statements of operations and 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 opinion, because of the effects of the matter described in the
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, 1997 and 1996, or the results of its operations or its cash flows for the
year ended December 31, 1997.
Also, in our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of John Hancock
Mutual Life Insurance Company at December 31, 1997 and 1996, 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 18, 1998
19
<PAGE>
JOHN HANCOCK MUTUAL LIFE INSURANCE COMPANY
STATUTORY-BASIS STATEMENTS OF FINANCIAL POSITION
<TABLE>
<CAPTION>
December 31
-------------------
1997 1996
--------- ---------
(In millions)
<S> <C> <C>
ASSETS
Bonds--Note 6............................................... $22,986.0 $22,467.0
Stocks:
Preferred................................................. 640.6 416.2
Common.................................................... 256.9 249.8
Investments in affiliates................................. 1,442.0 1,268.9
--------- ---------
2,339.5 1,934.9
Mortgage loans on real estate--Note 6....................... 7,851.2 7,964.0
Real estate:
Company occupied.......................................... 375.1 372.1
Investment properties..................................... 1,893.4 2,042.3
--------- ---------
2,268.5 2,414.4
Policy loans................................................ 1,577.3 1,589.3
Cash items:
Cash in banks and offices................................. 176.0 348.4
Temporary cash investments................................ 548.8 1,068.3
--------- ---------
724.8 1,416.7
Premiums due and deferred................................... 222.3 278.4
Investment income due and accrued........................... 505.8 547.8
Other general account assets................................ 948.6 1,009.9
Assets held in separate accounts............................ 16,021.7 13,969.1
--------- ---------
TOTAL ASSETS................................................ $55,445.7 $53,591.5
========= =========
Obligations and Policyholders' Contingency Reserves
OBLIGATIONS
Policy reserves........................................... $19,206.6 $18,544.0
Policyholders' and beneficiaries' funds................... 13,985.1 14,679.3
Dividends payable to policyholders........................ 399.7 395.5
Policy benefits in process of payment..................... 115.5 236.3
Other policy obligations.................................. 214.8 210.5
Asset valuation reserve--Note 1........................... 1,165.7 1,064.8
Federal income and other accrued taxes--Note 1............ 96.9 125.1
Other general account obligations......................... 1,084.5 1,521.7
Obligations related to separate accounts.................. 16,019.1 13,958.2
--------- ---------
TOTAL OBLIGATIONS........................................... 52,287.9 50,735.4
Policyholders' Contingency Reserves
Surplus notes--Note 2..................................... 450.0 450.0
Special contingency reserve for group insurance........... 151.8 194.8
General contingency reserve............................... 2,556.0 2,211.3
--------- ---------
TOTAL POLICYHOLDERS' CONTINGENCY RESERVES................... 3,157.8 2,856.1
--------- ---------
TOTAL OBLIGATIONS AND POLICYHOLDERS' CONTINGENCY RESERVES... $55,445.7 $53,591.5
========= =========
</TABLE>
The accompanying notes are an integral part of the statutory-basis financial
statements.
20
<PAGE>
JOHN HANCOCK MUTUAL LIFE INSURANCE COMPANY
STATUTORY-BASIS STATEMENTS OF OPERATIONS AND CHANGES IN POLICYHOLDERS'
CONTINGENCY RESERVES
<TABLE>
<CAPTION>
Year ended December 31
------------------------
1997 1996
----------- -----------
(In millions)
<S> <C> <C>
INCOME
Premiums, annuity considerations and pension fund
contributions..................................... $ 7,371.6 $ 8,003.1
Net investment income--Note 4...................... 2,856.1 2,803.1
Other, net......................................... 119.0 68.6
----------- -----------
10,346.7 10,874.8
BENEFITS AND EXPENSES
Payments to policyholders and beneficiaries:
Death benefits................................... 737.4 886.8
Accident and health benefits..................... 121.4 300.9
Annuity benefits................................. 1,668.2 1,539.4
Surrender benefits and annuity fund withdrawals.. 6,293.1 5,565.4
Matured endowments............................... 21.0 20.6
----------- -----------
8,841.1 8,313.1
Additions to reserves to provide for future
payments to policyholders and beneficiaries....... (186.7) 880.5
Expenses of providing service to policyholders and
obtaining new insurance:
Field sales compensation and expenses............ 278.3 275.0
Home office and general expenses................. 479.7 514.8
Payroll, state premium and miscellaneous taxes..... 49.9 70.9
----------- -----------
9,462.3 10,054.3
----------- -----------
GAIN FROM OPERATIONS BEFORE DIVIDENDS TO
POLICYHOLDERS, FEDERAL INCOME TAXES AND NET
REALIZED CAPITAL LOSSES....................... 884.4 820.5
Dividends to policyholders........................... 398.2 399.4
Federal income taxes--Note 1......................... 18.9 107.1
----------- -----------
417.1 506.5
----------- -----------
GAIN FROM OPERATIONS BEFORE NET REALIZED
CAPITAL LOSSES................................ 467.3 314.0
Net realized capital losses--Note 5.................. (89.8) (43.6)
----------- -----------
NET INCOME..................................... 377.5 270.4
Other increases (decreases) in policyholders'
contingency reserves:
Net unrealized capital gains and other
adjustments--Note 5............................... $ 58.6 $ 191.7
Valuation reserve changes--Note 1.................. 1.4 (27.5)
Prior years' federal income taxes.................. (35.6) (28.9)
Other reserves and adjustments, net................ (100.2) (83.1)
----------- -----------
NET INCREASE IN POLICYHOLDERS' CONTINGENCY
RESERVES...................................... 301.7 322.6
Policyholders' contingency reserves at beginning of
year................................................ 2,856.1 2,533.5
----------- -----------
POLICYHOLDERS' CONTINGENCY RESERVES AT END OF YEAR... $ 3,157.8 $ 2,856.1
=========== ===========
</TABLE>
The accompanying notes are an integral part of the statutory-basis financial
statements.
