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FILE NOS. 33-34813
811-2143
As filed with the Securities and Exchange Commission on July 11, 2000.
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM N-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
[_]
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PRE-EFFECTIVE AMENDMENT NO. [_]
POST-EFFECTIVE AMENDMENT NO. 10 [X]
AND/OR
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
[X]
AMENDMENT NO. 26
(CHECK APPROPRIATE BOX OR BOXES.)
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JOHN HANCOCK VARIABLE ANNUITY ACCOUNT U
(EXACT NAME OF REGISTRANT)
JOHN HANCOCK 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
RONALD J. BOCAGE, ESQUIRE
JOHN HANCOCK MUTUAL LIFE INSURANCE COMPANY
JOHN HANCOCK PLACE
BOSTON, MA 02117
(NAME AND ADDRESS OF AGENT FOR SERVICE)
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It is proposed that this filing become effective (check appropriate box)
[_] immediately upon filing pursuant to paragraph (b) of Rule 485
[X] on July 11, 2000 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 1998 pursuant to Rule 24f-2 on March 23, 1999.
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PROSPECTUS DATED JULY 11, 2000
INDEPENDENCE VARIABLE ANNUITY
an individual deferred combination fixed and variable annuity contract
issued by
JOHN HANCOCK LIFE INSURANCE COMPANY ("JOHN HANCOCK")
The contract enables you to earn fixed rates of interest that we declare under
our fixed investment option and investment-based returns in the following
variable investment options:
VARIABLE INVESTMENT OPTION MANAGED BY
---------------------------- ---------------------------------------------
Managed .................. Independence Investment Associates, Inc.
Aggressive Balanced....... Independence Investment Associates, Inc.
Growth & Income........... Independence Investment Associates, Inc.
Equity Index.............. State Street Global Advisors
Large Cap Value........... T. Rowe Price Associates, Inc.
Large Cap Value CORE...... Goldman Sachs Asset Management
Large Cap Growth.......... Independence Investment Associates, Inc.
Large Cap Aggressive
Growth.................. Alliance Capital Management L.P.
Large/Mid Cap Value....... Wellington Management Company, LLP
Mid Cap Blend............. Independence Investment Associates, Inc.
Mid Cap Value............. Neuberger Berman, LLC
Mid Cap Growth............ Janus Capital Corporation
Fundamental Mid Cap
Growth.................. OppenheimerFunds, Inc.
Real Estate Equity........ Independence Investment Associates, Inc.
Small/Mid Cap CORE........ Goldman Sachs Asset Management
Small/Mid Cap Value....... The Boston Company Asset Management, LLC
Wellington Management Company, LLP
Small/Mid Cap Growth......
INVESCO Management & Research
Small Cap Value...........
Small Cap Growth.......... John Hancock Advisers, Inc.
Global Equity............. Scudder Kemper Investments, Inc.
Global Balanced........... Brinson Partners, Inc.
International Equity
Index................... Independence International Associates, Inc.
International Equity...... Goldman Sachs Asset Management
International
Opportunities........... Rowe Price-Fleming International, Inc. Morgan
Stanley Dean Witter Investmentment Inc.
Emerging Markets Equity
Short-Term Bond........... Independence Investment Associates, Inc.
Bond Index................ Mellon Bond Associates, LLP
Active Bond............... John Hancock Advisers, Inc.
Global Bond............... J.P. Morgan Investment Management, Inc.
High Yield Bond........... Wellington Management Company, LLP
Money Market.............. John Hancock Life Insurance Company
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The variable investment options shown on page 1 are those available as of the
date of this prospectus. We may add or delete variable investment options in the
future.
When you select one or more of these variable investment options, we invest
your money in the corresponding investment option(s) of the John Hancock
Variable Series Trust I ("the Trust"). In this prospectus, the investment
options of the Trust are referred to as "funds". In the prospectuses for the
Trust, the investment options may also be referred to as "funds", "portfolios"
or "series".
The Trust is a so-called "series" type mutual fund registered with the
Securities and Exchange Commission ("SEC"). The investment results of each
variable investment option you select will depend on those of the corresponding
fund of the Trust. Each of the funds is separately managed and has its own
investment objective and strategies. Attached at the end of this prospectus is a
prospectus for the Trust. The Trust prospectus contains detailed information
about each available fund. Be sure to read that prospectus before selecting any
of the variable investment options shown on page 1.
For amounts you don't wish to invest in a variable investment option, you can
allocate to the fixed investment option if permitted in your local jurisdiction.
We invest the assets allocated to the fixed investment option in our general
account and they earn interest at a fixed rate, declared by us, subject to a 3%
minimum. Neither our general account nor any interests in our general account
are registered with the SEC or subject to the Federal securities laws.
We refer to the variable investment options and the fixed investment option
together as "investment options."
JOHN HANCOCK ANNUITY SERVICING OFFICE
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Express Delivery U.S. Mail
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529 Main Street P.O. Box 111
Charlestown, MA 02129 Boston, MA 02117
Phone: 1-800-732-5543 Fax: 1-800-886-3048
Contracts are not deposits or obligations of, or insured, endorsed, or
guaranteed by the U.S. Government, any bank, the Federal Deposit Insurance
Corporation, the Federal Reserve Board, or any other agency, entity or person,
other than John Hancock. They involve investment risks including the possible
loss of principal.
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Please note that the SEC has not approved or disapproved these
securities, or determined if this prospectus is truthful or complete. Any
representation to the contrary is a criminal offense.
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GUIDE TO THIS PROSPECTUS
This prospectus contains information that you should know before you buy a
contract or exercise any of your rights under the contract. We have arranged the
prospectus in the following way:
. The first section contains an "INDEX OF KEY WORDS."
. Behind the index is the "FEE TABLE." This section highlights the various
fees and expenses you will pay directly or indirectly, if you purchase a
contract.
. The next section is called "BASIC INFORMATION." It contains basic
information about the contract presented in a question and answer format.
You should read the Basic Information before reading any other section of
the prospectus.
. Behind the Basic Information is "ADDITIONAL INFORMATION." This section
gives more details about the contract. It generally does not repeat
information contained in the Basic Information.
The Trust's prospectus is attached at the end of this prospectus. You should
save this prospectuses for future reference.
IMPORTANT NOTICES
This is the prospectus - it is not the contract. The prospectus simplifies many
contract provisions to better communicate the contract's essential features.
Your rights and obligations under the contract will be determined by the
language of the contract itself. On request, we will provide the form of
contract for you to review. In any event, when you receive your contract, we
suggest you read it promptly.
We've also filed with the SEC a "Statement of Additional Information," dated
July 11, 2000. This Statement contains detailed information not included in the
prospectus. Although a separate document from this prospectus, the Statement of
Additional Information has the same legal effect as if it were a part of this
prospectus. We will provide you with a free copy of the Statement upon your
request. To give you an idea what's in the Statement, we have included a copy of
the Statement's table of contents on page 34.
The contracts 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.
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INDEX OF KEY WORDS
We define or explain each of the following key words used in this prospectus
on the pages shown below:
KEY WORD PAGE
Accumulation units...................................27
Annuitant............................................10
Annuity payments.....................................34
Annuity period.......................................13
Contract year........................................11
Date of issue........................................11
Date of maturity.....................................10
Free withdrawal amount...............................16
Funds................................................2
Fixed investment option..............................cover
Investment options...................................14
Premium payments.....................................10
Surrender value......................................18
Surrender............................................16
Variable investment options..........................cover
Withdrawal charge....................................16
Withdrawal...........................................16
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FEE TABLE
The following fee table shows the various fees and expenses that you will pay,
either directly or indirectly, if you purchase a contract. The table does not
include charges for premium taxes (which may vary by state).
OWNER TRANSACTION EXPENSES AND ANNUAL CONTRACT FEE
. Maximum Withdrawal Charge (as % of amount withdrawn) 8%
. Annual Contract Fee (applies only to contracts of less than $10,000) $30
ANNUAL CONTRACT EXPENSES (AS A % OF THE AVERAGE TOTAL VALUE OF THE CONTRACT)
Mortality and Expense Risk Charge 0.90%
Administrative Services Charge 0.50%
Total Annual Contract Charge 1.40%
These annual contract expenses don't apply to amounts held in the fixed
investment options.
ANNUAL FUND EXPENSES (BASED ON % OF AVERAGE NET ASSETS)
The Funds must pay investment management fees and other operating expenses.
These fees and expenses are different for each Fund and reduce the investment
return of each Fund. Therefore, they also indirectly reduce the return you will
earn on any variable investment options you select.
The following figures for the Funds are based on historical Fund expenses, as
a percentage (rounded to two decimal places) of each Fund's average daily net
assets for 1999, except as indicated in the Notes beginning on page 6. Expenses
of the Funds are not fixed or specified under the terms of the contracts, and
expenses may vary from year to year.
Investment Other Total Fund Other Operating
Management Operating Operating Expenses Absent
Fund Name Fee Expenses Expenses Reimbursement
--------- ---------- --------- ---------- ------------------
JOHN HANCOCK VARIABLE
SERIES TRUST I (NOTE 1):
Managed.................. 0.32% 0.03% 0.35% 0.03%
Aggressive Balanced...... 0.68% 0.10% 0.78% 0.29%
Growth & Income.......... 0.25% 0.03% 0.28% 0.03%
Equity Index............. 0.14% 0.00% 0.14% 0.08%
Large Cap Value.......... 0.74% 0.10% 0.84% 0.11%
Large Cap Value CORE..... 0.75% 0.10% 0.85% 0.42%
Large Cap Growth......... 0.36% 0.03% 0.39% 0.03%
Large Cap Aggressive
Growth.................. 0.98% 0.10% 1.08% 0.19%
Large/Mid Cap Value...... 0.95% 0.10% 1.05% 0.47%
Mid Cap Blend............ 0.75% 0.10% 0.85% 0.45%
Mid Cap Value............ 0.80% 0.10% 0.90% 0.12%
Mid Cap Growth........... 0.82% 0.10% 0.92% 0.11%
Fundamental Mid Cap
Growth.................. 0.85% 0.10% 0.95% 0.24%
JOHN HANCOCK VARIABLE
SERIES TRUST I (NOTE 1)
- CONTINUED:
Real Estate Equity....... 0.60% 0.10% 0.70% 0.10%
Small/Mid Cap CORE....... 0.80% 0.10% 0.90% 0.66%
Small/Mid Cap Value...... 0.95% 0.10% 1.05% 1.44%
Small/Mid Cap Growth..... 0.75% 0.10% 0.85% 0.10%
Small Cap Value.......... 0.80% 0.10% 0.90% 0.16%
Small Cap Growth......... 0.75% 0.10% 0.85% 0.14%
Global Equity............ 0.90% 0.10% 1.00% 0.50%
Global Balanced *........ 0.85% 0.10% 0.95% 0.46%
International Equity
Index................... 0.16% 0.10% 0.26% 0.22%
International Equity..... 1.00% 0.10% 1.10% 0.71%
International
Opportunities........... 0.87% 0.10% 0.97% 0.29%
Emerging Markets Equity 1.27% 0.10% 1.37% 2.17%
Short-Term Bond.......... 0.30% 0.10% 0.40% 0.13%
Bond Index............... 0.15% 0.10% 0.25% 0.20%
Active Bond *............ 0.25% 0.03% 0.28% 0.03%
Global Bond.............. 0.69% 0.10% 0.79% 0.15%
High Yield Bond.......... 0.65% 0.10% 0.75% 0.39%
Money Market............. 0.25% 0.06% 0.31% 0.06%
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NOTES TO ANNUAL FUND EXPENSES
(1) John Hancock Variable Series Trust I Funds' percentages reflect management
fees and other fund expenses based on the allocation methodology and
expense reimbursement policy adopted April 23, 1999.
Under the policy, John Hancock Life Insurance Company voluntarily
reimburses a Fund when the Fund's "other fund expenses" exceed 0.10% of
the Fund's average daily net assets.
* Global Balanced was formerly "International Balanced" and Active Bond was
formerly "Sovereign Bond".
EXAMPLES
The following examples on pages 7 and 8 illustrate the current expenses you
would pay, directly or indirectly, on a $1,000 investment allocated to one of
the variable investment options, assuming a 5% annual return on assets. These
examples do not include any applicable premium taxes or any fees for optional
benefit riders. The examples should not be considered representations of past or
future expenses; actual charges may be greater or less than those shown above.
The examples assume Fund expenses at rates set forth above for 1999, after
reimbursements. The annual contract fee has been included as an annual
percentage of assets.
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If you "surrender" (turn in) your contract at the end of the applicable time
period, you would pay:
1 YEAR 3 YEARS 5 YEARS 10 YEARS
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Managed $ 90 $127 $158 $208
Aggressive Balanced $ 94 $140 $180 $253
Growth & Income $ 89 $125 $154 $201
Equity Index $ 88 $121 $147 $186
Large Cap Value $ 95 $142 $183 $260
Large Cap Value CORE $ 95 $142 $184 $261
Large Cap Growth $ 90 $128 $160 $213
Large Cap Aggressive Growth $ 97 $149 $195 $284
Large/Mid Cap Value $ 97 $149 $194 $281
Mid Cap Blend $ 95 $142 $184 $261
Mid Cap Value $ 96 $144 $186 $266
Mid Cap Growth $ 96 $145 $187 $268
Fundamental Mid Cap Growth $ 96 $146 $189 $271
Real Estate Equity $ 94 $138 $176 $245
Small/Mid Cap CORE $ 96 $144 $186 $266
Small/Mid Cap Value $ 97 $149 $194 $281
Small/Mid Cap Growth $ 95 $142 $184 $261
Small Cap Value $ 96 $144 $186 $266
Small Cap Growth $ 95 $142 $184 $261
Global Equity $ 97 $147 $191 $276
Global Balanced $ 96 $146 $189 $271
International Equity Index $ 89 $124 $153 $199
International Equity $ 98 $150 $196 $286
International Opportunities $ 96 $146 $190 $273
Emerging Markets Equity $ 100 $158 $210 $312
Short-Term Bond $ 90 $129 $161 $214
Bond Index $ 89 $124 $153 $198
Active Bond $ 89 $125 $154 $201
Global Bond $ 94 $141 $181 $254
High Yield Bond $ 94 $139 $179 $250
Money Market $ 90 $126 $156 $204
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If you begin receiving payments under one of our annuity payment options at
the end of the applicable time period, or if you do not surrender your contact,
you would pay:
1 YEAR 3 YEARS 5 YEARS 10 YEARS
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Managed $18 $56 $ 96 $208
Aggressive Balanced $22 $69 $118 $253
Growth & Income $17 $54 $ 92 $201
Equity Index $16 $49 $ 85 $186
Large Cap Value $23 $71 $121 $260
Large Cap Value CORE $23 $71 $121 $261
Large Cap Growth $18 $57 $ 98 $213
Large Cap Aggressive Growth $25 $78 $133 $284
Large/Mid Cap Value $25 $77 $132 $281
Mid Cap Blend $23 $71 $121 $261
Mid Cap Value $24 $72 $124 $266
Mid Cap Growth $24 $73 $125 $268
Fundamental Mid Cap Growth $24 $74 $127 $271
Real Estate Equity $22 $66 $114 $245
Small/Mid Cap CORE $24 $72 $124 $266
Small/Mid Cap Value $25 $77 $132 $281
Small/Mid Cap Growth $23 $71 $121 $261
Small Cap Value $24 $72 $124 $266
Small Cap Growth $23 $71 $122 $261
Global Equity $25 $75 $129 $276
Global Balanced $24 $74 $127 $271
International Equity Index $17 $53 $ 91 $199
International Equity $26 $78 $134 $286
International Opportunities $24 $75 $128 $273
Emerging Markets Equity $28 $87 $147 $312
Short-Term Bond $18 $57 $ 99 $214
Bond Index $17 $53 $ 91 $198
Active Bond $17 $54 $ 92 $201
Global Bond $22 $69 $118 $254
High Yield Bond $22 $68 $116 $250
Money Market $18 $54 $ 94 $204
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BASIC INFORMATION
This "Basic Information" section provides answers to commonly asked questions
about the contract. Here are the page numbers where the questions and answers
appear:
QUESTION PAGES TO SEE
-------- ------------
What is the contract?...............................
Who owns the contract?........................ .....
Is the owner also the annuitant?....................
How can I invest money in a contract?...............
How will the value of my investment in the contract change over time?
What annuity benefits does the contract provide?....
What are the tax consequences of owning a contract?.
Can I change my contract's investment options?......
What fees and charges will be deducted from my contract?
How can I withdraw money from my contract?..........
What happens if the annuitant dies before my contract's date of maturity?
Can I return my contract?...........................
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WHAT IS THE CONTRACT?
The contract is a "deferred payment variable annuity contract." An annuity
contract provides a person (known as the "annuitant" or "payee") with a series
of periodic payments. Because this contract is also a deferred payment contract,
the annuity payments will begin on a future date, called the contract's "date of
maturity." Under a variable annuity contract, the amount you have invested can
increase or decrease in value daily based upon the value of the variable
investment options chosen.
WHO OWNS THE CONTRACT?
That's up to you. Unless the contract provides otherwise, the owner of the
contract is the person who can exercise the rights under the contract, such as
the right to choose the investment options or the right to surrender the
contract. In many cases, the person buying the contract will be the owner.
However, you are free to name another person or entity (such as a trust) as
owner. In writing this prospectus, we've assumed that you, the reader, are the
person or persons entitled to exercise the rights and obligations under
discussion.
IS THE OWNER ALSO THE ANNUITANT?
Again, that's up to you. The annuitant is the person upon whose death the
contract's death benefit becomes payable. Also, the annuitant receives payments
from us under any annuity option that commences during the annuitant's lifetime.
In many cases, the same person is both the annuitant and the owner of a
contract. However, you are free to name another person as annuitant.
HOW CAN I INVEST MONEY IN A CONTRACT?
Premium payments
We call the investments you make in your contract "premiums" or "premium
payments." You need at least a $1,000 initial premium payment to purchase a
contract. Any subsequent scheduled premium payments must be at least $50. If you
fail to make a specified premium payment when it's due, your contract will
nevertheless remain if force.
APPLYING FOR A CONTRACT
An authorized representative of John Hancock through whom you purchase your
contract will assist you in (1) completing an application for a contract and (2)
transmitting it, along with your initial premium payment, to the John Hancock
Annuity Servicing Office.
Once we receive your initial premium payment and all necessary information, we
will issue your contract and invest your initial premium payment within two
business days. If the information is not in good order, we will contact you to
get the necessary information. If for some reason, we are unable to complete
this process within 5 business days, we will either send back your money or get
your permission to keep it until we get all of the necessary information.
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We measure the years and anniversaries of your contract from its date of
issue. We use the term "contract year" to refer to each period of time between
anniversaries of your contract's date of issue.
Limits on premium payments
You can make premium payments of up to $500,000 in any one contract year
into the fixed investment option, after the initial premium payment
which can be as much as $500,000). The total of all new premium payments and
transfers that you allocate to any one variable investment option in any one
contract year may not exceed $500,000. While the annuitant is alive and the
contract is in force, you can make premium payments at any time before the
annuitant's 85 1/2 birthday.
We will not issue a contract if the proposed annuitant is age 85 or older. We
may waive any of these limits, however.
Ways to make premium payments
Premium payments made by check or money order must be:
. drawn on a U.S. bank,
. drawn in U.S. dollars, and
. made payable to "John Hancock."
Premium payments after the initial premium payment should be sent to the John
Hancock Annuity Servicing Office at one of the addresses shown on page 2 of this
prospectus. We will accept your initial premium payment by exchange from another
insurance company. You can find information about other methods of premium
payment by contacting your John Hancock representative or by contacting the John
Hancock Annuity Servicing Office.
Once we have issued your contract and it becomes effective, we credit you with
any additional premiums you pay as of the day we receive them at the John
Hancock Annuity Servicing Office.
HOW WILL THE VALUE OF MY INVESTMENT IN THE CONTRACT CHANGE OVER TIME?
Prior to a contract's date of maturity, the amount you've invested in any
VARIABLE INVESTMENT OPTION will increase or decrease based upon the investment
experience of the corresponding Fund. Except for certain charges we deduct, your
investment experience will be the same as if you had invested in the Fund
directly and reinvested all Fund dividends and distributions in additional
shares.
Like a regular mutual fund, each Fund deducts investment management fees and
other operating expenses. These expenses are shown in the fee table on page 6.
However, unlike a
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mutual fund, we will also deduct charges relating to the annuity guarantees and
other features provided by the contract. These charges reduce your investment
performance and the amount we have credited to your contract in any variable
investment option. We describe these charges under "What fees and charges will
be deducted from my contract?" beginning on page 14.
Each premium payment you allocate to the fixed investment option will earn
interest (calculated on a compounded basis) at our declared rate in effect at
the time of the deposit into the fixed investment option. From time to time, we
declare new rates, subject to a 3% minimum. For purposes of crediting interest,
transfers from a variable investment option will be treated as a premium
payment.
Under current practice, we credit interest to amounts allocated to the fixed
investment option based on the size of the initial premium payment, We credit a
higher rate for initial premium payments of $10,000 or more. The rate of
interest credited on each amount varies based upon when that amount was
allocated to the fixed investment option.
At any time before the date of maturity, your "TOTAL VALUE OF YOUR CONTRACT"
equals
. the total amount you invested,
. minus all charges we deduct,
. minus all withdrawals you have made,
. plus or minus each variable investment option's positive or negative
investment return that we credit daily to any of your contract's value
daily while it is in that option, and
. plus the interest we credit to any of your contract's value while it is
in the fixed investment option.
WHAT ANNUITY BENEFITS DOES A CONTRACT PROVIDE?
If your contract is still in effect on its date of maturity, it enters what is
called the "annuity period". During the annuity period, we make a series of
fixed or variable payments to you as provided under one of our several annuity
options. The form in which we will make the annuity payments, and the proportion
of such payments that will be on a fixed basis and on a variable basis, depend
on the elections that you have in effect on the date of maturity.
Therefore you should exercise care in selecting your date of maturity and your
choices that are in effect on that date.
You should carefully review the discussion under "The annuity period,"
beginning on page 22, for information about all of these choices you can make.
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WHAT ARE THE TAX CONSEQUENCES OF OWNING A CONTRACT?
In most cases, no income tax will have to be paid on amounts you earn under a
contract until these earnings are paid out. All or part of the following
distributions from a contract may constitute a taxable payout of earnings:
. partial withdrawal
. full withdrawal ("surrender")
. payment of death benefit proceeds as a single sum upon you death or
the annuitant's death
. periodic payments under one of our annuity payment options
How much you will be taxed on distribution is based upon complex tax rules and
depends on matters such as
. the type of the distribution
. when the distribution is made
. the nature of any tax-qualified retirement plan for which the
contract is being used
. the circumstances under which the payments are made
If your contract is issued in connection with a tax-qualified retirement plan,
all or part of your premium payments may be tax-deductible.
Special 10% tax penalties apply in many cases to the taxable portion of any
distributions from a contract before you reach age 59 1/2. Also, most
tax-qualified plans require that distributions from a contract commence and/or
be completed by a certain period of time. This effectively limits the period of
time during which you can continue to derive tax deferral benefits from any
tax-deductible premiums you paid or on any earnings under the contract.
THE FAVORABLE TAX BENEFITS AVAILABLE FOR ANNUITY CONTRACTS ISSUED IN
CONNECTION WITH AN INDIVIDUAL RETIREMENT ANNUITY PLAN OR OTHER TAX-QUALIFIED
RETIREMENT PLAN, ARE ALSO GENERALLY AVAILABLE FOR OTHER TYPES OF INVESTMENTS OF
TAX-QUALIFIED PLANS, SUCH AS INVESTMENTS IN MUTUAL FUNDS, EQUITIES AND DEBT
INSTRUMENTS. YOU SHOULD CAREFULLY CONSIDER WHETHER THE EXPENSES UNDER AN ANNUITY
CONTRACT ISSUED IN CONNECTION WITH A TAX-QUALIFIED PLAN, AND THE INVESTMENT
OPTIONS, DEATH BENEFITS AND LIFETIME ANNUITY INCOME OPTIONS PROVIDED UNDER SUCH
AN ANNUITY CONTRACT, ARE SUITABLE FOR YOUR NEEDS AND OBJECTIVES.
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CAN I CHANGE MY CONTRACT'S INVESTMENT OPTIONS?
Allocation of premium payments
When you apply for your contract, you specify the investment options in which
your premium payments will be allocated. You may change this investment
allocation for future premium payments at any time. Any change in allocation
will be effective as of receipt of your request at the John Hancock Annuity
Servicing Office.
At any one time, you may invest in up to 10 of the 24 investment options.
Currently, you may use a maximum of 18 investment options over the life of your
contract. For purposes of this limit, each contribution or transfer of assets
into an investment option that you are not then using counts as one "use" of an
investment option, even if you had used that option at an earlier time.
Transferring your assets
Up to 12 times during each year of your contract, you may transfer, free of
charge, all or part of the assets held in one investment option to any other
investment option. We reserve the right to assess a charge of up to $25 for
transfer beyond the first 12 transfers per year.
A number of restrictions apply to transfers in general. You may NOT
. transfer assets within 30 days prior to the contract's date of
maturity,
. transfer more than $500,000 in a contract year from any one variable
investment option, without our prior approval,
. make any transfer that would cause you to exceed the above-mentioned
maximum of 18 investment options, or
. make any transfer during the annuity period that would result in more
than four investment options being used at once.
In addition, certain restrictions apply specifically to transfers involving
the fixed investment option. You may NOT
. transfer assets to or from the fixed investment option during the
annuity period,
. transfer or deposit (exclusive of the initial premium payment) more than
$100,000 into the fixed investment option during a contract year,
. make any transfers into the fixed investment option within six months
of a transfer out of the fixed investment option,
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. transfer out of the fixed investment option more than once during a
contract year and only on or within 30 days after the anniversary of your
contract's issuance ("contract anniversary"),
. transfer or deposit money into the fixed investment option after the
10th contact year, or
. transfer out of the fixed investment option more than the greater of $500
or 20% of your assets in the fixed investment option in any one contract
year.
