<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 3, 1996
REGISTRATION NO. 33-62895
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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AMENDMENT NO. 1 TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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MASSACHUSETTS 6311 04-2664016
(STATE OR OTHER (PRIMARY STANDARD (I. R. S. EMPLOYER
JURISDICTION OF INDUSTRIAL IDENTIFICATION NO.)
INCORPORATION OR CLASSIFICATION CODE
ORGANIZATION) NUMBER)
200 CLARENDON STREET
BOSTON, MASSACHUSETTS 02117
(617) 572-4390
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
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SANDRA M. DADALT, ESQUIRE
JOHN HANCOCK MUTUAL LIFE INSURANCE COMPANY
JOHN HANCOCK PLACE
BOSTON, MASSACHUSETTS 02117
(NAME, ADDRESS INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
If any of the securities being registered on this form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box: [X]
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<PAGE>
JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY
CROSS REFERENCE SHEET PURSUANT TO
REGULATION S--K, ITEM 501(B)
FORM S--1 ITEM NUMBER AND CAPTION HEADING IN PROSPECTUS
<TABLE>
<C> <S> <C>
1. Forepart of the
Registration Statement
and Outside Front Cover
Page of Prospectus...... Outside Front Cover Page
2. Inside Front and Outside
Back Cover Pages of
Prospectus.............. Inside Front Cover
3. Summary Information,
Risk Factors and Ratio
of Earnings to Fixed
Charges................. Description of Contracts; Financial Statements;
Summary Information
4. Use of Proceeds......... Investments by JHVLICO
5. Determination of
Offering Price.......... Not Applicable
6. Dilution................ Not Applicable
7. Selling Security
Holders................. Not Applicable
8. Plan of Distribution.... Distribution of Contracts
9. Description of
Securities to be
Registered.............. Description of Contracts
10. Interests and Named
Experts and Counsel..... Not Applicable
11. Information with Respect
to the Registrant....... The Company; Executive Officers and Directors;
Executive Compensation; Financial Statements;
12. Disclosure of Commission Legal Matters
Position on
Indemnification for
Securities Act
Liabilities............. Not Applicable
</TABLE>
<PAGE>
PROSPECTUS
JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY
MODIFIED GUARANTEED ANNUITY CONTRACTS
200 CLARENDON STREET
BOSTON, MASSACHUSETTS
02117
This Prospectus describes certain deferred annuity Contracts offered by John
Hancock Variable Life Insurance Company ("JHVLICO"). The Contracts, issued on
a group basis or as individual contracts, are designed to provide retirement
benefits for eligible individuals. With respect to a Contract issued on a
group basis, eligible individuals include persons who have established
accounts with certain broker-dealers and other financial institutions that
have entered into a distribution agreement to offer interests in the
Contracts, and members of other eligible groups. (See "Distribution of the
Contracts," page 13.) Contracts issued on an individual basis are offered in
certain states.
An interest in a group Contract will be separately accounted for by the
issuance of a Certificate evidencing the individual Participant's interest
under the Contract. An interest in an individual Contract is evidenced by the
issuance of an individual Contract. The Certificate and individual Contract
are hereinafter referred to as the "Contract."
A minimum single premium payment of at least $5,000 must accompany the
application for a Contract. JHVLICO reserves the right to limit the maximum
single premium payment amount. No additional payment is permitted on a
Contract, although eligible individuals may purchase more than one Contract if
JHVLICO then is still offering the Contracts for sale. (See "The Application
Process," page 5.) Individuals interested in purchasing additional Contracts
may obtain a current copy of this prospectus containing, if appropriate,
updated financial and other information about JHVLICO. Prospectuses may be
obtained by writing to Life and Annuity Services at the above address.
Premium payments become part of the general assets of JHVLICO.
------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
------------------
MUTUAL FUNDS, ANNUITIES AND INSURANCE PRODUCTS ARE NOT DEPOSITS OR
OBLIGATIONS OF, OR GUARANTEED BY ANY BANK, NOR ARE THEY INSURED BY THE FDIC;
THEY ARE SUBJECT TO INVESTMENT RISKS, INCLUDING POSSIBLE LOSS OF THE PRINCIPAL
AMOUNT INVESTED.
------------------
The date of this Prospectus is July , 1996.
<PAGE>
PUBLICLY-AVAILABLE INFORMATION
JHVLICO is subject to the informational requirements of the Securities
Exchange Act of 1934 (the "1934 Act"), as amended, and in accordance therewith
files reports and other information with the Securities and Exchange
Commission (the "Commission"). Such reports and other information can be
inspected and copied at the public reference facilities of the Commission at
Room 1024, 450 Fifth Street, N. W., Washington, D. C.
JHVLICO intends to deliver to holders of outstanding Contracts annual
account statements and such other periodic reports as may be required by law,
but it is not anticipated that any such reports will include periodic
financial statements or information concerning JHVLICO.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
SUMMARY INFORMATION....................................................... 1
SPECIAL TERMS............................................................. 3
DESCRIPTION OF CONTRACTS.................................................. 5
The Application Process.................................................. 5
Accumulation Period...................................................... 5
Guarantee Periods........................................................ 5
Guarantee Rates and Current Rates........................................ 7
Guarantee Period Exchange Option......................................... 7
Surrenders and Withdrawals............................................... 8
Market Value Adjustment.................................................. 9
Systematic Withdrawals................................................... 9
Premium Taxes............................................................ 10
Death Benefit............................................................ 10
Payment Upon Surrender................................................... 10
Annuity Period........................................................... 11
Date of Maturity and Form of Annuity..................................... 11
Annuity Options.......................................................... 11
Other Conditions......................................................... 12
INVESTMENTS .............................................................. 12
PARTICIPANT AND BENEFICIARY RIGHTS AND PRIVILEGES......................... 13
AMENDMENT OF THE CONTRACTS................................................ 13
DISTRIBUTION OF THE CONTRACTS............................................. 13
FEDERAL INCOME TAXES...................................................... 14
THE COMPANY .............................................................. 16
Business of JHVLICO...................................................... 16
Selected Financial Data.................................................. 16
Recent Accounting Developments........................................... 17
Management Discussion and Analysis of Financial Condition and Results of
Operations.............................................................. 18
Competition.............................................................. 22
Employees and Facilities................................................. 23
Transactions with JHMLICO................................................ 23
Regulation............................................................... 23
Directors and Executive Officers......................................... 24
Executive Compensation................................................... 25
REGISTRATION STATEMENT.................................................... 25
LEGAL MATTERS............................................................. 25
EXPERTS................................................................... 25
APPENDIX A: MARKET VALUE ADJUSTMENT....................................... 26
FINANCIAL STATEMENTS...................................................... F-1
</TABLE>
i
<PAGE>
SUMMARY INFORMATION
Upon application or purchase order, an initial Guarantee Period is selected
by the Participant from among those then offered by JHVLICO. (See "Guarantee
Periods," page 5, and "Guarantee Rates and Current Rates," page 7.) At the
time of this Prospectus, JHVLICO offers initial and subsequent Guarantee
Periods of 3, 5, 6, 7, 8, 9, and 10 years. JHVLICO reserves the right to
change the duration of the Guarantee Periods offered for any initial or
subsequent Guarantee Period. The premium payment (less withdrawals and any
applicable premium taxes and contract fees) will earn interest at the Initial
Guarantee Rate for the Guarantee Period chosen. The Initial Guarantee Rate is
an effective annual rate reflecting the daily compounding of interest.
At the end of each Guarantee Period, a subsequent Guarantee Period of the
same duration will begin unless, (a) within the 30 day period prior to the end
of such Guarantee Period, a different duration is elected by the Participant
from among those offered by JHVLICO at that time or (b) the annuity payments
begin or the Contract is surrendered at that time. Without JHVLICO's prior
approval, subsequent Guarantee Periods may not extend beyond the Annuitant's
85th birthday.
The Accumulated Value as of the first day of each subsequent Guarantee
Period will earn interest at the Subsequent Guarantee Rate for the Guarantee
Period chosen. JHVLICO'S MANAGEMENT WILL MAKE THE FINAL DETERMINATION AS TO
GUARANTEE RATES TO BE DECLARED. JHVLICO CANNOT PREDICT NOR CAN JHVLICO
GUARANTEE FUTURE GUARANTEE RATES. (See "Guarantee Periods," page 5, and
"Guarantee Rates and Current Rates," page 7.)
Subject to certain restrictions, withdrawals and surrenders are permitted.
However, prior to payment of the surrender or withdrawal, such withdrawals and
surrenders made prior to the end of a Guarantee Period may be subject to an
early withdrawal charge and/or a Market Value Adjustment. Except as described
below, the early withdrawal charge will be deducted from any such withdrawal
or surrender made before the end of the seventh Contract Year. The early
withdrawal charge will be equal to seven percent of the amount withdrawn or
surrendered, in excess of the Free Withdrawal Value, in the first Contract
Year, and will be reduced by one percentage point for each of the next six
Contract Years. FOR A SURRENDER MADE AT THE END OF A GUARANTEE PERIOD, NO
EARLY WITHDRAWAL CHARGE OR MARKET VALUE ADJUSTMENT WILL BE APPLIED, PROVIDED
THAT A REQUEST IN WRITING FOR SURRENDER AT THE END OF THE GUARANTEE PERIOD IS
RECEIVED BY JHVLICO WITHIN THE 30 DAYS PRECEDING THE END OF THE GUARANTEE
PERIOD.
No early withdrawal charge will be applicable if the Accumulated Value is
used to purchase an annuity on the Date of Maturity. A Market Value
Adjustment, however, will be applied if the Date of Maturity is not at the end
of a Guarantee Period. To elect an Annuity Option the Participant must notify
JHVLICO at least 30 days before the Date of Maturity.
If the Participant so requests In Writing, JHVLICO will, for each Contract
Year, send the Participant an amount (the Free Withdrawal Value) totaling 10%
of the Accumulated Value calculated as of the first day of the Contract Year.
No early withdrawal charge or Market Value Adjustment will be imposed on such
amount. Any such distribution is deemed a withdrawal, however, and, as such,
may be subject to tax. (See "Surrenders and Withdrawals," page 8, and "Federal
Income Taxes," page 14.)
The Market Value Adjustment reflects the relationship between the Current
Rate for the duration remaining in the Guarantee Period at the time the
surrender or withdrawal is requested
<PAGE>
and the then applicable Guarantee Rate for the Contract. Since Current Rates
are based in part upon the investment yields available to JHVLICO (see
"Investments," page 12), the effect of the Market Value Adjustment will be
closely related to the levels of such yields. It is possible, therefore, that,
should such yields increase significantly from the time a Contract is
purchased, the amount received upon a surrender of the Contract may be less
than the original premium payment. If such yields should decrease
significantly, the amount received upon a surrender may be more than the
original premium payment.
JHVLICO may defer payment of any surrender for a period not exceeding 6
months from the date of JHVLICO's receipt of a written request for surrender.
If JHVLICO defers payment on a surrender for more than 30 days, JHVLICO will
pay interest on the Surrender Value at a rate equal to the greater of the rate
required by state law and the rate declared by JHVLICO. (See "Payment Upon
Surrender," page 10.)
If the Surrender Value or Death Benefit has not been paid prior to the Date
of Maturity specified by the Participant or otherwise determined pursuant to
the Contract, JHVLICO will make a lump sum payment or start to pay a series of
payments based on an Annuity Option on such Date of Maturity. The Annuity
Option is selected by the Participant or, if the Participant has not made a
selection, is a life annuity with payments guaranteed for 10 years. (See
"Annuity Period," page 11.)
The Contract provides for a Death Benefit. Upon the death of the Annuitant
or the Participant before the Date of Maturity, the Death Benefit will be
payable to the Beneficiary as determined under the Contract provisions.
Written notification and due proof of death at the offices of JHVLICO are
required to process the Death Benefit. With regard to Joint Participants, at
the death of the first Joint Participant prior to the Date of Maturity, the
Beneficiary will be the surviving Participant notwithstanding that the
designated Beneficiary may be different.
The Death Benefit will equal the Accumulated Value as of the date of death.
In the event of the Participant's death where the named Beneficiary is the
spouse of the Participant and the Annuitant is living, the spouse may elect,
in lieu of receiving the Death Benefit, to become the Participant and continue
the Contract. (See "Death Benefit," page 10.)
A deduction will be made for premium taxes for Contracts sold in certain
states. Currently such taxes range up to 5% of the Accumulated Value applied
to an Annuity Option. Usually premium taxes are deducted from the Accumulated
Value of the Contract at the time of annuitization. For exceptions to the
normal rule, see "Premium Taxes," page 10.
2
<PAGE>
SPECIAL TERMS
As used in this Prospectus, the following terms have the indicated
meanings:
ACCUMULATED VALUE
During the initial Guarantee Period, Accumulated Value means the premium
payment plus earned interest, less any withdrawals and applicable deduction
for contract fees and any applicable deductions for premium taxes or
similar taxes. During any subsequent Guarantee Period, Accumulated Value is
equal to the Accumulated Value as of the last day of the immediately
preceding Guarantee Period, including any Market Value Adjustments made
under the guarantee period exchange option, plus earned interest, less any
withdrawals and applicable deduction for contract fees and any deduction
for premium taxes or similar taxes during such subsequent Guarantee Period.
ANNUITANT
The individual designated as such in the Contract.
BENEFICIARY
The person entitled to receive benefits per the terms of the Contract in
case of the death of the Annuitant or the Participant, or the Joint
Participant, as applicable.
CONTRACT YEAR
For any given Contract, the 12 month period following the Date of Issue and
each 12 month period thereafter.
CURRENT RATE
The applicable interest rate contained in a schedule of rates established
by JHVLICO from time to time for various durations.
DATE OF ISSUE
The effective date of the Certificate issued under the group annuity
Contract, or the date of issue of an individual annuity Contract.
DATE OF MATURITY
The date on which annuity payments are to start, which can be no later than
the Annuitant's 85th birthdate without JHVLICO's prior approval.
FREE WITHDRAWAL VALUE
An amount totaling 10 percent of the Accumulated Value, calculated as of
the first day of the Contract Year, reduced by any prior withdrawals made
during the Contract Year.
GUARANTEE PERIOD
The period for which an Initial or Subsequent Guarantee Rate is credited.