21
<PAGE>
JOHN HANCOCK MUTUAL LIFE INSURANCE COMPANY
STATUTORY-BASIS STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year ended December 31
------------------------
1997 1996
----------- -----------
(In millions)
<S> <C> <C>
Cash Flows From Operating Activities:
Insurance premiums, annuity considerations and de-
posits............................................. $ 7,518.8 $ 8,120.4
Net investment income............................... 2,988.7 2,965.5
Benefits to policyholders and beneficiaries......... (9,030.3) (8,476.6)
Dividends paid to policyholders..................... (394.0) (382.6)
Insurance expenses and taxes........................ (815.3) (884.1)
Net transfers from separate accounts................ 896.8 198.2
Other, net.......................................... (798.3) (602.7)
----------- ----------
NET CASH PROVIDED FROM OPERATIONS................. 366.4 938.1
----------- ----------
Cash Flows Used In Investing Activities:
Bond purchases...................................... (18,003.6) (7,590.7)
Bond sales.......................................... 13,541.1 2,812.4
Bond maturities and scheduled redemptions........... 2,927.6 2,241.0
Bond prepayments.................................... 1,096.3 1,223.2
Stock purchases..................................... (1,125.7) (391.2)
Proceeds from stock sales........................... 921.7 573.2
Real estate purchases............................... (243.0) (447.7)
Real estate sales................................... 444.5 382.1
Other invested assets purchases..................... (171.1) (214.7)
Proceeds from the sale of other invested assets..... 109.3 183.6
Mortgage loans issued............................... (1,165.8) (1,582.7)
Mortgage loan repayments............................ 1,176.9 2,247.3
Other, net.......................................... (333.8) 205.3
----------- ----------
NET CASH USED IN INVESTING ACTIVITIES............. (825.6) (358.9)
----------- ----------
Cash Flows From Financing Activities:
Net (decrease) increase in short-term note payable.. (16.4) 90.0
Issuance of REMIC notes payable..................... 0.0 292.0
Repayment of REMIC notes payable.................... (216.3) (85.2)
----------- ----------
NET CASH (USED IN) PROVIDED FROM FINANCING ACTIVI-
TIES............................................. (232.7) 296.8
----------- ----------
(DECREASE) INCREASE IN CASH AND TEMPORARY CASH INVEST-
MENTS................................................ (691.9) 876.0
Cash and temporary cash investments at beginning of
year................................................. 1,416.7 540.7
----------- ----------
CASH AND TEMPORARY CASH INVESTMENTS AT END OF YEAR.... $ 724.8 $ 1,416.7
=========== ==========
</TABLE>
The accompanying notes are an integral part of the statutory-basis financial
statements.
22
<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. 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.
On February 28, 1997, the Company sold its group accident and health business
and related group life business to UNICARE Life & Health Insurance Company
(UNICARE), a wholly-owned subsidiary of WellPoint Health Networks Inc. The
Company retained its group long-term care operations. Assets equal to
liabilities of approximately $562.4 million at February 28, 1997, subject to
the completion of a closing audit, were transferred to UNICARE in connection
with the sale. The corresponding amount of assets and liabilities at December
31, 1996 was $559.4 million. The gain from operations in both periods was not
significant. The insurance business sold was transferred to UNICARE through a
100% coinsurance agreement. The Company remains liable to its policyholders to
the extent that UNICARE does not meet its contractual obligations under the
coinsurance agreement. As a result, the Company has secured a $397 million
letter of credit facility with a group of banks led by Morgan Guaranty Trust
Company of New York. The banks have agreed to issue a letter of credit to the
Company pursuant to which the Company may draw up to $397 million for any
claims not satisfied by UNICARE under the coinsurance agreement after the
Company has incurred the first $113 million of losses from such claims. The
amount available pursuant to the letter of credit agreement and any letter of
credit issued thereunder will be automatically reduced on a scheduled basis
consistent with the anticipated runoff of liabilities related to the business
reinsured under the coinsurance agreement. The letter of credit agreement and
any letter of credit issued thereunder are scheduled to expire on March 1,
2002.
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, including banks,
brokers/dealers and direct marketing efforts.
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 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.