Procedure for transferring your assets
You may request a transfer in writing or, if you have authorized telephone
transfers, by telephone or fax. All transfer requests should be directed to the
John Hancock Annuity Servicing Office at the one of the locations shown on page
2. Your request should include
. your name,
. daytime telephone number,
. contract number,
. the names of the investment options being transferred to and from
each, and
. the amount of each transfer.
The request becomes effective on the day we receive your request, in proper
form, at the John Hancock Annuity Servicing Office.
Telephone transfers
Once you have completed a written authorization, you may request a transfer by
telephone or by fax. If the fax request option becomes unavailable, another
means of telecommunication will be substituted.
If you authorize telephone transactions, you will be liable for any loss,
expense or cost arising out of any unauthorized or fraudulent telephone
instructions which we reasonably believe to be genuine, unless such loss,
expense or cost is the result of our mistake or negligence. We employ procedures
which provide safeguards against the execution of unauthorized transactions, and
which are reasonably designed to confirm that instructions received by telephone
are genuine. These procedures include requiring personal identification, tape
recording calls, and providing written confirmation to the owner. If we do not
employ reasonable procedures to confirm that instructions communicated by
telephone are genuine, we may be liable for any loss due to unauthorized or
fraudulent instructions.
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WHAT FEES AND CHARGES WILL BE DEDUCTED FROM MY CONTRACT?
Mortality and expense risk charge
We deduct a daily charge that compensates us primarily for mortality and
expense risks that we assume under the contract. On an annual basis, this charge
equals 0.90% of the value of the assets you have allocated to the variable
investment options. (This charge does not apply to assets you have in our fixed
investment option.)
In return for mortality risk charge, we assume the risk that annuitants as a
class will live longer than expected, requiring us to a pay greater number of
annuity payments. In return for the expense risk charge, we assume the risk that
our expenses relating to the contracts may be higher than we expected when we
set the level of the contracts' other fees and charges, or that our revenues
from such other sources will be less.
Administrative services charge
We deduct a daily charge for administrative and clerical services that the
contracts require us to provide. On an annual basis, this charge equals 0.50% of
the value of the assets you have allocated to the variable investment options.
Annual contract fee
Prior to the date of maturity of your contract, we will deduct $30 each year
from your contract if it has a total value of less than $10,000. We deduct this
annual contract fee at the beginning of each contract year after the first. We
also deduct it if you surrender your contract. We take the deduction
proportionally from each investment option you are then using. However, we will
not deduct any portion of the annual contract fee from the fixed investment
option if such deduction would result in an accumulation of amounts allocated to
the fixed investment option at less than the guaranteed minimum rate of 3%. In
such case, we will deduct that portion of the contract fee proportionately from
the other investment options you are using. We reserve the right to increase the
annual contract fee to $50.
Premium taxes
We make deductions for any applicable premium or similar taxes based on the
amount of a premium payment. Currently, certain local jurisdictions assess a tax
of up to 5% of each premium payment.
In most cases, we deduct a charge in the amount of the tax from the total
value of the contract only at the time of annuitization, death, surrender, or
withdrawal. We reserve the right, however, to deduct the charge from each
premium payment at the time it is made. We compute the amount of the charge by
multiplying the applicable premium tax percentage times the amount you are
withdrawing, surrendering, annuitizing or applying to a death benefit.
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Withdrawal charge
If you withdraw some money from your contract prior to the date of maturity
("partial withdrawal") or if you surrender (turn in) your contract, in its
entirety, for cash prior to the date of maturity ("total withdrawal" or
"surrender"), we may assess a withdrawal charge. We use this charge to help
defray expenses relating to the sales of the contracts, including commissions
paid and other distribution costs.
Here's how we determine the charge: In any contract year, you may withdraw up
----------------------------------
to 10% of the total value of your contract (computed as of the beginning of the
contract year) without the assessment of any withdrawal charge. We refer to this
amount as the "free withdrawal amount." However, if the amount you withdraw or
surrender totals more than the free withdrawal amount during the contract year,
we will assess a withdrawal charge on any amount of the excess that we attribute
to premium payments you made within seven years of the date of the withdrawal or
surrender.
The withdrawal charge percentage depends upon the number of years that have
elapsed from the date you paid the premium to the date of its withdrawal, as
follows:
YEARS FROM DATE OF PREMIUM PAYMENT TO
DATE OF SURRENDER OR WITHDRAWAL WITHDRAWAL CHARGE*
------------------------------------------------------------
7 or more.......................... 0%
5 but less than 7.................. 6%
3 but less than 5.................. 7%
less than 3........................ 8%
* AS A PERCENTAGE OF THE AMOUNT OF SUCH PREMIUM THAT WE CONSIDER TO HAVE BEEN
WITHDRAWN (INCLUDING THE WITHDRAWAL CHARGE), AS EXPLAINED IN THE TEXT
IMMEDIATELY BELOW.
Solely for purposes of determining the amount of the withdrawal charge, we
assume that each withdrawal (together with any associated withdrawal charge) is
a withdrawal first from the earliest premium payment, and then from the next
earliest premium payment, and so forth until all payments have been exhausted.
Once a premium payment has been considered to have been "withdrawn" under these
procedures, that premium payment will not enter into any future withdrawal
charge calculations. For this purpose, we also consider any amounts that we
deduct for the annual contract charge to have been withdrawals of premium
payments (which means that no withdrawal charge will ever be paid on those
amounts).
The amount of any withdrawal that exceeds any remaining premium payments that
have not already been considered as withdrawn will not be subject to any
withdrawal charge. This means that no withdrawal charge will apply to any
favorable investment experience that you have earned.
Here's how we deduct the withdrawal charge: We deduct the withdrawal charge
------------------------------------------
proportionally from each investment option being reduced by the surrender or
withdrawal. For
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example, if 60% of the withdrawal amount comes from the Growth & Income option
and 40% from the Money Market option, then we will deduct 60% of the withdrawal
charge from the Growth & Income option and 40% from the Money Market option. If
any such option has insufficient remaining value to cover the charge, we will
deduct any shortfall from all of your other investment options, pro-rata based
on the value in each. If your contract as a whole has insufficient surrender
value to pay the entire charge, we will pay you no more than the surrender
value.
You will find examples of how we compute the withdrawal charge in Appendix A
to this prospectus.
When withdrawal charges don't apply: We don't assess a withdrawal charge in
-----------------------------------
the following situations:
. on amounts applied to an annuity option at the contract's date of
maturity or to pay a death benefit; or
. on amounts withdrawn to satisfy the minimum distribution requirements for
tax-qualified plans. (Amounts above the minimum distribution requirements
are subject to any applicable withdrawal charge, however.)
In addition, under our exchange offer program, certain pension plans may be
eligible to exchange their contracts, without charge, for shares of certain
mutual funds distributed by John Hancock Funds, Inc. Under the terms of the
exchange offer, any remaining withdrawal charge applicable to any contract
exchanged would be waived at the time of the exchange transaction. You can
participate in the exchange offer only if your contract was purchased on behalf
either
. a pension plan qualified under Section 401(k) of the Internal Revenue
Code of 1986 or
. a targeted benefit pension plan where plan assets are not allocated
specifically as being for the account of individual plan participants.
The exchange offer was expected to remain open until March 1, 1999, but could
be extended for particular offerees under special circumstances. Such extensions
have occurred and may continue to occur for an indefinite period of time.
HOW CAN I WITHDRAW MONEY FROM MY CONTRACT?
Surrenders and partial withdrawals
Prior to your contract's date of maturity, if the annuitant is living, you
may:
. surrender your contract for a cash payment of its "surrender value,"
or
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. make a partial withdrawal of the surrender value.
The "surrender value" of a contract is the total value of a contract, MINUS
the annual contract fee and any applicable premium tax and withdrawal charges.
We will determine the amount surrendered or withdrawn as of the date we receive
your request at the John Hancock Annuity Servicing Office.
Certain surrenders and withdrawals may result in taxable income to you or
other tax consequences as described under "Tax information," beginning on page
26. Among other things, if you make a full surrender or partial withdrawal from
your contract before you reach age 59 1/2, an additional federal penalty of 10%
generally applies to any taxable portion of the withdrawal.
We will deduct any partial withdrawal proportionally from each of your
investment options based on the value in each, unless you direct otherwise.
Without our prior approval, you may not make a partial withdrawal
. for an amount less than $50, or
. if the remaining total value of your contract would be less than $1,000.
If your "free withdrawal value" at any time is less than $100, you must
withdraw that amount in full, in a single sum, before you make any other partial
withdrawals. A partial withdrawal is not a loan and cannot be repaid. We reserve
the right to terminate your contract if the value of your contract becomes zero.
You generally may not make any surrenders or partial withdrawals once we begin
making payments under an annuity option.
WHAT HAPPENS IF THE ANNUITANT DIES BEFORE MY CONTRACT'S DATE OF MATURITY?
Guaranteed minimum death benefit
If the annuitant dies before your contract's date of maturity, we will pay a
death benefit. If the death occurs before the contract anniversary nearest the
annuitant's 75th birthday, we will pay the greater of:
. the total value of your contract, or
. the total amount of premium payments made, minus any partial withdrawals
and related withdrawal charges.
If the death occurs on or after the contract anniversary nearest the
annuitant's 75th birthday, we will pay an amount equal to the total value of
your contract.
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We calculate the death benefit as of the day we receive, at the John Hancock
Annuity Servicing Office:
. proof of the annuitant's death, and
. any required instructions as to method of settlement.
Unless you have elected an optional method of settlement, we will pay the
death benefit in a single sum to the beneficiary you chose prior to the
annuitant's death. If you have not elected an optional method of settlement, the
beneficiary may do so. However, if the death benefit is less than $5,000, we
will pay it in a lump sum, regardless of any election. You can find more
information about optional methods of settlement under "Annuity options,"
beginning on page 24.
CAN I RETURN MY CONTRACT?
In most cases, you have the right to cancel your contract within 10 days (or
longer in some states and for contracts issued as "IRAs" ) after you receive it.
To cancel your contract, simply deliver or mail it to:
. John Hanock at one of the addresses shown on page 2, or
. the John Hancock representative who delivered the contract to you.
In most states, you will receive a refund equal to the total value of your
contract on the date of cancellation, increased by any charges for premium taxes
deducted by us to that date. In some states, or if your contract was issued as
an "IRA", you will receive a refund of any premiums you've paid. The date of
cancellation will be the date we receive the contract.
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ADDITIONAL INFORMATION
This section of the prospectus provides additional information that is not
contained in the Basic Information section on pages 9 through 20.
CONTENTS OF THIS SECTION PAGES TO SEE
Description of John Hancock....................... 21
Who should purchase a contract.................... 21
How we support the variable investment options.... 21
The accumulation period........................... 22
The annuity period................................ 23
Variable investment option valuation procedures... 25
Distribution requirements following death of owner 25
Miscellaneous provisions.......................... 26
Tax information................................... 26
Performance information........................... 32
Reports........................................... 33
Voting privileges................................. 33
Certain changes................................... 33
Distribution of contracts......................... 33
Experts........................................... 34
Registration statement............................ 34
Condensed Financial Information................... 35
Appendix A - Examples of withdrawal charge calculation 39
Appendix B - Illustrative values and annuity payment tables 41
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DESCRIPTION OF JOHN HANCOCK
We are John Hancock, a stock life insurance company that was organized in 1862
under the laws of the Commonwealth of Massachusetts. On February 1, 2000, we
converted to a stock company by "demutualizing" and changed our name from "John
Hancock Mutual Life Insurance Company". As part of the demutualization process,
we became a subsidiary of John Hancock Financial Services, Inc., a newly-formed
publicly-traded corporation. Our home office is located at 200 Clarendon Street,
Boston, Massachusetts 02117. We have authority to transact business in all 50
states. As of December 31, 1999, we had more than $ 71 billion of assets.
WHO SHOULD PURCHASE A CONTRACT?
We designed these contracts for individuals doing their own retirement
planning, including purchases under plans and trusts that do not qualify for
special tax treatment under the Internal Revenue Code of 1986 (the "Code"). We
also designed the contracts for purchase under:
. traditional individual retirement annuity ("IRA") plans satisfying
the requirements of Section 408 of the Code;
. non-deductible IRA plans ("Roth IRAs") satisfying the requirements of
Section 408A of the Code;
. SIMPLE IRA plans adopted under Section 408(p) of the Code;
. Simplified Employee Pension plans ("SEPs") adopted under Section
408(k) of the Code;
. annuity purchase plans adopted under Section 403(b) of the Code by public
school systems and certain other tax-exempt organizations;
. deferred compensation plans maintained by a state or political
subdivision or tax exempt organization under Section 457 of the Code; and
. pension or profit-sharing plans qualified under section 401(a) of the
Code.
When a contract forms part of a tax-qualified plan it becomes subject to
special tax law requirements, as well as the terms of the plan documents
themselves, if any. Additional requirements may apply to plans that cover a
"self-employed individual" or an "owner-employee". Also, in some cases, certain
requirements under "ERISA" (the Employee Retirement Income Security Act of 1974)
may apply. Requirements from any of these sources may, in effect, take
precedence over (and in that sense modify) the rights and privileges that an
owner otherwise would have under a contract. Some such requirements may also
apply to certain retirement plans that are not tax-qualified.
We may include certain requirements from the above sources in endorsements or
riders to the affected contracts. In other cases, we do not. In no event,
however, do we undertake to assure a contract's compliance with all plan, tax
law, and ERISA requirements applicable to a tax-qualified or non tax-qualified
retirement plan. Therefore, if you use or plan to use a contract in connection
with such a plan, you must consult with competent legal and tax advisers to
ensure that you know of (and comply with) all such requirements that apply in
your circumstances.
To accommodate "employer-related" pension and profit-sharing plans, we provide
"unisex" purchase rates. That means the annuity purchase rates are the same for
males and females. Any questions you have as to whether you are participating in
an "employer-related" pension or profit-sharing plan should be directed to your
employer. Any question you or your
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employer have about unisex rates may be directed to the John Hancock Annuity
Servicing Office.
HOW WE SUPPORT THE VARIABLE INVESTMENT OPTIONS
We hold the Fund shares that support our variable investment options in John
Hancock Variable Annuity Account U (the "Account"), a separate account
established by John Hancock under Massachusetts law. The Account is registered
as a unit investment trust under the Investment Company Act of 1940 ("1940
Act").
The Account's assets, including the Trust's shares, belong to John Hancock.
Each contract provides that amounts we hold in the Account pursuant to the
policies cannot be reached by any other persons who may have claims against us.
All of John Hancock's general assets also support John Hancock's obligations
under the contracts, as well as all of its other obligations and liabilities.
These general assets consist of all John Hancock's assets that are not held in
the Account (or in another separate account) under variable annuity or variable
life insurance contracts that give their owners a preferred claim on those
assets.
THE ACCUMULATION PERIOD
Your value in our variable investment options
Each premium payment or transfer that you allocate to a variable investment
option purchases "accumulation units" of that variable investment option.
Similarly, each withdrawal or transfer that you take from a variable investment
option (as well as certain charges that may be allocated to that option) result
in a cancellation of such accumulation units.
Valuation of accumulation units
To determine the number of accumulation units that a specific transaction will
purchase or cancel, we use the following formula:
dollar amount of transaction
DIVIDED BY
value of one accumulation unit for the applicable
variable investment option at the time of such transaction
The value of each accumulation unit will change daily depending upon the
investment performance of the Fund that corresponds to that variable investment
option and certain charges we deduct from such investment option. (See below
under "Variable investment option valuation procedures.")
Therefore, at any time prior to the date of maturity, the total value of your
contract in a variable investment option can be computed according to the
following formula:
number of accumulation units in the variable
investment options
TIMES
value of one accumulation unit for the
applicable variable investment option that time
Your value in the fixed investment option
On any date, the total value of your contract in the fixed investment option
equals:
. the amount of premium payments or transferred amounts allocated to
the fixed investment option, MINUS
. the amount of any withdrawals or transfers paid out of the fixed
investment option, PLUS
. interest compounded daily on any amounts in the fixed investment
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option at the effective annual rate of interest we have declared,
MINUS
. the amount of any charges and fees deducted from fixed investment
option.
THE ANNUITY PERIOD
Date of maturity
Your contract specifies the date of maturity, when payments from one of our
annuity options are scheduled to begin. You initially choose a date of maturity
when you complete your application for a contract. Unless we otherwise permit,
the date of maturity must be
. at least 6 months after the date the first premium payment is applied
to your contract and
. no later than the maximum age specified in your contract.
Subject always to these requirements, you may subsequently select an earlier
date of maturity. The John Hancock Annuity Servicing Office must receive your
new selection at least 31 days prior to the new date of maturity, however.
Also, if you are selecting or changing your date of maturity for a contract
issued under a tax-qualified plan, special limits apply. (See "Contracts
purchased for a tax-qualified plan," beginning on page 27.) If you purchased
your contract in Washington, you cannot change the date of maturity.
Choosing fixed or variable annuity payments
During the annuity period, the total value of your contract must be allocated
to no more than four investment options. During the annuity period, we offer
annuity payments on a fixed basis as one investment option, and annuity payments
on a variable basis for EACH variable investment option.
We will generally apply (1) amounts allocated to the fixed investment option
as of the date of maturity to provide annuity payments on a fixed basis and (2)
amounts allocated to variable investment options to provide annuity payments on
a variable basis. If you are using more than four investment options on the date
of maturity, we will divide your contract's value among the four investment
options with the largest values, pro-rata based on the amount of the total value
of your contract that you have in each.
Once annuity payments commence, you may not make transfers from fixed to
variable or from variable to fixed.
Selecting an annuity option
Each contract provides, at the time of its issuance, for annuity payments to
commence on the date of maturity pursuant to Option A: "life annuity with 10
years guaranteed" (discussed under "Annuity options" on page 25).
Prior to the date of maturity, you may select a different annuity option.
However, if the total value of your contract on the date of maturity is not at
least $5,000, Option A: "life annuity with 10 years guaranteed" will apply,
regardless of any other election that you have made. You may not change the form
of annuity option once payments commence.
If the initial monthly payment under an annuity option would be less than $50,
we may make a single sum payment equal to the total surrender value of your
contract on the date the initial payment would be payable. Such single payment
would replace all other benefits. Alternatively, if you agree, we will make
payments at quarterly, semi-annual, or annual intervals in place of monthly
payments.
Subject to that $50 minimum limitation, your beneficiary may elect an annuity
option if
. you have not made an election prior to the annuitant's death;
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<PAGE>
. the beneficiary is entitled to payment of a death benefit of at least
$5,000 in a single sum; and
. the beneficiary notifies us of the election prior to the date the
proceeds become payable.
If the total value of your contract, at death or surrender, is less than
$5,000, no annuity option will be available.
Variable monthly annuity payments
We determine the amount of the first variable monthly payment under any
variable investment option by using the applicable annuity purchase rate for the
annuity option under which the payment will be made. The contract sets forth
these annuity purchase rates. In most cases they vary by the age and gender of
the annuitant or other payee.
The amount of each subsequent variable annuity payment under that variable
investment option depends upon the investment performance of that variable
investment option. Here's how it works:
. we calculate the actual net investment return of the variable investment
option (after deducting all charges) during the period between the dates
for determining the current and immediately previous monthly payments.
. if that actual net investment return exceeds the "assumed investment
rate" (explained below), the current monthly payment will be larger than
the previous one.
. if the actual net investment return is less than the assumed investment
rate, the current monthly payment will be smaller than the previous one.
Assumed investment rate
The assumed investment rate for any variable portion of your annuity payments
will be 3 1/2 % per year, except as follows.
You may elect an assumed investment rate of 5% or 6%, provided such a rate is
available in your state. If you elect a higher assumed investment rate, your
initial variable annuity payment will also be higher. Eventually, however, the
monthly variable annuity payments may be smaller than if you had elected a lower
assumed investment rate.
Fixed monthly annuity payments
The dollar amount of each fixed monthly annuity payment is specified during
the entire period of annuity payments, according to the provisions of the
annuity option selected. To determine such dollar amount we first, in accordance
with the procedures described above, calculate the amount to be applied to the
fixed annuity option as of the date of maturity. We then subtract any applicable
premium tax charge and divide the difference by $1,000.
We then multiply the result by the greater of
. the applicable fixed annuity purchase rate shown in the appropriate
table in the contract; or
. the rate we currently offer at the time of annuitization. (This current
rate may be based on the sex of the annuitant, unless prohibited by law.)
Annuity options
Two basic annuity options are available:
OPTION A: LIFE ANNUITY WITH PAYMENTS FOR A GUARANTEED PERIOD - We will make
monthly payments for a guaranteed period of 5, 10, or 20 years, as selected by
you or your beneficiary, and after such period for as long as the payee lives.
If the payee dies prior to the end of such guaranteed period,
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we will continue payments for the remainder of the guarantee period to a
contingent payee, subject to the terms of any supplemental agreement issued.
Federal income tax requirements currently applicable to contracts used with
H.R. 10 plans and individual retirement annuities 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.
OPTION B: LIFE ANNUITY WITHOUT FURTHER PAYMENT ON DEATH OF PAYEE - We will
make monthly payments to the payee as long as he or she lives. We guarantee no
minimum number of payments.
VARIABLE INVESTMENT OPTION VALUATION PROCEDURES
We compute the net investment return and accumulation unit values for each
variable investment option as of the end of each business day. A business day is
any date on which the New York Stock Exchange is open for regular trading.
Each business day ends at the close of regular trading for the day on that
exchange. Usually this is 4:00 p.m., Eastern time. On any date other than a
business day, the accumulation unit value or annuity unit value will be the same
as the value at the close of the next following business day.
DISTRIBUTION REQUIREMENTS FOLLOWING DEATH OF OWNER
If you did not purchase your contract under a tax-qualified plan (as that term
is used below), the Code requires that the following distribution provisions
apply if you die. We summarize these provisions in the adjacent box. In most
cases, these provisions do not cause a problem if you are also the annuitant
under your policy. If you have designated someone other than yourself as the
annuitant, however, your heirs will have less discretion than you would have had
in determining when and how the contract's value would be paid out.
IF YOU DIE BEFORE ANNUITY PAYMENTS HAVE BEGUN:
.if the contract's designated beneficiary is
your surviving spouse, your spouse may continue
the contract in force as the owner.
.
if the beneficiary is not your surviving spouse OR if the beneficiary is
your surviving spouse but chooses not to continue the contract, the
entire interest (as discussed below) in the contract on the date of your
death must be:
(1)paid out in full within five years of your
death or
(2)
applied in full towards the purchase of a life annuity on the beneficiary
with payments commencing within one year of your death
If you are the annuitant, as well as the owner, the entire interest in the
contract on the date of your death equals the death benefit that then becomes
payable. If you are the owner but not the annuitant, the entire interest equals
. the surrender value if paid out in full within
five years of your death, or
. the total value of your contract applied in full towards the purchase of
a life annuity on the beneficiary with payments commencing within one
year of your death.
IF YOU DIE ON OR AFTER ANNUITY PAYMENTS HAVE BEGUN
. any remaining amount that we owe must be paid out at least as rapidly as
under the method of making annuity payments that is then in use.
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Notice of the death of an owner or annuitant should be furnished promptly to
the John Hancock Annuity Servicing Office.
The Code imposes very similar distribution requirements on contracts used to
fund tax-qualified plans. We provide the required provisions for tax-qualified
plans in separate disclosures and endorsements.
MISCELLANEOUS PROVISIONS
Assignment; change of owner or beneficiary
To qualify for favorable tax treatment, certain contracts can't be sold;
assigned; discounted; or pledged as collateral for a loan, as security for
the performance of an obligation, or for any other purpose, unless the owner is
a trustee under section 401(a) of the Internal Revenue Code.
Subject to these limits, while the annuitant is alive, you may designate
someone else as the owner by written notice to the John Hancock Annuity
Servicing Office. The contract designates the person you choose as beneficiary.
You may change the beneficiary by written notice no later than receipt of due
proof of the death of the annuitant. Changes of owner or beneficiary will take
effect whether or not you or the annuitant is then alive. However, these changes
are subject to:
. the rights of any assignees of record,
. the any action taken prior to receipt of the notice, and
. certain other conditions.
An assignment, pledge, or other transfer may be a taxable event. See "Tax
information" below. Therefore, you should consult a competent tax adviser before
taking any such action.
TAX INFORMATION
Our income taxes
We are taxed as a life insurance company under the Internal Revenue Code (the
"Code"). The Account is taxed as part of our operations and is not taxed
separately.
The contracts permit us to deduct a charge for any taxes we incur that are
attributable to the operation or existence of the contracts or the Account.
Currently, we do not anticipate making a charge such taxes. If the level of the
current taxes increases, however, or is expected to increase in the future, we
reserve the right to make a charge in the future.
Contracts not purchased to fund a tax-qualified plan
Undistributed gains
We believe the contracts will be considered annuity contracts under Section 72
of the Code. This means that, ordinarily, you pay no federal income tax on any
gains in your contract until we actually distribute assets to you.
However, a contract owned other than by a natural person does not generally
qualify as an annuity for tax purposes. Any increase in value therefore would
constitute ordinary taxable income to such an owner in the year earned.
Annuity payments
When we make payments under a contract in the form of an annuity, each payment
will result in taxable ordinary income to the payee, to the extent that each
such payment exceeds an allocable portion of your "investment in the contract"
(as defined in the Code). In general, your "investment in the contract" equals
the aggregate amount of premium payments you have made over the life of the
contract, reduced by any amounts previously distributed from the contract that
were not subject to tax.
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The Code prescribes the allocable portion of each such annuity payment to be
excluded from income according to one formula if the payments are variable and a
somewhat different formula if the payments are fixed. In each case, speaking
generally, the formula seeks to allocate an appropriate amount of the investment
in the contract to each payment. After the entire "investment in the contract"
has been distributed, any remaining payment is fully taxable.
Surrenders and withdrawals before date of maturity
When we make a single sum payment from a contract, you have ordinary taxable
income, to the extent the payment exceeds your "investment in the contract"
(discussed above). Such a single sum payment can occur, for example, if you
surrender your contract or if no annuity payment option is selected for a death
benefit payment.
When you take a partial withdrawal from a contract, all or part of the payment
may constitute taxable ordinary income to you. The taxable portion generally
equals the amount, if any, by which the payment exceeds your then investment in
the contract. If you assign or pledge any part your contract's value, the value
so pledged or assigned is taxed the same way as if it were a partial withdrawal.