GUARANTEE RATE
The Guarantee Rate refers to either the Initial Guarantee Rate or the
Subsequent Guarantee Rate.
INITIAL GUARANTEE RATE
The rate of interest credited and compounded annually during the initial
Guarantee Period.
3
<PAGE>
IN WRITING
A written form satisfactory to JHVLICO and received at its offices
addressed to: Life and Annuity Services, 200 Clarendon Street, P. O. Box
111, Boston, Massachusetts 02117.
PARTICIPANT
With respect to a Group Contract, Participant refers to a person or persons
who has or have been issued a Certificate; with respect to an individual
Contract, Participant refers to a person or persons who has or have been
issued an individual annuity Contract. Where there are joint Participants,
each must join in making any request or election or taking any action
pursuant to the Contract.
SUBSEQUENT GUARANTEE RATE
The rate of interest established by JHVLICO for the applicable subsequent
Guarantee Period.
SURRENDER VALUE
The Accumulated Value of the Contract, less, if applicable, any contract
fees, any income taxes withheld, any deduction for premium taxes or similar
taxes, and any early withdrawal charge, and adjusted by any then applicable
Market Value Adjustment.
WITHDRAWAL
The amount withdrawn prior to any deductions or adjustments.
4
<PAGE>
DESCRIPTION OF CONTRACTS
THE APPLICATION PROCESS
A prospective Participant must complete an application form or an order to
purchase. This application or order must be submitted to JHVLICO for approval
along with the premium payment. The minimum premium payment is $5,000. JHVLICO
retains the right to limit the amount of the maximum premium payment.
Contracts are issued within a reasonable time after receipt of the
application or order and the premium payment. JHVLICO reserves the right to
reject an application or order and, in such case, any premium payment will be
returned without interest. Additional premium payments may not be contributed
to an existing Contract. However, additional Contracts may be purchased by
eligible individuals at the then prevailing Guarantee Rates and terms.
If the application or order is properly completed and accepted by JHVLICO,
the premium payment becomes part of JHVLICO's general assets and is credited
to an account established for the Participant. We will confirm the crediting
of the premium payment in writing within five business days of receipt of the
payment and of a properly completed application or order. Interest on an
account will be accrued beginning on the date the premium payment is credited.
The premium payment will not be applied in the event that an application or
an order to purchase is not properly completed. JHVLICO will attempt to
contact the Participant in writing or by telephone. JHVLICO will return the
premium payment without interest three weeks after receiving it, if the
application or an order to purchase has not, by that time, been properly
completed.
ACCUMULATION PERIOD
Guarantee Periods
In the application or order, the Participant will select the duration of the
initial Guarantee Period from among those durations offered by JHVLICO. The
duration selected will determine the Initial Guarantee Rate. The premium
payment (less withdrawals and any applicable premium taxes and contract fees)
will earn interest at the Initial Guarantee Rate, which is an annual effective
rate for the Guarantee Period selected reflecting the daily compounding of
interest.
Only one Guarantee Period may be in use under a single Contract at any one
time. Set forth below is an illustration of how interest will be credited to
the Accumulated Value during each Guarantee Period.
Note: The following example assumes no withdrawals of any amount during the
entire five year period. If the Participant were to make a withdrawal or
surrender at any time, taxes and, in some cases, tax penalties, would be
payable. (See "Federal Income Taxes," page 14.) Also, if the withdrawal or
surrender occurs at any time other than the end of the Guarantee Period, an
early withdrawal charge applies, and a Market Value Adjustment may apply. (See
"Surrenders and Withdrawals," page 8.) The hypothetical interest rate shown
below is illustrative only and is not intended to predict future interest
rates to be declared under the Contract. Actual interest rates declared for
any given time may be more or less than those shown.
EXAMPLE OF COMPOUNDING AT THE INITIAL GUARANTEE RATE
<TABLE>
<S> <C>
Premium Payment: $20,000
Guarantee Period: 7 years
Guarantee Rate: 6.00% per annum
(1+Guarantee Rate) 1.06
</TABLE>
5
<PAGE>
Premium Payment = $20,000.00
Accumulated Value at end of Contract Year 1 = $21,200.00 ($20,000.00 X 1.06)
Accumulated Value at end of Contract Year 2 = $22,472.00 ($21,200.00 X 1.06)
Accumulated Value at end of Contract Year 3 = $23,820.32 ($22,472.00 X 1.06)
Accumulated Value at end of Contract Year 4 = $25,249.54 ($23,820.32 X 1.06)
Accumulated Value at end of Contract Year 5 = $26,764.51 ($25,249.54 X 1.06)
Accumulated Value at end of Contract Year 6 = $28,370.38 ($26,764.51 X 1.06)
Accumulated Value at end of Guarantee Period = $30,072.61
<TABLE>
<S> <C>
Total Interest Credited in
Guarantee Period: $30,072.61 - $20,000 = $10,072.61
Accumulated Value at end of
Guarantee Period: $20,000.00 + $10,072.61 = $30,072.61
Accumulated Value after 150 days
from the Contract Date: $20,000.00 X (1.06) ^ (150/365) = $20,484.70
</TABLE>
Unless the Participant elects to make a surrender (see "Surrenders and
Withdrawals", page 8), a subsequent Guarantee Period generally will commence
at the end of a Guarantee Period. Each subsequent Guarantee Period will be the
same duration as the previous Guarantee Period (if available), unless the
Participant elects, within the 30 day period prior to the end of such
Guarantee Period, from among those Guarantee Periods currently being offered
by JHVLICO, a new Guarantee Period of a different duration.
In no event may subsequent Guarantee Periods extend beyond the Annuitant's
85th birthday, or any later date that JHVLICO may have permitted the
Participant to elect as a Date of Maturity. For example, if the Annuitant is
age 81 upon the expiration of a 5 year Guarantee Period, JHVLICO will provide
the subsequent Guarantee Period expiring closest to, without exceeding, the
Annuitant's 85th birthday (assuming no such later Date of Maturity has been
agreed to), if such subsequent Guarantee Period is available and the
Participant has not duly elected a shorter subsequent Guarantee Period. The
Accumulated Value will then earn interest at a Subsequent Guarantee Rate
declared by JHVLICO for that duration. The Subsequent Guarantee Rate for the
Guarantee Period automatically applied in these circumstances may be higher or
lower than the Subsequent Guarantee Rate for longer durations. If all
subsequent Guarantee Periods available would extend beyond the Annuitant's
85th birthday (or any later Date of Maturity that has been duly elected), the
Date of Maturity will automatically become the end of the expiring Guarantee
Period. In such case, JHVLICO will provide an annuity payable to the Annuitant
beginning on such Date of Maturity for a guaranteed period of 10 years and as
long thereafter as the Annuitant lives (or a lump sum payment if the
Accumulated Value is insufficient to support an Annuity Option, as described
under "Annuity Options," page 11). Also, the Participant may choose to elect
any other optional form of payment available.
The Accumulated Value at the beginning of any subsequent Guarantee Period
will be equal to the Accumulated Value at the end of the Guarantee Period just
ending, including any Market Value Adjustments made under the guarantee period
exchange option. (See "Guarantee Period Exchange Option, page 7".) This
Accumulated Value will earn interest at the applicable Subsequent Guarantee
Rate, which is an annual effective rate reflecting the daily compounding of
interest.
Within 30 days prior to the end of a Guarantee Period, JHVLICO will notify
the Participant of the expiration of such Guarantee Period.
6
<PAGE>
Guarantee Rates and Current Rates
The Initial Guarantee Rate for the initial Guarantee Period will be
established at the time the Contract is purchased. From time to time, for
customers of certain broker-dealers and financial institutions, JHVLICO may
credit Guarantee Rates that are higher than those which are otherwise
applicable. Otherwise, except as described in the following paragraph,
however, the Initial and Subsequent Guarantee Rates that are being offered to
Participants or prospective Participants at any given time will be the same
with respect to Guarantee Periods of the same durations.
Prior to the commencement of a subsequent Guarantee Period, a Participant
may elect to receive a Subsequent Guarantee Rate that is higher than that
which JHVLICO would otherwise provide. This option is, however, not guaranteed
and may be terminated at any time by JHVLICO both as to new and as to
outstanding Contracts. This option will be available to Participants with
Contracts having an Accumulated Value of at least $5,000. This election must
be In Writing within 30 days prior to the end of the Participant's expiring
Guarantee Period. If the Participant makes such an election for a higher
Subsequent Guarantee Rate, the existing Contract must be surrendered, and a
new Contract will be issued. In such case, JHVLICO will waive the early
withdrawal change under the existing Contract, but the early withdrawal
charges under the new Contract will restart and, in accordance with the
procedures described under "Early Withdrawal Charge," page 8, will be measured
from the Date of Issue of the new Contract. JHVLICO believes an exchange of
Contracts will not be taxable for Federal Income Tax purposes. See "Federal
Income Taxes--Certain Exchanges."
JHVLICO's schedule of Current Rates is used to determine the amount of any
Market Value Adjustment at any time. If JHVLICO is currently offering a
Guarantee Period of a given duration, the Current Rate for that duration will
be the same as JHVLICO's basic Guarantee Rates that are then in effect for
that duration. For any durations as to which Guarantee Periods are not then
being offered, the Current Rate will be established by JHVLICO on a basis
consistent with the Current Rates for the Guarantee Periods that are being
offered.
Subject to the discussion in the foregoing paragraphs, JHVLICO will
determine Current Rates and Guarantee Rates periodically at its sole
discretion. JHVLICO has no specific formula for determining the rate of
interest that it will declare as future Current Rates or future Guarantee
Rates. The determination of Current Rates and Guarantee Rates will reflect
interest rates available on the types of debt instruments in which JHVLICO
intends to invest the proceeds attributable to the Contracts. (See
"Investments", page 12.) In addition, JHVLICO's management may also consider
various other factors in determining Current Rates and Guarantee Rates for a
given period, including regulatory and tax requirements, sales commissions and
administrative expenses, general economic trends, and competitive factors.
JHVLICO's management will make the final determination as to Current and
Guarantee Rates to be declared. JHVLICO cannot predict nor guarantee future
Current Rates or future Guarantee Rates.
Guarantee Period Exchange Option
Once each Contract Year, the Participant may elect In Writing, from those
Guarantee Periods currently offered, a new Guarantee Period of a different
duration, provided that the Accumulated Value after such election is at least
$4,000. A Market Value Adjustment will be applied to the current Accumulated
Value at the time of transfer. There will be no early withdrawal charge for
this transfer. However, early withdrawal charges will continue to be measured
from the Date of Issue of the original Contract. JHVLICO reserves the right to
charge a contract fee of up to $50 for such transfers, but JHVLICO does not
impose a contract fee as of the date of this Prospectus.
7
<PAGE>
Surrenders and Withdrawals
General
Surrenders may be made under a Contract at any time. In the case of all
surrenders that exceed the Free Withdrawal Value, (except surrenders requested
at the end of a Guarantee Period), the Participant will receive the
Accumulated Value to date reduced by any applicable early withdrawal charge
and adjusted by any applicable Market Value Adjustment.
Withdrawals may only be made if the withdrawal is at least $500 and the
remaining Accumulated Value after the withdrawal has been deducted is at least
$4,000. However, a Free Withdrawal Value less than $500 may be withdrawn, but
only in its entirety.
For all withdrawals in excess of the Free Withdrawal Value, except
withdrawals requested at the end of a Guarantee Period, the Participant will
receive the withdrawal amount requested reduced by any applicable early
withdrawal charge and adjusted by any applicable Market Value Adjustment.
No early withdrawal charges or Market Value Adjustments are applied to
surrenders or withdrawals requested at the end of a Guarantee Period if
JHVLICO receives the request In Writing within the 30 days preceding such
date. The effective date of any withdrawal or surrender, other than one
requested at the end of the Guarantee Period, is the date of receipt of the
request In Writing for such surrender or withdrawal.
Any withdrawal or surrender may be subject to tax (See "Federal Income
Taxes," page 14) and any unpaid premium taxes.
JHVLICO will, upon request, inform the Participant of the amount payable
upon a surrender or withdrawal.
Early Withdrawal Charge
No deduction for a sales charge is made from the premium payment when
received. An early withdrawal charge, however, may be deducted from
withdrawals or surrenders, in excess of the Free Withdrawal Value, made before
the end of the seventh Contract Year. The amount of any early withdrawal
charge is computed as a percentage of the amount withdrawn or surrendered
prior to the deduction of any other applicable charges or deductions. The
chart below indicates the percentage charge applied during the specified
Contract Year:
<TABLE>
<CAPTION>
YEARS FROM DATE OF ISSUE EARLY
TO DATE OF WITHDRAWAL WITHDRAWAL
OR SURRENDER CHARGES
------------------------ ----------
<S> <C>
7 or more................................................... No Charge
6 but less than 7........................................... 1%
5 but less than 6........................................... 2%
4 but less than 5........................................... 3%
3 but less than 4........................................... 4%
2 but less than 3........................................... 5%
1 but less than 2........................................... 6%
less than 1 year............................................ 7%
</TABLE>
No early withdrawal charge will be made for surrenders or withdrawals after
Contract Year 7, surrenders or withdrawals effective at the end of a Guarantee
Period, or any Free Withdrawal Value. For purposes of the Free Withdrawal
Value, withdrawals will be deemed to be taken first from the Free Withdrawal
Value, then from the remaining Accumulated Value.
8
<PAGE>
Market Value Adjustment
The amount payable on withdrawals or surrenders may be adjusted up or down
by the application of the Market Value Adjustment. Where applicable, the
Market Value Adjustment is applied to the amount withdrawn or surrendered, net
of any early withdrawal charge or other charges or deductions. The Market
Value Adjustment will not be applied to any Free Withdrawal Value. For this
purpose, withdrawals will be deemed to be taken first from the Free Withdrawal
Value, then from the remaining Accumulated Value.
In the case of either a withdrawal or surrender, any Market Value Adjustment
that is applicable will reflect the relationship between the Current Rate for
the duration remaining in the Guarantee Period at the time the withdrawal or
surrender is requested, and the Guarantee Rate then applicable to the
Contract.
If the Guarantee Rate is higher than the applicable Current Rate, the Market
Value Adjustment, if applicable, will generally result in a higher payment
upon surrender or withdrawal.
If the Guarantee Rate is lower than the applicable Current Rate, then the
Market Value Adjustment, if applicable, will result in a lower payment upon
surrender or withdrawal.