23
<PAGE>
JOHN HANCOCK MUTUAL LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS--(CONTINUED)
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 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; (9) certain items, including
modifications to required policy reserves resulting from changes in actuarial
assumptions or increased benefits, are recorded directly to policyholders'
contingency reserves rather than being reflected in income; and (10) 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 approved by the NAIC in
1998 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 is not expected to 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 fair value. The discount or premium on bonds is
amortized using the interest method.
Investments in affiliates are included on the statutory equity method.
Loan-backed bonds and structured securities are valued at amortized cost
using the interest method including anticipated prepayments. Prepayment
assumptions are obtained from broker dealer surveys or internal estimates
and are based on the current interest rate and economic environment. The
retrospective
24
<PAGE>
JOHN HANCOCK MUTUAL LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS--(CONTINUED)
adjustment method is used to value all such securities except for interest-
only securities, which are valued using the prospective method.
The net interest effect of interest rate and currency rate swap
transactions is recorded as an adjustment of interest income as incurred.
The initial cost of interest rate cap and floor agreements is amortized to
net investment income over the life of the related agreement. 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.
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 $470.5 million and $393.5 million at December 31, 1997 and
1996, 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, 1997, the IMR, net of 1997 amortization of $25.2
million, amounted to $165.6 million which is included in other policy
obligations. The corresponding 1996 amounts were $18.9 million and $121.7
million, respectively.
Property and Equipment: Data processing equipment, which amounted to $30.0
million in 1997 and $41.6 million in 1996 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 $21.8 million in 1997 and $31.0 million
in 1996.
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 obligations are intended
to be satisfied from separate account assets and not from assets of the
general account. Separate accounts generally are reported at fair value. The
operations of the separate accounts are not included in the statement of
operations; however, income earned on amounts initially invested by the
Company in the formation of new separate accounts is included in other income.
25
<PAGE>
JOHN HANCOCK MUTUAL LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS--(CONTINUED)
Fair Value Disclosure 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 certain
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. See Note 15.
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,
1997. 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.
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
26
<PAGE>
JOHN HANCOCK MUTUAL LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS--(CONTINUED)
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 generally ranging from 2% to 8 3/4%.
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, 1997 December 31, 1996
------------------- -------------------
Statement Fair Statement Fair
Value Value Value Value
--------- --------- --------- ---------
(In millions)
<S> <C> <C> <C> <C>
Guaranteed investment contracts........ $11,499.4 $11,516.8 $11,921.6 $11,943.2
Fixed-rate deferred and immediate
annuities............................. 4,289.1 4,290.4 3,909.3 3,886.1
Supplementary contracts without life
contingencies......................... 40.9 42.1 45.6 46.0
--------- --------- --------- ---------
$15,829.4 $15,849.3 $15,876.5 $15,875.3
========= ========= ========= =========
</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.
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.
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 after
completion of the financial statements, a true-up adjustment (i.e., effect of
the difference between the estimated and final DER) is necessary.
Amounts for disputed tax issues relating to prior years are charged or
credited directly to policyholders' contingency reserves.
Certain subsidiaries acquired by the Company have potential tax loss
carryforwards of $14.3 million expiring in 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 $146.4 million
in 1997 and $309.9 million in 1996.
27
<PAGE>
JOHN HANCOCK MUTUAL LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS--(CONTINUED)
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 1997, the
Company refined certain actuarial assumptions inherent in the calculation of
reserves related to guaranteed investment contracts and AIDS claims under
individual insurance policies resulting in a net $1.4 million increase in
policyholders' contingency reserves at December 31, 1997. Similar refinements
to the actuarial assumptions inherent in the calculation of reserves related
to guaranteed investment contracts were made in 1996 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.
Guaranty Fund Assessments: Guaranty fund assessments are accrued when the
Company receives notice that an amount is payable to a guaranty fund.
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 1997 and 1996.
NOTE 3--BORROWED MONEY
At December 31, 1997, 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, 1997, 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. The
interest rates on the class A1 and A2 notes are calculated on a floating
basis, based on the monthly LIBOR rates plus 22 and 27 basis points,
respectively. The LIBOR rates were 5.72% and 5.50%, respectively, at December
31, 1997 and 1996. The class A1 notes were fully repaid on March 25, 1997 and
the class A2 notes have a last scheduled payment date of June 25, 1998. The
outstanding balances of the notes totaled $42.6 million and $127.9 million at
December 31, 1997 and 1996, respectively, and are included in other general
account obligations.
In 1996, the Company issued $292.0 million of additional 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
28
<PAGE>
JOHN HANCOCK MUTUAL LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS--(CONTINUED)
issued in two notes. The interest rates on the class A1 and A2 notes are
calculated on a floating basis, based on the monthly LIBOR rate plus 5 and 19
basis points, respectively. The class A1 notes were fully repaid on December
26, 1997 and the class A2 notes have a last scheduled payment date of July 26,
1999. The outstanding balances of the notes totaled $161.0 million and $292.0
million at December 31, 1997 and 1996, respectively, and are included in other
general account obligations.