For purposes of determining the amount of taxable income resulting from a
single sum payment or a partial withdrawal, all annuity contracts issued by John
Hancock or its affiliates to the owner within the same calendar year will be
treated as if they were a single contract.
Penalty for premature withdrawals
The taxable portion of any withdrawal or single sum payment may also trigger
an additional 10% penalty tax. The penalty tax does not apply to payments made
to you after age 59 1/2, or on account of your death or disability. Nor will it
apply to withdrawals in substantially equal periodic payments over the life of
the payee (or over the joint lives of the payee and the payee's beneficiary).
Diversification requirements
Each of the Funds of the Trust intends to qualify as a regulated investment
company under Subchapter M of the Code and meet the investment diversification
tests of Section 817(h) of the Code and the underlying regulations. Failure to
do so could result in current taxation to you on gains in your contract for the
year in which such failure occurred and thereafter.
The Treasury Department or the Internal Revenue Service may, at some future
time, issue a ruling or regulation presenting situations in which it will deem
contract owners to exercise "investor control" over the Fund shares that are
attributable to their contracts. The Treasury Department has said informally
that this could limit the number or frequency of transfers among variable
investment options. This could cause you to be taxed as if you were the direct
owner of your allocable portion of Fund shares. We reserve the right to amend
the contracts or the choice of investment options to avoid, if possible, current
taxation to the owners.
Contracts purchased for a tax-qualified plan
We have 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.
Withholding on rollover distributions
The tax law requires us to withhold 20% from certain distributions from
tax-qualified plans. We do not have to make the withholding, however, if you
rollover your entire distribution to another plan and you request us to pay it
directly to the successor plan. Otherwise, the 20% mandatory withholding will
reduce the amount you can rollover to the new plan, unless you add funds to the
rollover from other sources. Consult a qualified tax adviser before making such
a distribution.
28
<PAGE>
Contracts purchased as traditional IRAs
A traditional individual retirement annuity (as defined in Section 408 of the
Code) generally permits an eligible purchaser to make annual contributions which
cannot exceed the lesser of (a) 100% of compensation includable in your gross
income, or (b) $2,000 per year. You may also purchase an IRA contract for the
benefit of your spouse (regardless of whether your spouse has a paying job).
You can generally contribute up to $2,000 for each of you and your spouse (or,
if less, your combined compensation).
You may be entitled to a full deduction, a partial deduction or no deduction
for your traditional IRA contribution on your federal income tax return. The
amount of your deduction is based on the following factors:
. whether you or your spouse is an active participant in an employer
sponsored retirement plan,
. your federal income tax filing status, and
. your "Modified Adjusted Gross Income".
Your traditional IRA deduction is subject to phase out limits, based on your
Modified Adjusted Gross Income, which are applicable according to your filing
status and whether you or your spouse are active participants in an employer
sponsored retirement plan. You can still contribute to a traditional IRA even if
your contributions are not deductible.
If you have made any non-deductible contributions to an IRA contract, all or
part of any withdrawal or surrender proceeds, single sum death benefit or any
annuity payment, may be excluded from your taxable income when you receive the
proceeds. In general, all other amounts paid out from a traditional IRA contract
(in the form of an annuity, a single sum, or partial withdrawal), are taxable to
the payee as ordinary income. As in the case of a contract not purchased under a
tax-qualified plan, you may incur additional adverse tax consequences if you
make a surrender or withdrawal before you reach age 59 1/2 (unless certain
exceptions apply similar to those described above for such non-qualified
contracts).
The tax law requires that annuity payments under a traditional IRA contract
begin no later than April 1 of the year following the year in which the owner
attains age 70 1/2.
Contracts purchased as Roth IRAs
In general, you may make purchase payments of up to $2,000 each year for a
type of non-deductible IRA contract, known as a Roth IRA. Any contributions made
during the year for any other IRA you have will reduce the amount you otherwise
could contribute to a Roth IRA. Also, the $2000 maximum for a Roth IRA phases
out for single taxpayers with adjusted gross incomes between $95,000 and
$110,000, for married taxpayers filing jointly with adjusted gross incomes
between $150,000 and $160,000, and for a married taxpayer filing separately with
adjusted gross income between $0 and $10,000.
If you hold your Roth IRA for at least five years the payee will not owe any
federal income taxes or early withdrawal penalties on amounts paid out from the
contract:
. after you reach age 59 1/2,
. on your death or disability, or
. to qualified first-time homebuyers (not to exceed a lifetime limitation
of $10,000) as specified in the Code.
The Code treats payments you receive from Roth IRAs that do not qualify for
the above tax free treatment first as a tax-free return of the contributions you
made. However, any amount of such non--
29
<PAGE>
qualifying payments or distributions that exceed the amount of your
contributions is taxable to you as ordinary income and possibly subject to the
10% penalty tax.
You can convert a traditional IRA to a Roth IRA, unless
. you have adjusted gross income over $100,000, or
. you are a married taxpayer filing a separate return.
The $2,000 Roth IRA contribution limit does not apply to converted amounts.
You must, however, pay tax on any portion of the converted amount that would
have been taxed if you had not converted to a Roth IRA. No similar limitations
apply to rollovers from one Roth IRA to another Roth IRA.
Contracts purchased under SIMPLE IRA plans
In general, a small business employer may establish a SIMPLE IRA retirement
plan if the employer employed 100 or fewer employees earning at least $5,000
during the preceding year. As an eligible employee of the business, you may make
pre-tax contibutions to the SIMPLE IRA plan. You may specify the percentage of
compensation that you want to contribute under a qualified salary reduction
arrangement, provided the amount does not exceed certain contribution limits
(currently $6,000 a year). Your employer must elect to make a matching
contribution of up to 3% of your compensation or a non-elective contribution
equal to 2% of your compensation.
Contracts purchased under Simplified Employee Pension plans (SEPs)
SEPs are employer sponsored plans that may accept an expanded rate of
contributions from one or more employers. Employer contributions are flexible,
subject to certain limits under the Code, and are made entirely by the business
owner directly to a SEP-IRA owned by the employee. Contributions are
tax-deductible by the business owner and are not includable in income by
employees until withdrawn. The maximum amount that may be contributed to an SEP
is the lesser of 15% of compensation or the IRS compensation limit for the year
($170,000 for the year 2000).
Contracts purchased under Section 403(b) plans
Under these tax-sheltered annuity arrangements, public school systems and
certain tax-exempt organizations can make premium payments into contracts owned
by their employees that are not taxable currently to the employee.
The amount of such non-taxable contributions each year
. is limited by a maximum (called the "exclusion allowance") that is
computed in accordance with a formula prescribed under the Code;
. may not, together with all other deferrals the employee elects under
other tax-qualified plans, exceed $10,500 (subject to cost of living
increases); and
. is subject to certain other limits (described in Section 415 of the
Code).
When we make payments from a 403(b) contract on surrender of the contract,
partial withdrawal, death of the annuitant, or commencement of an annuity
option, the payee ordinarily must treat the entire payment as ordinary taxable
income.
Moreover, the Code prohibits distributions from a 403(b) contract before the
employee reaches age 59 1/2, except
30
<PAGE>
. on the employee's separation from service, death, or disability,
. with respect to distributions of assets held under a 403(b) contract
as of December 31, 1988, and
. transfers and exchanges to other products that qualify under Section
403(b).
Contracts purchased under government deferred compensation plans
You can exclude a portion of your compensation from gross income if you
participate in a deferred compensation plan maintained by
. a state,
. a political subdivision of a state,
. an agency or intrumentality or a state or political subdivision of a
state, or
. a tax-exempt organization.
As a "participant" in such a deferred compensation plan, any amounts you
exclude (and any income on such amounts) will 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 you can deferred under such
tax-favored plans equals the lesser of
. $7,500 or
. 33 1/3 % of your "includible income" (as defined in the Code).
The deferred compensation plan must satisfy several conditions, including the
following:
. the plan must not permit distributions prior to your separation from
service (except in the case of an unforeseen emergency), and
. all compensation deferred under the plan shall remain solely the
employer's property and may be subject to the claims of its creditors.
If we make a payment under your contract in the form of an annuity, or in a
single sum such as on surrender or withdrawal, the payment is taxed as ordinary
income.
Contracts purchased for pension and profit sharing plans qualified under
Section 401(a)
In general, an employer may deduct from its taxable income premium payments it
makes under a qualified pension or profit-sharing plan described in Section
401(a) of the Code. Employees participating in the plan generally do not have to
pay tax on such contributions when made. Special requirements apply if a 401(a)
plan covers an employee classified under the Code as a "self-employed
individual" or as an "owner-employee."
Annuity payments (or other payments, such as upon withdrawal, death or
surrender) generally constitute taxable income to the payee; and the payee must
pay income tax on the amount by which a payment exceeds its allocable share of
the employee's "investment in the contract" (as defined in the Code), if any.
In general, an employee's "investment in the contract" equals the aggregate
amount of premium payments made by the employee.
The non-taxable portion of each annuity payment is determined, under the Code,
according to one formula if the payments are variable and a somewhat different
formula if the payments are fixed. In each case, speaking generally, the formula
seeks to allocate an appropriate amount of the investment in the contract to
each payment. Favorable procedures
31
<PAGE>
may also be available to taxpayers who had attained age 50 prior to January 1,
1986.
IRS required minimum distributions to the employee must begin no later than
April 1 of the year following the year in which the employee reaches age 70 1/2
or, if later, retires.
Contracts purchased for "top-heavy" plans
Certain plans may fall within the definition of "top-heavy plans" under
Section 416 of the Code. This can happen if the plan holds a significant amount
of its assets for the benefit of "key employees" (as defined in the Code). You
should consider whether your plan meets the definition. If so, you should take
care to consider the special limitations applicable to top-heavy plans and the
potentially adverse tax consequences to key employees.
Tax-free rollovers
The discussion above covers certain fully or partially tax-free "rollovers"
from a regular IRA to a Roth IRA. You may also make a tax-free rollover from
. a traditional IRA to another traditional IRA,
. any tax-qualified plan to a traditional IRA, and
. any tax-qualified plan to another tax-qualified plan of the same type
(i.e. 403(b) to 403(b), corporate plan to corporate plan, etc.)
We do not have to withhold tax if you roll over your entire distribution and
you request us to pay it directly to the successor plan. Otherwise, 20%
mandatory withholding will apply and reduce the amount you can roll over to the
new plan, unless you add funds to the rollover from other sources. Consult a
qualified tax adviser before taking such a distribution.
See your own tax adviser
The above description of Federal income tax consequences to owners of and
payees under contracts, 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. It does not include a discussion of Federal estate and gift tax or
state tax consequences. The rules under the Code governing tax-qualified plans
are extremely complex and often difficult to understand. Changes to the tax laws
may be enforced retroactively. 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. 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, you should consult a qualified tax adviser.
PERFORMANCE INFORMATION
We may advertise total return information about investments made in the
variable investment options. We refer to this information as "Account level"
performance. In our Account level advertisements, we usually calculate total
return for 1, 5, and 10 year periods or since the beginning of the applicable
variable investment option. Total return at the Account level is the percentage
change between
. the value of a hypothetical investment in a variable investment
option at the beginning of the relevant period, and
. the value at the end of such period.
At the Account level, total return reflects adjustments for
. the mortality and expense risk charges,
. the administrative charge,
32
<PAGE>
. the annual contract fee, and
. any withdrawal charge payable if the owner surrenders his contract at
the end of the relevant period.
Total return at the Account level does not, however, reflect any premium tax
charges. Total return at the Account level will be lower than that at the Trust
level where comparable charges are not deducted.
We may also advertise total return in a non-standard format in conjunction
with the standard format described above. The non-standard format is generally
the same as the standard format, except that it will not reflect any withdrawal
charge and it may include additional durations.
We may advertise "current yield" and "effective yield" for investments in the
Money Market investment option. CURRENT YIELD refers to the income earned on
your investment in the Money Market investment option over a 7-day period an
then annualized. In other words, the income earned in the period is assumed to
be earned every 7 days over a 52-week period and stated as a percentage of the
investment.
EFFECTIVE YIELD is calculated in a similar manner but, when annualized, the
income earned by your investment is assumed to be reinvested and thus compounded
over the 52-week period. Effective yield will be slightly higher than current
yield because of this compounding effect of reinvestment.
Current yield and effective yield reflect all the recurring charges at the
Account level, but will not reflect any premium tax or any withdrawal charge.
REPORTS
At least annually, we will send you (1) a report showing the number and value
of the accumulation units in your contract and (2) the financial statements of
the Trust.
VOTING PRIVILEGES
At meetings of the Trust's shareholders, we will generally vote all the shares
of each Fund that we hold in the Account in accordance with instructions we
receive from the owners of contracts that participate in the corresponding
variable investment option.
CERTAIN CHANGES
We reserve the right, subject to applicable law, including any required
shareholder approval,
. to transfer assets that we determine to be your assets from the Account
to another separate account or investment option by withdrawing the same
percentage of each investment in the Account with proper adjustments to
avoid odd lots and fractions,
. to add or delete variable investment options,
. to change the underlying investment vehicles,
. 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.
Unless otherwise required under applicable laws and regulations, notice to or
approval of owners will not be necessary for us to make such changes.
DISTRIBUTION OF CONTRACTS
Signator Investors, Inc. ("Signator"), formerly John Hancock Distributors,
Inc., acts as principal distributor of the contracts sold through this
prospectus. Signator is registered as a broker-dealer
33
<PAGE>
under the Securities Exchange Act of 1934 and a member of the National
Association of Securities Dealers, Inc. Its address is John Hancock Place,
Boston, Massachusetts 02117. Signator is a subsidiary of John Hancock.
You can purchase a contract either through Signators registered representative
or through other broker-dealers whose representatives are authorized by
applicable law to sell annuity products. We do not expect the compensation to
such broker-dealers to exceed 3.0% of premium payments. Signator compensates its
registered representatives for sales of the contracts on a commission and fee
service basis. We, in turn, reimburse Signator for direct and indirect expenses
actually incurred in connection with the marketing and sales of these contracts.
We offer these contracts on a continuous basis, but neither John Hancock nor
Signator is obligated to sell any particular amount of contracts.
EXPERTS
Ernst & Young LLP, independent auditors, have audited the financial statements
of John Hancock Life Insurance Company and the Account that appear in the
Statement of Additional Information, which also is a part of the registration
statement that contains this prospectus. Those financial statements are included
in the registration statement in reliance upon Ernst & Young's reports given
upon the firm's authority as experts in accounting and auditing.
REGISTRATION STATEMENT
This prospectus omits certain information contained in the registration
statement that we filed with the SEC. You can get more details from the SEC upon
payment of prescribed fees or through the SEC's internet web site (www.sec.gov).
Among other things, the registration statement contains a "Statement of
Additional Information" that we will send you without charge upon request. The
Table of Contents of the Statement of Additional Information lists the following
subjects that it covers:
page of SAI
VARIATIONS IN CHARGES........................ 2
DISTRIBUTION................................. 2
CALCULATION OF PERFORMANCE DATA.............. 2
OTHER PERFORMANCE INFORMATION................ 4
CALCULATION OF ANNUITY PAYMENTS.............. 4
ADDITIONAL INFORMATION ABOUT DETERMINING
UNIT VALUES................................. 6
PURCHASES AND
REDEMPTIONS OF FUND SHARES................. 7
THE ACCOUNT.................................. 8
DELAY OF CERTAIN PAYMENTS.................... 8
LIABILITY FOR TELEPHONE TRANSFERS............ 8
VOTING PRIVILEGES............................ 8
FINANCIAL STATEMENTS......................... 10
34
<PAGE>
CONDENSED FINANCIAL INFORMATION JOHN HANCOCK VARIABLE ANNUITY ACCOUNT U
CONDENSED FINANCIAL INFORMATION JOHN HANCOCK VARIABLE ANNUITY ACCOUNT U
The following table provides selected data for each accumulation share
throughout the period as follows:
<TABLE>
<CAPTION>
Year ended Year ended Year ended Year ended Year ended Year ended Year ended Year ended
December 31, December 31, December 31, December 31, December 31, December 31, December 31, December 31,
----1999---- ----1998---- ----1997---- ----1996---- ----1995---- ----1994---- ----1993---- ----1992----
------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
GROWTH & INCOME
Accumulation
share value:
Beginning of
period..... $37.01 $28.81 $22.50 $19.00 $14.36 $14.64 $13.10 $12.21
End of period $42.42 $37.01 $28.81 $22.50 $19.00 $14.36 $14.64 $13.10
Number of
Accumulation
Shares
outstanding at
end of period 16,490,810 18,399,870 19,890,513 20,011,363 19,861,908 17,864,128 13,460,804 8,177,334
ACTIVE BOND
Accumulation
share value:
Beginning of
period..... $18.68 $17.50 $16.12 $15.70 $13.32 $13.83 $12.69 $11.95
End of period $18.25 $18.68 $17.50 $16.12 $15.70 $13.32 $13.86 $12.69
Number of
Accumulation
Shares
outstanding at
end of period 8,802,436 10,563,708 11,346,956 12,517,535 13,974,544 14,093,236 14,069,545 9,659,805
MONEY MARKET
Accumulation
share value:
Beginning of
period..... $13.42 $12.91 $12.41 $11.95 $11.46 $11.16 $10.98 $10.74
End of period $13.91 $13.42 $12.91 $12.41 $11.95 $11.46 $11.16 $10.98
Number of
Accumulation
Shares
outstanding at
end of period 5,546,414 4,372,907 3,202,804 3,579,555 3,658,467 3,625,288 1,718,995 1,300,491
LARGE CAP GROWTH
Accumulation
share value:
Beginning of
period..... $39.90 $29.00 $22.45 $19.22 $14.83 $15.19 $13.53 $12.48
End of period $48.81 $39.90 $29.00 $22.45 $19.22 $14.83 $15.19 $13.53
Number of
Accumulation
Shares
outstanding at
end of period 7,030,041 7,738,477 8,116,652 8,238,974 8,352,298 7,394,451 4,898,376 2,478,872
MANAGED
Accumulation
share value
Beginning of
period..... $25.98 $21.88 $18.69 $17.12 $13.66 $14.16 $12.87 $12.12
End of period $27.95 $25.98 $21.88 $18.69 $17.12 $13.66 $14.16 $12.87
Number of
Accumulation
Shares
outstanding at
end of period 45,116,830 41,298,898 56,556,644 61,132,257 64,645,449 65,922,648 56,174,089 33,205,067
REAL ESTATE EQUITY
Accumulation
share value
Beginning of
period..... $20.66 $25.16 $21.76 $16.59 $14.98 $14.76 $12.76 $11.16
End of period $20.03 $20.66 $25.16 $21.76 $16.59 $14.98 $14.76 $12.76
Number of
Accumulation
Shares
outstanding at
end of period 2,279,947 3,050,997 3,777,452 3,847,062 4,042,426 5,146,666 3,724,118 652,599
INTERNATIONAL EQUITY INDEX
Accumulation
share value
Beginning of
period. . . $16.07 $13.49 $14.40 $13.39 $12.56 $13.56 $10.41 $10.74
End of period $20.74 $16.07 $13.49 $14.40 $13.39 $12.56 $13.56 $10.41
Number of
Accumulation
Shares
outstanding at
end of period 2,919,820 3,325,675 3,879,212 4,551,590 4,932,128 5,764,133 2,508,258 609,805
<CAPTION>
Period from
--July 27,--
Year Ended 1990 to
December 31, December 31,
----1991---- ----1990----
------------ ------------
<S> <C> <C>
GROWTH & INCOME
Accumulation
share value:
Beginning of $9.82 $10.00
period.....
End of period $12.21 $9.82
Number of 3,993,249 632,144
Accumulation
Shares
outstanding at
end of period
ACTIVE BOND
Accumulation
share value:
Beginning of $10.39 $10.00
period.....
End of period $11.95 $10.39
Number of 4,799,666 570,608
Accumulation
Shares
outstanding at
end of period
MONEY MARKET
Accumulation
share value:
Beginning of $10.28 $10.00
period.....
End of period $10.74 $10.28
Number of 1,002,412 382,238
Accumulation
Shares
outstanding at
end of period
LARGE CAP GROWTH
Accumulation
share value:
Beginning of $10.09 $10.00
period.....
End of period $12.48 $10.09
Number of 1,108,775 75,602
Accumulation
Shares
outstanding at
end of period
MANAGED
Accumulation
share value
Beginning of $10.07 $10.00
period. . .
End of period $12.12 $10.07
Number of 12,531,323 1,779,949
Accumulation
Shares
outstanding at
end of period
REAL ESTATE EQUITY
Accumulation
share value
Beginning of $8.47 $10.00
period.....
End of period $11.16 $8.47
Number of 187,260 8,341
Accumulation
Shares
outstanding at
end of period
INTERNATIONAL EQUIT
Accumulation
share value
Beginning of $8.82 $10.00
period.....
End of period $10.74 $08.82
Number of 274,463 92,726
Accumulation
Shares
outstanding at
end of period
</TABLE>
<TABLE>
<CAPTION>
Year ended Year ended Year ended Year ended Year ended Year ended
December 31, December 31, December 31, December 31, December 31, December 31,
----1999---- ----1998---- ----1997---- ----1996---- ---1995---- ---1994----
------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
SHORT-TERM BOND
Accumulation share value
Beginning of period................. $ 12.19 $ 11.68 $ 11.14 $ 10.90 $ 9.92 $ 10.00
End of period....................... $ 12.38 $ 12.19 $ 11.68 $ 11.14 $ 10.9 $ 9.92
Number of Accumulation Shares
outstanding at end of period......... 730,824 870,737 536,972 585,831 533,029 58,767
SMALL/MID CAP GROWTH
Accumulation share value
Beginning of period................. $ 18.16 $ 17.43 $ 17.08 $ 13.29 $ 9.91 $ 10.00
End of period....................... $ 18.83 $ 18.16 $ 17.43 $ 17.08 $ 13.29 $ 9.91
Number of Accumulation Shares
outstanding at end of period......... 1,174,407 1,616,390 2,114,374 2,635,223 1,038,790 155,604
</TABLE>
35
<PAGE>
<TABLE>
<CAPTION>
Period from
Year ended Year ended Year ended May 1, 1996 to
December 31, 1999 December 31, 1998 December 31, 1997 December 31, 1996
----------------- ----------------- ----------------- -------------------
<S> <C> <C> <C> <C>
EQUITY INDEX
Accumulation Share Value
Beginning of Period.......... $18.77 $14.82 $11.32 $10.00
End of Period................ $22.41 $18.77 $14.82 $11.38
Number of Accumulation
Shares outstanding at
end of period................. 1,587,799 1,304,418 1,094,405 391,237
LARGE CAP VALUE
Accumulation Share Value
Beginning of Period.......... $15.41 $14.31 $11.28 $10.00
End of Period................ $15.70 $15.41 $14.31 $11.28
Number of Accumulation
Shares outstanding at
end of period................. 566,333 603,506 575,770 254,841
MID CAP GROWTH
Accumulation Share Value
Beginning of Period.......... $16.05 $11.71 $10.17 $10.00
End of Period................ $34.56 $16.05 $11.71 $10.17
Number of Accumulation
Shares outstanding at
end of period................. 1,715,355 565,369 435,918 266,458
MID CAP VALUE
Accumulation Share Value
Beginning of Period.......... $13.13 $15.01 $11.51 $10.00
End of Period................ $13.66 $13.13 $15.01 $11.51
Number of Accumulation
Shares outstanding at
end of period................. 432,569 635,996 646,027 93,392
SMALL CAP GROWTH
Accumulation Share Value
Beginning of Period.......... $12.54 $11.11 $9.86 $10.00
End of Period................ $21.07 $12.54 $11.11 $9.86
Number of Accumulation
Shares outstanding at
end of period................. 976,604 759,660 889,006 429,750
SMALL CAP VALUE
Accumulation Share Value
Beginning of Period.......... $12.56 $13.54 $10.93 $10.00
End of Period................ $11.96 $12.56 $13.54 $10.93
Number of Accumulation
Shares outstanding at
end of period................. 474,891 577,049 516,651 160,674
GLOBAL BOND
Accumulation Share Value
Beginning of Period.......... $12.24 $11.37 $10.57 $10.00
End of Period................ $11.80 $12.24 $11.37 $10.57
Number of Accumulation
Shares outstanding at
end of period................. 339,429 601,162 252,183 239,685
INTERNATIONAL OPPORTUNITIES
Accumulation Share Value
Beginning of Period.......... $12.15 $10.63 $10.57 $10.00
End of Period................ $16.05 $12.15 $10.63 $10.57
Number of Accumulation
Shares outstanding at
end of period................. 319,153 331,522 313.120 218,939
GLOBAL BALANCED
Accumulation Share Value
Beginning of Period.......... $12.45 $10.70 $10.57 $10.00
End of Period................ $12.91 $12.45 $10.70 $10.57
Number of Accumulation
Shares outstanding at
end of period................. 96,279 120,080 163,070 72,243
</TABLE>
<TABLE>
<CAPTION>
Period from
Year ended May 1, 1998 to
December 31, 1999 December 31, 1998
----------------- -------------------
<S> <C> <C>
SMALL MID/CAP CORE
Accumulation Share Value
Beginning of Period................. $ 10.70 $ 10.00
End of Period....................... $ 12.71 $ 10.70
Number of Accumulation Shares
outstanding at end of period......... 2,228
GLOBAL EQUITY
Accumulation Share Value
Beginning of Period................. $ 10.30 $ 10.00
End of Period....................... $ 12.61 $ 10.30
Number of Accumulation Shares
outstanding at end of period......... 41,397 495
EMERGING MARKETS EQUITY
Accumulation Share Value
Beginning of Period................. 9.27 $ 10.00
End of Period....................... $ 16.57 $ 9.27
Number of Accumulation Shares
outstanding at end of period......... 184,714 344
BOND INDEX
Accumulation Share Value
Beginning of Period.................. $ 10.00 $ 10.00
End of Period....................... $ 9.61 $ 10.00
Number of Accumulation Shares
outstanding at end of period......... 25,962 113
HIGH YIELD BOND
Accumulation Share Value
Beginning of Period................. $ 9.89 $ 10.00
End of Period........................ $ 10.25 $ 9.89
Number of Accumulation Shares
outstanding at end of period......... 56,202 21,222
</TABLE>
36
<PAGE>
APPENDIX A - EXAMPLE OF WITHDRAWAL CHARGE CALCULATION
ASSUME THE FOLLOWING FACTS:
On January 1, 1997, you make a $5000 initial premium payment and we issue you
a contract.