For example, assume a Participant purchases a Contract and selects an
initial Guarantee Period of 7 years and the Guarantee Rate in effect for that
duration is 6% per annum. Assume at the end of 2 years the Participant makes a
withdrawal. If the 5 year Current Rate is then 5%, the amount payable upon
withdrawal will increase after the application of the Market Value Adjustment.
On the other hand, if such Current Rate is higher than the Guarantee Rate, for
example, 7%, the application of the Market Value Adjustment will cause a
decrease in the amount payable to the Participant upon this withdrawal.
Since Current Rates are based in part upon the investment yields available
to JHVLICO (see "Investments" page 12), the effect of the Market Value
Adjustment will be closely related to the levels of such yields. It is
possible, therefore, that, should such yields increase significantly from the
time the Contract is purchased and should the early withdrawal charges be
taken, the amount received upon a surrender of the Contract could be less than
the original premium payment.
The formula for calculating the Market Value Adjustment is set forth in
Appendix A to this Prospectus, which also contains an additional illustration
of the application of the Market Value Adjustment.
Systematic Withdrawals
The Participant may elect In Writing to participate in a systematic
withdrawal plan, which enables the Participant to pre-authorize a periodic
exercise of the contractual withdrawal rights described above. Participants
entering into such a plan instruct JHVLICO to withdraw a percentage or a level
dollar amount up to the Free Withdrawal Value from the total Accumulated Value
of the Contract on a monthly, quarterly, semi-annual, or annual basis. JHVLICO
reserves the right to modify the eligibility rules or other terms and
conditions of this program at any time, without advance notice. In addition,
JHVLICO reserves the right to terminate the program at any time with
appropriate notice to the Participant. The total systematic withdrawal in a
Contract Year is limited to 10% of the Accumulated Value of the Contract as of
the beginning of the Contract Year. The minimum withdrawal is $100. Systematic
withdrawals may be subject to the early withdrawal charge or Market Value
Adjustment described above. The systematic withdrawal plan will terminate upon
cancellation In Writing by the Participant or in the event that the payment of
the amount withdrawn will reduce the Accumulated Value of the Contract to less
than $4,000, or the minimum withdrawal amount drops below $100. There may be
adverse tax
9
<PAGE>
consequences associated with the systematic withdrawal plan. (See "Federal
Income Taxes," page 14.)
Premium Taxes
Several states and local governments impose a premium or similar tax on
annuities. Currently, such taxes range up to 5% of the Accumulated Value
applied to an Annuity Option. Ordinarily, any state-imposed premium or similar
tax will be deducted from the Accumulated Value of the Contract only at the
time of annuitization.
For Contracts issued in South Dakota, however, JHVLICO pays a tax on the
premium payment at the time it is made. At the time of annuitization, death,
surrender, or withdrawal, JHVLICO will deduct a charge for these taxes from
the Accumulated Value of the Contract or the amount withdrawn or surrendered.
Such a charge is equal to the applicable premium tax percentage times the
amount of Accumulated Value that is applied to an Annuity Option, surrendered,
withdrawn, or remaining at death.
Death Benefit
Upon the death of the Annuitant or the Participant before the Date of
Maturity, the Death Benefit will be payable to the Beneficiary as determined
under the Contract provisions. With regard to Joint Participants, at the first
death of a Joint Participant prior to the Date of Maturity, the Death Benefit
will be paid to the surviving Participant as Beneficiary notwithstanding that
the designated Beneficiary may be different. The Death Benefit is calculated
as of the date of death. The Death Benefit will equal the Accumulated Value.
No early withdrawal charge or Market Value Adjustment will be imposed, and
JHVLICO will pay interest from the date of death to the date of payment as
provided in the Contract.
The Death Benefit may be taken in one sum, to be paid within six months
after the date JHVLICO receives due proof of death, or under any of the
Annuity Options available under the Contract, provided, however, that if any
Participant dies prior to the Date of Maturity, any Annuity Option elected
must provide that any amount payable as a Death Benefit will be distributed
within 5 years of the date of death, or, if the benefit is payable over a
period not extending beyond the life expectancy of the Beneficiary or over the
life of the Beneficiary, such distribution must commence within one year of
the date of death. Payment will be made in a single sum in any event if the
Death Benefit is less than $5000 or if each periodic payment under the Annuity
Option chosen would be less than $50. Notwithstanding the foregoing, in the
event of the Participant's death where the designated Beneficiary is the
spouse of the Participant and the Annuitant is living, such spouse may elect,
in lieu of receiving the Death Benefit, to continue the Contract as the
Participant. This does not, however, alter the requirement for an IRA that
distributions must begin no later than April 1 of the year following the year
in which the deceased Participant would have attained age 70 1/2.
Payment Upon Surrender
JHVLICO may defer payment of any surrender for a period not exceeding 6
months from date of its receipt of a request for surrender. Only under highly
unusual circumstances will a surrender payment be deferred more than 30 days,
and if payment is deferred for more than 30 days, JHVLICO will pay interest on
the Surrender Value at a rate equal to the greater of the rate required by
state law and the rate declared by JHVLICO. While all circumstances under
which JHVLICO could defer payment upon surrender may not be foreseeable at
this time, such circumstances could include, for example, a time of an
unusually high surrender rate among Participants, accompanied by a radical
shift in interest rates. If payment is withheld for more than 30 days, the
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Participant will be notified in writing. JHVLICO will not, however, defer
payment for more than 30 days for any surrender which is to be effective at
the end of any Guarantee Period.
ANNUITY PERIOD
Date of Maturity and Form of Annuity
The Participant may elect, In Writing within the 30 days prior to the Date
of Maturity, to have all or a portion of the Surrender Value paid in a lump
sum on the Date of Maturity. Alternatively, or with respect to any portion of
the Surrender Value not paid in a lump sum, the Participant may elect, In
Writing at least 30 days prior to the Date of Maturity, to have the
Accumulated Value with a Market Value Adjustment (less applicable premium
taxes, if any) applied on the Date of Maturity under any of the Annuity
Options described below.
If the Participant has not duly elected an Annuity Option or lump sum
distribution as of the Date of Maturity, the Date of Maturity will be
disregarded and subsequent Guarantee Periods will continue to be provided
until (a) no subsequent Guarantee Period is available that would not extend
beyond the Annuitant's 85th birthday (or later Date of Maturity that JHVLICO
has approved), at which time a lump sum payment or Annuity Option will be
provided as described under "Guarantee Periods," page 5, or (b) the
Participant duly elects another Date of Maturity and duly elects a lump sum
distribution or the commencement of an Annuity Option as of that Date of
Maturity.
Each Contract will provide at the time of its issuance for a Life Annuity
with Ten Years Certain. Under this form of annuity, annuity payments are made
monthly to the Annuitant for life and, if the Annuitant dies within ten years
after the Date of Maturity of the Contract, the payments remaining in the ten-
year period will be made to the contingent payee, subject to the terms of any
supplementary agreement issued. (NOTE: The terminology used in a supplementary
agreement may differ from that used in a Contract. For example, in a
supplementary agreement, the term "payee" may be used to refer to the
Annuitant or to some other person named by the Participant to receive payments
under the supplementary agreement in the event of the Annuitant's death, and
the term "contingent payee" may be used to refer to the beneficiary.) A
different form of annuity may be elected by the Participant, as described in
"Annuity Options," prior to the Date of Maturity of the Contract. Once annuity
payments have begun, the form of annuity cannot be changed and the annuity
benefits cannot be surrendered for the purpose of receiving a lump sum benefit
in lieu thereof.
Each Participant selects a provisional Date of Maturity at the time of
application for a Contract. The provisional Date of Maturity may be no earlier
than six months after the date the premium payment is credited to the
Contract. The provisional Date of Maturity is stated in the Contract. The
Participant may subsequently elect a different Date of Maturity which may not
exceed age 85, absent JHVLICO's approval, or be earlier than six months after
the date the premium payment is credited to the Contract. The election for a
different Date of Maturity must be made In Writing before the provisional Date
of Maturity and at least 31 days prior to the Date of Maturity. If a Date of
Maturity different from the provisional Date of Maturity is not elected by the
Participant, the provisional Date of Maturity shall be the Date of Maturity of
the Contract. If, however, a Guarantee Period becomes effective that causes
the Contract to continue beyond the provisional Date of Maturity, then the
provisional Date of Maturity becomes the Annuitant's 85th birthday. Additional
requirements apply to the timing of distributions under IRAs. (See "Contracts
Purchased Under Rollover Individual Retirement Annuity (IRA) Plans," page 15.)
Annuity Options
The Participant may elect an Annuity Option during the lifetime of the
Annuitant In Writing at least 30 days prior to the Date of Maturity of the
Contract. If no option is selected, Option A
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<PAGE>
with Ten Years Certain will be used. A Beneficiary entitled to payment of a
Death Benefit in a single sum may, if no election has been made by the
Participant prior to the Participant's or Annuitant's death, elect an Annuity
Option In Writing prior to the date the proceeds become payable. No option may
be elected if the Accumulated Value of the Contract to be applied is less than
$5000 or the periodic payment would be less than $50, in which case, JHVLICO
will make a lump sum distribution of the Surrender Value or, upon the death of
an Annuitant or Participant, the amount of any Death Benefit. Among the
options available are the following two basic Annuity Options.
Option A: Life Annuity with Five, Ten Or Twenty Years Certain
Monthly payments will be made for a designated period of 5, 10 or 20
years and thereafter as long as the payee lives, with the guarantee that if
the payee dies prior to the end of the 5, 10 or 20 year period, whichever
is applicable, payments will continue for the remainder of the guaranteed
period to a contingent payee, subject to the terms of any supplementary
agreement issued.
Option B: Life Annuity Without Refund
Monthly payments will be made to the payee as long as he lives.
The Life Annuity with Five Years Certain and the Life Annuity Without Refund
are not available without prior approval by JHVLICO for an Annuitant older
than age 85.
The guaranteed minimum monthly annuity payment rates are set forth in the
Contract. The actual rates applied will be the greater of these minimum rates
and the current rates that JHVLICO has in effect at the time annuity payments
begin. Information concerning current rates is available upon request.
Other Conditions
JHVLICO reserves the right at its sole discretion to make available to
Participants and other payees optional methods of payment in addition to the
Annuity Options described in this Prospectus and the applicable Contract.
If the Participant dies on or after the Date of Maturity, any remaining
interest in the Contract will be paid at least as rapidly as under the method
of distribution in effect at the time of death.
Federal income tax requirements currently applicable to individual
retirement annuity plans provide that the period of years guaranteed under
Option A cannot be any greater than the joint life expectancies of the payee
and his or her designated beneficiary.
INVESTMENTS
Premium payments received under the Contracts and allocated to the Guarantee
Periods will be invested by JHVLICO under the laws of Massachusetts. Contract
owners have no priority claims on, or participation in the performance of,
such assets. All such assets are the property of JHVLICO and are available to
meet the guarantees under the Contracts and the general obligations of
JHVLICO.
The assets of JHVLICO will be invested in accordance with the requirements
established by applicable state laws regarding the nature and quality of
investments that may be made by life insurance companies and the percentage of
their assets that may be committed to any particular type of investment. In
general, these laws permit investments, within specified limits and subject
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<PAGE>
to certain qualifications, in federal, state, and municipal obligations,
corporate bonds, preferred and common stocks, real estate mortgages, and
certain other investments.
JHVLICO has no specific formula for establishing the Guarantee Rates for the
Guarantee Periods. JHVLICO expects the rates to be influenced by, but not
necessarily correspond to the yields on the fixed income securities to be
acquired with amounts that are allocated to the Guarantee Periods at the time
that the Guaranteed Rates are established.
JHVLICO's current plans are to invest such amounts, according to its
detailed investment policy and guidelines, in fixed income obligations,
including corporate bonds, mortgages, mortgage-backed and asset-backed
securities and government and agency issues having durations in the aggregate
consistent with those of the Guarantee Periods. JHVLICO intends to invest
proceeds from the Contracts primarily in domestic investment-grade securities.
In addition, derivative contracts will be used only for hedging purposes, to
reduce the ordinary business risk of Contracts associated with changes in
interest rates, and not for speculating on future changes in the financial
markets.
PARTICIPANT AND BENEFICIARY RIGHTS AND PRIVILEGES
The Participant has the sole and absolute power to exercise all rights and
privileges under the Contract, except as otherwise provided by the Contract or
by notice of the Participant In Writing. The Participant and the Beneficiary
are designated in the application or order for a Contract and may be changed
by the Participant, by notice In Writing, subject to the rights of any
assignee of record, any action taken prior to receipt of the notice, and
certain other conditions. The change will take effect when the notice is
signed, if JHVLICO acknowledges receipt of such notice. While the Annuitant is
alive, the Participant may be changed by notice In Writing. The Beneficiary
may be changed by notice In Writing no later than receipt of due proof of the
death of the Annuitant. The change will take effect whether or not the
Participant or Annuitant is then alive.
The Contracts (other than IRAs) may be assigned at any time before the Date
of Maturity and for any purpose other than as collateral or security for a
loan. JHVLICO will not be bound by an assignment unless and until notice of
such assignment In Writing is received. JHVLICO assumes no responsibility for
the validity or effect of any assignment. In some cases, an assignment or
change of Participant may have adverse tax consequences. An IRA may not be
assigned. The Participant should consult a tax adviser regarding the
consequences of an assignment.
AMENDMENT OF THE CONTRACTS
JHVLICO reserves the right to amend the Contracts to meet the requirements
of applicable state or federal laws or regulations. JHVLICO will notify the
Participant in writing of any such amendments.
DISTRIBUTION OF THE CONTRACTS
John Hancock Mutual Life Insurance Company ("John Hancock") is registered as
a broker-dealer with the Commission under the Securities Exchange Act of 1934
and is a member of the National Association of Securities Dealers, Inc. John
Hancock acts as underwriter and distributor of the Contracts, pursuant to a
distribution agreement it has entered into with JHVLICO.
In turn, John Hancock and JHVLICO have entered into agreements to distribute
the Contracts (the "Distribution Agreements") with broker-dealers as well as
certain financial institutions whose
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representatives are authorized by applicable law to sell annuity products.