On December 31, 1997, the Company had outstanding a short-term note of $75.0
million payable to an affiliate at a variable rate of interest. The note,
which is included in other general account obligations, was repaid on January
5, 1998.
Interest paid on borrowed money was $19.3 million and $10.4 million during
1997 and 1996, respectively.
NOTE 4--NET INVESTMENT INCOME
Investment income has been reduced by the following amounts:
<TABLE>
<CAPTION>
1997 1996
------ ------
(In millions)
<S> <C> <C>
Investment expenses.............................................. $339.6 $333.8
Interest expense................................................. 57.9 48.1
Depreciation on real estate and other invested assets............ 76.6 73.3
Real estate and other investment taxes........................... 61.5 65.2
------ ------
$535.6 $520.4
====== ======
</TABLE>
NOTE 5--NET CAPITAL GAINS (LOSSES) AND OTHER ADJUSTMENTS
Net realized capital losses consist of the following items:
<TABLE>
<CAPTION>
1997 1996
------ ------
(In millions)
<S> <C> <C>
Net gains from asset sales and foreclosures.................... $ 63.4 $ 81.2
Capital gains tax.............................................. (84.1) (53.7)
Net capital gains transferred to the IMR....................... (69.1) (71.1)
------ ------
Net Realized Capital Losses.................................. $(89.8) $(43.6)
====== ======
</TABLE>
Net unrealized capital gains and other adjustments consist of the following
items:
<TABLE>
<CAPTION>
1997 1996
------- ------
(In millions)
<S> <C> <C>
Net gains from changes in security values and book value
adjustments................................................... $ 159.5 $242.2
Increase in asset valuation reserve............................ (100.9) (50.5)
------- ------
Net Unrealized Capital Gains and Other Adjustments........... $ 58.6 $191.7
======= ======
</TABLE>
29
<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 Fair
Value Gains Losses Value
--------- ---------- ---------- ---------
(In millions)
Year ended December 31, 1997
----------------------------
<S> <C> <C> <C> <C>
U.S. Treasury securities and
obligations of U.S. government
corporations and agencies........... $ 258.9 $ 9.3 $ 0.0 $ 268.2
Obligations of states and political
subdivisions........................ 149.6 16.3 0.0 165.9
Debt securities issued by foreign
governments......................... 259.7 53.2 0.1 312.8
Corporate securities................. 17,336.1 1,485.9 113.4 18,708.6
Mortgage-backed securities........... 4,981.7 115.9 28.3 5,069.3
--------- -------- ------ ---------
Total bonds........................ $22,986.0 $1,680.6 $141.8 $24,524.8
========= ======== ====== =========
<CAPTION>
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
========= ======== ====== =========
</TABLE>
The statement value and fair value of bonds at December 31, 1997, 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............................... $ 1,386.4 $ 1,426.6
Due after one year through five years................. 5,809.6 6,079.2
Due after five years through ten years................ 5,465.5 5,867.1
Due after ten years................................... 5,342.8 6,082.6
--------- ---------
18,004.3 19,455.5
Mortgage-backed securities............................ 4,981.7 5,069.3
--------- ---------
$22,986.0 $24,524.8
========= =========
</TABLE>
Gross gains of $61.5 million in 1997 and $43.8 million in 1996 and gross
losses of $86.6 million in 1997 and $27.6 million in 1996 were realized from
the sale of bonds.
At December 31, 1997, bonds with an admitted asset value of $19.2 million were
on deposit with state insurance departments to satisfy regulatory
requirements.
The cost of common stocks was $148.0 million and $136.1 million at December
31, 1997 and 1996, respectively. At December 31, 1997, gross unrealized
appreciation on common stocks totaled $139.3 million, and gross
30
<PAGE>
JOHN HANCOCK MUTUAL LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS--(CONTINUED)
unrealized depreciation totaled $30.4 million. The fair value of preferred
stock totaled $695.8 million at December 31, 1997 and $451.0 million at
December 31, 1996.
The Company participates in a security lending program for the purpose of
enhancing income on securities held. At December 31, 1997 and 1996, $217.0
million and $540.5 million, respectively, of the Company's bonds and stocks
were on loan to various brokers/dealers, but were fully collateralized by cash
and U.S. government securities in an account held in trust for the Company.
Such assets reflect the extent of the Company's involvement in securities
lending, not the Company's risk of loss.
Mortgage loans with outstanding principal balances of $71.7 million, bonds
with amortized cost of $98.9 million and real estate with depreciated cost of
$18.0 million were nonincome producing for the twelve months ended December
31, 1997.