On January 1, 1998, you make a $1000 premium payment On January 1, 1999, you
make a $1000 premium payment.
On January 1, 2000, the total value of your contract is $9000 because of good
investment earnings.
Now assume you make a partial withdrawal of $6000 (no tax withholding) on
January 2, 2000. In this case, assuming no prior withdrawals, we would deduct a
CDSL of $399.89. We withdraw a total of $6399.89 from your contract.
$6000.00 -- withdrawal request payable to you
+ 399.89 -- withdrawal charge payable to us
--------
$6399.89 -- total amount withdrawn from your contract
HERE IS HOW WE DETERMINE THE WITHDRAWAL CHARGE:
We first reduce your $5000 INITIAL PREMIUM PAYMENT by the three annual $30
contract fees we assessed on January 1, 1998, 1999, and 2000. We withdraw the
remaining $4910 from your contract.
$5000
-30 -- 1998 contract fee payable to us
-30 -- 1999 contract fee payable to us
-30 -- 2000 contract fee payable to us
-------
$4910 -- amount of your initial premium payment we would consider to be
withdrawn.
Under the free withdrawal provision, we deduct 10% of the total value of your
contract at the beginning of the contract year, or $900 (.10 x $9000). We pay
the $900 to you as part of your withdrawal request, and we assess a withdrawal
charge on the remaining balance of $4010. Because you made the initial premium
payment 3 years ago, the withdrawal charge percentage is 7%. We deduct the
resulting $280.70 from your contract to cover the withdrawal charge on your
initial premium payment. We pay the remainder of $3729.30 to you as a part of
your withdrawal request.
$ 4910
-900 -- free withdrawal amount (payable to you)
-------
$ 4010
x.07
$280.70 -- withdrawal charge on initial premium payment (payable to us)
37
<PAGE>
$ 4010.00
-280.70
3729.30 -- part of withdrawal request payable to you
2. We NEXT deem the entire amount of your 1998 PREMIUM PAYMENT to be withdrawn
and we assess a withdrawal charge on that $1000 amount. Because you made this
premium payment 2 years ago, the withdrawal charge percentage is 8%. We deduct
the resulting $80 from your contract to cover the withdrawal charge on your 1998
premium payment. We pay the remainder of $920 to you as a part of your
withdrawal request.
$ 1000
x .08
-----
$ 80 -- withdrawal charge on 1998 premium payment (payable to us)
$ 1000
- 80
----
$920 -- part of withdrawal request payable to you
3. We NEXT determine what additional amount we need to withdraw to provide you
with the total $6000 you requested, after the deduction of the withdrawal charge
on that additional amount. We have already allocated $900 from the free
withdrawal amount, $3729.30 from your initial premium payment, and $920 from
your 1999 PREMIUM PAYMENT. Therefore, $450.70 is needed to reach $6000.
$6000.00 -- total withdrawal amount requested
-900.00 -- free withdrawal amount
-3729.30 -- payment deemed from initial premium payment -920.00 -- payment
deemed from 1998 premium payment
-------
$450.70 -- additional payment to you needed to reach $6000
We know that the withdrawal charge percentage for this remaining amount is 8%,
because you are already deemed to have withdrawn all premiums you paid prior to
1999. We use the following formula to determine how much more we need to
withdraw:
Remainder due to you = Withdrawal needed - [applicable withdrawal
charge percentage times withdrawal needed]
$450.70 = x - [.08x]
$450.70 = .92x
$ 450.7
-------
0.92 = x
$489.89 = x
$489.89 -- deemed withdrawn from 1999 premium payment
38
<PAGE>
-$450.70 -- part of withdrawal request payable to you
--------
$ 39.19 -- withdrawal charge on 1999 premium deemed withdrawn (payable
to us)
$280.70 -- withdrawal charge on the INITIAL PREMIUM PAYMENT $ 80.00 --
withdrawal charge on the 1998 PREMIUM PAYMENT $ 39.19 -- withdrawal charge on
the 1999 PREMIUM PAYMENT
--------
$399.89 -- Total withdrawal charge
39
<PAGE>
APPENDIX C - ILLUSTRATIVE CONTRACT VALUE AND ANNUITY PAYMENT TABLES
The following tables present illustrative periodic contract 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 nine specified variable investment options, assuming
investment by each of those investment options in the corresponding Fund of the
Trust and its predecessors during the periods shown. We have not illustrated the
other investment options because of the limited time that they have been
available. The contracts described in this prospectus were first offered in
1990.
For the years ended December 31, 1986 (and prior thereto), we have calculated
the values based upon the actual investment results of the three corresponding
variable life insurance managed separate accounts which were the predecessors to
the Growth & Income, Sovereign Bond, and Money Market Portfolios, as if the Fund
had been in existence prior to March 28, 1986, the date of its reorganization.
In the tables, we assume
. the owner made a single purchase payment of $10,000, net of any
deductions from purchase payments,
. charges have been assessed at annual rate of 1.40% for mortality and
expense risks and administrative services, and
. actual investment management fees and other fund expenses for the
periods illustrated have also been assessed.
Absent expense reimbursements by John Hancock to certain of the Funds for some
periods, the values illustrated would have been lower.
WHAT THE TABLES ILLUSTRATE
Subject to the foregoing, each Table I presents, at yearly intervals, the
illustrative periodic contract values for each variable investment option which
would have resulted under a contract, if the owner had made a net single
purchase payment of $10,000. The contract values are based upon the investment
performance of the corresponding Fund.
Subject to the foregoing, each Table II indicates, at annual intervals,
illustrative monthly variable annuity payments for each variable investment
option which would have been received by an annuitant or other payee, assuming
that an initial annuity payment of $100 was received in the month and year
indicated. 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.
40
<PAGE>
GROWTH & INCOME
TABLE I--ACCUMULATION PERIOD--ILLUSTRATIVE CONTRACT VALUES WHICH WOULD HAVE
RESULTED IF A $10,000 NET PURCHASE PAYMENT CONTRACT HAD BEEN ISSUED JANUARY 2,
1975
<TABLE>
<CAPTION>
Contract 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
January 1998.............................. 274,384.22
January 1999.............................. 314,474.23
</TABLE>
41
<PAGE>
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
January 1999.................................... 1,369.29
</TABLE>
The amounts shown are based on the investment performance of the Growth &
Income Fund, 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>
ACTIVE BOND (FORMERLY, SOVEREIGN BOND)
TABLE I--ACCUMULATION PERIOD--ILLUSTRATIVE CONTRACT VALUES WHICH WOULD HAVE
RESULTED IF A $10,000 NET PURCHASE PAYMENT CONTRACT HAD BEEN ISSUED JUNE 2, 1980
<TABLE>
<CAPTION>
Contract 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
June 1998.................................... 48,359.84
June 1999.................................... 47,238.66
</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
June 1998..................................... 249.73
June 1999..................................... 248.11
</TABLE>
The amounts shown are based on the investment performance of the Active Bond
Fund, and its predecessors. All amounts reflect the provisions of the contracts
described in this prospectus,
43
<PAGE>
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.
MONEY MARKET
TABLE I--ACCUMULATION PERIOD--ILLUSTRATIVE CONTRACT VALUES WHICH WOULD HAVE
RESULTED IF A $10,000 NET PURCHASE PAYMENT CONTRACT HAD BEEN ISSUED MAY 13, 1982
<TABLE>
<CAPTION>
Contract 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
May 1998.................................... 23,030.24
May 1999.................................... 23,858.64
</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
Month For 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...................................... 128.72
May 1998...................................... 129.41
May 1999...................................... 129.72
</TABLE>
44
<PAGE>
The amounts shown are based on the investment performance of the Money Market
Fund, 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.
LARGE CAP GROWTH
TABLE I--ACCUMULATION PERIOD--ILLUSTRATIVE CONTRACT VALUES WHICH WOULD HAVE
RESULTED IF A $10,000 NET PURCHASE PAYMENT HAD BEEN ISSUED NOVEMBER 24, 1987
<TABLE>
<CAPTION>
Contract 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
November 1998.............................. 61,945.17
November 1999.............................. 75,786.75
</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
November 1998................................. 372.93
November 1999................................. 467.19
</TABLE>
45
<PAGE>
The amounts shown are based on the investment performance of the Large Cap
Growth Fund. 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 the tables.
MANAGED
TABLE I--ACCUMULATION PERIOD--ILLUSTRATIVE CONTRACT VALUES WHICH WOULD HAVE
RESULTED IF A $10,000 NET PURCHASE PAYMENT HAD BEEN ISSUED NOVEMBER 9, 1987
<TABLE>
<CAPTION>
Contract 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
November 1998.............................. 35,155.66
November 1999.............................. 37,822.13
</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
November 1998................................. 202.83
November 1999................................. 241.48
</TABLE>
The amounts shown are based on the investment performance of the Managed Fund.
All amounts reflect the provisions of the contracts described in this
prospectus, including annuity
46
<PAGE>
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 the tables.
REAL ESTATE EQUITY
TABLE I--ACCUMULATION PERIOD--ILLUSTRATIVE CONTRACT VALUES WHICH WOULD HAVE
RESULTED IF A $10,000 NET PURCHASE PAYMENT HAD BEEN ISSUED FEBRUARY 14, 1989
<TABLE>
<CAPTION>
Contract 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
February 1998.............................. 19,594.40
February 1999.............................. 18,996.20
</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
February 1999................................. 135.88
February 1999................................. 131.18
</TABLE>
The amounts shown are based on the investment performance of the Real Estate
Equity Fund. 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 the tables.
47
<PAGE>
INTERNATIONAL EQUITY INDEX
TABLE I--ACCUMULATION PERIOD--ILLUSTRATIVE CONTRACT VALUES WHICH WOULD HAVE
RESULTED IF A $10,000 NET PURCHASE PAYMENT HAD BEEN ISSUED FEBRUARY 10, 1989
<TABLE>
<CAPTION>
Contract Value
on December 31
-of the same--
----year---
--------------
Contract Year Commencing
------------------------
<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
February 1998............................ 18,308.15
February 1999............................
</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
February 1998................................. 108.73
February 1999................................. 143.71
</TABLE>
The amounts shown are based on the investment performance of the International
Equity Index Fund. 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 the tables.
48
<PAGE>
SHORT-TERM BOND
TABLE I--ACCUMULATION PERIOD--ILLUSTRATIVE CONTRACT VALUES WHICH WOULD HAVE
RESULTED IF A $10,000 NET PURCHASE PAYMENT HAD BEEN ISSUED SEPTEMBER 23, 1994
<TABLE>
<CAPTION>
Contract Value
on December 31
-of the same--
----year---
--------------
Contract Year Commencing
------------------------
<S> <C>
September 1994........................... $ 9,913.05
September 1995........................... 10,899.50
September 1996........................... 11,135.67
September 1997........................... 11,684.94
September 1998........................... 12,192.69
September 1999...........................
</TABLE>
TABLE II--ANNUITY PERIOD--ILLUSTRATIVE MONTHLY VARIABLE ANNUITY PAYMENTS AN
ANNUITANT WOULD HAVE RECEIVED ASSUMING A FIRST ANNUITY PAYMENT OF $100 IN
SEPTEMBER 1994
<TABLE>
<CAPTION>
Payment
For Month
Month ---------
-----
<S> <C>
September 1994........................... $100.00
September 1995........................... 103.15
September 1996........................... 100.48
September 1997........................... 103.72
September 1998........................... 106.28
September 1999........................... 104.99
</TABLE>
The amounts shown are based on the investment performance of the Short-Term
Bond Fund. 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 the tables.
49
<PAGE>
SMALL/MID CAP GROWTH
TABLE I--ACCUMULATION PERIOD--ILLUSTRATIVE CONTRACT VALUES WHICH WOULD HAVE
RESULTED IF A $10,000 NET PURCHASE PAYMENT HAD BEEN ISSUED SEPTEMBER 23, 1994
<TABLE>
<CAPTION>
Contract Value
on December 31
Contract Year Commencing of the same year
------------------------ ------------------
<S> <C>
September 1994............................ $ 9,911.94
September 1995............................ 13,289.37
September 1996............................ 17,080.43
September 1997............................ 17,434.93
September 1998............................ 18,156.83
September 1999............................ 18,825.99
</TABLE>
TABLE II--ANNUITY PERIOD--ILLUSTRATIVE MONTHLY VARIABLE ANNUITY PAYMENTS AN
ANNUITANT WOULD HAVE RECEIVED ASSUMING A FIRST ANNUITY PAYMENT OF $100 IN
SEPTEMBER 1994
<TABLE>
<CAPTION>
Payment
Month For Month
----- -----------
<S> <C>
September 1994............................ . . $100.00
September 1995............................ . . 124.17
September 1996............................ . . 99.60
September 1997............................ . . 105.24
September 1998............................ . . 105.77
September 1999............................ . . 198.00
</TABLE>
The amounts shown are based on the investment performance of the Small/Mid Cap
Growth Fund. 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 the tables.
50
<PAGE>
JOHN HANCOCK LIFE INSURANCE COMPANY
DEFERRED COMBINATION FIXED AND VARIABLE ANNUITY CONTRACTS
JOHN HANCOCK VARIABLE ANNUITY ACCOUNT U
STATEMENT OF ADDITIONAL INFORMATION
__________________
This statement of additional information ("SAI"), dated July 11, 2000 is not a
prospectus. It is intended that this SAI be read in conjunction with the
prospectus of John Hancock Variable Annuity Account U (the "Account") dated July
11, 2000, for the Independence contracts being offered. Terms used in this SAI
that are not otherwise defined herein have the same meanings given to them in
the prospectus, unless the context requires otherwise. A copy of the prospectus
may be obtained from the John Hancock Annuity Servicing Office, 529 Main Street
(X-4), Charlestown, Massachusetts 02129, telephone number 1-800-732-5543.
TABLE OF CONTENTS
_________________
<TABLE>
<CAPTION>
PAGE OF SAI
-----------
<S> <C>
Variations in Charges................................... 2
Distribution............................................ 2
Calculation of Performance Data......................... 2
Other Performance Information........................... 4
Calculation of Annuity Payments......................... 4
Additional Information About Determining Unit Values.... 6
Purchases and Redemptions of Fund Shares................ 7
The Account............................................. 8
Delay of Certain Payments............................... 8
Liability for Telephone Transfers....................... 8
Voting Privileges....................................... 8
John Hancock Financial Statements....................... 10
Separate Account Financial Statements................... 35
</TABLE>
<PAGE>
VARIATIONS IN CHARGES
In the future, we may allow a reduction in or the elimination of the
withdrawal charge, the charge for mortality and expense risks, the
administrative services charge,or the annual contract fee. The affected
contracts would involve sales to groups or classes of individuals in a manner
resulting in a reduction in the expenses associated with the sale of such
contracts and the benefits offered, or the costs associated with administering
or maintaining the contracts.
The entitlement to such a reduction in or elimination of charges and fees
will be determined by John Hancock based upon factors such as the following:
(1) the size of the initial premium payment, (2) the size of the group or
class, (3) the total amount of premium payments expected to be received from the
group or class and the manner in which premium payments are remitted, (4) the
nature of the group or class for which the contracts are being purchased and the
persistency expected from that group or class as well as the mortality risks
associated with that group or class, (5) the purpose for which the contracts are
being purchased and whether that purpose makes it likely that costs and expenses
will be reduced, or (6) the level of commissions paid to selling broker-dealers
or certain financial institutions with respect to contracts within the same
group or class.
We will make any reduction in charges or fees according to our rules in
effect at the time an application for a contract is approved. We reserve the
right to change these rules from time to time. Any variation in charges or fees
will reflect differences in costs and services, will apply uniformly to all
prospective contract purchasers in the group or class, and will not be unfairly
discriminatory to the interests of any owner.
DISTRIBUTION
The distribution of the variable annuity contracts through Signator
Investors, Inc. ("Signator") is continuous. Pursuant to a marketing and
distribution agreement between John Hancock and Signator, the amounts we paid
under that agreement for such services were as follows:
YEAR AMOUNT PAID TO SIGNATOR
---- -----------------------
1999 $45,557,806
1998 $32,817,115
1997 $25,035,420
CALCULATION OF PERFORMANCE DATA
The Account may, from time to time, include in advertisements, sales
literature and reports to owners or prospective investors information relating
to the performance of its variable investment options. The performance
information that may be presented is not an estimate or a guarantee of future
investment performance, and does not represent the actual experience of amounts
invested by a particular owner. Set out below is a description of the methods
used in calculating the performance information for the variable investment
options.
The Account will calculate the average annual total return for each
variable investment option (other than the Money Market option), according to
the following formula prescribed by the SEC:
P x ( 1 + T ) n = ERV
where P = a hypothetical initial premium payment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value of a hypothetical
$1,000 premium payment, made at the beginning of
such period (or fractional portion thereof)
2
<PAGE>
Average annual total return is the annual compounded rate of return for a
variable investment option that would have produced the ending redeemable value
over the stated period if the performance remained constant throughout. The
calculation assumes a single $1,000 premium payment made into the variable
investment option at the beginning of the period and full redemption at the end
of the period. It reflects adjustments for all Trust and contract level charges
except any premium tax charge or charges for optional rider benefits described
in the prospectus. The annual contract fee has been included as an annual
percentage of assets.
On the basis, the following table shows the average total return for each
variable investment option for the periods ended December 31, 1999:
<TABLE>
<CAPTION>
AVERAGE ANNUALIZED TOTAL RETURNS
--------------------------------
VARIABLE INVESTMENT OPTION* YEAR TO DATE 1 YEAR** 5 YEAR 10 YEAR DATE OF INCEPTION***
-------------------------- ------------ ------ ------ ------- -----------------
<S> <C> <C> <C> <C> <C>
Managed.......................... 0.40% 0.40% 14.90% 10.90% 1/14/85
Growth & Income.................. 7.50% 7.50% 23.80% 15.90% 1/14/85
Equity Index..................... 12.40% 12.40% N/A N/A 4/30/96
Large Cap Value.................. -5.30% -5.30% N/A N/A 4/30/96
Large Cap Growth................. 15.30% 15.30% 26.60% 17.50% 11/9/87
Mid Cap Value.................... -3.10% -3.10% N/A N/A 4/30/96
Mid Cap Growth................... 109.00% 109.00% N/A N/A 4/30/96
Real Estate Equity............... -10.30% -10.30% 5.10% 6.20% 2/1/89
Small/Mid Cap Growth............. -3.50% -3.50% 13.10% N/A 4/30/94
Small/Mid Cap CORE............... 11.70% 11.80% N/A N/A 4/30/98
Small Cap Value.................. -12.00% -12.00% N/A N/A 4/30/96
Small Cap Growth................. 61.40% 61.40% N/A N/A 4/30/96
Global Equity ................... 15.30% 15.50% N/A N/A 4/30/98
International Balanced........... -3.50% -3.50% N/A N/A 4/30/96
International Equity Index....... 22.10% 22.10% 9.90% 7.80% 2/1/89
International Opportunities...... 25.20% 25.20% N/A N/A 4/30/96
Emerging Markets Equity.......... 71.70% 72.30% N/A N/A 4/30/98
Short-Term Bond.................. -5.70% -5.70% 3.60% N/A 4/30/94
Bond Index....................... -10.80% -11.10% N/A N/A 4/30/98
Sovereign Bond................... -9.50% -9.50% 5.70% 6.40% 1/14/85
Global Bond...................... -10.80% -10.80% N/A N/A 4/30/96
High Yield Bond.................. -3.50% -3.50% N/A N/A 4/30/98
Money Market..................... -3.60% -3.60% 3.00% 3.70% 1/14/85
</TABLE>
* Absent expense reimbursements to certain funds, total returns for the
related variable investment options would have been lower.
** or since inception of the applicable Fund or its predecessor.
*** of the Fund or its predecessor.
For the 7-day period ending December 31, 1999, the Money Market option's
current yield was 4.34 % and its effective yield was 4.44%.
3
<PAGE>
The Account will calculate current yield for each variable investment
option (other than the Money Market option) according to the following formula
prescribed by the SEC:
Yield = 2[(a - b + 1)/6/ - 1]
-----
cd
where: a = net investment income earned during the period by the Fund whose
shares are owned by the variable investment option
b = expenses accrued for the period (net of any reimbursements)
c = the average daily number of accumulation units outstanding during
the period
d = the offering price per accumulation unit on the last day of the
period
According to this formula, yield is determined by dividing the net
investment income per accumulation unit earned during the period (minus the
deduction for mortality and expense risk charge, administration charge and
annual contract fee) by the accumulation unit value on the last day of the
period and annualizing the resulting figure. The calculation is based on
specified 30-day periods identified in the advertisement. Neither the
withdrawal charge nor any charges for premium taxes or optional rider benefits
are reflected in the calculation.
The Account may calculate current yield and effective yield figures for the
Money Market option. The current yield of the Money Market option for a
seven-day period ("base period") will be computed by determining the "net change
in value" (calculated as set forth below) of a hypothetical owner account having
a balance of one unit 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 the hypothetical owner account will include net
investment income of that account (accrued daily dividends as declared by the
Money Market Fund, less daily expenses of the Account) for the period, but will
not include realized gains or losses or unrealized appreciation or depreciation
on the underlying Money Market Fund shares. The mortality and expense risk
charges, administration charge and contract fee are reflected, but the
withdrawal charge and any charge for premium taxes and optional benefits are
not.
The effective yield reflects the effects of compounding and represents an
annualization of the current return. The formula for effective yield, as
prescribed by the SEC, is:
Effective yield = (Base period return + 1)/(365/7)/ - 1
OTHER PERFORMANCE INFORMATION
You can compare performance information at the Account level to other
variable annuity separate accounts or other investment products surveyed by
Lipper Analytical Services, Inc., an independent service that monitors and ranks
the performance of investment companies. Such performance figures are calculated
in accordance with standardized methods established by each reporting service.
We vote any shares held by the Account that are not attributable to
contracts or for which instructions from owners are not received, in proportion
to the instructions we have received from participants in the Account.
CALCULATION OF ANNUITY PAYMENTS
CALCULATION OF ANNUITY UNITS
We use a measuring device called an "annuity unit" to help us compute the
amount of each monthly payment that is based on a variable investment option.
Each variable investment option has its own annuity unit with its own annuity
unit value.
4
<PAGE>
The number of the contract's annuity units for each variable investment
option normally doesn't change while the payee continues to receive payments,
unless the payee makes a transfer from one variable investment option to
another. The amount of each monthly annuity payment based on a variable
investment option equals the number of the contract's annuity units in that
option times the value of one such unit as of the tenth day preceding the
payment's due date.
To compute the amount of the first annuity payment that is based on any
variable investment option, we first determine the amount of your contract's
value that we will apply to that variable option. We do this as of 10 calendar
days prior to the date the initial monthly annuity payment is due, in the manner
described in the prospectus under "The annuity period - choosing fixed or
variable annuity payments."
For each variable investment option, we then divide:
-----------------------------------
the resulting value (minus any
premium tax charge)
by
$1,000
-----------------------------------
and multiply the result by
-----------------------------------
the applicable annuity purchase rate
set forth in the contract and
reflecting
(1) the age and, possibly, sex
of the payee and
(2) the assumed investment rate
(discussed below)
-----------------------------------
This computation determines the amount of initial monthly variable annuity
payment to the annuitant from each variable investment option.
We then determine the number of annuity units to be credited to the contract
from each of such variable investment options by dividing:
-----------------------------------
the amount of the initial
monthly variable annuity
payment from that variable
annuity option
by
the annuity unit value of that
variable investment option as of
10 calendar days prior to the
date the initial payment is due
-----------------------------------
For example, assume that 10 days before the date of maturity, a contract
has credited to it 4000.000 accumulation units, each having a value of
$12.000000. Assume, further, that the appropriate annuity purchase rate
5
<PAGE>
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 first monthly annuity payment
would be $277.92.
4000.000 X 12.000000 X 5.79
---------------------------
1,000
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).
ANNUITY UNIT VALUES
The value of the annuity units varies from day to day, depending on the
investment performance of the variable investment option, the deductions made
against the variable investment option, and the assumed investment rate used in
computing annuity unit values. Thus, the variable monthly annuity payments vary
in amount from month to month.
We calculate annuity unit value separately for each variable investment
option. As of the close of each business day, we calculate the value of one
annuity unit by
(1) multiplying the immediately preceding annuity unit value by the sum of one
plus the applicable net investment rate for the period subsequent to such
preceding value and then
(2) multiplying this product by an adjustment factor to neutralize the assumed
investment rate used in determining the amounts of annuity payable. If
your contract has an assumed investment rate of 3 1/2 % per year, the
adjustment factor for a valuation period of one day would be 0.99990575.
We neutralize the assumed investment rate by applying the adjustment
factor so that the variable annuity payments will increase only if the
actual net investment rate of the variable investment option exceeds 3 1/2
% per year and will decrease only if is less than 3 1/2 % per year.
The amount of the initial variable monthly payment is determined on the
assumption that the actual net investment rate of each variable investment
option used in calculating the "net investment factor" (described below) will be
equal on an annual basis to the "assumed investment rate" (described under "The
annuity period - variable monthly annuity payments" in the prospectus). If the
actual net investment rate between the dates for determining two monthly annuity
payments is greater than the assumed investment rate, the latter monthly payment
will be larger in amount than the former. On the other hand, if the actual net
investment rate between the dates for determining two monthly annuity payments
is less than the assumed investment rate, the latter monthly payment will be
smaller in amount than the former.
MORTALITY TABLES
The mortality tables used as a basis for both variable and fixed annuity
purchase rates are the 1983a Mortality Tables, with projections of mortality
improvements and with certain age adjustments based on the contract year of
annuitization. The mortality table used in a Contract purchased in connection
with certain employer-related plans and used in all contracts issued in Montana
will be the Female Annuity Table of the 1983a Mortality Tables. The impact of
this change will be lower benefits (5% to 15%) from a male's viewpoint than
would otherwise be the case.