Pursuant to the Distribution Agreements, John Hancock or JHVLICO will pay
compensation to such broker-dealers and institutions with respect to each
Contract that is issued, based on the dollar amount applied to that Contract.
Generally, the total commissions so paid will be at a higher rate if that
amount is applied for a longer duration than for a shorter one. The maximum
rate of such total commissions is generally 7%. In some cases, additional
compensation may be paid by John Hancock and JHVLICO at times subsequent to
the Contacts' issuance. The Distribution Agreements require that compensation
paid with respect to Contracts that are cancelled or surrendered within one
year after the Date of Issue must be refunded to John Hancock or JHVLICO.
Broker-dealers and financial institutions engaged in the offer and sale of the
Contracts are solely responsible for the compensation of their representatives
engaged in those activities.
FEDERAL INCOME TAXES
JHVLICO
JHVLICO is taxed as a life insurance company under the Internal Revenue Code
of 1986 (the "Code"). The assets underlying the Contracts will be owned by
JHVLICO. The income earned on such assets will be JHVLICO's income.
JHVLICO assumes no responsibility for determining whether a particular
individual retirement annuity plan satisfies the applicable requirements of
the Code or whether a particular Participant is eligible for such a plan.
THE PARTICIPANT OR OTHER PAYEE
The Contracts are considered annuity contracts under Section 72 of the Code.
Currently no Federal income tax is payable on increases in the value of the
Contract until payments are made to the Participant or other payee under such
Contract. However, a Contract owned other than by a natural person is not
generally an annuity for tax purposes and any increase in value thereunder is
taxable as ordinary income as accrued.
When payments under a Contract are made in the form of an annuity, the
amount of each payment is taxed to the Participant or other payee as ordinary
income to the extent that such payment exceeds that portion of the
Participant's "investment in the contract" (as defined in the Code) allocated
to that payment. In general, the Participant's "investment in the contract" is
the aggregate amount of premium payments made by him or her reduced by any
amounts previously distributed under the Contract that were not previously
subject to tax. The portion of each annuity payment to be excluded from income
is determined by dividing the "investment in the contract," adjusted by any
refund feature, by the amount of "expected return" during the time that
periodic payments are to be made, and then multiplying by the "amount of the
payment." The balance of the payment is taxable. After the entire "investment
in the contract" has been distributed, any remaining payment is fully taxable.
For purposes of determining the amount of taxable income resulting from
distributions, all Contracts and other annuity contracts issued by JHVLICO or
its affiliates to the Participant within the same calendar year will be
treated as if they were a single Contract.
When a payment under a Contract is made in a single sum, the amount of the
payment is taxed as ordinary income to the Participant or other payee to the
extent it exceeds the Participant's "investment in the contract."
WITHDRAWALS BEFORE ANNUITY STARTING DATE
When a payment under a Contract, including a payment under a systematic
withdrawal plan, is less than the amount that would be paid upon the
Contract's surrender and such payment is
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<PAGE>
made prior to the commencement of annuity payments under the Contract, part or
all of the payment (the withdrawal) may be taxed to the Participant or other
payee as ordinary income. On the date of the withdrawal, if the cash value of
the Contract is greater than the investment in the Contract, any part of such
excess value so withdrawn is subject to tax as ordinary income.
If an individual assigns or pledges any part of the value of a Contract, the
value so pledged or assigned is taxed as ordinary income to the same extent as
a withdrawal.
PENALTY FOR PREMATURE WITHDRAWALS
In addition to being included in ordinary income, the taxable portion of any
withdrawal may be subject to a 10% penalty tax. The penalty tax does not apply
to, among other things, payments made to the Participant or other payee after
the Participant attains age 59 1/2, or on account of the Participant's death
or disability. If the withdrawal is made in substantially equal periodic
payments over the life of the Annuitant or other payee or over the joint lives
of the Annuitant and the Annuitant's beneficiary the penalty will also not
apply.
CONTRACTS PURCHASED UNDER ROLLOVER INDIVIDUAL RETIREMENT ANNUITY (IRA) PLANS
No deduction is allowed for purchase payments made in or after the taxable
year in which the Participant has attained the age of 70 1/2 years nor is a
deduction allowed for a "rollover contribution" as defined in the Code.
When payments under a Contract are made in the form of an annuity, or in a
single sum such as on surrender of the Contract or by withdrawal, the payment
is taxed as ordinary income.
IRS required minimum distributions must begin no later than April 1 of the
year following the year in which the Participant attains age 70 1/2. The
Participant may incur adverse tax consequences if a distribution on surrender
of the Contract or by withdrawal is made prior to his attaining age 59 1/2,
except in the event of his or her death or total disability.
Withholding on Eligible Rollover Distributions
Recent legislation requires 20% withholding on certain distributions from
tax qualified plans. A Participant wishing to rollover his entire distribution
should have it paid directly to the successor plan. Otherwise, the
Participant's distribution will be reduced by the 20% mandatory income tax.
Consult a qualified tax adviser before taking such a distribution.
WITHHOLDING OF TAXES
JHVLICO is obligated to withhold taxes from certain payments unless the
recipient elects otherwise. The withholding rate varies depending upon the
nature and the amount of the distribution. JHVLICO will notify the Participant
or other payee in advance of the first payment of his or her right to elect
out of withholding and furnish a form on which the election may be made. Any
election must be received by JHVLICO in advance of the payment in order to
avoid withholding.
CERTAIN EXCHANGES
Section 1035 of the Code provides generally that no gain or loss will be
recognized under the exchange of a life insurance or annuity contract for an
annuity contract. Thus, a properly completed exchange from one of these types
of products into a Contract pursuant to the special annuity contract exchange
form JHVLICO provides for this purpose is not generally a taxable event under
the Code, and the Participant's investment in the Contract will be the same as
his or her investment in the exchanged product.
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<PAGE>
Because of the complexity of these and other tax aspects in connection with
an exchange, a tax adviser should be consulted before any exchange is made.
SEE YOUR OWN TAX ADVISER
The above description of Federal income tax consequences of owning a
Contract and of the individual retirement plans which may be funded by the
Contracts is only a brief summary and is not intended as tax advice. Nor does
it include a discussion of Federal estate and gift tax or state tax
consequences. Tax laws and regulations are subject to change, and changes may
be retroactive. The rules governing the provisions of tax qualified plans are
extremely complex and often difficult to understand. Anything less than full
compliance with the applicable rules, all of which are subject to change from
time to time, can have adverse tax consequences. For example, premature
withdrawals are generally subject to a 10% penalty tax. The taxation of an
Annuitant or other payee has become so complex and confusing that great care
must be taken to avoid adverse tax consequences. For further information a
prospective purchaser should consult a qualified tax adviser.
THE COMPANY
BUSINESS OF JHVLICO
JHVLICO was organized under the laws of the Commonwealth of Massachusetts in
1979 and commenced insurance operations in 1980. It is a wholly-owned
subsidiary of John Hancock Mutual Life Insurance Company ("JHMLICO" or "John
Hancock"), a mutual life insurance company organized under the laws of the
Commonwealth of Massachusetts in 1862.
JHVLICO is principally engaged in the writing of variable and universal life
insurance policies. JHVLICO's policies are primarily marketed through
JHMLICO's sales organization, which includes a proprietary sales force
employed at JHMLICO's own agencies and a network of independent general
agencies. Policies also are sold through various unaffiliated securities
broker-dealers and certain financial institutions with which JHMLICO and
JHVLICO have sales agreements. Currently, JHVLICO writes business in all
states except New York. At December 31, 1994, JHVLICO had $30.0 billion of
life insurance in force, net of reinsurance ceded of $4.3 billion.
In 1993, JHVLICO acquired Colonial Penn Annuity and Life Insurance Company
and changed the latter company's name to John Hancock Life Insurance Company
of America. The subsidiary's principal business activity at December 31, 1995,
is the run-off of a block of single premium whole life insurance. For
additional discussion of this acquisition, see Note 3 of Notes to Financial
Statements.
SELECTED FINANCIAL DATA
The following financial data for JHVLICO and its subsidiary should be read
in conjunction with the financial statements and notes thereto, included
elsewhere in this Prospectus. The results for past accounting periods are not
necessarily indicative of the results to be expected in the future. The
selected financial data and financial statements have been prepared on the
basis of 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") ("statutory
accounting practices") which are currently considered generally-accepted
accounting principles for a stock life insurance company wholly-owned by a
mutual life insurance company. See "Recent Accounting Developments," page 17,
for additional discussion, regarding generally accepted accounting standards
for mutual life insurance companies.
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The information presented below should be read in conjunction with, and is
qualified in its entirety by, "Management's Discussion and Analysis of
Financial Condition and Results of Operations," page 18, and the financial
statements and other information included elsewhere in this prospectus. The
unaudited interim financial information as of and at March 31, 1996, and 1995,
and for the periods then ended, set forth below and in the consolidated
financial statements reflects all adjustments which are, in the opinion of
management, necessary to a fair statement of the results for the interim
periods presented; all such adjustments were of a normal recurring nature.
<TABLE>
<CAPTION>
THREE
MONTHS ENDED
AND AT MARCH 31 YEAR ENDED AND AT DECEMBER 31
--------------- ------------------------------------
1996 1995 1995 1994 1993 1992 1991
------- ------- ------ ------ ------ ------ ------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C>
SELECTED FINANCIAL DATA
INCOME STATEMENT DATA
Premiums.............. $ 175.4 $ 99.9 $570.9 $430.5 $398.8 $416.4 $377.6
Net investment
income............... 17.8 16.3 62.1 57.6 61.3 62.0 59.5
Other income
(expense)............ 26.0 23.5 85.7 95.5 (4.0) (3.9) (1.7)
TOTAL REVENUES...... 219.2 139.7 718.7 583.6 456.1 474.5 435.4
Total benefits and
expenses............. 207.1 128.6 659.2 556.0 456.6 440.8 389.4
Income tax expense.... 8.1 5.7 28.4 15.0 6.5 20.5 25.9
Net realized capital
gains (losses)....... 0.0 (0.8) 0.5 0.4 (2.6) (1.4) (1.4)
Net gain (loss)....... 4.0 4.6 31.6 13.0 (9.6) 11.8 18.7
BALANCE SHEET DATA
Total assets.......... $ 3,626 $ 2,741 $3,446 $2,627 $2,379 $2,348 $2,118
Total obligations..... 3,373 2,519 3,197 2,409 2,176 2,108 1,893
Total stockholder's
equity............... 253 222 249 218 203 240 225
</TABLE>
- ---------
* On October 1, 1993, JHVLICO entered into an assumption reinsurance agreement
with JHMLICO to cede a block of variable life, universal life and flexible
variable life insurance policies to JHMLICO representing substantially all
of such policies written by JHVLICO in the State of New York. In connection
with this agreement, general account assets consisting of bonds, mortgage
loans, policy loans, cash, investment income due and accrued and deferred
and uncollected premiums totaling $72.2 million were transferred by JHVLICO
to JHMLICO, along with policy reserves, unearned premiums and dividend
liabilities totaling $47.7 million and surplus totaling $24.5 million.
Separate account assets consisting of common stock and policy loans totaling
$200.8 million were transferred to John Hancock's separate accounts along
with $200.8 million in separate account policyholder obligations.
RECENT ACCOUNTING DEVELOPMENTS
The financial statements have been prepared on the basis of accounting
practices prescribed or permitted by the Commonwealth of Massachusetts
Division of Insurance and in conformity with the practices of the NAIC which
are currently considered generally accepted accounting principles for a stock
life insurance company wholly-owned by a mutual life insurance company.
However, in April 1993, the Financial Accounting Standard Board (FASB) issued
Interpretation 40, "Applicability of General Accepted Accounting Principles to
Mutual Life Insurance and Other Enterprises" (Interpretation). The
Interpretation, as amended, is effective for 1996 annual financial statements
and thereafter and no longer will allow statutory-basis financial statements
to be described as being prepared in conformity with generally accepted
accounting principles (GAAP). Upon the effective date of the Interpretation,
in order for their financial statements to be described as being prepared in
conformity with GAAP, mutual life insurance companies
17
<PAGE>
will be required to adopt all applicable authoritative GAAP pronouncements in
any general-purpose financial statements that they may issue. The Company has
not quantified the effects of the application of the Interpretation on its
financial statements.
The Company has not yet determined whether for general purposes it will
continue to issue statutory-basis financial statements or statements adopting
all applicable authoritative GAAP pronouncements. If the Company decides that
its general-purpose financial statements will be prepared in accordance with
GAAP rather than statutory accounting practices, the financial statements
included herein would have to be restated to reflect all applicable
authoritative GAAP pronouncements.
MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Financial Condition
As of March 31, 1996, total assets grew by 5.2% to $3,626.0 million, from
$3,446.3 million at December 31, 1995. This increase is principally due to the
growth in the separate accounts where assets increased by 6.4% during 1996
from $2,421.0 million at December 31, 1995, to $2,575.9 million at March 31,
1996. Total obligations grew by 5.5% to $3,372.6 million from $3,197.6 million
at December 31, 1995. Most of the growth in total obligations was in the
separate accounts, which grew by 6.4% during 1996, from $2,417.0 million at
December 31, 1995, to $2,571.8 million at March 31, 1996. Separate account
assets and liabilities consist primarily of the fund balances associated with
variable life business. The asset holdings include fixed income, equity
growth, total return real estate, and global mutual funds, with liabilities
representing amounts due to policyholders. Total stockholder's equity grew by
1.9% from $248.7 million at December 31, 1995, to $253.4 million at March 31,
1996.
As of December 31, 1995, total assets grew by 31.2%, to $3,446.3 million,
from $2,626.9 million at December 31, 1994. Much of this growth was also
attributable to an increase in separate account assets, which grew by 40.7%
during 1995, from $1,721.0 million at December 31, 1994, to $2,421.0 million
at December 31, 1995. Total obligations grew by 32.7% during 1995, from
$2,409.0 million at December 31, 1994, to $3,197.6 million at December 31,
1995. As with assets, most of this growth was in separate accounts, which grew
by 40.7% during 1995, from $1,717.7 million at December 31, 1994, to $2,417.0
million at December 31, 1995. Total stockholder's equity grew by 14.1%, from
$217.9 million at December 31, 1994, to $248.7 million, at December 31, 1995.