Restructured commercial mortgage loans aggregated $314.3 million and $385.8
million as of December 31, 1997 and 1996, 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
-----------
1997 1996
----- -----
(In
millions)
<S> <C> <C>
Expected....................................................... $33.8 $46.3
Actual......................................................... 24.9 29.1
</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, 1997, 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.............. $1,677.7
Hotels.................. 186.7
Industrial.............. 858.1
Office buildings........ 1,748.7
Retail.................. 1,609.4
1-4 Family.............. 6.0
Agricultural............ 1,426.5
Other................... 338.1
--------
$7,851.2
========
</TABLE>
<TABLE>
<CAPTION>
Geographic
Concentration Statement Value
------------- ---------------
(In millions)
<S> <C>
East North Central...... $ 891.5
East South Central...... 163.4
Middle Atlantic......... 1,410.2
Mountain................ 362.2
New England............. 836.9
Pacific................. 1,770.6
South Atlantic.......... 1,475.4
West North Central...... 260.1
West South Central...... 613.1
Other................... 67.8
--------
$7,851.2
========
</TABLE>
At December 31, 1997, the fair values of the commercial and agricultural
mortgage loan portfolios were $6.7 billion and $1.5 billion, respectively. The
corresponding amounts as of December 31, 1996 were approximately $6.6 billion
and $1.8 billion, respectively.
31
<PAGE>
JOHN HANCOCK MUTUAL LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS--(CONTINUED)
The maximum and minimum lending rates for mortgage loans during 1997 were
18.0% and 7.66% for agricultural loans, 10.0% and 7.19% for other properties,
and 7.27% and 7.25% for purchase money mortgages. Generally, the percentage of
any loan to the value of security at the time of the loan, exclusive of
insured, 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 1997
were $787.1 million, $386.6 million, and $7.5 million, respectively. The
corresponding amounts in 1996 were $742.0 million, $317.8 million, and $14.2
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 1997 were $801.8
million, $767.9 million and $594.9 million, respectively. The corresponding
amounts in 1996 were $304.0 million, $217.0 million and $251.2 million,
respectively.
Premiums, benefits, and reserves ceded related to the business sold in 1997,
included in the amounts above, were $487.4 million, $503.3 million, and $247.9
million, respectively, at December 31, 1997.
Amounts recoverable on paid claims and funds withheld from reinsurers were as
follows:
<TABLE>
<CAPTION>
Year ended
December 31
-----------
1997 1996
----- -----
(In
millions)
<S> <C> <C>
Reinsurance recoverables...................................... $12.5 $26.5
Funds withheld from reinsurers................................ 35.1 23.4
</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 $236.3 million at December 31, 1997
and $226.4 million at December 31, 1996.
John Hancock Variable Life Insurance Company (Variable Life, a wholly-owned
affiliate) has a modified coinsurance agreement with the Company to reinsure
50% of Variable Life's 1994 through 1997 issues of flexible premium variable
life insurance and scheduled premium variable life insurance policies. In
connection with this agreement, the Company transferred $22.0 million and
$24.5 million of cash for tax, commission, and expense allowances to Variable
Life, which decreased the Company's net gain from operations by $10.1 million
and $15.7 million in 1997 and 1996, respectively.
Variable Life has a modified coinsurance agreement with the Company to
reinsure 50% of Variable Life's 1995 through 1997 issues of certain retail
annuity contracts (Independence Preferred and Declaration). In connection with
this agreement, the Company received $1.1 million in 1997 and transferred
$35.0 million in 1996 of cash for surrender benefits, tax, reserve increase,
commission, expense allowances and premium. This agreement decreased the
Company's net gain from operations by $9.8 million and $15.1 million in 1997
and 1996, respectively.
32
<PAGE>
JOHN HANCOCK MUTUAL LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS--(CONTINUED)
Effective January 1, 1997, Variable Life entered into a stop-loss agreement
with the Company to reinsure mortality claims in excess of 110% of expected
mortality claims in 1997 for all policies that are not reinsured under any
other indemnity agreement. In connection with the agreement, the Company
transferred $2.4 million of cash for mortality claims to Variable Life, which
decreased the Company's net gain from operations by $1.3 million in 1997.
Reinsurance ceded contracts do not relieve the Company from its obligations to
policyholders. The Company remains liable to its policyholders for the portion
reinsured to the extent that any reinsurer does not meet its obligations for
reinsurance ceded to it under the reinsurance agreements. Failure of the
reinsurers to honor their obligations could result in losses to the Company;
consequently, estimates are established for amounts deemed or estimated to be
uncollectible. To minimize its exposure to significant losses from reinsurance
insolvencies, the Company evaluates the financial condition of its reinsurers
and monitors concentration of credit risk arising from similar characteristics
of the insurer.
Neither the Company, nor any of its related parties, control, either directly
or indirectly, any external reinsurers with which the Company conducts
business. 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, 1997 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 benefit pension plans paid to employees and retirees covered
by annuity contracts issued by the Company amounted to $89.7 million in 1997
and $84.4 million in 1996. 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.
33
<PAGE>
JOHN HANCOCK MUTUAL LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS--(CONTINUED)
The Company provides additional compensation to employees based on achievement
of annual and long-term corporate financial objectives.