ADDITIONAL INFORMATION ABOUT DETERMINING UNIT VALUES
The general manner in which we compute annuity unit values is discussed
above. Like annuity unit values, we calculate accumulation unit values
separately for each variable investment option. As of the close of each
6
<PAGE>
business day, we calculate the value of one accumulation unit of a variable
investment option by multiplying the immediately preceding accumulation unit
value by the sum of one plus the applicable "net investment rate" for the period
subsequent to such preceding value. See "Net investment rate" below.
NET INVESTMENT RATE
For any period, the net investment rate for a variable investment option
equals
(1) the percentage total investment return of the corresponding Fund for that
period (assuming reinvestment of all dividends and other distributions from
the Fund), less
(2) for each calendar day in the period, a deduction of 0.003836% (depending on
the charge for mortality and expense risks) of the value of the variable
investment option at the beginning of the period, and less
(3) a further adjustment in an appropriate amount if we ever elect to impose a
charge for our income taxes.
ADJUSTMENT OF UNITS AND VALUES
We reserve the right to change the number and value of the accumulation
units and/or annuity units credited to your contract, without notice, provided
that strict equity is preserved and the change does not otherwise affect the
benefits, provisions, or investment return of your contract.
HYPOTHETICAL EXAMPLE ILLUSTRATING THE CALCULATION OF ACCUMULATION UNIT VALUES
AND ANNUITY UNIT VALUES
Assume at the beginning of the period being considered, the value of a
particular variable investment option was $4,000,000. Investment income during
the period totaled $2000, while capital gains were $3000 and capital losses were
$1000. Assume also that we are not imposing any tax charge. Charges against
the beginning value of the variable investment option amount to $153.44 assuming
a one day period. The $153.44 was computed by multiplying the beginning 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.
Assume further that each accumulation unit had a value of $11.250000 on the
previous business day, and the value of an annuity unit on such previous date
was $1.0850000. Based upon the experience of the variable investment option
during the period, the value of an accumulation unit at the end of the period
would be [$11.250000 x (1 + .00096164)] or $11.260818. The value of an annuity
unit at the end of the period would be [$1.0850000 x (1 + .00096164) x
.99990575] or $1.0859410. The final figure, .99990575, neutralizes the effect
of a 3 1/2% assumed investment rate so that the annuity unit's change in value
reflects only the actual investment experience of the variable investment
option.
PURCHASES AND REDEMPTIONS OF FUND SHARES
John Hancock purchases and redeems Fund shares for the Account at their net
asset value without any sales or redemption charges. Each available Fund issues
its own separate series of Fund shares. Each such series represents an interest
in one of the Funds of the Trust, which corresponds to one of our variable
investment options. Any dividend or capital gains distributions received by the
Account will be reinvested in shares of that same Fund at their net asset value
as of the dates paid.
On each business day, the account purchases and redeems shares of each fund
for each variable investment option based on, among other things, the amount of
premium payments allocated to that option, dividends reinvested, and transfers
to, from and among investment options, all to be effected as of that date. Such
purchases and redemptions are effective at the net asset value per Trust share
for each fund determined on that same date.
7
<PAGE>
THE ACCOUNT
In addition to the assets attributable to contracts, the Account includes
assets derived from charges made by and, possibly, funds contributed by John
Hancock to commence operations of the variable investment option. From time to
time these additional amounts may be transferred in cash by us to our general
account. Before any such transfer, we will consider any possible adverse impact
transfer might have on any variable investment option. The assets of one
variable investment option are not necessarily legally insulated from
liabilities associated with another variable investment option.
DELAY OF CERTAIN PAYMENTS
Ordinarily, upon a surrender or partial withdrawal, we will pay the value
of any accumulation units in a single sum within 7 days after receipt of a
written request at our Annuity Servicing Office. However, redemption may be
suspended and payment may be postponed under the following conditions:
(1) when the New York Stock Exchange is closed, other than customary weekend
and holiday closings;
(2) when trading on that Exchange is restricted;
(3) when an emergency exists as a result of which (a) disposal of securities in
a variable investment option is not reasonably practicable or (b) it is not
reasonably practicable to determine the value of the net assets of a
variable investment option; or
(4) when a governmental body having jurisdiction over the Account by order
permits such suspension.
Rules and regulations of the SEC, if any are applicable, will govern as to
whether conditions in (2) or (3) exist.
We may defer for up to 15 days the payment of any amount attributable to a
premium payment made by check to allow the check reasonable time to clear.
We may also defer payment of surrender proceeds payable out of any
guarantee period for a period of up to 6 months.
LIABILITY FOR TELEPHONE TRANSFERS
If you authorize telephone transfers, you will be liable for any loss,
expense or cost arising out of any unauthorized or fraudulent telephone or fax
instructions which we reasonably believe to be genuine, unless such loss,
expense or cost is the result of our mistake or negligence. We employ
procedures which provide safeguards against unauthorized transactions, and which
are reasonably designed to confirm that instructions received by telephone are
genuine. These procedures include
. requiring personal identification,
. tape recording calls, and
. providing written confirmation to the owner.
If we do not employ reasonable procedures to confirm that instructions
communicated by telephone are genuine, we may be liable for any loss due to
unauthorized or fraudulent instructions.
VOTING PRIVILEGES
Here's the formula we use to determine the number of Fund shares as to
which you may give instructions:
8
<PAGE>
-----------------------------------
the total value of your
accumulation units value in a
variable investment option
divided by
the net asset value of 1 share
of the corresponding Fund
-----------------------------------
At a shareholders' meeting, you may give instructions regarding:
. the election of the Board of Trustees,
. the ratification of the selection of independent auditors,
. the approval of the Trust's investment management agreements,
. and other matters requiring a vote under the 1940 Act.
The annuitant or other payee will also be entitled to give voting
instructions with respect to the Fund shares corresponding to any variable
investment option under which variable annuity payments are then being made. We
determine the number of Fund shares for which the payee can give instructions by
dividing the actuarially determined present value of the payee's annuity units
that correspond to that Fund by the net asset value of one share of that Fund.
We will furnish you information and forms so that you may give voting
instructions.
We may own Fund shares that we do not hold in any separate account whose
participants are entitled to give voting instructions. We will vote such shares
in proportion to the instructions we receive from all variable annuity contract
and variable life insurance policy owners who give us instructions for that
Fund's shares (including owners who participate in separate accounts other than
the Account).
We have designed your voting privileges based upon our understanding of the
requirements of the federal securities laws. If the applicable laws,
regulations, or interpretations change to eliminate or restrict the need for
such voting privileges, we reserve the right to proceed in accordance with any
such revised requirements.
9
<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, 1999
and 1998, 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 auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. 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 accounting principles generally accepted in the United
States. The variances between such practices and accounting principles generally
accepted in the United States 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 accounting principles generally accepted in the
United States, the financial position of John Hancock Mutual Life Insurance
Company at December 31, 1999 and 1998 or the results of its operations or its
cash flows for the years then ended.
However, 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, 1999 and 1998, 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
March 10, 2000
10
<PAGE>
JOHN HANCOCK MUTUAL LIFE INSURANCE COMPANY
STATUTORY-BASIS STATEMENTS OF FINANCIAL POSITION
<TABLE>
<CAPTION>
December 31
---------------------
1999 1998
---------- -----------
(in millions)
<S> <C> <C>
ASSETS
Bonds--Note 6 . . . . . . . . . . . . . . . . . . $26,188.1 $23,353.0
Stocks:
Preferred . . . . . . . . . . . . . . . . . . . 926.6 844.7
Common . . . . . . . . . . . . . . . . . . . . 458.4 269.3
Investments in affiliates . . . . . . . . . . . 1,465.8 1,520.3
--------- ---------
2,850.8 2,634.3
Mortgage loans on real estate--Note 6 . . . . . . 9,165.9 8,223.7
Real estate:
Company occupied . . . . . . . . . . . . . . . 366.6 372.2
Investment properties . . . . . . . . . . . . . 501.7 1,472.1
--------- ---------
868.3 1,844.3
Policy loans . . . . . . . . . . . . . . . . . . 1,577.8 1,573.8
Cash items:
Cash in banks and offices . . . . . . . . . . . 292.6 241.5
Temporary cash investments . . . . . . . . . . 868.0 1,107.4
--------- ---------
1,160.6 1,348.9
Premiums due and deferred . . . . . . . . . . . . 234.8 253.4
Investment income due and accrued . . . . . . . . 574.8 527.5
Other general account assets . . . . . . . . . . 1,364.7 1,156.6
Assets held in separate accounts . . . . . . . . 16,746.0 17,447.0
--------- ---------
TOTAL ASSETS . . . . . . . . . . . . . . . . . . $60,731.8 $58,362.5
========= =========
</TABLE>
The accompanying notes are an integral part of the statutory-basis financial
statements.
11
<PAGE>
JOHN HANCOCK MUTUAL LIFE INSURANCE COMPANY
STATUTORY-BASIS STATEMENTS OF FINANCIAL POSITION
<TABLE>
<CAPTION>
December 31
---------------------
1999 1998
---------- -----------
(in millions)
<S> <C> <C>
OBLIGATIONS AND POLICYHOLDERS' CONTINGENCY RESERVES
OBLIGATIONS
Policy reserves . . . . . . . . . . . . . . . . $20,574.1 $19,804.8
Policyholders' and beneficiaries' funds . . . . 16,128.3 14,216.9
Dividends payable to policyholders . . . . . . . 464.8 449.1
Policy benefits in process of payment . . . . . 132.3 111.4
Other policy obligations . . . . . . . . . . . . 304.7 322.6
Asset valuation reserve--Note 1 . . . . . . . . 1,242.9 1,289.6
Federal income and other accrued Taxes--Note 1 . (12.1) 211.5
Other general account obligations . . . . . . . 1,695.0 1,109.3
Obligations related to separate accounts . . . . 16,745.1 17,458.6
--------- ---------
TOTAL OBLIGATIONS . . . . . . . . . . . . . . . . 57,275.1 54,973.8
POLICYHOLDERS' CONTINGENCY RESERVES
Surplus note--Note 2 . . . . . . . . . . . . . . 450.0 450.0
Special contingency reserve for group insurance 153.4 160.0
General contingency reserve . . . . . . . . . . 2,853.3 2,778.7
--------- ---------
TOTAL POLICYHOLDERS' CONTINGENCY RESERVES . . . . 3,456.7 3,388.7
--------- ---------
TOTAL OBLIGATIONS AND POLICYHOLDERS' CONTINGENCY
RESERVES. . . . . . . . . . . . . . . . . . . . . $60,731.8 $58,362.5
========= =========
</TABLE>
The accompanying notes are an integral part of the statutory-basis financial
statements.
12
<PAGE>
JOHN HANCOCK MUTUAL LIFE INSURANCE COMPANY
STATUTORY-BASIS STATEMENTS OF OPERATIONS AND CHANGES IN POLICYHOLDERS'
CONTINGENCY RESERVES
<TABLE>
<CAPTION>
Year ended December 31
-----------------------
1999 1998
----------- ----------
(In millions)
<S> <C> <C>
INCOME
Premiums, annuity considerations and pension fund
contributions. . . . . . . . . . . . . . . . . $ 9,622.9 $ 8,844.0
Net investment income--Note 4 . . . . . . . . . 3,033.4 2,956.2
Other, net . . . . . . . . . . . . . . . . . . . 241.9 233.8
--------- ---------
12,898.2 12,034.0
BENEFITS AND EXPENSES
Payments to policyholders and beneficiaries:
Death benefits . . . . . . . . . . . . . . . 675.6 582.9
Accident and health benefits . . . . . . . . 94.4 76.9
Annuity benefits . . . . . . . . . . . . . . 1,734.3 1,612.4
Surrender benefits and annuity fund
withdrawals. . . . . . . . . . . . . . . . . 7,410.6 6,712.4
Matured endowments . . . . . . . . . . . . . 18.6 20.7
--------- ---------
9,933.5 9,005.3
Additions to reserves to provide for future
payments to policyholders and beneficiaries . 1,238.9 1,106.7
Expenses of providing service to policyholders
and obtaining new insurance:
Field sales compensation and expenses . . . . 248.8 290.7
Home office and general expenses . . . . . . 717.8 529.0
Payroll, state premium and miscellaneous taxes . 48.9 52.0
--------- ---------
12,187.9 10,983.7
--------- ---------
GAIN FROM OPERATIONS BEFORE DIVIDENDS TO
POLICYHOLDERS, FEDERAL INCOME TAXES AND
NET REALIZED CAPITAL GAINS . . . . . . . 710.3 1,050.3
Dividends to policyholders . . . . . . . . . . . . 461.1 446.0
Federal income tax credit--Note 1 . . . . . . . . (216.9) (2.8)
--------- ---------
244.2 443.2
--------- ---------
GAIN FROM OPERATIONS BEFORE NET REALIZED
CAPITAL GAINS . . . . . . . . . . . . . . 466.1 607.1
Net realized capital gains--Note 5 . . . . . . . . 29.0 0.7
--------- ---------
NET INCOME . . . . . . . . . . . . . . . . 495.1 607.8
Other increases/(decreases) in policyholders'
contingency reserves:
Net unrealized capital losses and other
adjustments--Note 5 . . . . . . . . . . . . . (147.0) (214.5)
Prior years' federal income taxes . . . . . . . (21.9) (25.5)
Other reserves and adjustments, net--Notes 1, 7
and 13 . . . . . . . . . . . . . . . . . . . . (258.2) (136.9)
--------- ---------
NET INCREASE IN POLICYHOLDERS' CONTINGENCY
RESERVES. . . . . . . . . . . . . . . . . 68.0 230.9
Policyholders' contingency reserves at beginning of
year. . . . . . . . . . . . . . . . . . . . . . . 3,388.7 3,157.8
--------- ---------
POLICYHOLDERS' CONTINGENCY RESERVES AT END OF YEAR $ 3,456.7 $ 3,388.7
========= =========
</TABLE>
The accompanying notes are an integral part of the statutory-basis financial
statements.
13
<PAGE>
JOHN HANCOCK MUTUAL LIFE INSURANCE COMPANY
STATUTORY-BASIS STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year ended December 31
-----------------------
1999 1998
----------- ----------
(In millions)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Insurance premiums, annuity considerations and
deposits . . . . . . . . . . . . . . . . . . . $ 9,816.6 $ 8,945.5
Net investment income . . . . . . . . . . . . . 2,966.1 2,952.8
Benefits to policyholders and beneficiaries . . (10,047.9) (9,190.4)
Dividends paid to policyholders . . . . . . . . (445.4) (396.6)
Insurance expenses and taxes . . . . . . . . . . (1,015.3) (874.4)
Net transfers from separate accounts . . . . . . 1,436.6 131.1
Other, net . . . . . . . . . . . . . . . . . . . (264.2) (181.7)
---------- ----------
NET CASH PROVIDED FROM OPERATIONS . . . . . . 2,446.5 1,386.3
---------- ----------
CASH FLOWS USED IN INVESTING ACTIVITIES:
Bond purchases . . . . . . . . . . . . . . . . . (15,946.3) (12,403.6)
Bond sales . . . . . . . . . . . . . . . . . . . 10,098.5 8,447.8
Bond maturities and scheduled redemptions . . . 2,443.9 2,537.7
Bond prepayments . . . . . . . . . . . . . . . . 644.9 1,202.7
Stock purchases . . . . . . . . . . . . . . . . (2,546.2) (623.2)
Proceeds from stock sales . . . . . . . . . . . 2,174.0 378.4
Real estate purchases . . . . . . . . . . . . . (188.7) (147.6)
Real estate sales . . . . . . . . . . . . . . . 1,258.4 630.5
Other invested assets purchases . . . . . . . . (127.9) (185.3)
Proceeds from the sale of other invested assets 358.4 120.5
Mortgage loans issued . . . . . . . . . . . . . (2,254.2) (1,978.5)
Mortgage loan repayments . . . . . . . . . . . . 1,267.3 1,575.6
Other, net . . . . . . . . . . . . . . . . . . . 183.1 (38.6)
---------- ----------
NET CASH USED IN INVESTING ACTIVITIES . . . . (2,634.8) (483.6)
---------- ----------
CASH FLOWS USED IN FINANCING ACTIVITIES:
Net decrease in short-term note payable . . . . 0.0 (75.0)
Repayment of REMIC notes payable . . . . . . . . 0.0 (203.6)
---------- ----------
NET CASH USED IN FINANCING ACTIVITIES . . . . 0.0 (278.6)
---------- ----------
(DECREASE) INCREASE IN CASH AND TEMPORARY CASH
INVESTMENTS . . . . . . . . . . . . . . . . . . . (188.3) 624.1
Cash and temporary cash investments at beginning of
year. . . . . . . . . . . . . . . . . . . . . . . 1,348.9 724.8
---------- ----------
CASH AND TEMPORARY CASH INVESTMENTS AT END OF YEAR $ 1,160.6 $ 1,348.9
========== ==========
</TABLE>
The accompanying notes are an integral part of the statutory-basis financial
statements.
14
<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. Pursuant to a Plan of
Reorganization, effective February 1, 2000, the Company converted from a mutual
life insurance company to a stock life insurance company and became a wholly
owned subsidiary of John Hancock Financial Services, Inc., which is a holding
company. See Note 15--Subsequent Events.
The Company offers financial products in two major groups: (i) its retail
business, which offers protection and asset gathering products primarily to
retail consumers; and (ii) the investment and pension business, which offers
guaranteed and structured financial products primarily to institutional
customers. In addition, there is a corporate business unit. The Company's
reportable business units are strategic business units offering different
products and services. The reportable business units are managed separately, as
they focus on different products, markets or distribution channels.
In the Retail-Protection business unit, the Company offers a variety of
individual life insurance and individual and group long-term care insurance
products, including participating whole life, term life, and retail and group
long-term care insurance. Products are distributed through multiple distribution
channels, including insurance agents and brokers and alternative distribution
channels that include banks, financial planners, direct marketing and the
Internet.
In the Retail-Asset Gathering business unit, the Company offers individual
annuities, consisting of fixed deferred annuities, fixed immediate annuities,
single premium immediate annuities, and variable annuities. This business unit
distributes its products through distribution channels including insurance
agents and brokers affiliated with the Company, securities brokerage firms,
financial planners, and banks.
In the Investment and Pension business unit, the Company offers a variety of
retirement products to qualified defined benefit plans, defined contribution
plans and non-qualified buyers. The Company's products include guaranteed
investment contracts, funding agreements, single premium annuities, and general
account participating annuities and fund type products. These contracts provide
non-guaranteed, partially guaranteed, and fully guaranteed investment options
through general and separate account products. The business unit distributes its
products through a combination of dedicated regional representatives, pension
consultants and investment professionals.
The Corporate business unit primarily consists of certain corporate operations
and businesses that are either disposed or in run-off. Corporate operations
primarily include certain financing activities, income on capital not
specifically allocated to the business units and certain non-recurring expenses
not allocated to the business units. The disposed businesses primarily consist
of group health operations.
The Company established a "corporate account" as part of the Corporate business
unit to facilitate the capital management process. The corporate account
contains capital not allocated to support the operations of the Company's
business units.
Late in the fourth quarter of 1999, the Company transferred certain assets from
the business units to the corporate account. These assets include investments in
certain subsidiaries and the home office real estate complex (collectively
referred to as "corporate purpose assets"). Historically, the Company has
allocated the investment performance or other earnings of corporate purpose
assets among all of the business units. However, subsequent to the conversion to
a stock life insurance company, the Company will centrally manage the
performance of corporate purpose assets through the corporate account.
The asset transfer directly affected certain group pension participating
contractholders because those contracts have participating features under which
crediting rates and dividends are affected directly by portfolio earnings.
Certain
15
<PAGE>
JOHN HANCOCK MUTUAL LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS--CONTINUED
NOTE 1--NATURE OF OPERATIONS AND SIGNIFICANT ACCOUNTING PRACTICES--CONTINUED
participating contractholders participate in contract experience related to net
investment income and realized capital gains and losses in the general account.
These participating contractholders were compensated for transferred assets
based on the fair value of the assets transferred, which amounted to $771.7
million. These participating contractholders were credited with their portion of
the difference between the fair value and carrying value of the assets
transferred through the crediting rates and dividends on their contracts. The
after-tax amount of the transfer was $170.8 million which was charged directly
to policyholders' contingency reserve.
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 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.
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 or future estimated gross profits or gross
margins; (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 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: During March 1998, the NAIC adopted codified
statutory accounting principles ("Codification") effective January 1, 2001.
Codification 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. Codification will
require adoption by the various states before it becomes the prescribed
statutory basis of accounting for insurance companies domesticated within those
states. Accordingly, before Codification becomes effective for the Company, the
Commonwealth of Massachusetts must adopt Codification as the prescribed basis of
accounting on which domestic insurers must report their statutory-basis results
to the Division of Insurance. At this time, it is anticipated that the
Commonwealth of Massachusetts will
16
<PAGE>
JOHN HANCOCK MUTUAL LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS--CONTINUED
NOTE 1--NATURE OF OPERATIONS AND SIGNIFICANT ACCOUNTING PRACTICES--CONTINUED
adopt Codification effective January 1, 2001. 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
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. Net premiums
related to equity collar positions are amortized into income on a
straight-line basis over the term of the collars. The collars are carried at
fair value, with changes in fair value reflected directly in policyholders'
contingency reserves.
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. During 1998, the Company made a
strategic decision to sell the majority of its commercial real estate
portfolio. Properties with a book value of $1,057.3 million and $533.8 million
were sold in 1999 and 1998, respectively, and an additional $125.3 million of
real estate is expected to be sold in 2000. Net gains on the properties sold
amounted to $140.8 million and $64.3 million in 1999 and 1998, respectively.
Those properties to be sold subsequent to December 31, 1999 are carried at the
lower of depreciated cost at the date a determination to sell was made or fair
value. Accumulated depreciation amounted to $254.4 million and $370.0 million
at December 31, 1999 and 1998, respectively.
Real estate acquired in satisfaction of debt and real estate held for sale,
which are classified with investment properties, are carried at the lower of
cost or fair value.
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.
17
<PAGE>
JOHN HANCOCK MUTUAL LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS--CONTINUED
NOTE 1--NATURE OF OPERATIONS AND SIGNIFICANT ACCOUNTING PRACTICES--CONTINUED
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 historically
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. In connection with the Company's
plans to dispose of certain real estate holdings, during 1998, an additional
contribution was recorded that resulted in the AVR exceeding the prescribed
maximum reserve level by $48.0 million and $111.3 million at December 31, 1999
and 1998, respectively. The Company received permission from the Massachusetts
Division of Insurance to record its AVR in excess of the prescribed maximum
reserve level. 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, 1999, the IMR, net of 1999 amortization of $51.4 million, amounted to $261.7
million that is included in other policy obligations. The corresponding 1998
amounts were $34.9 million and $261.6 million, respectively.
Property and Equipment: Data processing equipment, which amounted to $29.2
million in 1999 and $31.4 million in 1998 and is included in other general
account assets, is reported at depreciated cost, with depreciation recorded on a
straight-line basis. Non-admitted 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 $19.7 million in 1999 and $20.1 million
in 1998.
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.
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 14.
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
18
<PAGE>
JOHN HANCOCK MUTUAL LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS--CONTINUED
NOTE 1--NATURE OF OPERATIONS AND SIGNIFICANT ACCOUNTING PRACTICES--CONTINUED
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
approximate their fair values.
Fair values for futures contracts are based on quoted market prices. Fair
values for interest rate swap, cap and floor agreements, swaptions, and
currency swap agreements and equity collar agreements are based on current
settlement values. The current settlement values are based on brokerage quotes
that utilize pricing models or formulas using current assumptions.
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, 1999. The fair
value for commitments to purchase other invested assets 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 method. 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 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%.
19
<PAGE>
JOHN HANCOCK MUTUAL LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS--CONTINUED
NOTE 1--NATURE OF OPERATIONS AND SIGNIFICANT ACCOUNTING PRACTICES--CONTINUED
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, 1999 December 31, 1998
-------------------- --------------------
Statement Fair Statement Fair
Value Value Value Value
--------- --------- --------- -----------
(in millions)
<S> <C> <C> <C> <C>
Guaranteed investment contracts.. $13,111.6 $12,617.2 $12,666.9 $12,599.7
Fixed rate deferred and immediate
annuities....................... 4,685.7 4,656.9 4,375.0 4,412.2
Supplementary contracts without
life contingencies.............. 55.7 55.7 42.7 44.7
--------- --------- --------- ---------
$17,853.0 $17,329.8 $17,084.6 $17,056.6
========= ========= ========= =========
</TABLE>
Federal Income Taxes: Federal income taxes are reported in the financial
statements based on amounts determined to be payable as a result of operations
within the current accounting period. The operations of the Company and its
subsidiaries and affiliates are combined in filing a consolidated federal income
tax return for the group. The federal income taxes of the Company are determined
on a separate return basis with certain adjustments.
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 Internal Revenue Service sets the DER 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.
The Company made federal tax payments of $115.0 million in 1999 and $74.9
million in 1998.
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. Reserve modifications
resulting from such determinations are recorded directly to policyholders'
contingency reserves. No such refinements were made during 1999 or 1998.
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 knowledge of an insurance insolvency.
20
<PAGE>
JOHN HANCOCK MUTUAL LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS--CONTINUED
NOTE 2--SURPLUS NOTES
On February 25, 1994, the Company issued $450 million of surplus notes that bear
interest at7 3/8% and are scheduled to mature on February 15, 2024. The issuance
of the surplus notes was approved by the Commonwealth of Massachusetts and any
payment of interest on and principal of the notes may be made only with the
prior approval of the Commissioner of Insurance of the Commonwealth of
Massachusetts. Surplus notes are reported as part of policyholders' contingency
reserves rather than liabilities. Interest of $33.2 million was paid on the
notes during 1999 and 1998.
NOTE 3--BORROWED MONEY
At December 31, 1999, the Company had two syndicated lines of credit with a
group of banks totaling $1.0 billion, $500.0 million of which expire on July 29,
2000 and $500.0 million of which expire on June 30, 2001. The banks will commit,
when requested, to loan funds at prevailing interest rates as determined in
accordance within each line of credit agreement. Under the terms of the
agreements, the Company is required to maintain certain minimum levels of net
worth and comply with certain other covenants, which were met at December 31,
1999. At December 31, 1999, the Company had no outstanding borrowings under
either agreement.