Investments
The Company continues to address industry wide issues of asset quality and
liquidity that have emerged in recent years. JHVLICO's bond portfolio is
highly diversified. It maintains diversity by geographic region, industry
group, and limiting the size of individual investments relative to the total
portfolio. For the past several years, the Company has invested new money
predominantly in long-term investment grade corporate bonds as a means of
lowering the relative proportion of assets invested in commercial mortgages.
As a result, the Company's holdings in investment (NAIC SVO classes 1 and 2)
and medium (NAIC SVO class 3) grade bonds are 89.7% and 7.0%, respectively, of
total general account bonds at March 31, 1996. The corresponding percentages
at December 31, 1995 were 90.1% and 6.7%, respectively. Most of the medium
grade bonds are private placements that provide long-term financing for medium
size companies. These bonds typically are protected by individually negotiated
financial covenants and/or collateral. At March 31, 1996, the balance (NAIC
SVO classes 4, 5, and 6) of 3.3% of total general account bonds consists of
lower grade bonds and bonds in default. Bonds in default represent 0.5% of
total general account bonds.
18
<PAGE>
Management believes the Company's commercial mortgage lending philosophy and
practices are sound. The Company generally makes mortgage loans against
properties with proven track records and high occupancy levels, and typically
does not make construction or condominium loans nor lend more than 75% of the
property's value at the time of the loan. To assist in the management of its
mortgage loans, the Company uses a computer-based mortgage risk analysis
system.
The Company has outstanding commitments to purchase long-term bonds and
issue real estate mortgages totaling $9.4 million and $0.0 million,
respectively at March 31, 1996. The corresponding amounts at December 31, 1995
were $16.6 million and $5.4 million, respectively. The Company monitors the
creditworthiness of borrowers under long-term bond commitments and requires
collateral as deemed necessary. The majority of these commitments expire in
1996.
Reserves and Obligations
The Company's obligations principally consist of aggregate reserves for life
policies and contracts of $677.4 million in the general account and
obligations of $2,571.8 million in the separate accounts at March 31, 1996.
The corresponding amounts at December 31, 1995 were $671.1 million and
$2,417.0 million, respectively. These liabilities are computed in accordance
with commonly accepted actuarial standards and are based on actuarial
assumptions which are in accordance with, or more conservative than, those
called for in state regulations. All reserves meet the requirements of the
insurance laws of the Commonwealth of Massachusetts. Intensive asset adequacy
testing was performed in 1995 for all reserves. As a result of that testing,
no additional reserves were established. Adequacy testing is done annually and
generally performed in the fourth quarter.
The Company's obligations include the Asset Valuation Reserve ("AVR")
required by the NAIC and state insurance regulatory authorities. At March 31,
1996, the AVR was $15.5 million, compared to $15.4 million at December 31,
1995 and $12.6 million at December 31, 1994. The AVR contained voluntary
contributions of $2.8 million in 1995, $1.1 million in 1994, and $1.7 million
in 1993. There was no voluntary contribution made during the three months
ended March 31, 1996. Management believes the Company's level of reserve is
adequate and is made more conservative by the voluntary contributions.
The AVR was established to stabilize statutory surplus from non-interest
related fluctuations in the market value of bonds, stocks, mortgage loans,
real estate and other invested assets. The AVR generally captures realized and
unrealized capital gains or losses on such assets, other than those resulting
from changes in interest rates. Each year, the amount of an insurer's AVR will
fluctuate as capital gains or losses are absorbed by the reserve. To adjust
for such changes over time, an annual contribution must be made to the AVR
equal to 20% of the difference between the maximum AVR (as determined annually
according to the type and quality of an insurer's assets) and the actual AVR.
The AVR provisions permitted a phase-in period whereby the required
contribution was 10% in 1992, 15% in 1993, and the full 20% factor thereafter.
Such contributions may result in a slower rate of growth of, or a reduction
to, surplus. Changes in the AVR are accounted for as direct increases or
decreases in surplus. The impact of the AVR on the surplus position of John
Hancock in the future will depend in part on the composition of the Company's
investment portfolio.
The Interest Maintenance Reserve ("IMR") captures realized capital gains and
losses (net of taxes) on fixed income investments (primarily bonds and
mortgage loans) resulting from changes in interest rate levels. These amounts
are not reflected in the Company's capital account and are amortized into net
investment income over the estimated remaining lives of the investments
19
<PAGE>
disposed. At March 31, 1996, December 31, 1995 and December 31, 1994, the
balance of the IMR was $7.0 million, $6.9 million and $7.1 million,
respectively. The IMR provisions permitted a phase-in period so that in 1992,
50% of realized capital gains and losses on United States government
securities were recognized in net income and were not captured by the IMR. In
1993, the provisions allowed 25% of these capital gains and losses to flow to
net income with the remainder being captured in the IMR. In 1995 and 1994, all
capital gains and losses on United States government securities were captured
by the IMR. The impact of the IMR on the surplus of the Company depends upon
the amount of future interest related capital gains and losses on fixed income
investments.
Results of Operations
Three Months Ended March 31, 1996 and 1995
Net gain from operations was $4.0 million for the three months ended March
31, 1996, $1.4 million lower than the same period during 1995. Operating gain
was relatively stable even with the sale of the new variable annuity product
which was introduced in early 1995. Premium income was offset by credits to
contractholders' accounts in the form of reserve increases. The gain was
further dampened by the first year commission charged on new products.
Total revenues increased by 56.9%, or $79.5 million to $219.2 million during
1996 as compared to the same period during 1995. Premiums, net of premium
ceded to reinsurers, increased by 75.6% or $75.5 million for the three months
ended March 31, 1996. Of this increase, $56.2 million was due to the sale of a
new variable annuity product. Continued growth in the flexible variable life
product increased premium by $14.3 million. Net investment income increased by
9.2% or $1.5 million to $17.8 million during 1996 due largely to a 19.1%, or
$2.0 million increase in gross income on long-term bonds. The increase on
long-term bond income was the result of increased asset base. Other income
increased by $2.5 million, which was primarily attributable to the increase in
commission and expense allowances and reserve adjustments on reinsurance
ceded.
Total benefits and expenses increased by 61.0% or $78.5 million to $207.1
million during the three months ended March 31, 1996 as compared to the same
period during 1995. Benefit payments and additions to reserves increased by
86.3% or $73.6 million to $158.9 million. Insurance expenses increased by
13.4% or $5.4 million, to $45.8 million. The increase was attributable largely
to commission expense resulting from the sale of new business.
1995 Compared to 1994
Net gain from operations was $31.1 million in 1995, $18.5 million higher
than 1994. Operating gain was impacted positively by the effects of a modified
coinsurance reinsurance agreement between John Hancock and the Company entered
into during 1994. Under the agreement, John Hancock reinsured 50% of the 1995
and 1994 sales of the Company's flexible premium variable and scheduled
premium variable life insurance policies. The increase in the 1995 operating
gain attributable to this reinsurance agreement was $20.3 million, as compared
to $26.9 million in 1994. The increase in operating gain for 1995 was
partially offset by acquisition expenses on new sales and an increase in the
federal income tax expense.
Total revenues increased by 23.1%, or $135.1 million to $718.7 million,
during 1995. Premiums increased by 32.6% or $140.4 million during 1995. This
increase was primarily due to the sale of a new variable annuity product.
Total benefits and expenses increased by 18.6%, or $103.2 million to $659.2
million during 1995. Benefit payments and additions to reserves increased by
33.0%, or $123.0 million to $495.8 million. This increase was partially offset
by a decrease of $18.2 million in insurance expenses.
20
<PAGE>
1994 Compared to 1993
Net gain from operations was $12.6 million in 1994, $19.6 million higher
than the net loss of $7.0 million in 1993. This increase in operating gain was
primarily attributable to the effects of the modified coinsurance reinsurance
agreement between John Hancock and the Company which was previously described.
The 1994 increase in net operating gain attributable to this reinsurance
agreement was $26.9 million.
Total revenues increased by 28.0%, or $127.5 million, to $583.6 million,
during 1994. Premiums increased by 7.9%, or $31.7 million, to $430.5 million
during 1994, reflecting growth in premium revenues from the universal life
insurance line, as well as the introduction in late 1993 and 1994 of three new
products: the Medallion variable universal product, a variable COLI product,
and a variable survivorship product. Net investment income decreased by 6.0%,
or $3.7 million to $57.6 million, during 1994, due largely to a 16.8%, or $3.3
million decrease in gross income on mortgages and real estate, which
contributed to an overall decrease of 4.9%, or $3.2 million, in gross
investment income. Net investment income was further dampened in 1994 by a
17.2%, or $0.5 million, increase in investment expenses. Other income improved
by $99.5 million during 1994, primarily due to the increase in commission and
expense allowances and reserve adjustments on reinsurance ceded, as described
above.
Total benefits and expenses increased by 21.8%, or $99.4 million, to $556.0
million, during 1994. Benefit payments and additions to reserves increased by
23.3%, or $70.5 million, to $372.8 million, during 1994. The increase
primarily was due to $73.8 million or 66.2% increase in additions to reserves,
most of which occurred in both the universal life and flexible variable life
insurance lines, offset by a 1.7% or $3.3 million decrease in benefit
payments. Insurance expenses, which included a $3.0 million charge for
restructuring during 1994, increased by 19.0%, or $27.4 million, to $171.9
million, during 1994. This growth in expenses was attributable largely to the
cost of growth in new business.
Liquidity and Capital Resources
The Company's liquidity resources at March 31, 1996, include cash and short-
term investments of $48.4 million, public bonds of $253.0 million, and
investment grade private placement bonds of $297.2 million. The corresponding
amounts at December 31, 1995 were $76.6 million, $206.2 million, and $294.7
million, respectively. In addition, the Company's separate accounts are highly
liquid and are available to meet most outflow needs for variable life
insurance.
Management believes the liquidity resources above of $598.6 million as of
March 31, 1996, strongly position the Company to meet all its obligations to
policyholders and others. Generally, the Company's financing needs are met by
means of funds provided by normal operations. As of March 31, 1996 and year
end 1995, the Company had no outstanding borrowings from sources outside its
affiliated group.
Total surplus, or stockholder's equity, including the AVR, is $268.9 million
as of March 31, 1996, compared to $264.1 million as of December 31, 1995, and
$230.5 million as of December 31, 1994. The current statutory accounting
treatment of deferred acquisition cost ("DAC") taxes results in an
understatement of the Company's surplus, which will persist during periods of
growth in new business written. These taxes result from federal income tax law
that approximates acquisition expenses and then spreads the corresponding tax
deduction over a period of years. The result is a DAC tax which is collected
immediately and subsequently returned through tax deduction in later years.
Since it began its operations, the Company has received a total of $381.8
million in capital contributions from John Hancock, of which $377.5 million is
credited to paid-in capital and $2.5
21
<PAGE>
million is credited to capital stock as of March 31, 1996. In 1993, $1.8
million of capital was returned to John Hancock. To support the Company's
operations for the indefinite future, John Hancock is committed to make
additional capital contributions if necessary to ensure that the Company
maintains a positive net worth. The Company's stockholder's equity, net of
unassigned deficit, was $253.4 million at March 31, 1996 and $248.7 million at
December 31, 1995. For additional discussion of the Company's capitalization,
see Note 2 of the Notes to Financial Statements.
In December 1992, the NAIC approved risk-based capital ("RBC") standards for
life insurance companies as well as a Model Act (the "RBC Model Act") to apply
such standards at the state level. The RBC Model Act provides that life
insurance companies must submit an annual RBC report which compares a
company's total adjusted capital (statutory surplus plus AVR, voluntary
investment reserves, and one-half the apportioned dividend liability) with its
risk-based capital as calculated by a RBC formula, where the formula takes
into account the risk characteristics of the company's investments and
products. The formula is to be used by insurance regulators as an early
warning tool to identify possible weakly capitalized companies for purposes of
initiating further regulatory action. The formula is not intended as a means
to rank insurers. The RBC Model Act gives state insurance commissioners
explicit regulatory authority to require various actions by, or take various
actions against, insurance companies whose total adjusted capital does not
meet the RBC standards. The RBC Model Act imposes broad confidentiality
requirements on those engaged in the insurance business (including insurers,
agents, brokers and others) as to the use and publication of RBC data. As of
December 31, 1995, the Company's total adjusted capital as defined by the NAIC
was well in excess of RBC standards.
Reinsurance
To reduce its exposure to large losses under its insurance policies, the
Company enters into reinsurance arrangements with its parent, John Hancock,
and other non-affiliated insurance companies. For further discussion of the
Company's reinsurance arrangements, including business ceded to John Hancock,
see Notes 6 and 8 of the Notes to Financial Statements.
Separate Accounts
Under applicable state insurance laws, insurers are permitted to establish
separate investment accounts in which assets backing certain policies or
contracts, including variable life policies and certain individual and group
annuity contracts, are held. The investments in each separate investment
account (which may be pooled or customer specific) are maintained separately
from other separate investment accounts and the general investment account.
The investment results of the separate investment account assets are passed
through directly to separate investment account policyholders and
contractholders, so that an insurer derives certain fees from, but bears no
investment risk on, these assets, except the risk on a small number of
products that the investment results of the separate account assets will not
meet the minimum rate guaranteed on these products. Other than amounts derived
from or otherwise attributable to the Company's general investment account,
assets of separate investment accounts are not available to fund the
liabilities of the general investment account.
COMPETITION
JHVLICO is engaged in a highly competitive business due to the large number
of stock and mutual life insurance companies and other entities marketing
insurance products. There are approximately 2,000 stock, mutual, and other
types of insurers in the life insurance business in the United States.
According to the July 1995, issue of Best's Review Life/Health, JHVLICO ranks
154th in terms of net premiums written during 1994. JHVLICO's parent, JHMLICO,
ranks 9th, and ranks as the 6th largest mutual life insurer in the U.S., based
on total admitted assets at December 31, 1995, according to BestWeek
Life/Health Supplement, dated April 15, 1996.
22
<PAGE>
Best's Company Report, dated May 25, 1995, affirms JHVLICO's financial
stability rating from A.M. Best Company, Inc. of A++, its highest, based on
the strength of its parent company and the capital guarantee discussed above.
Standard & Poor's Corporation and Duff & Phelps Credit Rating Company have
assigned insurance claims-paying ability ratings to JHVLICO of AA+ and AAA,
respectively, which place JHVLICO in the second highest and highest
categories, respectively, by these rating agencies. Moody's Investors Service,
Inc. has assigned JHVLICO a financial strength rating of Aa2, which is its
third highest rating.