Pension (benefit) expense is summarized as follows:
<TABLE>
<CAPTION>
Year ended
December 31
----------------
1997 1996
------- -------
(In millions)
<S> <C> <C>
Defined benefit plans:
Service cost--benefits earned during the period........ $ 30.7 $ 32.4
Interest cost on the projected benefit obligation...... 109.3 107.4
Actual return on plan assets........................... (177.7) (225.1)
Net amortization and deferral.......................... 23.7 85.0
------- -------
(14.0) (0.3)
Defined contribution plans............................... 6.2 21.4
------- -------
Total pension (benefit) expense.......................... $ (7.8) $ 21.1
======= =======
</TABLE>
Assumptions used in accounting for the defined benefit pension plans were as
follows:
<TABLE>
<CAPTION>
1996 1995
----- -----
<S> <C> <C>
Discount rate.................................................. 7.00% 7.25%
Weighted rate of increase in compensation levels............... 4.80% 4.80%
Expected long-term rate of return on assets.................... 8.50% 8.50%
</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
--------------------
1997 1996
--------- ---------
(In millions)
<S> <C> <C>
Actuarial present value of benefit obligations:
Vested benefit obligation......................... $(1,462.2) $(1,344.8)
========= =========
Accumulated benefit obligation.................... $(1,507.6) $(1,387.7)
========= =========
Projected benefit obligation........................ $(1,704.0) $(1,582.4)
Plan assets fair value.............................. 1,877.7 1,787.6
--------- ---------
Excess of plan assets over projected benefit
obligation......................................... 173.7 205.2
Unrecognized net gain............................... (101.7) (176.1)
Prior service cost not yet recognized in net
periodic pension cost.............................. 29.6 42.8
Unrecognized net asset, net of amortization......... (93.2) (95.9)
--------- ---------
Net pension asset (liability)....................... $ 8.4 $ (24.0)
========= =========
</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.
34
<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, 1997, 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
-------------------------------------
1997 1996
------------------ ------------------
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............................... $(228.8) $ (95.7) $(234.2) $(100.6)
Fully eligible active plan
participants.......................... (38.7) (17.9) (46.4) (19.4)
------- ------- ------- -------
(267.5) (113.6) (280.6) (120.0)
Plan assets at fair value................ 172.7 0.0 132.4 0.0
------- ------- ------- -------
Accumulated postretirement benefit
obligation in excess of plan assets..... (94.8) (113.6) (148.2) (120.0)
Unrecognized prior service cost.......... 14.9 4.8 16.7 5.3
Unrecognized prior net gain.............. (122.8) (4.2) (93.0) 4.0
Unrecognized transition obligation....... 240.7 75.0 256.8 78.4
------- ------- ------- -------
Accrued postretirement benefit cost...... $ 38.0 $ (38.0) $ 32.3 $ (32.3)
======= ======= ======= =======
</TABLE>
Net postretirement benefits costs for the years ended December 31, 1997 and
1996 were $40.8 million and $47.4 million, respectively, and include the
expected cost of such benefits for newly eligible or vested employees,
interest cost, and amortization of the transition liability.
35
<PAGE>
JOHN HANCOCK MUTUAL LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS--(CONTINUED)
Net periodic postretirement benefits cost included the following components:
<TABLE>
<CAPTION>
December 31
-------------------------------------
1997 1996
------------------ ------------------
Medical Medical
And Life and Life
Dental Insurance Dental Insurance
Plans Plans Plans Plans
------- --------- ------- ---------
(In millions)
<S> <C> <C> <C> <C>
Eligibility cost...................... $ 6.9 $ 1.6 $ 7.1 $ 1.8
Interest cost......................... 17.8 7.6 19.8 8.3
Actual return on plan assets.......... (31.0) 0.0 (15.9) 0.0
Net amortization and deferral......... 32.8 5.1 20.9 5.4
------ ----- ------ -----
Net periodic postretirement benefit
cost................................. $ 26.5 $14.3 $ 31.9 $15.5
====== ===== ====== =====
</TABLE>
The discount rate used in determining the accumulated postretirement benefit
obligation at December 31, 1997 was 7.0% (7.25% for 1996). The expected long-
term rates of return on plan assets were 8.5% and 7.0% at December 31, 1997
and 1996, respectively. The annual assumed rate of increase in the health care
cost trend rate for the medical coverages is 5.75% for 1998 (8.0% was assumed
for 1997) and is assumed to decrease gradually to 5.00% 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, 1997 by $26.2 million and the aggregate
of the eligibility and interest cost components of net periodic postretirement
benefit cost by $3.0 million for 1997 and $2.9 million for 1996.
Postretirement welfare benefits for non-vested employees are not reflected in
the above expenses or accumulated postretirement benefit obligations. As of
December 31, 1997, the accumulated postretirement benefit obligations for non-
vested employees amounted to $49.5 million for medical and dental plans and
$10.4 million for life insurance plans. The corresponding amounts as of
December 31, 1996 were $69.4 million and $10.7 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 $12.4 billion at
December 31, 1997 and $9.6 billion at December 31, 1996; total liabilities
amounted to $11.1 billion at December 31, 1997 and $8.5 billion at December
31, 1996; and total net income was $184.8 million in 1997 and $193.0 million
in 1996.
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 14).
36
<PAGE>
JOHN HANCOCK MUTUAL LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS--(CONTINUED)
The Company received dividends of $65.9 million and $9.4 million in 1997 and
1996, respectively, from unconsolidated affiliates.