Interest paid on borrowed money was $7.9 million and $6.6 million during 1999
and 1998, respectively.
NOTE 4--NET INVESTMENT INCOME
Investment income has been reduced by the following amounts:
<TABLE>
<CAPTION>
1999 1998
------ ------
(In millions)
<S> <C> <C>
Investment expenses . . . . . . . . . . . . . . . . . $277.1 $317.5
Interest expense . . . . . . . . . . . . . . . . . . 41.4 44.3
Depreciation on real estate and other invested assets 22.9 41.6
Real estate and other investment taxes . . . . . . . 41.8 60.1
------ ------
$383.2 $463.5
====== ======
</TABLE>
NOTE 5--NET CAPITAL GAINS (LOSSES) AND OTHER ADJUSTMENTS
Net realized capital gains consist of the following items:
<TABLE>
<CAPTION>
1999 1998
------ ------
(In millions)
<S> <C> <C>
Net gains from asset sales and foreclosures $ 260.3 $ 303.3
Capital gains tax . . . . . . . . . . . . . (179.8) (171.7)
Net capital gains transferred to the IMR . (51.5) (130.9)
------- -------
Net Realized Capital Gains . . . . . . . $ 29.0 $ 0.7
======= =======
</TABLE>
21
<PAGE>
JOHN HANCOCK MUTUAL LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS--CONTINUED
NOTE 5--NET CAPITAL GAINS (LOSSES) AND OTHER ADJUSTMENTS--CONTINUED
Net unrealized capital losses and other adjustments consist of the following
items:
<TABLE>
<CAPTION>
1999 1998
-------- ----------
(In millions)
<S> <C> <C>
Net losses from changes in security values and book value
adjustments. . . . . . . . . . . . . . . . . . . . . . . $(193.7) $ (90.6)
Decrease (increase) in asset valuation reserve . . . . . 46.7 (123.9)
------- -------
Net Unrealized Capital Losses and Other Adjustments . . . $(147.0) (214.5)
======= =======
</TABLE>
NOTE 6--INVESTMENTS
The statement value and fair value of bonds are shown below:
<TABLE>
<CAPTION>
Gross Gross
Statement Unrealized Unrealized
December 31, 1999 Value Gains Losses Fair Value
----------------- --------- ---------- ---------- ------------
(In millions)
<S> <C> <C> <C> <C>
U.S. Treasury securities and
obligations of U.S.
government corporations and
agencies.................... $ 162.3 $ 0.4 $ 2.5 $ 160.2
Obligations of states and
political subdivisions...... 111.3 6.6 4.4 113.5
Debt securities issued by
foreign governments......... 510.0 56.4 7.0 559.4
Corporate securities......... 20,460.3 587.1 970.8 20,076.6
Mortgage-backed securities... 4,944.2 22.1 167.7 4,798.6
--------- -------- -------- ---------
Total bonds................ $26,188.1 $ 672.6 $1,152.4 $25,708.3
========= ======== ======== =========
December 31, 1998
----------------
U.S. Treasury securities and
obligations of U.S.
government corporations and
agencies.................... $ 123.3 $ 5.9 $ 0.0 $ 129.2
Obligations of states and
political subdivisions...... 86.4 9.9 0.0 96.3
Debt securities issued by
foreign governments......... 264.5 29.4 8.2 285.7
Corporate securities......... 18,155.4 1,567.7 294.4 19,428.7
Mortgage-backed securities... 4,723.4 181.2 5.2 4,899.4
--------- -------- -------- ---------
Total bonds................ $23,353.0 $1,794.1 $ 307.8 $24,839.3
========= ======== ======== =========
</TABLE>
The statement value and fair value of bonds at December 31, 1999, 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.................. $ 1,515.9 $ 1,513.2
Due after one year through five years.... 5,876.1 5,871.2
Due after five years through ten years... 6,801.3 6,684.9
Due after ten years...................... 7,050.6 6,840.4
--------- ---------
21,243.9 20,909.7
Mortgage-backed securities............... 4,944.2 4,798.6
--------- ---------
$26,188.1 $25,708.3
========= =========
</TABLE>
22
<PAGE>
JOHN HANCOCK MUTUAL LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS--CONTINUED
NOTE 6--INVESTMENTS--CONTINUED
Gross gains of $99.1 million in 1999 and $126.4 million in 1998 and gross losses
of $94.4 million in 1999 and $62.3 million in 1998 were realized from the sale
of bonds.
At December 31, 1999, bonds with an admitted asset value of $26.6 million were
on deposit with state insurance departments to satisfy regulatory requirements.
The cost of common stocks was $345.3 million and $258.4 million at December 31,
1999 and 1998, respectively. At December 31, 1999, gross unrealized appreciation
on common stocks totaled $177.7 million, and gross unrealized depreciation
totaled $64.6 million. The fair value of preferred stock totaled $926.7 million
at December 31, 1999 and $832.4 million at December 31, 1998.
The Company participates in a security-lending program for the purpose of
enhancing income on securities held. At December 31, 1999 and 1998, $277.7
million and $421.5 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 $19.3 million, bonds with
amortized cost of $54.4 million and real estate with depreciated cost of $9.9
million were non-income as of December 31, 1999.
Restructured commercial mortgage loans aggregated $120.3 million and $230.5
million as of December 31, 1999 and 1998, 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
-----------------------
1999 1998
----------- ----------
(In millions)
<S> <C> <C>
Expected....................... $10.8 $22.5
Actual......................... 6.9 11.6
</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, 1999, 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.
23
<PAGE>
JOHN HANCOCK MUTUAL LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS--CONTINUED
NOTE 6--INVESTMENTS--CONTINUED
<TABLE>
<CAPTION>
Statement Geographic Statement
Property Type Value Concentration Value
------------- ------------- ------------- -------------
(In millions) (In millions)
<S> <C> <S> <C>
Apartments........... $1,809.1 East North Central.... $1,039.8
Hotels............... 404.0 East South Central.... 289.7
Industrial........... 816.8 Middle Atlantic....... 1,657.5
Office buildings..... 2,309.1 Mountain.............. 326.7
Retail............... 1,619.4 New England........... 836.1
1-4 Family........... 3.4 Pacific............... 2,025.0
Agricultural......... 1,803.6 South Atlantic........ 1,823.5
Other................ 400.5 West North Central.... 362.7
West South Central.... 701.9
Other................. 103.0
-------- --------
$9,165.9 $9,165.9
======== ========
</TABLE>
At December 31, 1999, the fair values of the commercial and agricultural
mortgage loan portfolios were $7.2 billion and $1.8 billion, respectively. The
corresponding amounts as of December 31, 1998 were approximately $7.3 billion
and $1.3 billion, respectively.
The maximum and minimum lending rates for mortgage loans during 1999 were 14.24%
and 6.84% for agricultural loans, 9.0% and 6.50% for other properties, and 10.0%
and 7.125% 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 1999 were
$673.5 million, $42.8 million, and $153.1 million, respectively. The
corresponding amounts in 1998 were $784.0 million, $310.0 million, and $7.7
million, respectively.
The Company cedes business to reinsurers to share risks under life, health and
annuity contracts for the purpose of reducing exposure to large losses.
Premiums, benefits and reserves ceded to reinsurers in 1999 were $1,018.3
million, $488.5 million and $823.7 million, respectively. The corresponding
amounts in 1998 were $873.9 million, $772.5 million and $712.2 million,
respectively.
Premiums, benefits, and reserves ceded related to the group accident and health
and related group life business sold in 1997, included in the amounts above,
were $463.9 million, $449.0 million, and $231.7 million, respectively, at
December 31, 1999. The corresponding amounts in 1998 were $458.2 million, $481.2
million, and $238.6 million, respectively.
24
<PAGE>
JOHN HANCOCK MUTUAL LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS--CONTINUED
NOTE 7--REINSURANCE--CONTINUED
Amounts recoverable on paid claims and funds withheld from reinsurers were as
follows:
<TABLE>
<CAPTION>
December 31
--------------
1999 1998
------- -------
(In millions)
<S> <C> <C>
Reinsurance recoverables................. $ 27.5 $18.6
Funds withheld from reinsurers........... 227.3 49.5
</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 $245.7 million at December 31, 1999 and $251.1
million at December 31, 1998.
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 1999 issues of flexible premium variable life
insurance and scheduled premium variable life insurance policies. In connection
with this agreement, the Company transferred $44.5 million and $4.9 million of
cash to Variable Life in 1999 and 1998, respectively, for tax, commission, and
expense allowances to Variable Life, which decreased the Company's net gain from
operations by $20.6 million and $22.2 million in 1999 and 1998, respectively.
Variable Life also has a modified coinsurance agreement with the Company to
reinsure 50% of Variable Life's 1995 inforce block and 50% of 1996 and all
future issue years of certain retail annuity contracts. In connection with this
agreement, the Company made a net cash payment of $40.0 million and $12.7
million in 1999 and 1998, respectively, for surrender benefits, taxes, reserve
increase, commission expense allowances and premiums. This agreement decreased
the Company's net gain from operations by $26.9 million and $8.4 million in 1999
and 1998, respectively.
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 1999 and 1998 for all policies that are not reinsured under any other
indemnity agreement. In connection with the agreement, the Company received $0.8
million and $1.0 million in 1999 and 1998, respectively, for mortality claims
from Variable Life. This agreement increased the Company's net gain from
operations in both 1999 and 1998 by $0.5 million.
John Hancock Reassurance Company of Bermuda (JHReCo, a wholly-owned affiliate)
has a modified coinsurance agreement with the Company to reinsure 50% of the
Company's 1997 through 1999 issues of retail long-term care insurance policies.
In connection with this agreement, the Company transferred $22.6 million and
$1.9 million of cash to JHReCo in 1999 and 1998, respectively, for tax,
commission, and expense allowances to JHReCo. This agreement increased the
Company's net gain from operations by $17.4 million and $11.7 million in 1999
and 1998, respectively.
JHReCo has a modified coinsurance agreement with the Company to reinsure 30% of
the Company's issues prior to January 1, 1997 and 50% of the Company's 1997
through 1999 issues of group long-term care insurance policies. In connection
with this agreement, the Company transferred $49.9 million and $38.0 million of
cash to JHReCo in 1999 and 1998, respectively, for tax, commission, and expense
allowances to JHReCo. This agreement increased the Company's net gain from
operations by $3.6 million and $3.9 million in 1999 and 1998, respectively.
JHReCo also has a modified coinsurance agreement with the Company to reinsure
50% of one of the Company's single premium annuity contracts sold in 1999.
Premiums, benefits, and reserves ceded to JHReCo in 1999 were
25
<PAGE>
JOHN HANCOCK MUTUAL LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS--CONTINUED
NOTE 7--REINSURANCE--CONTINUED
$169.4 million, $15.6 million and $166.1 million, respectively. This agreement
increased the Company's net gain from operations by $12.6 million in 1999.
On February 28, 1997, the Company sold a major portion of its group insurance
business to UNICARE Life & Health Insurance Company (UNICARE), a wholly owned
subsidiary of WellPoint Health Networks Inc. The business sold includes the
Company's group accident and health business and related group life business and
Cost Care, Inc., Hancock Association Services Group and Tri-State, Inc., all
indirect wholly-owned subsidiaries of the Company. The Company retained its
group long-term care operations. Assets equal to liabilities of approximately
$562.4 million at February 28, 1997 were transferred to UNICARE in connection
with the sale. The insurance business sold was transferred to UNICARE through a
100% coinsurance agreement.
The Company has secured a $397.0 million letter of credit facility with a group
of banks. The banks have agreed to issue a letter of credit to the Company
pursuant to which the Company may draw up to $397.0 million for any claims not
satisfied by UNICARE under the coinsurance agreement after the Company has
incurred the first $113.0 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 and any letter of credit
issued thereunder are scheduled to expire on March 1, 2002. The Company remains
liable to its policyholders to the extent that UNICARE does not meet its
contractual obligations under the coinsurance agreement.
Through the Company's group health insurance operations, the Company entered
into a number of reinsurance arrangements in respect of personal accident
insurance and the occupational accident component of workers compensation
insurance, a portion of which was originated through a pool managed by Unicover
Managers, Inc. Under these arrangements, the Company both assumed risks as a
reinsurer, and also passed 95% of these risks on to other companies. This
business had originally been reinsured by a number of different companies, and
has become the subject of widespread disputes. The disputes concern the
placement of the business with reinsurers and recovery of the reinsurance. The
Company is engaged in disputes, including a number of legal proceedings, in
respect of this business. The risk to the Company is that other companies that
reinsured the business from the Company may seek to avoid their reinsurance
obligations. However, the Company believes that it has a reasonable legal
position in this matter. During the fourth quarter of 1999 and early 2000, the
Company received additional information about its exposure to losses under the
various reinsurance programs. As a result of this additional information and in
connection with global settlement discussions initiated in late 1999 with other
parties involved in the reinsurance programs, during the fourth quarter the
Company recognized a charge to policyholders' contingency reserves for
uncollectible reinsurance of $186.1 million, aftertax, as its best estimate of
its remaining loss exposure. The Company believes that any exposure to loss from
this issue, in addition to amounts already provided for as of December 31, 1999,
would not be material.
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, controls, 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
26
<PAGE>
JOHN HANCOCK MUTUAL LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS--CONTINUED
NOTE 7--REINSURANCE--CONTINUED
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, 1999 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--BENEFITS PLANS AND OTHER POSTRETIREMENT BENEFIT PLANS
The Company provides pension benefits to substantially all employees and general
agency personnel. These benefits are provided through both qualified defined
benefit and defined contribution pension plans. In addition, through
nonqualified plans, the Company provided supplemental pension benefits to
employees with salaries and/ or pension benefits in excess of the qualified plan
limits imposed by federal tax law. 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 $97.6 million in 1999 and $92.6
million in 1998. Plan assets consist principally of listed equity securities,
corporate obligations and U.S. government securities.
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. Because the qualified defined benefit plans are overfunded, no amounts
were contributed to these plans in 1999 or 1998. The funding policy for
nonqualified defined benefit plans is to contribute the amount of the benefit
payments made during the year. The projected benefit obligation and accumulated
benefit obligation for the non-qualified defined benefit pension plans, which
are underfunded, for which accumulated benefit obligations are in excess of plan
assets were $257.4 million and $239.3 million, respectively, at December 31,
1999 and $221.3 million and $194.8 million, respectively, at December 31, 1998.
Non-qualified plan assets, at fair value, were $1.0 million and $1.2 million at
December 31, 1999 and 1998, respectively.
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 $10,000 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 $10,000. The Company
matches the first 3% of pre-tax contributions for marketing representatives and
the first 2% of pre-tax 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.
The expense for defined contribution plans was $8.5 million and $8.1 million in
1999 and 1998, respectively.
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.
27
<PAGE>
JOHN HANCOCK MUTUAL LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS--CONTINUED
NOTE 8--BENEFITS PLANS AND OTHER POSTRETIREMENT BENEFIT PLANS--CONTINUED
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.
The Company's policy is to fund postretirement benefits in amounts at or below
the annual tax qualified limits. As of December 31, 1999 and 1998, plan assets
related to non-union employees were comprised of an irrevocable health insurance
contract to provide future health benefits to retirees. Plan assets related to
union employees were comprised of approximately 70% equity securities and 30%
fixed income investments.
The changes in benefit obligation and plan assets are summarized as follows:
<TABLE>
<CAPTION>
Year ended December 31
-------------------------------------------
Pension Benefits Other Benefits
----------------------- -----------------
1999 1998 1999 1998
----------- ---------- -------- -------
(In millions)
<S> <C> <C> <C> <C>
Change in benefit obligation:
Benefit obligation at beginning
of year........................ $1,808.4 $1,704.0 $ 366.9 $ 381.0
Service cost.................... 33.8 32.8 6.6 6.8
Interest cost................... 119.0 115.5 23.9 24.4
Actuarial loss/(gain)........... 30.7 55.5 (0.3) (16.8)
Amendments...................... 19.9 0.0 0.0 0.0
Benefits paid................... (106.5) (99.4) (29.0) (28.5)
-------- -------- ------- -------
Benefit obligation at end of
year........................... 1,905.3 1,808.4 368.1 366.9
-------- -------- ------- -------
Change in plan assets:
Fair value of plan assets at
beginning of year.............. 2,202.2 1,995.5 215.2 172.7
Actual return on plan assets.... 277.7 296.1 17.7 39.9
Employer contribution........... 10.9 10.0 0.0 2.6
Benefits paid................... (106.5) (99.4) 0.0 0.0
-------- -------- ------- -------
Fair value of plan assets at
end of year.................... 2,384.3 2,202.2 232.9 215.2
-------- -------- ------- -------
Funded status................... 479.0 393.8 (135.2) (151.7)
Unrecognized actuarial loss..... (349.7) (292.0) (155.7) (163.0)
Unrecognized prior service cost. 39.1 23.1 16.0 17.8
Unrecognized net transition
(asset) obligation............. (11.8) (23.9) 273.3 294.3
-------- -------- ------- -------
Net amount recognized........... $ 156.6 $ 101.0 $ (1.6) $ (2.6)
-------- -------- ------- -------
</TABLE>
28
<PAGE>
JOHN HANCOCK MUTUAL LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS--CONTINUED
NOTE 8--BENEFITS PLANS AND OTHER POSTRETIREMENT BENEFIT PLANS--CONTINUED
The assumptions used in accounting for the benefit plans were as follows:
<TABLE>
<CAPTION>
Year ended December 31,
-----------------------------------------
Pension Benefits Other Benefits
---------------------- ---------------
1999 1998 1999 1998
----------- --------- ------- ------
<S> <C> <C> <C> <C>
Discount rate................... 7.00% 6.75% 7.00% 6.75%
Expected return on plan assets.. 8.50% 8.50% 8.50% 8.50%
Rate of compensation increase... 4.77% 4.56% 4.77% 4.00%
</TABLE>
For measurement purposes, a 5.50 percent annual rate of increase in the per
capita cost of covered health care benefits was assumed for 2000. The rate was
assumed to decrease gradually to 5.25 percent in 2001 and remain at that level
thereafter.
Net periodic benefit (credit) cost includes the following components:
<TABLE>
<CAPTION>
Year ended December 31
----------------------------------------
Pension Benefits Other Benefits
--------------------- ---------------
1999 1998 1999 1998
-------- --------- ------- -------
(In millions)
<S> <C> <C> <C> <C>
Service cost..................... $ 33.8 $ 32.8 $ 6.6 $ 6.8
Interest cost.................... 119.0 115.5 23.9 24.4
Expected return on plan assets... (182.9) (165.6) (18.2) (39.9)
Amortization of transition
(assets) obligation............. (12.1) (11.6) 21.0 20.9
Amortization of prior service
cost............................ 3.9 6.5 1.8 1.9
Recognized actuarial (gain) loss. (6.3) (2.6) (7.1) 19.0
------- ------- ------ ------
Net periodic benefit (credit)
cost......................... $ (44.6) $ (25.0) $ 28.0 $ 33.1
======= ======= ====== ======
</TABLE>
Assumed health care cost trend rates have a significant effect on the amounts
reported for the health care plans. A one-percentage point change in assumed
health care cost trend rates would have the following effects:
<TABLE>
<CAPTION>
1-Percentage Point 1-Percentage Point
Increase Decrease
------------------ --------------------
(In millions)
<S> <C> <C>
Effect on total of service and
interest costs....................... $ 2.9 $ (2.6)
Effect on postretirement benefit
obligations.......................... 29.0 (26.1)
</TABLE>
29
<PAGE>
JOHN HANCOCK MUTUAL LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS--CONTINUED
NOTE 9--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
service entities.
Total assets of unconsolidated majority-owned affiliates amounted to $16.0
billion at December 31, 1999 and $13.8 billion at December 31, 1998; total
liabilities amounted to $14.5 billion at December 31, 1999 and $12.5 billion at
December 31, 1998; and total net income was $99.5 million in 1999 and $148.5
million in 1998.
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 (See Note 7). 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 13).
The Company received dividends of $129.0 million and $62.2 million in 1999 and
1998, respectively, from unconsolidated affiliates.
NOTE 10--FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK
The notional amounts, carrying values and estimated fair values of the Company's
derivative instruments are as follows at December 31:
<TABLE>
<CAPTION>
Assets (Liabilities)
Number of Contracts/ ----------------------------------------
Notional Amounts 1999 1998
--------------------- --------------------- -----------------
Carrying Fair Carrying Fair
1999 1998 Value Value Value Value
---------- ---------- ---------- --------- -------- --------
(In millions)
<S> <C> <C> <C> <C> <C> <C>
Futures contracts to
sell securities....... $ 18,805 $ 11,286 $31.5 $ 31.5 $(3.1) $ (3.1)
Futures contracts to
acquire securities.... 4,006 1,464 (0.9) (0.9) (0.3) (0.3)
Interest rate swap
agreements............ 9,194.0 7,684.0 -- (27.2) -- (159.1)
Interest rate cap
agreements............ 115.0 115.0 0.2 0.2 0.4 0.4
Interest rate floor
agreements............ 125.0 125.0 0.1 0.1 0.7 0.7
Interest rate swaption
agreements............ 30.0 0.0 (3.6) (3.6) -- 0.0
Currency rate swap
agreements............ 5,797.0 2,881.5 -- (44.8) -- 16.2
Equity collar
agreements............ -- -- 53.0 53.0 28.6 28.6
</TABLE>
Financial futures contracts are used principally 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 contracts 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. The futures contracts expire in 2000.
The Company uses futures contracts, interest rate swap, cap and floor
agreements, swaptions, and currency rate swap agreements for other than trading
purposes to hedge and manage its exposure to changes in interest rate levels,
foreign exchange rate fluctuations and to manage duration mismatch of assets and
liabilities.
30
<PAGE>
JOHN HANCOCK MUTUAL LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS--CONTINUED
NOTE 10--FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK--CONTINUED
The Company invests in common stock that is subject to fluctuations from market
value changes in stock prices. The Company sometimes seeks to reduce its market
exposure to such holdings by entering into equity collar agreements. A collar
consists of a call that limits the Company's potential for gain from
appreciation in the stock price as well as a put that limits the Company's loss
potential from a decline in the stock price.
The interest rate swap agreements expire in 2000 to 2029. The interest rate cap
agreements expire in 2000 to 2008. Interest rate floor agreements expire in
2003. Interest rate swaption agreements expire in 2025. The currency rate swap
agreements expire in 2000 to 2021. The equity collar agreements expire in 2003.
The Company's exposure to credit risk is the risk of loss from counterparty
failing to perform to the terms of the contract. The Company continually
monitors its position and the credit ratings of the counterparties to these
derivative instruments. To limit exposure associated with counterparty
nonperformance on interest rate and currency swap 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 be immaterial. Futures contracts trade on
organized exchanges and, therefore, have minimal credit risk.
NOTE 11--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 $24.3 million in 1999 and $26.2 million in 1998.
Future minimum rental commitments under noncancellable operating leases for
office space and furniture and equipment are as follows:
<TABLE>
<CAPTION>
December 31, 1999
-------------------
(In millions)
<S> <C>
2000................................... $19.1
2001................................... 15.9
2002................................... 12.8
2003................................... 8.9
2004................................... 5.3
Thereafter............................. 7.0
-----
Total minimum payments................. $69.0
=====
</TABLE>
NOTE 12--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:
31
<PAGE>
JOHN HANCOCK MUTUAL LIFE INSURANCE COMPANIES
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS--CONTINUED
NOTE 12--POLICY RESERVES, POLICYHOLDERS' AND BENEFICIARIES' FUNDS AND
OBLIGATIONS RELATED TO SEPARATE ACCOUNTS--CONTINUED
<TABLE>
<CAPTION>
December 31, 1999 Percent
----------------- ----------
(In millions)
<S> <C> <C>
Subject to discretionary withdrawal (with
adjustment):
With market value adjustment................. $ 1,126.3 2.8%
At book value less surrender charge.......... 2,845.0 7.1
--------- -----
Total with adjustment........................ 3,971.3 9.9
Subject to discretionary withdrawal (without
adjustment) at book value.................. 1,535.8 3.8
Subject to discretionary withdrawal--separate
accounts................................... 14,287.3 35.4
Not subject to discretionary withdrawal:
General account.............................. 19,320.6 48.0
Separate accounts............................ 1,175.7 2.9
--------- -----
Total annuity reserves, deposit fund liabilities
and separate accounts--before reinsurance..... 40,290.7 100.0%
=====
Less reinsurance ceded......................... (0.1)
---------
Net annuity reserves, deposit fund liabilities
and separate accounts......................... $40,290.6
=========
</TABLE>
Any liquidation costs associated with the $14.3 billion of separate accounts
subject to discretionary withdrawal are sustained by the separate account
contractholders and not by the general account.
NOTE 13--COMMITMENTS AND CONTINGENCIES
The Company has extended commitments to purchase long-term bonds, preferred and
common stocks, and other invested assets and issue real estate mortgages
totaling $706.7 million, $6.0 million, $281.1 million and $194.6 million,
respectively, at December 31, 1999. 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 $1.2 billion at December 31, 1999. The majority
of these commitments expire in 2000.
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, 1999, the aggregate
outstanding principal balance of all the remaining pools of loans from 1991,
1993, and 1996 was $493.4 million.
Historically, the Company has experienced losses of less than one percent on its
multi-family mortgage portfolio. Mortgage loan buy-backs required by the FNMA in
1999 and 1998 amounted to $3.4 million and $4.6 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
32
<PAGE>
JOHN HANCOCK MUTUAL LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS--CONTINUED
NOTE 13--COMMITMENTS AND CONTINGENCIES--CONTINUED
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, 1999, the
aggregate outstanding principal balance of the pools of loans was $365.2
million. There were no mortgage loans buy-backs in 1999 and 1998.
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, 1999 were $380.6 million for short-term borrowings
and $163.0 million for notes payable.
The Company is subject to insurance guaranty fund laws in the states in which it
does business. These laws assess insurance companies' amounts to be used to pay
benefits to policyholders and claimants of insolvent insurance companies. Many
states allow these assessments to be credited against future premium taxes. The
Company believes such assessments in excess of amounts accrued will not
materially affect its financial position.