EMPLOYEES AND FACILITIES
JHMLICO provides JHVLICO with personnel, property, and facilities for the
performance of certain of JHVLICO's corporate functions. JHMLICO annually
determines a fee for these services and facilities based on a number of
criteria which were revised in 1995, 1994 and 1993 to reflect continuing
changes in JHVLICO's operations. The amount of service fee charged to JHVLICO
was $97.9 million, $117.0 million and $98.2 million in 1995, 1994 and 1993,
respectively.
Approximately 1,200 of JHMLICO's field office employees and agents are
members of a labor union. The agreement with union employees and agents was
ratified in June, 1996.
TRANSACTIONS WITH JHMLICO
As indicated, property, personnel and facilities are provided, at a service
fee, by JHMLICO for purposes of JHVLICO's operations, and the two companies
have entered into certain reinsurance arrangements. In addition, JHMLICO has
contributed all of JHVLICO's capital, of which $1.8 million of paid-in capital
was returned to JHMLICO during 1993. It is expected that arrangements and
transactions such as the foregoing will continue in the future to an
indeterminate extent. See Notes 2 and 6 of the Notes to Financial Statements.
JHMLICO receives no additional compensation for its services as underwriter
and distributor of the Contracts issued by JHVLICO.
REGULATION
JHVLICO is subject to extensive state regulatory oversight in jurisdictions
in which it does business. This regulatory oversight, increasing scrutiny upon
the insurance regulatory framework and proposals to adopt a federal regulatory
framework may in the future adversely affect JHVLICO's ability to sustain
adequate returns. JHVLICO's business also could be adversely affected by
changes in state law relating to asset and reserve valuation requirements,
limitations on investments and risk-based capital requirements, and, at the
federal level, by laws and regulations that may affect certain aspects of the
insurance industry. Assessments also are levied against John Hancock companies
as a result of participation in various types of state guaranty associations,
state insurance pools for the uninsured or other arrangements.
Regulators have the discretionary authority, in connection with the
continual licensing of JHVLICO, to limit or prohibit new issuances of business
to policyholders when, in their judgment, such regulators determine that such
insurer is not maintaining minimum statutory surplus or capital or if further
transaction of business will be hazardous to its policyholders. JHVLICO does
not believe the current or anticipated levels of statutory surplus of JHVLICO
or any member of its affiliated group, and the volume of their sales of new
life and annuity policies, present a material risk that the amount of new
insurance that JHVLICO or any of such insurance affiliates may issue will be
limited.
Although the federal government does not directly regulate the business of
insurance, federal initiatives often have an impact on the business in a
variety of ways. Current and proposed federal
23
<PAGE>
measures which may significantly affect the insurance business include removal
of barriers preventing banks from engaging in the insurance business, limits
to medical testing for insurability, tax law changes affecting the taxation of
insurance companies, the tax treatment of insurance products and its impact on
the relative desirability of various personal investment vehicles and proposed
legislation to prohibit the use of gender in determining insurance and pension
rates and benefits.
DIRECTORS AND EXECUTIVE OFFICERS
The directors and executive officers of JHVLICO are as follows:
<TABLE>
<CAPTION>
POSITION OTHER BUSINESS
NAME AGE WITH JHVLICO WITHIN PAST 5 YEARS
---- --- ------------ -------------------
<S> <C> <C> <C>
David F. D'Alessandro,. 45 Chairman Senior Executive Vice President--
Director.............. Retail Sector, John Hancock
Henry D. Shaw,
Director.............. 62 Vice Chairman & Senior Vice President, Retail
President Products & Markets, John Hancock
Robert S. Paster,
Director.............. 44 Vice President & Second Vice President, Valuation
Actuary & Financial Systems, John
Hancock
Michele G. Van Leer,
Director............... 38 Vice President Vice President, Life & Annuity
Products, John Hancock
Joseph A. Tomlinson,
Director.............. 49 Vice President Vice President, Alternative
Distribution, John Hancock
Robert R. Reitano,
Director.............. 46 Vice President Vice President, Investment Policy
& Research, John Hancock
Barbara L. Luddy,
Director.............. 44 Vice President Second Vice President, Financial
Reporting & Analysis, John
Hancock
Daniel L. Ouellette.... 47 Vice President-- Vice President, Marketing & Sales
Marketing Support, John Hancock
Thomas J. Lee.......... 41 Vice President-- Vice President, Life & Annuity
Claims Services, John Hancock
Policyholder
Services
Edward P. Dowd......... 53 Vice President-- Senior Vice President, Real
Investments Estate Investment Group, John
Hancock
Roger G. Nastou........ 53 Vice President-- Vice President, Bond & Corporate
Investments Finance, John Hancock
Laura L. Mangan........ 33 Vice President & Assistant Regulatory/Compliance
Secretary Officer, Staff & Corporate
Secretarial, John Hancock
Patrick F. Smith....... 53 Controller Senior Associate Controller,
Controller's Department, John
Hancock
Leonard C. Bassett..... 58 Treasurer Financial Officer, Financial
Sector Management, John Hancock
</TABLE>
24
<PAGE>
EXECUTIVE COMPENSATION
Executive officers of JHVLICO also serve one or more of the affiliated
companies of JHMLICO. Allocations have been made as to each individual's time
devoted to his or her duties as an executive officer of JHVLICO. The following
table provides information on the allocated compensation paid to the chief
executive officer for 1995. There were no executive officers of JHVLICO whose
allocated compensation exceeded $100,000 during 1995. Directors of JHVLICO
receive no compensation in addition to their compensation as employees of
JHMLICO.
<TABLE>
<CAPTION>
LONG TERM
ANNUAL COMPENSATION COMPENSATION
---------------------- --------------
NAME TITLE SALARY BONUS OTHER LTIP ALL OTHER
---- -------- ------- ------- ------ ---- ---------
<S> <C> <C> <C> <C> <C> <C>
David F. D'Alessandro............ Chairman $69,460 $50,809 $4,425 $937 $ 0
</TABLE>
REGISTRATION STATEMENT
JHVLICO has filed a registration statement (the "Registration Statement")
with the Commission under the Securities Act of 1933 relating to the Contracts
offered by this Prospectus. This Prospectus has been filed as a part of the
Registration Statement and does not contain all of the information set forth
in the Registration Statement and exhibits thereto, and reference is hereby
made to such Registration Statement and exhibits for further information
relating to JHVLICO and the Contracts. The Registration Statement and the
exhibits thereto may be inspected and copied, at the Commission's Washington,
D.C., headquarters.
LEGAL MATTERS
The legal validity of the Contracts have been passed upon by Sandra M.
DaDalt, Counsel of John Hancock.
EXPERTS
The annual financial statements of JHVLICO included in this Prospectus have
been audited by Ernst & Young LLP, independent auditors, whose report thereon
appears in the Prospectus and has been so included in reliance on their report
given on their authority as experts in accounting and auditing.
25
<PAGE>
APPENDIX A: MARKET VALUE ADJUSTMENT
The Market Value Adjustment (MVA) is equal to A times (B - 1) where
A is (i) any surrender or withdrawal in excess of the Free Withdrawal
Value,
less (ii) any early withdrawal charge, if applicable; and
B is the Market Value Adjustment Factor below:
n/12
1 + g
(-----------)
1 + c +.005
where
g= The guarantee rate in effect for the current Guarantee Period
(expressed as a decimal).
c= The current rate (expressed as a decimal) in effect for durations
equal to the number of years remaining in the current Guarantee
Period (years rounded up to the nearest whole number). If not
available, JHVLICO will declare a rate solely for this purpose that
is consistent with rates for durations that are currently available.
n= The number of complete months from the date of withdrawal to the end
of the current Guarantee Period. (Where less than one complete month
remains, n will equal 1 unless the withdrawal is made on the last
day of the guarantee period, at which time no adjustment will
apply.)
EXAMPLES OF THE MARKET VALUE ADJUSTMENT
These examples assume the following:
<TABLE>
<C> <S>
Premium: $20,000
Guarantee Period: 7 years
Guarantee Rate: 6.00%
Surrender: 2 years and 106 days (3.5 months) after deposit
Prior Withdrawals: none
</TABLE>
At time of surrender:
<TABLE>
<C> <S>
The Accumulated Value = $20,000 X 1.06 2 + 106
( --- )
365
= $22,855.51
The Free Withdrawal Value = (.1) X ($20,000) X 1.06/2/
= $2,247.20
The early withdrawal charge = ($22,855.51 - $2,247.20) X (.05)
= $1,030.42
n, the number of complete
months from date of
withdrawal to end of current
Guarantee Period = 7 years - (2 years + 3.5) months
= 56 months
</TABLE>
26
<PAGE>
EXAMPLE OF A POSITIVE MARKET VALUE ADJUSTMENT:
Assume that on the date of surrender, the current interest rate for a new
Guarantee Period of 5 years (4 years and 8.5 months remaining in the Guarantee
Period rounded up to the next full year) is 5%.
<TABLE>
<S> <C>
n/12
The MVA factor = 1 + g
(-----------)
1 + c +.005
56/12
1.06
(------)
1.055
= 1.02231
The MVA = ($22,855.51 - $2,247.20 - $1,030.42) X (1.02231 - 1)
= $436.78
The Surrender Value = $22,855.51 - $1,030.42 + $436.78
= $22,261.87
<CAPTION>
EXAMPLE OF A NEGATIVE MARKET VALUE ADJUSTMENT:
Assume that on the date of surrender, the current interest rate for a new
Guarantee Period of 5 years is 7%.
<S> <C>
n/12
The MVA factor = 1 + g
(-----------)
1 + c +.005
56/12
1.06
(------)
1.075
= .936529
The MVA = ($22,855.51 - $2,247.20 - $1,030.42) X (.936529 - 1)
= -$1,242.63
The Surrender Value = $22,855.51 - $1,030.42 - $1,242.63
= $20,582.46
</TABLE>
27
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Board of Directors
John Hancock Variable Life Insurance Company
We have audited the accompanying statements of financial position of John
Hancock Variable Life Insurance Company as of December 31, 1995 and 1994, and
the related statements of operations and unassigned deficit and cash flows for
each of the three years in the period ended December 31, 1995. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of John Hancock Variable Life
Insurance Company at December 31, 1995 and 1994, and the results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1995 in conformity with generally accepted accounting principles
for a stock life insurance company wholly-owned by a mutual life insurance
company and with reporting practices prescribed or permitted by the
Commonwealth of Massachusetts Division of Insurance.
Ernst & Young LLP
February 7, 1996
F-1
<PAGE>
JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY
STATEMENTS OF FINANCIAL POSITION
<TABLE>
<CAPTION>
(UNAUDITED) DECEMBER 31
MARCH 31 ------------------
1996 1995 1994
----------- -------- --------
(IN MILLIONS)
<S> <C> <C> <C>
ASSETS
Bonds--Note 7................................ $ 602.0 $ 552.8 $ 458.3
Preferred stocks............................. 5.0 5.0 5.3
Common stocks................................ 1.4 1.7 1.9
Investment in affiliates..................... 67.5 65.3 59.9
Mortgage loans on real estate--Note 7........ 154.5 146.7 148.5
Real estate.................................. 36.4 36.4 27.8
Policy loans................................. 65.8 61.8 47.3
Cash items:
Cash in banks.............................. 0.0 11.6 29.3
Temporary cash investments................. 48.4 65.0 46.7
-------- -------- --------
48.4 76.6 76.0
Premiums due and deferred.................... 37.4 39.6 43.9
Investment income due and accrued............ 18.1 18.6 14.7
Other general account assets................. 13.6 20.8 22.3
Assets held in separate accounts............. 2,575.9 2,421.0 1,721.0
-------- -------- --------
TOTAL ASSETS............................. $3,626.0 $3,446.3 $2,626.9
======== ======== ========
OBLIGATIONS AND STOCKHOLDER'S EQUITY
OBLIGATIONS
Policy reserves.............................. $ 677.4 $ 671.1 $ 638.6
Federal income and other taxes payable--Note
1........................................... 11.0 14.2 17.3
Other accrued expenses....................... 96.9 79.9 22.8
Asset valuation reserve--Note 1.............. 15.5 15.4 12.6
Obligations related to separate accounts..... 2,571.8 2,417.0 1,717.7
-------- -------- --------
TOTAL OBLIGATIONS........................ 3,372.6 3,197.6 2,409.0
STOCKHOLDER'S EQUITY--Notes 2 and 6
Common Stock, $50 par value; authorized
50,000 shares; issued and outstanding 50,000
shares--1996 and 1995; 20,000 shares--1994.. 2.5 2.5 25.0
Paid-in capital.............................. 377.5 377.5 355.0
Unassigned deficit........................... (126.6) (131.3) (162.1)
-------- -------- --------
TOTAL STOCKHOLDER'S EQUITY............... 253.4 248.7 217.9
-------- -------- --------
TOTAL OBLIGATIONS AND STOCKHOLDERS EQUITY...... $3,626.0 $3,446.3 $2,626.9
======== ======== ========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-2
<PAGE>
JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY
STATEMENTS OF OPERATIONS AND UNASSIGNED DEFICIT
<TABLE>
<CAPTION>
(UNAUDITED)
THREE MONTHS ENDED
MARCH 31 YEAR ENDED DECEMBER 31
-------------------- -------------------------
1996 1995 1995 1994 1993
--------- --------- ------- ------- -------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C>
INCOME
Premiums.................... $ 175.4 $ 99.9 $ 570.9 $ 430.5 $ 398.8
Net investment income--Note
4.......................... 17.8 16.3 62.1 57.6 61.3
Other, net.................. 26.0 23.5 85.7 95.5 (4.0)
--------- --------- ------- ------- -------
219.2 139.7 718.7 583.6 456.1
BENEFITS AND EXPENSES
Payments to policyholders
and beneficiaries.......... 61.0 51.3 213.4 187.5 190.8
Additions to reserves to
provide for future payments
to policyholders and
beneficiaries.............. 97.9 34.0 282.4 185.3 111.5
Expenses of providing
service to policyholders
and obtaining new
insurance--Note 6.......... 45.8 40.4 150.7 168.9 144.5
Cost of restructuring....... 0.0 0.0 0.0 3.0 0.0
State and miscellaneous
taxes...................... 2.4 2.9 12.7 11.3 9.8
--------- --------- ------- ------- -------
207.1 128.6 659.2 556.0 456.6
--------- --------- ------- ------- -------
GAIN (LOSS) FROM
OPERATIONS BEFORE FEDERAL
INCOME TAXES AND NET
REALIZED CAPITAL GAINS
(LOSSES)................. 12.1 11.1 59.5 27.6 (0.5)
Federal income taxes--Note 1.. 8.1 5.7 28.4 15.0 6.5
--------- --------- ------- ------- -------
GAIN (LOSS) FROM
OPERATIONS BEFORE NET
REALIZED CAPITAL GAINS
(LOSSES)................. 4.0 5.4 31.1 12.6 (7.0)
Net realized capital gains
(losses)--Note 5............. 0.0 (0.8) 0.5 0.4 (2.6)
--------- --------- ------- ------- -------
NET GAIN (LOSS)........... 4.0 4.6 31.6 13.0 (9.6)
Unassigned deficit at
beginning of year............ (131.3) (162.1) (162.1) (177.2) (142.3)
Net unrealized capital gains
(losses) and other
adjustments--Note 5.......... 0.4 0.3 (3.0) (1.5) (3.2)
Valuation reserve changes--
Note 1....................... 0.0 0.0 0.0 2.7 2.3
Change in separate account
surplus...................... 0.2 (0.3) 0.7 0.0 0.5
Other reserves and
adjustments.................. 0.1 (0.4) 1.5 0.9 (24.9)
--------- --------- ------- ------- -------
UNASSIGNED DEFICIT AT END
OF YEAR.................. $ (126.6) $ (157.9) $(131.3) $(162.1) $(177.2)
========= ========= ======= ======= =======
</TABLE>
The accompany notes are an integral part of the financial statements.