NOTE 11--FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK
The Company utilizes a variety of off-balance sheet financial instruments as
part of its efforts to hedge and manage fluctuations in the market value of
its investment portfolio attributable to changes in general interest rate
levels and to manage duration mismatch of assets and liabilities. Those
instruments include swaps, caps, floors, and future contracts.
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 1998 to 2026. These swaps involve, to varying
degrees, interest rate risk in excess of amounts recognized in the statements
of financial position.
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 2007.
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
$6.4 million and $0.5 million at December 31, 1997 and 1996, respectively.
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 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
-----------------
1997 1996
-------- --------
(In millions)
<S> <C> <C>
Futures contracts to purchase securities.................... $ 154.0 $ 117.6
======== ========
Futures contracts to sell securities........................ $ 414.2 $ 136.4
======== ========
Notional amount of interest rate swaps, interest rate
swaptions, currency rate swaps, interest rate caps and
interest rate floors to:
Receive variable rates.................................... $5,043.7 $3,822.8
======== ========
Receive fixed rates....................................... $2,596.7 $2,912.5
======== ========
</TABLE>
The Company's exposure to credit risk is the risk of loss from a counterparty
failing to perform according to the terms of the contract. The Company
continually monitors its positions and the credit ratings of the
counterparties to these financial instruments. To limit exposure associated
with counterparty nonperformance on interest rate and currency agreements, the
Company enters into master netting agreements with its counterparties. The
Company believes the risk of incurring losses due to nonperformance by its
counterparties is remote and that such losses, if any, would not be material.
37
<PAGE>
JOHN HANCOCK MUTUAL LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS--(CONTINUED)
Based on market rates in effect at December 31, 1997, the Company's interest
rate swaps, currency rate swaps, interest rate caps, and interest rate floors
represented (assets) liabilities to the Company with fair values of $58.3
million, $9.7 million, $(0.6) million and $(0.4) million, respectively. The
corresponding amounts as of December 31, 1996 were $16.4 million, $41.1
million, $(0.6) million and $(0.1) million, respectively. The fair values of
the swap agreements are not recognized in the financial statements.
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 $27.4 million in 1997 and $32.1 million in
1996. Future minimum rental commitments under noncancellable operating leases
for office space and furniture and equipment are as follows:
<TABLE>
<CAPTION>
December 31, 1997
-----------------
(In millions)
<S> <C>
1998..................................................... $19.5
1999..................................................... 17.0
2000..................................................... 14.5
2001..................................................... 11.5
2002..................................................... 8.1
Thereafter............................................... 12.2
-----
Total minimum payments................................... $82.8
=====
</TABLE>
NOTE 13--POLICY RESERVES, POLICYHOLDERS' AND BENEFICIARIES' FUNDS AND
OBLIGATIONS RELATED TO SEPARATE ACCOUNTS
The Company's annuity reserves and deposit fund liabilities and related
separate account 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, 1997 Percent
----------------- -------
(In millions)
<S> <C> <C>
Subject to discretionary withdrawal (with adjust-
ment):
With market value adjustment....................... $ 3,881.6 10.5%
At book value less surrender charge................ 2,881.4 7.8
--------- -----
Total with adjustment.............................. 6,763.0 18.3
Subject to discretionary withdrawal (without ad-
justment) at book value........................... 3,574.2 9.6
Subject to discretionary withdrawal--separate ac-
counts............................................ 13,455.3 36.3
Not subject to discretionary withdrawal:
General account.................................... 11,996.1 32.4
Separate accounts.................................. 1,274.1 3.4
--------- -----
Total annuity reserves, deposit fund liabilities and
separate accounts--before reinsurance............... 37,062.7 100.0%
=====
Less reinsurance ceded............................... 0.0
---------
Net annuity reserves, deposit fund liabilities and
separate accounts................................... $37,062.7
=========
</TABLE>
38
<PAGE>
JOHN HANCOCK MUTUAL LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS--(CONTINUED)
Any liquidation costs associated with the $13.5 billion of separate accounts
subject to discretionary withdrawal are sustained by the separate account
contractholders and not by the general account.
NOTE 14--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
$693.6 million, $27.6 million, $122.3 million and $467.2 million,
respectively, at December 31, 1997. 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 estimated fair value of the
commitments described above is $1.3 billion at December 31, 1997. The majority
of these commitments expire in 1998.
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, 1997, the aggregate outstanding principal balance of all the remaining
pools of loans from 1991, 1993, and 1996 is $672.0 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 1997 and 1996 amounted to $4.1 million and $3.4 million, respectively.
During 1996, the Company entered into a 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
an 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, 1997, the aggregate outstanding principal balance of the pools of
loans was $500.8 million. There were no mortgage loans buy-backs in 1997 and
1996.
The Company has a support agreement with Variable Life under which the Company
agrees to continue directly or indirectly to own all of Variable Life's common
stock and maintain Variable Life's net worth at not less than $1 million.
The Company has a support agreement with John Hancock Capital Corporation
(JHCC), a non-consolidated wholly-owned subsidiary, 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, 1997 were $351.1 million for short-term
borrowings and $163.2 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
39
<PAGE>
JOHN HANCOCK MUTUAL LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS--(CONTINUED)
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.