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, 1999. 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 reserve held in connection with the
settlement to provide relief to class members and for legal and administrative
costs associated with the settlement amounted to $322.8 million and $283.8
million at December 31, 1999 and 1998, respectively. Costs incurred related to
the settlement were $91.1 million and $150.0 million in 1999 and 1998,
respectively, which were charged directly to policyholders' contingency
reserves. The estimated reserve is based on a number of factors, including the
estimated number of claims, the expected type of relief to be sought by class
members (general relief or alternative dispute resolution), the estimated cost
per claim and the estimated costs to administer the claims.
During 1999, the Company transferred $194.9 million of reserves related to the
settlement to Variable Life representing Variable Life's share of the
settlement. The Company also contributed $194.9 million of capital to Variable
Life during 1999. If Variable Life's share of the settlement increases, the
Company will contribute additional capital to Variable Life so that Variable
Life's total stockholder's equity would not be impacted.
During 1996, management determined that it was probable that a settlement would
occur and that a minimum loss amount could be reasonably estimated. Accordingly,
the Company recorded its best estimate based on the information available at the
time. The terms of the settlement agreement were negotiated throughout 1997 and
approved by the court on December 31, 1997. In accordance with the terms of the
settlement agreement, the Company contacted class members during 1998 to
determine the actual type of relief to be sought by class members. The majority
of the responses from class members were received by the fourth quarter of 1998.
The type of relief sought by class members differed from the Company's previous
estimates, primarily due to additional outreach activities by regulatory
authorities during 1998 encouraging class members to consider alternative
dispute
33
<PAGE>
JOHN HANCOCK MUTUAL LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS--CONTINUED
NOTE 13--COMMITMENTS AND CONTINGENCIES--CONTINUED
resolution relief. In 1999, the Company updated its estimate of the cost of
claims subject to alternative dispute resolution relief and revised its reserve
estimate accordingly.
Given the uncertainties associated with estimating the reserve, it is reasonably
possible that the final cost of the settlement could differ materially from the
amounts presently provided for by the Company. The Company will continue to
update its estimate of the final cost of the settlement as the claims are
processed and more specific information is developed, particularly as the actual
cost of the claims subject to alternative dispute resolution becomes available.
However, based on information available at this time, and the uncertainties
associated with the final claim processing and alternative dispute resolution,
the range of any additional costs related to the settlement cannot be reasonably
estimated.
NOTE 14--FAIR VALUE OF FINANCIAL INSTRUMENTS
The following table presents the carrying amounts and fair values of the
Company's financial instruments:
<TABLE>
<CAPTION>
December 31
--------------------------------------------
1999 1998
-------------------- ---------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
--------- ---------- ---------- ------------
(In millions)
<S> <C> <C> <C> <C>
Assets
Bonds--Note 6.............. $26,188.1 $25,708.3 $23,353.0 $24,839.3
Preferred stocks--Note 6... 926.6 926.7 844.7 832.4
Common stocks--Note 6...... 458.4 458.4 269.3 269.3
Mortgage loans on real
estate--Note 6........... 9,165.9 9,009.5 8,223.7 8,619.7
Policy loans--Note 1....... 1,577.8 1,577.8 1,573.8 1,573.8
Cash and cash
equivalents--Note 1...... 1,160.6 1,160.6 1,348.9 1,348.9
Liabilities
Guaranteed investment
contracts--Note 1........ 13,111.6 12,617.2 12,666.9 12,599.7
Fixed rate deferred and
immediate annuities--
Note 1................... 4,685.7 4,656.9 4,375.0 4,412.2
Supplementary contracts
without life contingencies--
Note 1................... 55.7 55.7 42.7 44.7
Derivatives assets
(liabilities) relating
to:--Note 10
Futures contracts.......... 30.6 30.6 (3.4) (3.4)
Interest rate swaps........ -- (27.2) -- (159.1)
Currency rate swaps........ -- (44.8) -- 16.2
Interest rate caps......... 0.2 0.2 0.4 0.4
Interest rate floors....... 0.1 0.1 0.7 0.7
Equity collar agreements... 53.0 53.0 28.6 28.6
Commitments--Note 13......... -- 1,195.0 -- 1,114.2
</TABLE>
The carrying amounts in the table are included in the statutory-basis statements
of financial position. The methods and assumptions utilized by the Company in
estimating its fair value disclosures are described in Note 1.
34
<PAGE>
JOHN HANCOCK MUTUAL LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS--CONTINUED
NOTE 15--SUBSEQUENT EVENTS
Reorganization and Initial Public Offering
Pursuant to a Plan of Reorganization approved by the policyholders and the
Commonwealth of Massachusetts Division of Insurance, effective February 1, 2000,
the Company converted from a mutual life insurance company to a stock life
insurance company (i.e., demutualized) and became a wholly owned subsidiary of
John Hancock Financial Services, Inc., which is a holding company. All
policyholder membership interests in the Company were extinguished on that date
and eligible policyholders of the Company received, in the aggregate,
approximately 212.8 million shares of common stock, $1,438.7 million of cash and
$43.7 million policy credits as compensation. In connection with the
reorganization, the Company changed its name to John Hancock Life Insurance
Company.
In addition, on February 1, 2000, John Hancock Financial Services, Inc.
completed its initial public offering and 102 million shares of common stock
were issued at an initial public offering price of $17 per share. Net proceeds
from the offering were $1,657.7 million, of which $105.7 million was retained by
John Hancock Financial Services, Inc. and $1,552.0 million was contributed to
the Company.
Establishment of the Closed Block
Under the Plan of Reorganization, effective February 1, 2000, the Company
created a closed block for the benefit of policies included therein. The
policies included in the closed block are individual and joint traditional whole
life insurance policies of the Company that are paying or are expected to pay
dividends, and individual term life insurance policies that were in force on
February 1, 2000. The purpose of the closed block is to protect the policy
dividend expectations of these policies after the demutualization. Unless the
Commonwealth of Massachusetts Commissioner of Insurance and, in certain
circumstances, the New York Superintendent of Insurance consents to an earlier
termination, the closed block will continue in effect until the date none of
such policies is in force.
Acquisition of Long-Term Care Business
On January 3, 2000, the Company signed an agreement to purchase the individual
long-term care insurance business of Fortis, Inc. ("Fortis"). The business to be
acquired had earned premiums of approximately $124.4 million in 1999 and
included approximately 97,000 policies in force as of December 31, 1999. During
1999 the Company's individual long-term care earned premium was $177.3 million
and approximately 164,000 individual long-term care policies were in force.
35
<PAGE>
JOHN HANCOCK MUTUAL LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS--CONTINUED
NOTE 16--IMPACT OF YEAR 2000 (UNAUDITED)
By late 1999, the Company completed its Year 2000 readiness plan to address
issues that could result from computer programs being written using two digits
to define the applicable year rather than four to define the applicable year and
century. As a result the Company prepared for the transition to the Year 2000
and did not experience any significant Year 2000 problems with respect to its
mission critical information technology ("IT") or non-IT systems, applications
or infrastructure. During the date rollover to the year 2000, the Company
implemented and monitored its millennium rollover plan and conducted business as
usual on Monday, January 3, 2000.
Since January 3, 2000, the Company's information systems, including its mission
critical systems, which in the event of a Year 2000 failure would have the
greatest impact on its operations, have functioned properly. In addition, the
Company has not experienced any significant Year 2000 issues related to
interactions with its material business partners. The Company has experienced no
disruption in its ability to process claims, update customer accounts, process
financial transactions, report accurate data to management and no business
interruptions due to Year 2000 issues. While the Company continues to monitor
its systems, and those of its material business partners closely to ensure that
no unexpected Year 2000 issues develop, the Company has no reason to expect any
such issues.
The costs of the Year 2000 project consist of internal IT personnel and external
costs such as consultants, programmers, replacement software, and hardware. The
costs of the Year 2000 project are expensed as incurred. The project is funded
partially through a reallocation of resources from discretionary projects.
Through December 31, 1999, the Company has incurred and expensed approximately
$20.8 million in related payroll costs for internal IT personnel on the project.
The estimated remaining IT personnel costs of the project are approximately $1.0
million. Through December 31, 1999, the Company incurred and expensed
approximately $47.0 million in external costs for the project. The estimated
remaining external cost of the project is approximately $2.0 million. The total
costs of the Year 2000 project, based on management's best estimates, include
approximately $21.7 million in internal IT personnel, $14.6 million in the
external modification of software, $18.3 million for external solution
providers, $9.1 million in replacement costs of non-compliant IT systems and
$6.9 million in oversight, test facilities and other expenses. Accordingly, the
estimated range of total costs of the Year 2000 project, internal and external,
is approximately $70 to $72.5 million. The Company's total Year 2000 project
costs include the estimated impact of external solution providers based on
presently available information.
36
<PAGE>
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
To the Contractowners of
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 Subaccount, Sovereign Bond Subaccount, International Equity
Index Subaccount, Small Cap Growth Subaccount, International Balanced
Subaccount, Mid Cap Growth Subaccount, Large Cap Value Subaccount, Money Market
Subaccount, Mid Cap Value Subaccount, Small/Mid Cap Growth (formerly,
Diversified Mid Cap Growth) Subaccount, Real Estate Equity Subaccount, Growth &
Income Subaccount, Managed Subaccount, Short-Term Bond Subaccount, Small Cap
Value Subaccount, International Opportunities Subaccount, Equity Index
Subaccount, Global Bond (formerly Strategic Bond) Subaccount, Emerging Markets
Equity Subaccount, Global Equity Subaccount, Bond Index Subaccount, Small/Mid
Cap CORE Subaccount and High Yield Bond Subaccount) as of December 31, 1999, the
related statements of operations and changes in net assets for 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 auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. 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,
1999, 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 in the United States.
ERNST & YOUNG, LLP
Boston, Massachusetts
February 11, 2000
37
<PAGE>
JOHN HANCOCK VARIABLE ANNUITY ACCOUNT U
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1999
<TABLE>
<CAPTION>
LARGE CAP SOVEREIGN INTERNATIONAL SMALL CAP
GROWTH BOND EQUITY INDEX GROWTH
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
------------ ------------ ------------- -------------
<S> <C> <C> <C> <C>
ASSETS
Cash................. $ 93,635 $ 57,128 $ 16,249 $ 5,255
Investment in shares
of portfolios of John
Hancock Variable
Series Trust I,
at value............ 352,430,188 233,613,865 62,241,798 21,548,601
Receivable from John
Hancock Variable
Series Trust I...... 443,355 240,614 33,127 103,049
------------ ------------ ----------- -----------
Total assets......... 352,967,178 233,911,607 62,291,174 21,656,905
LIABILITIES
Payable to John
Hancock Mutual Life
Insurance Company... 429,956 232,452 30,764 102,255
Asset charges payable 107,034 65,290 18,611 6,049
------------ ------------ ----------- -----------
Total liabilities.... 536,990 297,742 49,375 108,304
------------ ------------ ----------- -----------
Net assets........... $352,430,188 $233,613,865 $62,241,799 $21,548,601
============ ============ =========== ===========
</TABLE>
<TABLE>
<CAPTION>
INTERNATIONAL MID CAP LARGE CAP MONEY
BALANCED GROWTH VALUE MARKET
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
------------- ----------- ---------- -------------
<S> <C> <C> <C> <C>
ASSETS
Cash................... $ 346 $ 16,090 $ 2,507 $ 13,810
Investment in shares of
portfolios of John
Hancock Variable Series
Trust I, at value...... 1,324,712 63,340,695 9,634,402 95,786,161
Receivable from John
Hancock Variable Series
Trust I................ 767 277,497 9,525 613,788
---------- ----------- ---------- -----------
Total assets............ 1,325,825 63,634,282 9,646,434 96,413,759
LIABILITIES
Payable to John Hancock
Mutual Life Insurance
Company................ 717 275,136 9,166 610,351
Asset charges payable... 396 18,451 2,866 17,248
---------- ----------- ---------- -----------
Total liabilities....... 1,113 293,587 12,032 627,599
---------- ----------- ---------- -----------
Net assets.............. $1,324,712 $63,340,695 $9,634,402 $95,786,160
========== =========== ========== ===========
</TABLE>
See accompanying notes.
38
<PAGE>
JOHN HANCOCK VARIABLE ANNUITY ACCOUNT U
STATEMENT OF ASSETS AND LIABILITIES (CONTINUED)
DECEMBER 31, 1999
<TABLE>
<CAPTION>
MID CAP SMALL/MID CAP REAL ESTATE GROWTH &
VALUE GROWTH EQUITY INCOME
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
----------------- ------------- ----------- ----------------
<S> <C> <C> <C> <C>
ASSETS
Cash................. $ 1,622 $ 5,922 $ 12,213 $ 251,098
Investment in shares
of portfolios of John
Hancock Variable
Series Trust I, at
value............... 6,225,920 22,609,200 46,747,423 1,038,097,002
Receivable from John
Hancock Variable
Series Trust I...... 4,052 104,210 6,135 1,103,414
---------- ----------- ----------- --------------
Total assets......... 6,231,594 22,719,332 46,765,771 1,039,451,514
LIABILITIES
Payable to John
Hancock Mutual Life
Insurance Company... 3,819 103,351 4,362 1,067,511
Asset charges payable 1,855 6,781 13,986 287,000
---------- ----------- ----------- --------------
Total liabilities.... 5,674 110,132 18,348 1,354,511
---------- ----------- ----------- --------------
Net assets........... $6,225,920 $22,609,200 $46,747,423 $1,038,097,003
========== =========== =========== ==============
</TABLE>
<TABLE>
<CAPTION>
SHORT-TERM SMALL CAP INTERNATIONAL
MANAGED BOND VALUE OPPORTUNITIES
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
-------------- ---------- ---------- ---------------
<S> <C> <C> <C> <C>
ASSETS
Cash.................. $ 342,731 $ 2,501 $ 1,523 $ 1,362
Investment in shares
of portfolios of John
Hancock Variable
Series Trust I, at
value................ 1,284,439,048 9,430,001 5,957,625 5,279,440
Receivable from John
Hancock Variable
Series Trust I....... 395,007 878 30,843 252
-------------- ---------- ---------- ----------
Total assets.......... 1,285,176,786 9,433,380 5,989,991 5,281,054
LIABILITIES
Payable to John
Hancock Mutual Life
Insurance Company.... 346,069 520 30,621 52
Asset charges payable. 391,670 2,859 1,745 1,562
-------------- ---------- ---------- ----------
Total liabilities..... 737,739 3,379 32,366 1,614
-------------- ---------- ---------- ----------
Net assets............ $1,284,439,047 $9,430,001 $5,957,625 $5,279,440
============== ========== ========== ==========
</TABLE>
See accompanying notes.
39
<PAGE>
JOHN HANCOCK VARIABLE ANNUITY ACCOUNT U
STATEMENT OF ASSETS AND LIABILITIES (CONTINUED)
DECEMBER 31, 1999
<TABLE>
<CAPTION>
EQUITY GLOBAL EMERGIN
INDEX BOND MARKETS EQUITY GLOBAL EQUITY
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
----------- ---------- -------------- ---------------
<S> <C> <C> <C> <C>
ASSETS
Cash................... $ 9,690 $ 1,149 $ 758 $ 133
Investment in shares
of portfolios of John
Hancock Variable
Series Trust I,
at value.............. 37,183,883 4,350,105 3,313,388 530,171
Receivable from John
Hancock Variable
Series Trust I........ 125,859 20,691 400,148 5,365
----------- ---------- ---------- --------
Total assets........... 37,319,432 4,371,945 3,714,294 535,669
LIABILITIES
Payable to John
Hancock Mutual Life
Insurance Company..... 124,450 20,528 400,040 5,345
Asset charges payable.. 11,098 1,313 866 153
----------- ---------- ---------- --------
Total liabilities...... 135,548 21,841 400,906 5,498
----------- ---------- ---------- --------
Net assets............. $37,183,884 $4,350,104 $3,313,388 $530,171
=========== ========== ========== ========
</TABLE>
<TABLE>
<CAPTION>
SMALL/MID HIGH YIELD
BOND INDEX CAP CORE BOND
SUBACCOUNT SUBACCOUNT SUBACCOUNT
---------- ---------- ------------
<S> <C> <C> <C>
ASSETS
Cash..................................... $ 75 $ 34 $ 155
Investment in shares of portfolios of
John Hancock Variable Series Trust I,
at value................................ 295,114 136,146 588,027
Receivable from John Hancock Variable
Series Trust I.......................... 11 16,206 22
-------- -------- --------
Total assets............................. 295,200 152,386 588,204
LIABILITIES
Payable to John Hancock Mutual Life
Insurance Company....................... -- 16,202 --
Asset charges payable.................... 86 38 178
-------- -------- --------
Total liabilities........................ 86 16,240 178
-------- -------- --------
Net assets............................... $295,114 $136,146 $588,026
======== ======== ========
</TABLE>
See accompanying notes.
40
<PAGE>
JOHN HANCOCK VARIABLE ANNUITY ACCOUNT U
STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1999
<TABLE>
<CAPTION>
LARGE CAP SOVEREIGN INTERNATIONAL SMALL CAP
GROWTH BOND EQUITY INDEX GROWTH
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
------------ ------------- ------------- ------------
<S> <C> <C> <C> <C>
Investment income:
Distributions
received from the
portfolios of John
Hancock Variable
Series
Trust I.............. $54,486,126 $ 18,930,329 $ 2,024,756 $2,545,441
Expenses:
Mortality and expense
risks................ 4,515,637 3,297,101 758,430 165,804
----------- ------------ ----------- ----------
Net investment income.. 49,970,489 15,633,228 1,266,326 2,379,637
Net realized and
unrealized gain
(loss) on
investments:
Net realized gain
(loss)............... 19,920,990 (1,511,015) 1,290,069 1,146,721
Net unrealized
appreciation
(depreciation)
during the year...... (3,444,964) (20,005,513) 11,862,899 4,105,638
----------- ------------ ----------- ----------
Net realized and
unrealized gain
(loss) on investments. 16,476,026 (21,516,528) 13,152,968 5,252,359
----------- ------------ ----------- ----------
Net increase
(decrease) in net
assets resulting from
operations............ $66,446,515 $ (5,883,300) $14,419,294 $7,631,996
=========== ============ =========== ==========
</TABLE>
<TABLE>
<CAPTION>
INTERNATIONAL MID CAP LARGE CAP MONEY
BALANCED GROWTH VALUE MARKET
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
------------- ----------- ------------ ------------
<S> <C> <C> <C> <C>
Investment income:
Distributions received
from the portfolios
of John Hancock
Variable Series
Trust I................ $114,233 $ 6,634,458 $ 669,175 $3,980,330
Expenses:
Mortality and expense
risks.................. 19,450 365,080 139,808 1,047,456
-------- ----------- ----------- ----------
Net investment income.... 94,783 6,269,378 529,367 2,932,874
Net realized and
unrealized gain (loss)
on investments:
Net realized gain....... 21,897 2,939,455 1,106,093 --
Net unrealized
appreciation
(depreciation) during
the year............... (71,337) 17,963,888 (1,506,045) --
-------- ----------- ----------- ----------
Net realized and
unrealized gain (loss)
on investments.......... (49,440) 20,903,343 (399,952) --
-------- ----------- ----------- ----------
Net increase in net
assets resulting from
operations.............. $ 45,343 $27,172,721 $ 129,415 $2,932,874
======== =========== =========== ==========
</TABLE>
See accompanying notes.
41
<PAGE>
JOHN HANCOCK VARIABLE ANNUITY ACCOUNT U
STATEMENT OF OPERATIONS (CONTINUED)
YEAR ENDED DECEMBER 31, 1999
<TABLE>
<CAPTION>
MID CAP SMALL/MID CAP REAL ESTATE GROWTH &
VALUE GROWTH EQUITY INCOME
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
------------- -------------- ------------ ---------------
<S> <C> <C> <C> <C>
Investment income:
Distributions
received from the
portfolios of John
Hancock Variable
Series Trust I....... $ 45,057 $ 3,537,030 $ 3,524,359 $119,359,343
Expenses:
Mortality and expense
risks................ 97,691 351,997 764,984 12,853,431
------------ ----------- ----------- ------------
Net investment income
(loss)................ (52,634) 3,185,033 2,759,375 106,505,912
Net realized and
unrealized gain
(loss) on
investments:
Net realized gain
(loss)............... (841,005) 486,820 29,474 53,547,849
Net unrealized
appreciation
(depreciation)
during the year...... 1,099,061 (2,857,487) (4,558,409) (20,496,572)
------------ ----------- ----------- ------------
Net realized and
unrealized gain
(loss) on investments. 258,056 (2,370,667) (4,528,935) 33,051,277
------------ ----------- ----------- ------------
Net increase
(decrease) in net
assets resulting from
operations............ $ 205,422 $ 814,366 $(1,769,560) $139,557,189
============ =========== =========== ============
</TABLE>
<TABLE>
<CAPTION>
SHORT-TERM SMALL CAP INTERNATIONAL
MANAGED BOND VALUE OPPORTUNITIES
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
------------- ---------- ---------- ---------------
<S> <C> <C> <C> <C>
Investment income:
Distributions received
from the portfolios
of John Hancock
Variable Series
Trust I............... $123,803,184 $ 633,496 $ 143,330 $ 357,134
Expenses:
Mortality and expense
risks................. 18,292,217 140,934 87,782 60,139
------------ --------- --------- ----------
Net investment income... 105,510,967 492,562 55,548 296,995
Net realized and
unrealized gain (loss)
on investments:
Net realized gain
(loss)................ 38,904,825 (156,229) (558,358) 171,907
Net unrealized
appreciation
(depreciation) during
the year.............. (49,231,187) (188,569) 131,518 792,914
------------ --------- --------- ----------
Net realized and
unrealized gain (loss)
on investments......... (10,326,362) (344,798) (426,840) 964,821
------------ --------- --------- ----------
Net increase (decrease)
in net assets
resulting from
operations............. $ 95,184,605 $ 147,764 $(371,292) $1,261,816
============ ========= ========= ==========
</TABLE>
See accompanying notes.
42
<PAGE>
JOHN HANCOCK VARIABLE ANNUITY ACCOUNT U
STATEMENT OF OPERATIONS (CONTINUED)
YEAR ENDED DECEMBER 31, 1999
<TABLE>
<CAPTION>
EQUITY GLOBAL EMERGING
INDEX BOND MARKETS EQUITY GLOBAL EQUITY
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
---------- ---------- -------------- ---------------
<S> <C> <C> <C> <C>
Investment income:
Distributions
received from the
portfolios of John
Hancock Variable
Series Trust I....... $1,595,623 $ 301,616 $ 111,088 $ 2,053
Expenses:
Mortality and expense
risks................ 438,589 79,675 18,110 2,220
---------- --------- ---------- -------
Net investment income
(loss)................ 1,157,034 221,941 92,978 (167)
Net realized and
unrealized gain
(loss) on
investments:
Net realized gain
(loss)............... 2,844,802 (91,171) 374,074 4,949
Net unrealized
appreciation
(depreciation)
during the year...... 1,736,131 (335,578) 614,528 55,890
---------- --------- ---------- -------
Net realized and
unrealized gain
(loss) on investments. 4,580,933 (426,749) 988,602 60,839
---------- --------- ---------- -------
Net increase
(decrease) in net
assets resulting from
operations............ $5,737,967 $(204,808) $1,081,580 $60,672
========== ========= ========== =======
</TABLE>
<TABLE>
<CAPTION>
SMALL/MID HIGH YIELD
BOND INDEX CAP CORE BOND
SUBACCOUNT SUBACCOUNT SUBACCOUNT
---------- ---------- ------------
<S> <C> <C> <C>
Investment income:
Distributions received from the
portfolios of John Hancock Variable
Series Trust I......................... $ 21,398 $11,432 $14,029
Expenses:
Mortality and expense risks............. 4,124 779 2,428
-------- ------- -------
Net investment income.................... 17,274 10,653 11,601
Net realized and unrealized gain (loss)
on investments:
Net realized gain (loss)................ (13,991) 2,806 (674)
Net unrealized appreciation
(depreciation) during the year......... (11,138) (1,161) 1,864
-------- ------- -------
Net realized and unrealized gain (loss)
on investments.......................... (25,129) 1,645 1,190
-------- ------- -------
Net increase (decrease) in net assets
resulting from operations............... $ (7,855) $12,298 $12,791
======== ======= =======
</TABLE>
See accompanying notes.