F-3
<PAGE>
JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY
STATEMENTS OF CASH FLOW
<TABLE>
<CAPTION>
(UNAUDITED)
THREE MONTHS ENDED
MARCH 31 YEAR ENDED DECEMBER 31
-------------------- -------------------------
1996 1995 1995 1994 1993
--------- --------- ------- ------- -------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING
ACTIVITIES:
Insurance premiums.......... $ 178.2 $ 102.8 $ 574.0 $ 436.4 $ 411.4
Net investment income....... 18.6 15.6 59.2 57.9 63.0
Benefits to policyholders
and beneficiaries.......... (55.6) (50.0) (198.3) (175.3) (176.6)
Dividends paid to
policyholders.............. (3.7) (2.9) (13.2) (11.9) (14.8)
Insurance expenses and
taxes...................... (49.4) (44.4) (161.5) (180.6) (148.4)
Net transfers to separate
accounts................... (96.4) (26.8) (257.4) (146.6) (91.9)
Other, net.................. 18.3 11.7 40.6 72.8 (22.7)
--------- --------- ------- ------- -------
NET CASH PROVIDED FROM
OPERATIONS............. 10.0 6.0 43.4 52.7 20.0
--------- --------- ------- ------- -------
CASH FLOWS USED IN INVESTING
ACTIVITIES:
Bond purchases.............. (72.2) (19.2) (172.5) (94.1) (92.3)
Bond sales.................. 10.4 4.2 18.9 23.1 74.0
Bond maturities and
scheduled redemptions...... 6.0 11.6 36.0 22.3 12.6
Bond prepayments............ 7.2 0.0 20.6 24.7 16.4
Stock purchases............. (1.5) (1.7) (1.7) (1.5) (59.8)
Proceeds from stock sales... 0.0 0.0 1.4 1.2 9.4
Real estate purchases....... (0.3) (2.8) (16.2) (18.4) (0.5)
Real estate sales........... 0.1 0.0 9.3 22.1 3.6
Other invested assets
purchases.................. 0.0 (0.1) (0.4) (0.9) (4.2)
Proceeds from the sale of
other invested assets...... 0.3 0.0 0.3 1.3 0.1
Mortgage loans issued....... (12.9) (3.0) (19.8) (37.9) (32.4)
Mortgage loan repayments.... 5.1 6.9 21.1 35.2 80.1
Other, net.................. 19.6 (11.4) 60.2 22.9 (45.6)
--------- --------- ------- ------- -------
NET CASH USED IN
INVESTING ACTIVITIES... (38.2) (15.5) (42.8) 0.0 (38.6)
--------- --------- ------- ------- -------
INCREASE (DECREASE) IN
CASH AND TEMPORARY CASH
INVESTMENTS............ (28.2) (9.5) 0.6 52.7 (18.6)
Cash and temporary cash
investments at beginning of
year......................... 76.6 76.0 76.0 23.3 41.9
--------- --------- ------- ------- -------
CASH AND TEMPORARY CASH
INVESTMENTS AT THE END
OF PERIOD.............. $ 48.4 $ 66.5 $ 76.6 $ 76.0 $ 23.3
========= ========= ======= ======= =======
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-4
<PAGE>
JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY
STATEMENTS OF STOCKHOLDERS EQUITY
<TABLE>
<CAPTION>
COMMON PAID-IN UNASSIGNED
STOCK CAPITAL DEFICIT TOTAL
------ ------- ---------- ------
(IN MILLIONS)
<S> <C> <C> <C> <C>
Balance at January 1, 1993................... $25.0 $356.8 $(142.3) $239.5
1993 Transactions:
Net loss................................... (9.6) (9.6)
Net unrealized capital losses and other
adjustments............................... (3.2) (3.2)
Valuation reserve changes.................. 2.3 2.3
Change in separate account surplus......... 0.5 0.5
Other reserves and adjustments............. (24.9) (24.9)
Return of capital.......................... (1.8) (1.8)
----- ------ ------- ------
Balance at December 31, 1993................. 25.0 355.0 (177.2) 202.8
1994 Transactions:
Net gain................................... 13.0 13.0
Net unrealized capital losses and other
adjustments............................... (1.5) (1.5)
Valuation reserve changes.................. 2.7 2.7
Other reserves and adjustments............. 0.9 0.9
----- ------ ------- ------
Balance at December 31, 1994................. 25.0 355.0 (162.1) 217.9
1995 Transactions:
Net gain................................... 31.6 31.6
Net unrealized capital losses and other
adjustments............................... (3.0) (3.0)
Change in separate account surplus......... 0.7 0.7
Other reserves and adjustments............. 1.5 1.5
Reclassification of paid-in capital........ (22.5) 22.5 0.0
----- ------ ------- ------
Balance at December 31, 1995................. $ 2.5 $377.5 $(131.3) $248.7
===== ====== ======= ======
For the three months ended March 31, 1995
(unaudited)
Balance at January 1, 1995................... $25.0 $355.0 $(162.1) $217.9
1995 Transactions:
Net gain................................... 4.6 4.6
Net unrealized capital gains and other
adjustments............................... 0.3 0.3
Change in separate account surplus......... (0.3) (0.3)
Other reserves and adjustments............. (0.4) (0.4)
Reclassification of paid-in capital........ (22.5) 22.5 0.0
----- ------ ------- ------
Balance at March 31, 1995.................... $ 2.5 $377.5 $(157.9) $222.1
===== ====== ======= ======
For the three months ended March 31, 1996
(unaudited)
Balance at January 1, 1996................... $ 2.5 $377.5 $(131.3) $248.7
1996 Transactions:
Net gain................................... 4.0 4.0
Net unrealized capital gains and other
adjustments............................... 0.4 0.4
Change in separate account surplus......... 0.2 0.2
Other reserves and adjustments............. 0.1 0.1
----- ------ ------- ------
Balance at March 31, 1996.................... $ 2.5 $377.5 $(126.6) $253.4
===== ====== ======= ======
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-5
<PAGE>
NOTES TO FINANCIAL STATEMENTS
JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY
(INFORMATION AS OF, AND FOR THE PERIODS ENDED MARCH 31, 1996 AND 1995 IS
UNAUDITED.)
NOTE 1--NATURE OF OPERATIONS AND SIGNIFICANT ACCOUNTING PRACTICES
John Hancock Variable Life Insurance Company (the Company) is a wholly-owned
subsidiary of John Hancock Mutual Life Insurance Company (John Hancock). The
Company principally writes variable and universal life insurance policies.
Those policies primarily are marketed through John Hancock's sales
organization, which includes a career agency system composed of company owned,
unionized branch offices and independent general agencies. Policies also are
sold through various unaffiliated securities broker-dealers and certain other
financial institutions. Currently the Company writes business in all states
except New York.
The preparation of the financial statements of insurance companies 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.
The significant accounting practices of the Company are as follows:
Basis of Presentation: The financial statements have been prepared on the
basis of 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 which are currently
considered generally accepted accounting principles for a stock life insurance
company wholly-owned by a mutual life insurance company. However, in April
1993, the Financial Accounting Standard Board (FASB) issued Interpretation 40,
"Applicability of General Accepted Accounting Principles to Mutual Life
Insurance and Other Enterprises" (Interpretation). The Interpretation, as
amended, is effective for 1996 annual financial statements and thereafter and
no longer will allow statutory-basis financial statements to be described as
being prepared in conformity with generally accepted accounting principles
(GAAP). Upon the effective date of the Interpretation, in order for their
financial statements to be described as being prepared in conformity with
GAAP, mutual life insurance companies will be required to adopt all applicable
authoritative GAAP pronouncements in any general-purpose financial statements
that they may issue. The Company has not quantified the effects of the
application of the Interpretation on its financial statements.
The Company has not yet determined whether for general purposes it will
continue to issue statutory-basis financial statements or statements adopting
all applicable authoritative GAAP pronouncements. If the Company decides that
its general-purpose financial statements will be prepared in accordance with
GAAP rather than statutory accounting practices, the financial statements
included herein would have to be restated to reflect all applicable
authoritative GAAP pronouncements, including Statement of Financial Accounting
Standards (SFAS) Nos. 60, 97, and 113.
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.
F-6
<PAGE>
JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AS OF, AND FOR THE PERIODS ENDED MARCH 31, 1996 AND 1995 IS
UNAUDITED.)
NOTE 1--NATURE OF OPERATIONS AND SIGNIFICANT ACCOUNTING PRACTICES--(CONTINUED)
Valuation of Assets: General account investments are carried at amounts
determined on the following bases:
Bonds and stock values are carried as prescribed by the National
Association of Insurance Commissioners (NAIC): bonds generally at amortized
amounts or cost, preferred stocks generally at cost and common stocks at
market. The discount or premium on bonds is amortized using the interest
method.
Investments in affiliates are included on the statutory equity method.
Goodwill is amortized on a straight line basis over a ten year period.
Mortgage loans are carried at outstanding principal balance or amortized
cost.
Investment real estate is carried at depreciated cost, less encumbrances.
Depreciation on investment real estate is recorded on a straight line
basis.
Real estate acquired in satisfaction of debt and held for sale is carried
at the lower of cost or market as of the date of foreclosure.
Policy loans are carried at outstanding principal balance, not in excess
of policy cash surrender value.
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. Changes to
the AVR are charged or credited directly to the unassigned deficit.
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 March 31, 1996, the IMR, net of 1996 amortization of $0.3 million,
amounted to $7.0 million which is included in policy reserves. The
corresponding amounts at March 31, 1995 were $0.3 million and $6.8 million,
respectively. At December 31, 1995, the IMR, net of 1995 amortization of $1.2
million, amounted to $6.9 million, which is included in policy reserves. The
corresponding 1994 amounts were $1.1 million and $7.1 million, respectively.
Separate Accounts: Separate account assets (unit investment trusts valued at
market) and separate account obligations (principally policyholder account
values) are included as separate captions in the statements of financial
position. In 1996, 1995 and 1994, the change in separate account surplus is
recognized through direct charges or credits to unassigned deficit. In 1993
separate account business was combined with the general account under the
appropriate captions in the consolidated summary of operations. The 1993
presentation was reclassified to permit comparison with the corresponding
1996, 1995 and 1994 amounts. The presentation has no effect on unassigned
deficit.
Fair Values of Financial Instruments: SFAS No. 107, "Disclosure about Fair
Value of Financial Instruments," requires disclosure of fair value information
about financial instruments, whether or not recognized in the statement of
financial position, for which it is practicable to
F-7
<PAGE>
JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AS OF, AND FOR THE PERIODS ENDED MARCH 31, 1996 AND 1995 IS
UNAUDITED.)
NOTE 1--NATURE OF OPERATIONS AND SIGNIFICANT ACCOUNTING PRACTICES--(CONTINUED)
estimate the value. In situations where quoted market prices are not
available, fair values are based on estimates using present value or other
valuation techniques. SFAS No. 107 excludes certain financial instruments and
all nonfinancial instruments from its disclosure requirements. Therefore, the
aggregate fair value amounts presented do not represent the underlying value
of the Company.
The methods and assumptions utilized by the Company in estimating its fair
value disclosures for financial instruments are as follows:
The carrying amounts reported in the statement of financial position for
cash and temporary cash investments approximate their fair values.
Fair values for public bonds are obtained from an independent pricing
service. Fair values for private placement securities and publicly traded
bonds not provided by the independent pricing service are estimated by the
Company by discounting expected future cash flows using current market
rates applicable to the yield, credit quality and maturity of the
investments. The fair values for common and preferred stocks, other than
its 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 loans. Mortgage loans with similar characteristics
and credit risks are aggregated into qualitative categories for purposes of
the fair value calculations.
The carrying amount in the statement of financial position for policy
loans approximates their fair value.
The fair value for outstanding commitments to purchase long-term bonds 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 March 31, 1996 and December 31, 1995,
respectively. The fair value for commitments to purchase real estate
approximates the amount of the initial commitment.
Capital Gains and Losses: Realized capital gains and losses, net of taxes
and amounts transferred to the IMR, are included in net gain or loss.
Unrealized gains and losses, which consist of market value and book value
adjustments, are shown as adjustments to the unassigned deficit.