In the normal course of its business operations, the Company is involved with
litigation from time to time with claimants, beneficiaries and others, and a
number of litigation matters were pending as of December 31, 1997. It is the
opinion of management, after consultation with counsel, that the ultimate
liability with respect to these claims, if any, will not materially affect the
financial position or results of operations of the Company.
During 1997, the Company entered into a court approved settlement relating to
a class action lawsuit involving certain individual life insurance policies
sold from 1979 through 1996. In entering into the settlement, the Company
specifically denied any wrongdoing. The Company has established a litigation
reserve in connection with the settlement to provide for relief to class
members and for legal and administrative costs associated with the settlement.
The reserve has been charged, net of the related tax effect, directly to
policyholders' contingency reserves of the Company. Given the uncertainties
associated with estimating the reserve, it is possible that the final cost of
the settlement could be different from the amounts presently provided for by
the Company. However, the Company does not believe that the ultimate
resolution of the settlement will have a material adverse effect on the
Company's financial position.
NOTE 15--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
----------------------------------------
1997 1996
------------------- -------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
--------- --------- --------- ---------
(In millions)
<S> <C> <C> <C> <C>
Assets
Bonds--Note 6...................... $22,986.0 $24,524.8 $22,467.0 $23,539.0
Preferred stocks--Note 6........... 640.6 695.8 416.2 451.0
Common stocks--Note 6.............. 256.9 256.9 249.8 249.8
Mortgage loans on real estate--Note
6................................. 7,851.2 8,215.9 7,964.0 8,400.2
Policy loans--Note 1............... 1,577.3 1,577.3 1,589.3 1,589.3
Cash and cash equivalents--Note 1.. 724.8 724.8 1,416.7 1,416.7
Liabilities
Guaranteed investment contracts--
Note 1............................ 11,499.4 11,516.8 11,921.6 11,943.2
Fixed rate deferred and immediate
annuities--Note 1................. 4,289.1 4,290.4 3,909.3 3,886.1
Supplementary contracts without
life contingencies--Note 1........ 40.9 42.1 45.6 46.0
Derivatives liabilities relating
to:--Note 11
Interest rate swaps.................. -- 58.3 -- 16.4
Currency rate swaps.................. -- 9.7 -- 41.1
Interest rate caps................... -- (0.6) -- (0.6)
Interest rate floors................. -- (0.4) -- (0.1)
--
Commitments--Note 14................. -- 1,332.3 -- 1,095.7
</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.
40
<PAGE>
JOHN HANCOCK MUTUAL LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS--(CONTINUED)
NOTE 16--IMPACT OF YEAR 2000 (UNAUDITED)
The Company has developed a plan to modify or replace significant portions of
its computer information and automated technologies so that its systems will
function properly with respect to the dates in the year 2000 and thereafter.
The Company presently believes that with modifications to existing systems and
conversions to new technologies, the year 2000 will not pose significant
operational problems for its computer systems. However, if certain
modifications and conversions are not made, or are not completed timely, the
year 2000 issue could have an adverse impact on the operations of the Company.
The Company as early as 1994 had begun assessing, modifying and converting the
software related to its significant systems and has initiated formal
communications with its significant business partners and customers to
determine the extent to which the Company's interface systems are vulnerable
to those third parties' failure to remediate their own year 2000 issues. While
the Company is developing alternative third party processing arrangements as
it deems appropriate, there is no guarantee that the systems of other
companies on which the Company's systems rely will be converted timely or will
not have an adverse effect on the Company's systems.
The Company expects the project to be substantially complete by early 1999 and
expects the incremental cost to be between $35 million and $45 million. The
cost of the project and the date on which the Company believes it will
complete the year 2000 modifications are based on management's best estimates,
which were derived utilizing numerous assumptions of future events, including
availability of certain resources and other factors. However, there can be no
guarantee that these estimates will be achieved and actual results may differ
materially from those anticipated.
41
<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 8 to the Registration Statement (Form
N-4, No. 33-34813) of John Hancock Variable Annuity Account U.
We also consent to the inclusion of our reports dated February 6, 1998 on
the financial statements included in the Annual Report of the John Hancock
Variable Annuity Account U, and dated February 18, 1998 on the financial
statements included in the Annual Report of the John Hancock Mutual Life
Insurance Company for the year ended December 31, 1997.
/s/ ERNST & YOUNG LLP
ERNST & YOUNG LLP
Boston, Massachusetts
April 29, 1998
<PAGE>
EXHIBIT 10(B)
[JOHN HANCOCK MUTUAL LIFE INSURANCE COMPANY LETTERHEAD]
April 20, 1998
SECURITIES & EXCHANGE COMMISSION
450 FIFTH STREET, N.W.
WASHINGTON, DC 20549
RE: John Hancock Variable Annuity Account U
File Nos. 33-34813 and 811-2143
Dear Commissioners:
This opinion is being furnished with respect to the filing of Post-Effective
Amendment No. 8 under the Securities Act of 1933 (Post-Effective Amendment No.
24 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 M. Dadalt
Counsel