43
<PAGE>
JOHN HANCOCK VARIABLE ANNUITY ACCOUNT U
STATEMENTS OF CHANGES IN NET ASSETS
YEARS AND PERIODS ENDED DECEMBER 31,
<TABLE>
<CAPTION>
LARGE CAP GROWTH SOVEREIGN BOND INTERNATIONAL EQUITY
SUBACCOUNT SUBACCOUNT INDEX SUBACCOUNT
--------------------------- --------------------------- ---------------------------
1999 1998 1999 1998 1999 1998
------------- ------------- ------------- ------------- ------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Increase (decrease) in net assets from
operations:
Net investment income.................. $ 49,970,489 $ 27,191,425 $ 15,633,228 $ 19,383,983 $ 1,266,326 $ 7,756,221
Net realized gain (loss)............... 19,920,990 9,023,907 (1,511,015) 1,608,419 1,290,069 519,894
Net unrealized appreciation
(depreciation) during the period...... (3,444,964) 50,986,447 (20,005,513) (2,353,679) 11,862,899 1,182,290
------------ ------------ ------------ ------------ ------------ ------------
Net increase (decrease) in net assets
resulting from operations.............. 66,446,515 87,201,779 (5,883,300) 18,638,723 14,419,294 9,458,405
From contractowner transactions:
Net premiums from contractowners....... 30,033,070 25,254,201 8,623,900 23,446,904 9,347,287 2,985,355
Net benefits to contractowners......... (60,365,166) (36,707,482) (50,094,581) (45,255,823) (16,543,791) (11,327,940)
------------ ------------ ------------ ------------ ------------ ------------
Net decrease in net assets from
contractowner transactions............. (30,332,096) (11,453,281) (41,470,681) (21,808,919) (7,196,504) (8,342,585)
------------ ------------ ------------ ------------ ------------ ------------
Net increase (decrease) in net assets... 36,114,419 75,748,498 (47,353,981) (3,170,196) 7,222,790 1,115,820
Net assets at beginning of period....... 316,315,769 240,567,271 280,967,846 284,138,042 55,019,009 53,903,189
------------ ------------ ------------ ------------ ------------ ------------
Net assets at end of period............. $352,430,188 $316,315,769 $233,613,865 $280,967,846 $ 62,241,799 $ 55,019,009
============ ============ ============ ============ ============ ============
</TABLE>
<TABLE>
<CAPTION>
SMALL CAP GROWTH INTERNATIONAL BALANCED MID CAP GROWTH
SUBACCOUNT SUBACCOUNT SUBACCOUNT
------------------------- ----------------------- --------------------------
1999 1998 1999 1998 1999 1998
------------ ------------ ----------- ----------- ------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Increase (decrease) in net assets from
operations:
Net investment income (loss)................. $ 2,379,637 $ (130,657) $ 94,783 $ 93,932 $ 6,269,378 $ 745,382
Net realized gain............................ 1,146,721 804,150 21,897 51,929 2,939,455 961,578
Net unrealized appreciation (depreciation)
during the period........................... 4,105,638 820,136 (71,337) 118,489 17,963,888 745,129
----------- ----------- ---------- ---------- ------------ ------------
Net increase in net assets resulting from
operations................................... 7,631,996 1,493,629 45,343 264,350 27,172,721 2,452,089
From contractowner transactions:
Net premiums from contractowners............. 11,757,051 6,138,289 292,255 382,914 39,968,572 6,205,946
Net benefits to contractowners............... (7,769,383) (7,977,696) (592,333) (898,670) (13,353,850) (4,406,219)
----------- ----------- ---------- ---------- ------------ -----------
Net increase (decrease) in net assets from
contractowner transactions................... 3,987,668 (1,839,407) (300,078) (515,756) 26,614,722 1,799,727
----------- ----------- ---------- ---------- ------------ -----------
Net increase (decrease) in net assets......... 11,619,664 (345,778) (254,735) (251,406) 53,787,443 4,251,816
Net assets at beginning of period............. 9,928,937 10,274,715 1,579,447 1,830,853 9,553,252 5,301,436
----------- ----------- ---------- ---------- ------------ -----------
Net assets at end of period................... $21,548,601 $ 9,928,937 $1,324,712 $1,579,447 $ 63,340,695 $ 9,553,252
=========== =========== ========== ========== ============ ===========
</TABLE>
See accompanying notes.
44
<PAGE>
JOHN HANCOCK VARIABLE ANNUITY ACCOUNT U
STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED)
YEARS AND PERIODS ENDED DECEMBER 31,
<TABLE>
<CAPTION>
LARGE CAP VALUE MONEY MARKET MID CAP VALUE
SUBACCOUNT SUBACCOUNT SUBACCOUNT
--------------------------- --------------------------- -------------------------------
1999 1998 1999 1998 1999 1998
------------- ------------- ------------- ------------- -------------- ----------------
<S> <C> <C> <C> <C> <C> <C>
Increase (decrease) in net assets
from operations:
Net investment income (loss)....... $ 529,367 $ 408,130 $ 2,932,874 $ 2,545,216 $ (52,634) $ (65,591)
Net realized gain (loss)........... 1,106,093 559,557 -- -- (841,005) 105,604
Net unrealized appreciation
(depreciation) during the period.. (1,506,045) (303,867) -- -- 1,099,061 (1,627,787)
------------ ------------ ------------ ------------ ------------- ---------------
Net increase (decrease) in net
assets resulting from operations... 129,415 663,820 2,932,874 2,545,216 205,422 (1,587,774)
From contractowner transactions:
Net premiums from contractowners... 8,634,490 3,404,616 98,346,014 75,350,823 1,135,832 6,100,376
Net benefits to contractowners..... (9,024,265) (2,750,453) (83,092,604) (59,496,549) (3,909,567) (5,976,485)
------------ ------------ ------------ ------------ ------------- ---------------
Net increase (decrease) in net
assets from contractowner
transactions....................... (389,775) 654,163 15,253,410 15,854,274 (2,773,735) 123,891
------------ ------------ ------------ ------------ ------------- ---------------
Net increase (decrease) in net
assets............................. (260,360) 1,317,983 18,186,284 18,399,490 (2,568,313) (1,463,883)
Net assets at beginning of period... 9,894,762 8,576,779 77,599,876 59,200,386 8,794,233 10,258,116
------------ ------------ ------------ ------------ ------------- ---------------
Net assets at end of period......... $ 9,634,402 $ 9,894,762 $ 95,786,160 $ 77,599,876 $ 6,225,920 $ 8,794,233
============ ============ ============ ============ ============= ===============
</TABLE>
<TABLE>
<CAPTION>
SMALL/MID CAP REAL ESTATE EQUITY GROWTH & INCOME
GROWTH SUBACCOUNT SUBACCOUNT SUBACCOUNT
--------------------------- --------------------------- -------------------------------
1999 1998 1999 1998 1999 1998
------------- ------------- ------------- ------------- --------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Increase (decrease) in net assets
from operations:
Net investment income............. $ 3,185,033 $ 117,693 $ 2,759,375 $ 3,525,479 $ 106,505,912 $ 87,228,519
Net realized gain................. 486,820 944,965 29,474 2,853,085 53,547,849 40,149,891
Net unrealized appreciation
(depreciation) during the period. (2,857,487) 111,932 (4,558,409) (22,556,848) (20,496,572) 102,498,346
------------ ------------ ------------ ------------ -------------- --------------
Net increase (decrease) in net
assets resulting from operations.. 814,366 1,174,590 (1,769,560) (16,178,284) 139,557,189 229,876,756
From contractowner transactions:
Net premiums from contractowners.. 3,441,883 1,875,041 1,759,211 3,206,985 38,650,575 45,333,968
Net benefits to contractowners.... (11,822,060) (10,699,139) (17,747,215) (20,086,827) (141,058,513) (119,639,452)
------------ ------------ ------------ ------------ -------------- --------------
Net decrease in net assets from
contractowner transactions........ (8,380,177) (8,824,098) (15,988,004) (16,879,842) (102,407,938) (74,305,484)
------------ ------------ ------------ ------------ -------------- --------------
Net increase (decrease) in net
assets............................ (7,565,811) (7,649,508) (17,757,564) (33,058,126) 37,149,251 155,571,272
Net assets at beginning of period.. 30,175,011 37,824,519 64,504,987 97,563,113 1,000,947,752 845,376,480
------------ ------------ ------------ ------------ -------------- --------------
Net assets at end of period........ $ 22,609,200 $ 30,175,011 $ 46,747,423 $ 64,504,987 $1,038,097,003 $1,000,947,752
============ ============ ============ ============ ============== ==============
</TABLE>
See accompanying notes.
45
<PAGE>
JOHN HANCOCK VARIABLE ANNUITY ACCOUNT U
STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED)
YEARS AND PERIODS ENDED DECEMBER 31,
<TABLE>
<CAPTION>
SHORT-TERM BOND SMALL CAP VALUE
MANAGED SUBACCOUNT SUBACCOUNT SUBACCOUNT
------------------------------- --------------------------- -------------------------
1999 1998 1999 1998 1999 1998
--------------- --------------- ------------- ------------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
Increase (decrease) in net assets
from operations:
Net investment income (loss)........ $ 105,510,967 $ 112,285,168 $ 492,562 $ 428,021 $ 55,548 $ (63,213)
Net realized gain (loss)............ 38,904,825 27,895,126 (156,229) 31,379 (558,358) 122,977
Net unrealized appreciation
(depreciation) during the period... (49,231,187) 82,785,078 (188,569) (81,976) 131,518 (869,828)
-------------- -------------- ------------ ------------ ----------- -----------
Net increase (decrease) in net assets
resulting from operations........... 95,184,605 222,965,372 147,764 377,424 (371,292) (810,064)
From contractowner transactions:
Net premiums from contractowners.... 31,930,380 40,011,484 4,802,007 11,757,019 2,107,097 4,654,942
Net benefits to contractowners...... (199,638,746) (167,062,420) (6,460,778) (7,702,159) (3,326,400) (3,535,299)
-------------- -------------- ------------ ------------ ----------- -----------
Net increase (decrease) in net assets
from contractowner transactions..... (167,708,366) (127,050,936) (1,658,771) 4,054,860 (1,219,303) 1,119,643
-------------- -------------- ------------ ------------ ----------- -----------
Net increase (decrease) in net assets (72,523,761) 95,914,436 (1,511,007) 4,432,284 (1,590,595) 309,579
Net assets at beginning of period.... 1,356,962,808 1,261,048,372 10,941,008 6,508,724 7,548,220 7,238,641
-------------- -------------- ------------ ------------ ----------- -----------
Net assets at end of period.......... $1,284,439,047 $1,356,962,808 $ 9,430,001 $ 10,941,008 $ 5,957,625 $ 7,548,220
============== ============== ============ ============ =========== ===========
</TABLE>
<TABLE>
<CAPTION>
INTERNATIONAL OPPORTUNITIES EQUITY INDEX GLOBAL BOND
SUBACCOUNT SUBACCOUNT SUBACCOUNT
---------------------------- --------------------------- -------------------------
1999 1998 1999 1998 1999 1998
------------- ------------- ------------- ------------- ------------ --------------
<S> <C> <C> <C> <C> <C> <C>
Increase (decrease) in net assets from
operations:
Net investment income (loss) . . . . . $ 296,995 $ (20,289) $ 1,157,034 $ 434,639 $ 221,941 $ 247,291
Net realized gain (loss) . . . . . . . 171,907 179,802 2,844,802 2,604,544 (91,171) 116,276
Net unrealized appreciation
(depreciation) during the period . . . 792,914 335,531 1,736,131 2,092,450 (335,578) (5,099)
----------- ----------- ------------ ------------ ----------- -----------
Net increase (decrease) in net assets
resulting from operations . . . . . . . 1,261,816 495,044 5,737,967 5,131,633 (204,808) 358,468
From contractowner transactions:
Net premiums from contractowners . . . 1,210,088 2,500,004 19,934,330 15,404,918 2,103,632 9,259,189
Net benefits to contractowners . . . . (1,333,832) (2,274,545) (14,330,381) (11,721,106) (5,298,907) (5,006,441)
----------- ----------- ------------ ------------ ----------- -----------
Net increase (decrease) in net assets
from contractowner transactions . . . . (123,744) 225,459 5,603,949 3,683,812 (3,195,275) 4,252,748
----------- ----------- ------------ ------------ ----------- -----------
Net increase (decrease) in net assets . 1,138,072 720,503 11,341,916 8,815,445 (3,400,083) 4,611,216
Net assets at beginning of period . . . 4,141,368 3,420,865 25,841,968 17,026,523 7,750,187 3,138,971
----------- ----------- ------------ ------------ ----------- -----------
Net assets at end of period . . . . . . $ 5,279,440 $ 4,141,368 $ 37,183,884 $ 25,841,968 $ 4,350,104 $ 7,750,187
=========== =========== ============ ============ =========== ===========
</TABLE>
See accompanying notes.
46
<PAGE>
JOHN HANCOCK VARIABLE ANNUITY ACCOUNT U
STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED)
YEARS AND PERIODS ENDED DECEMBER 31,
<TABLE>
<CAPTION>
EMERGING MARKETS GLOBAL BOND INDEX
EQUITY SUBACCOUNT EQUITY SUBACCOUNT SUBACCOUNT
-------------------- ------------------ ------------------
1999 1998* 1999 1998* 1999 1998*
------------ ------ ---------- ------- ---------- -------
<S> <C> <C> <C> <C> <C> <C>
Increase (decrease) in
net assets from
operations:
Net investment income
(loss)............... $ 92,978 $ 1 $ (167) $ 3 $ 17,274 $ 16
Net realized gain
(loss)............... 374,074 -- 4,949 -- (13,991) --
Net unrealized
appreciation
(depreciation)
during the period.... 614,528 27 55,890 114 (11,138) (21)
----------- ------ -------- ------ --------- ------
Net increase
(decrease) in net
assets resulting from
operations............ 1,081,580 28 60,672 117 (7,855) (5)
From contractowner
transactions:
Net premiums from
contractowners....... 7,898,439 3,156 535,449 4,980 989,794 1,140
Net benefits to
contractowners....... (5,669,815) -- (71,047) -- (687,960) --
----------- ------ -------- ------ --------- ------
Net increase in net
assets from
contractowner
transactions.......... 2,228,624 3,156 464,402 4,980 301,834 1,140
----------- ------ -------- ------ --------- ------
Net increase in net
assets................ 3,310,204 3,184 525,074 5,097 293,979 1,135
Net assets at
beginning of period... 3,184 0 5,097 0 1,135 0
----------- ------ -------- ------ --------- ------
Net assets at end of
period................ $ 3,313,388 $3,184 $530,171 $5,097 $ 295,114 $1,135
=========== ====== ======== ====== ========= ======
</TABLE>
<TABLE>
<CAPTION>
SMALL/MID HIGH YIELD
CAP CORE SUBACCOUNT BOND SUBACCOUNT
-------------------- --------------------
1999 1998* 1999 1998*
---------- -------- ---------- --------
<S> <C> <C> <C> <C>
Increase (decrease) in net
assets from operations:
Net investment income (loss)......... $ 10,653 $ (8) $ 11,601 $ 1,307
Net realized gain (loss)............. 2,806 -- (674) (1)
Net unrealized appreciation
(depreciation) during the
period.............................. (1,161) 906 1,864 (920)
--------- ------- --------- --------
Net increase (decrease) in net
assets resulting from
operations........................... 12,298 898 12,791 386
From contractowner transactions:
Net premiums from
contractowners...................... 256,285 22,937 590,592 209,432
Net benefits to contractowners....... (156,272) -- (225,175) --
--------- ------- --------- --------
Net increase (decrease) in net
assets from contractowner
transactions......................... 100,013 22,937 365,417 209,432
--------- ------- --------- --------
Net increase (decrease) in net
assets............................... 112,311 23,835 378,208 209,818
Net assets at beginning of
period............................... 23,835 0 209,818 0
--------- ------- --------- --------
Net assets at end of period........... $ 136,146 $23,835 $ 588,026 $209,818
========= ======= ========= ========
</TABLE>
---------
* From May 1, 1998 (commencement of operations).
See accompanying notes.
47
<PAGE>
JOHN HANCOCK VARIABLE ANNUITY ACCOUNT U
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999
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, Independence and Company
Class 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 twenty-three 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 twenty-three Portfolios of the Fund which are
currently available are the Large Cap Growth, Sovereign Bond, International
Equity Index, Small Cap Growth, International Balanced, Mid Cap Growth, Large
Cap Value, Money Market, Mid Cap Value, Small/Mid Cap Growth (formerly,
Diversified Mid Cap Growth), Real Estate Equity, Growth & Income, Managed,
Short-Term Bond, Small Cap Value, International Opportunities, Equity Index,
Global Bond (formerly, Strategic Bond), Emerging Markets Equity, Global Equity,
Bond Index, Small/Mid Cap CORE and High Yield 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.
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.
48
<PAGE>
JOHN HANCOCK VARIABLE ANNUITY ACCOUNT U
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
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, 1999 were as follows:
<TABLE>
<CAPTION>
SUBACCOUNT SHARES OWNED COST VALUE
---------- ------------ -------------- ----------------
<S> <C> <C> <C>
Large Cap Growth............. 12,894,249 $ 254,142,803 $ 352,430,188
Sovereign Bond............... 25,606,555 253,562,999 233,613,865
International Equity Index... 3,168,341 50,228,027 62,241,798
Small Cap Growth............. 1,127,287 16,118,996 21,548,601
International Balanced....... 123,743 1,324,358 1,324,712
Mid Cap Growth............... 2,167,031 43,930,343 63,340,695
Large Cap Value.............. 714,152 10,353,939 9,634,402
Money Market................. 9,578,616 95,786,161 95,786,161
Mid Cap Value................ 487,283 6,757,626 6,225,920
Small/Mid Cap Growth......... 1,610,920 24,998,397 22,609,200
Real Estate Equity........... 4,074,209 52,269,126 46,747,423
Growth & Income.............. 51,875,496 774,430,665 1,038,097,002
Managed...................... 83,144,721 1,136,120,908 1,284,439,048
Short-Term Bond.............. 969,977 9,704,731 9,430,001
Small Cap Value.............. 545,714 6,464,014 5,957,625
International Opportunities.. 347,964 4,236,488 5,279,440
Equity Index................. 1,817,573 31,247,178 37,183,883
Global Bond.................. 443,034 4,700,269 4,350,105
Emerging Markets Equity...... 270,211 2,698,833 3,313,388
Global Equity................ 43,690 474,168 530,171
Bond Index................... 31,671 306,272 295,114
Small/Mid Cap CORE........... 13,870 136,401 136,146
High Yield Bond.............. 4,700,270 587,083 588,027
</TABLE>
49
<PAGE>
JOHN HANCOCK VARIABLE ANNUITY ACCOUNT U
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Purchases, including reinvestment of dividend distributions, and proceeds from
sales of shares in the Portfolios of the Fund during 1999, were as follows:
<TABLE>
<CAPTION>
SUBACCOUNT PURCHASES SALES
---------- ------------ --------------
<S> <C> <C>
Large Cap Growth.................... $ 63,219,566 $ 43,581,174
Sovereign Bond...................... 20,796,206 46,633,660
International Equity Index.......... 8,659,887 14,590,066
Small Cap Growth.................... 11,887,907 5,520,603
International Balanced.............. 421,641 626,936
Mid Cap Growth...................... 39,883,950 6,999,850
Large Cap Value..................... 8,597,260 8,457,667
Money Market........................ 61,432,921 43,246,637
Mid Cap Value....................... 737,739 3,564,107
Small/Mid Cap Growth................ 6,239,521 11,434,663
Real Estate Equity.................. 3,940,667 17,169,295
Growth & Income..................... 122,230,717 118,132,745
Managed............................. 123,806,178 186,003,575
Short-Term Bond..................... 5,590,417 6,756,625
Small Cap Value..................... 1,879,583 3,043,338
International Opportunities......... 1,740,309 1,567,058
Equity Index........................ 16,476,117 9,715,134
Global Bond......................... 1,993,701 4,967,034
Emerging Markets Equity............. 7,684,664 5,363,061
Global Equity....................... 520,776 56,541
Bond Index.......................... 988,195 669,088
Small/Mid Cap CORE.................. 272,083 161,417
High Yield Bond..................... 604,987 227,968
</TABLE>
50
<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, 1999 were as
follows:
<TABLE>
<CAPTION>
ACCOMMODATOR INDEPENDENCE COMPANY CLASS
-------------------------- -------------------------- --------------------------
ACCUMULATION ACCUMULATION ACCUMULATION ACCUMULATION ACCUMULATION ACCUMULATION
SUBACCOUNT SHARES SHARE VALUES SHARES SHARE VALUES SHARES SHARE VALUES
---------- ------------ ------------ ------------ ------------ ------------ --------------
<S> <C> <C> <C> <C> <C> <C>
Large Cap Growth............. 166,041 $ 54.85 7,030,041 $48.81 -- --
Sovereign Bond............... 1,417,799 51.00 8,802,346 18.25 12,030 $ 57.97
International Equity Index... 70,792 23.68 2,919,820 20.74 -- --
Small Cap Growth............. 45,485 21.38 976,604 21.07 -- --
International Balanced....... 6,274 13.10 96,279 12.91 -- --
Mid Cap Growth............... 115,765 35.07 1,715,355 34.56 -- --
Large Cap Value.............. 46,760 15.93 566,333 15.70 -- --
Money Market................. 715,041 25.57 5,546,414 13.91 12,800 29.07
Mid Cap Value................ 22,937 13.86 432,569 13.66 -- --
Small/Mid Cap Growth......... 40,532 12.33 1,174,407 18.83 -- --
Real Estate Equity........... 52,726 20.41 2,279,947 20.03 -- --
Growth & Income.............. 1,577,363 212.57 16,490,810 42.42 13,453 241.64
Managed...................... 762,902 30.96 45,116,830 27.95 -- --
Short-Term Bond.............. 32,859 11.65 730,824 12.38 -- --
Small Cap Value.............. 22,918 12.14 474,891 11.96 -- --
International Opportunities.. 9,550 16.29 319,153 16.05 -- --
Equity Index................. 70,252 22.74 1,587,799 22.41 -- --
Global Bond.................. 34,953 11.98 339,429 11.80 -- --
Emerging Markets Equity...... 15,155 16.64 184,714 16.57 -- --
Global Equity................ 629 12.67 41,397 12.61 -- --
Bond Index................... 4,722 9.65 25,962 9.61 -- --
Small/Mid Cap CORE........... -- 12.77 10,709 12.71 -- --
High Yield Bond.............. 1,166 10.29 56,202 10.25 -- --
</TABLE>
The net assets attributable to JHMLICO, within the Company Class, 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.
51
<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, 1999. (Part B)
3. Statement of Operations, John Hancock Variable Annuity Account U, year
ended December 31, 1999. (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,
1999. (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, 1999, and at December 31, 1998. (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, 1999. (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, 1999. (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. 5 to the
Form N-4 Registration Statement of John Hancock Variable Annuity Account
H (File No. 333-08345) filed April 28, 1999.
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.
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 M. Connors, Jr........ Director
Stephen L. Brown........... Chairman of the Board
Michael C. Hawley.......... Director
I. MacAllister Booth....... Director
Wayne A. Budd.............. Director
Robert J. Tarr, Jr......... Director
David F. D'Alessandro...... President and Chief Executive Officer
Robert E. Fast............. Director
Foster L. Aborn............ Vice Chairman of the Board
Lawrence K. Fish........... Director
Kathleen F. Feldstein...... Director
Judith A. McHale........... Director
EXECUTIVE OFFICERS OTHER THAN DIRECTORS
Thomas E. Moloney.......... Chief Financial Officer
Richard S. Scipione........ General Counsel
Derek Chilvers............. Chairman and Chief Executive Officer of John Hancock
International Holdings, Inc.
John M. DeCiccio........... Executive Vice President and Chief Investment
Officer-Elect
Maureen R. Ford............ President, Broker-Dealer Distribution and Financial
Advisory Network
Kathleen M. Graveline...... Executive Vice President-Retail
Barry J. Rubenstein........ 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 JHLICO, operated as a unit investment
trust. Registrant supports benefits payable under JHLICO's variable annuity
contracts by investing assets allocated to various investment options in shares
of John Hancock Variable Series Trust I, (the "Trust"), which is 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 JHLICO own controlling interests of the Trust's
outstanding shares. The purchasers of variable annuity and variable life
insurance contracts, in connection with which the Trust is used, will have the
opportunity to instruct John Hancock and JHLICO with respect to the voting of
the shares of the Series Fund held by Registrant as to certain matters. Subject
to the voting instructions, JHLICO directly controls Registrant.
A diagram of the subsidiaries of John Hancock is incorporated by reference
from Exhibit 13 to Post-Effective Amendment No. 5 to the Form N-4 Registration
Statement of John Hancock Variable Annuity Account H (File No. 4) filed in April
28, 1999. All subsidiaries are included in John Hancock's consolidated financial
statements.
C-2
<PAGE>
ITEM 27. NUMBER OF CONTRACT OWNERS
As of March 30, 2000, the number of Contract Owners of variable annuity
contracts offered by the Account was 158,599.
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>
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>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the John
Hancock Life Insurance Company has duly caused this Post-Effective
Amendment to the Registration Statement to be signed on its behalf by the
undersigned, thereunder duly authorized, and its seal to be hereunto fixed and
attested, all in the City of Boston and Commonwealth of Massachusetts on the
11th day of July, 2000.
JOHN HANCOCK LIFE
INSURANCE COMPANY
(SEAL)
/s/ Stephen L. Brown
By STEPHEN L. BROWN
------------------
Stephen L. Brown
Chairman of the
Board
/s/ Ronald J. Bocage
Attest: Ronald J. Bocage
----------------------
Vice President and
Counsel
<PAGE>
Pursuant to the requirements of the Securities Act of 1933, this Post-
Effective Amendment to the Registration Statement has been signed below by the
following persons in the capacities with John Hancock Life Insurance Company and
on the dates indicated.
SIGNATURE TITLE DATE
--------- ----- ----
Executive Vice President
/s/ Thomas E. Moloney and Chief Financial Officer
(Principal Financial Officer
THOMAS E. MOLONEY and Acting Principal Accounting
----------------- Officer)
Thomas E. Moloney July 11, 2000
/s/ Stephen L. Brown Chairman of the Board
STEPHEN L. BROWN (Principal Executive Officer)
----------------
Stephen L. Brown
for himself and as
Attorney-in-Fact July 11, 2000
FOR: Foster L. Aborn Vice Chairman of the Board
David F. D'Alessandro President and Chief Executive
Officer
Nelson S. Gifford Director E. James Morton Director
John M. Connors Director Robert E. Fast Director
Robert J. Tarr, Jr. Director Samuel W. Bodman Director
I. MacAllister Booth Director Kathleen F. Feldstein Director
Michael C. Hawley Director Richard F. Syron Director
Wayne A. Budd Director
Edward H. Linde Director
<PAGE>
Pursuant to the requirements of the Securities Act of 1933, the
Registrant, certifies that it meets all of the requirements for effectiveness of
this Registration Statement pursuant to Rule 485(b) under the Securities Act of
1933 and has duly caused this Post-Effective Amendment to the Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, and its seal to be hereunto fixed and attested, all in the City of
Boston and Commonwealth of Massachusetts on the 11th day of July, 2000.
On behalf of the Registrant
By John Hancock Life Insurance Company
(Depositor)
(SEAL)
/s/ Stephen L. Brown
By STEPHEN L. BROWN
----------------
Stephen L. Brown
Chairman of the
Board
/s/ Ronald J. Bocage
Attest: Ronald J. Bocage
----------------------
Ronald J. Bocage
Vice President and Counsel
<PAGE>
LIST OF EXHIBITS
FORM N-4
JOHN HANCOCK VARIABLE ANNUITY ACCOUNT U
EXHIBITS
10.(a) Representation of Counsel Pursuant to Rule 485(b).
10.(b) Consent of Independent Auditor.