Policy Reserves: Reserves for variable life insurance policies are
maintained principally on the modified preliminary term method using the 1958
and 1980 Commissioner's Standard Ordinary (CSO) mortality tables, with an
assumed interest rate of 4% for policies issued prior to May 1, 1983 and 4
1/2% for policies issued on or thereafter. Reserves for single premium
policies are determined by the net single premium method using the 1958 CSO
mortality table, with an assumed interest rate of 4%. Reserves for universal
life policies issued prior to 1985 are equal to the gross account value which
at all times exceeds minimum statutory requirements. Reserves for universal
life policies issued from 1985 through 1988 are maintained at the greater of
the Commissioner's Reserve Valuation Method (CRVM) using the 1958 CSO
mortality table, with 4 1/2% interest or the cash surrender value. Reserves
for universal life policies issued after 1988 and for flexible variable
policies are maintained using the greater of the cash surrender value or the
CRVM method with the 1980 CSO mortality table and 5 1/2% interest for policies
issued from 1988
F-8
<PAGE>
JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AS OF, AND FOR THE PERIODS ENDED MARCH 31, 1996 AND 1995 IS
UNAUDITED.)
NOTE 1--NOTICE OF OPERATIONS AND SIGNIFICANT ACCOUNTING PRACTICES--(CONTINUED)
through 1992; 5% interest for policies issued in 1993 and 1994; and 4 1/2%
interest for policies issued in 1995.
Federal Income Taxes: Federal income taxes are provided 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 are
consolidated with John Hancock, its Parent, in filing a consolidated federal
income tax return for the affiliated group. The federal income taxes of the
Company are allocated on a separate return basis with certain adjustments. The
Company made payments of $10.5 million and $12.1 million for the three months
ended March 31, 1996 and March 31, 1995, respectively. The Company made
payments of $32.2 million in 1995 and $17.0 million in 1993 and received tax
benefits of $7.0 million in 1994.
Income before taxes differs from taxable income principally due to tax-
exempt investment income, the limitation placed on the tax deductibility of
policyholder dividends, accelerated depreciation, differences in policy
reserves for tax return and financial statement purposes, capitalization of
policy acquisition expenses for tax purposes and other adjustments prescribed
by the Internal Revenue Code.
No provision is generally recognized for timing differences that may exist
between financial reporting and taxable income or loss.
Adjustments to Policy Reserves: From time to time, the Company finds it
appropriate to modify certain required policy reserves because of changes in
actuarial assumptions or increased benefits. Reserve modifications resulting
from such determinations are recorded directly to the unassigned deficit.
During 1994, the Company refined certain actuarial assumptions inherent in the
calculation of preconversion yearly renewable term and gross premium
deficiency reserves, resulting in a $2.7 million decrease in the unassigned
deficit at December 31, 1994. Similar refinements to the actuarial assumptions
inherent in the calculation of active life waiver of premium disability
reserves were made during 1993 resulting in a $2.3 million decrease in the
unassigned deficit at December 31, 1993. During 1995 and the three months
ended March 31, 1996, there were no refinements in actuarial assumptions
inherent in the calculation of policy reserves.
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.
Reclassifications: Certain 1994 and 1993 amounts have been reclassified to
permit comparison with the corresponding 1996 and 1995 amounts.
NOTE 2--CAPITALIZATION
In prior years, the Company received capital contributions from John
Hancock, with a portion of the contributed capital being credited to common
stock, although no additional shares
F-9
<PAGE>
JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AS OF, AND FOR THE PERIODS ENDED MARCH 31, 1996 AND 1995 IS
UNAUDITED.)
NOTE 2--CAPITALIZATION--(CONTINUED)
were issued. This practice, which is acceptable to statutory authorities, has
the effect of stating the carrying value of issued shares of common stock at
amounts other than $50 per share par value with the offset reflected in paid-
in capital.
At December 31, 1994, the Company had 50,000 shares authorized with 20,000
shares issued and outstanding. On February 16, 1995, the Company issued the
remaining 30,000 shares to John Hancock and transferred $22.5 million from
common stock to paid-in capital. The par value per share is $50.
During 1993, the Company returned $1.8 million of paid-in capital to John
Hancock.
NOTE 3--ACQUISITION
On June 23, 1993, the Company acquired all of the outstanding shares of
stock of Colonial Penn Annuity and Life Insurance Company (CPAL) from Colonial
Penn Life Insurance Company, for an aggregate purchase price of approximately
$42.5 million. At the date of acquisition, assets of CPAL were approximately
$648.5 million, consisting principally of cash and temporary cash investments
and liabilities were approximately $635.2 million, consisting principally of
reserves related to a block of interest sensitive single-premium whole life
insurance business assumed by CPAL from Charter National Life Insurance
Company (Charter). The purchase price includes contingent payments of up to
approximately $7.3 million payable between 1994 and 1998 based on the actual
lapse experience of the business in force on June 23, 1993. The Company made
contingent payments to CPAL of $1.5 million for the three months ended March
31, 1996 and during 1995 and 1994. Unamortized goodwill of $17.8 and $17.1
million at March 31, 1996 and December 31, 1995, respectively and is being
amortized over ten years on a straight-line basis.
On June 24, 1993, the Company contributed $24.6 million in additional
capital to CPAL. CPAL was renamed John Hancock Life Insurance Company of
America (JHLICOA) on July 7, 1993. JHLICOA manages the business assumed from
Charter and does not currently issue new business.
NOTE 4--NET INVESTMENT INCOME
Investment income has been reduced by the following amounts:
<TABLE>
<CAPTION>
THREE MONTHS
ENDED YEAR ENDED
MARCH 31 DECEMBER 31
------------- --------------
1996 1995 1995 1994 1993
------ ------ ---- ---- ----
(IN MILLIONS)
<S> <C> <C> <C> <C> <C>
Investment expenses............................. $ 0.9 $ 0.7 $5.1 $3.4 $2.9
Interest expense................................ 0.0 0.0 0.0 0.2 0.0
Depreciation expense............................ 0.2 0.3 1.0 0.6 0.6
Investment taxes................................ 0.2 0.2 0.5 0.2 0.3
------ ------ ---- ---- ----
$ 1.3 $ 1.2 $6.6 $4.4 $3.8
====== ====== ==== ==== ====
</TABLE>
F-10
<PAGE>
JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AS OF, AND FOR THE PERIODS ENDED MARCH 31, 1996 AND 1995 IS
UNAUDITED.)
NOTE 5--NET CAPITAL GAINS (LOSSES) AND OTHER ADJUSTMENTS
Net realized capital gains (losses) consist of the following items:
<TABLE>
<CAPTION>
THREE MONTHS
ENDED YEAR ENDED
MARCH 31 DECEMBER 31
-------------- -------------------
1996 1995 1995 1994 1993
------ ------ ----- ----- -----
(IN MILLIONS)
<S> <C> <C> <C> <C> <C>
Gains (losses) from asset sales....... $ 0.6 $ (0.8) $ 4.0 $(1.6) $ 9.6
Capital gains (tax) credit............ (0.2) 0.0 (2.5) 2.5 (4.2)
Net capital gains transferred to IMR.. (0.4) 0.0 (1.0) (0.5) (8.0)
------ ------ ----- ----- -----
Net Realized Capital Gains
(Losses)........................... $ 0.0 $ (0.8) $ 0.5 $ 0.4 $(2.6)
====== ====== ===== ===== =====
</TABLE>
Net unrealized capital gains (losses) and other adjustments consist of the
following items:
<TABLE>
<CAPTION>
THREE MONTHS
ENDED YEAR ENDED
MARCH 31 DECEMBER 31
-------------- -------------------
1996 1995 1995 1994 1993
------ ------ ----- ----- -----
(IN MILLIONS)
<S> <C> <C> <C> <C> <C>
Gains (losses) from changes in
security values and book value
adjustments.......................... $ 0.5 $ 0.8 $(0.2) $ 0.7 $(1.4)
Increase in asset valuation reserve... (0.1) (0.5) (2.8) (2.2) (1.8)
------ ------ ----- ----- -----
Net Unrealized Capital Gains
(Losses) and Other Adjustments..... $ 0.4 $ 0.3 $(3.0) $(1.5) $(3.2)
====== ====== ===== ===== =====
</TABLE>
NOTE 6--TRANSACTIONS WITH PARENT
The Company's Parent provides the Company with personnel, property and
facilities in carrying out certain of its corporate functions. The Parent
annually determines a fee for these services and facilities based on a number
of criteria which were revised in 1996, 1995, 1994, and 1993 to reflect
continuing changes in the Company's operations. The amount of the service fee
charged to the Company was $27.1 million, $27.4 million, $97.9 million, $117.0
million and $98.2 million for the three months ended March 31, 1996 and March
31, 1995, in 1995, 1994, and 1993, respectively, which has been included in
insurance and investment expenses. The Parent has guaranteed that, if
necessary, it will make additional capital contributions to prevent the
Company's stockholder's equity from declining below $1.0 million.
The service fee charged to the Company by the Parent includes $0.0 million,
$0.0 million, $1.8 million, $6.0 million, and $1.4 million for the three
months ended March 31, 1996 and March 31, 1995 and the years ended December
31, 1995, 1994 and 1993, respectively, representing the portion of the
provision for retiree benefit plans determined under the accrual method,
including a provision for the 1993 transition liability which is being
amortized over twenty years, that was allocated to the Company.
F-11
<PAGE>
JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AS OF, AND FOR THE PERIODS ENDED MARCH 31, 1996 AND 1995 IS
UNAUDITED.)
NOTE 6--TRANSACTIONS WITH PARENT--(CONTINUED)
Effective January 1, 1994, the Company entered into a modified coinsurance
agreement with John Hancock to reinsure 50% of 1994 issues of flexible premium
variable life insurance and scheduled premium variable life insurance
policies. In connection with this agreement, John Hancock transferred $11.7
million of cash for tax, commission, and expense allowances to the Company,
which increased the Company's net gain from operations by $3.4 million for the
three months ended March 31, 1996. The corresponding amounts for the three
months ended March 31, 1995 were $13.6 million and $6.6 million, respectively.
The corresponding amounts for the year ended December 31, 1995 were $32.7
million and $20.3 million, respectively. The corresponding amounts for the
year ended December 31, 1994 were $29.5 million and $26.9 million,
respectively.
NOTE 7--INVESTMENTS
The statement value and fair value of bonds are shown below:
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31, 1996
--------------------------------------
GROSS GROSS
STATEMENT UNREALIZED UNREALIZED FAIR
VALUE GAINS LOSSES VALUE
--------- ---------- ---------- ------
(IN MILLIONS)
<S> <C> <C> <C> <C>
U.S. treasury securities and
obligations of U.S. government
corporations and agencies........... $ 98.2 $ 0.0 $1.3 $ 96.9
Obligations of states and political
subdivisions........................ 12.3 1.0 0.0 13.3
Debt securities issued by foreign
governments......................... 0.3 0.0 0.0 0.3
Corporate securities................. 473.8 33.3 8.3 498.8
Mortgage-backed securities........... 17.4 0.2 0.3 17.3
------ ----- ---- ------
Totals............................. $602.0 $34.5 $9.9 $626.6
====== ===== ==== ======
<CAPTION>
YEAR ENDED DECEMBER 31, 1995
--------------------------------------
GROSS GROSS
STATEMENT UNREALIZED UNREALIZED FAIR
VALUE GAINS LOSSES VALUE
--------- ---------- ---------- ------
(IN MILLIONS)
<S> <C> <C> <C> <C>
U.S. treasury securities and
obligations of U.S. government
corporations and agencies........... $ 89.0 $ 0.5 $0.0 $ 89.5
Obligations of states and political
subdivisions........................ 11.4 1.1 0.0 12.5
Debt securities issued by foreign
governments......................... 1.3 0.2 0.0 1.5
Corporate securities................. 445.6 44.1 1.6 488.1
Mortgage-backed securities........... 5.5 0.3 0.1 5.7
------ ----- ---- ------
Totals............................. $552.8 $46.2 $1.7 $597.3
====== ===== ==== ======
</TABLE>
F-12
<PAGE>
JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AS OF, AND FOR THE PERIODS ENDED MARCH 31, 1996 AND 1995 IS
UNAUDITED.)
NOTE 7--INVESTMENTS--(CONTINUED)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1994
--------------------------------------
GROSS GROSS
STATEMENT UNREALIZED UNREALIZED FAIR
VALUE GAINS LOSSES VALUE
--------- ---------- ---------- ------
(IN MILLIONS)
<S> <C> <C> <C> <C>
U.S. treasury securities and
obligations of U.S. government
corporations and agencies........... $ 10.4 $ 0.0 $ 0.5 $ 9.9
Obligations of states and political
subdivisions........................ 11.6 0.2 0.1 11.7
Debt securities issued by foreign
governments......................... 1.3 0.0 0.0 1.3
Corporate securities................. 431.9 10.5 9.9 432.5
Mortgage-backed securities........... 3.1 0.1 0.1 3.1
------ ----- ----- ------
Totals............................. $458.3 $10.8 $10.6 $458.5
====== ===== ===== ======
</TABLE>
The statement value and fair value of bonds 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>
MARCH 31, 1996 DECEMBER 31, 1995
---------------- -------------------
STATEMENT FAIR STATEMENT FAIR
VALUE VALUE VALUE VALUE
--------- ------ ---------- --------
(IN MILLIONS)
<S> <C> <C> <C> <C>
Due in one year or less............... $ 5.6 $ 5.7 $ 18.7 $ 19.8
Due after one year through five
years................................ 244.9 249.4 266.8 278.6
Due after five years through ten
years................................ 182.2 189.4 153.1 167.4
Due after ten years................... 151.9 164.8 108.7 125.8
------ ------ -------- --------
584.6 609.3 547.3 591.6
Mortgage-backed securities............ 17.4 17.3 5.5 5.7
------ ------ -------- --------
$602.0 $626.6 $ 552.8 $ 597.3
====== ====== ======== ========
</TABLE>
Proceeds from sales of bonds during the three months ended March 31, 1996
and March 31, 1995 were $10.4 million and $4.2 million, respectively. Gross
gains of $0.5 million and $0.0 million and gross losses of $0.1 million and
$0.0 million were realized on these transactions during the three months ended
March 31, 1996 and March 31, 1995, respectively.
Proceeds from sales of bonds during 1995, 1994 and 1993 were $18.9 million,
$23.1 million, and $74.0 million, respectively. Gross gains of $0.2 million in
1995, $0.0 million in 1994, and $8.5 million in 1993 and gross losses of $0.1
million in 1995, $0.1 million in 1994, and $0.0 million in 1993 were realized
on these transactions.
The cost of common stocks was $0.0 million, $0.1 million and $1.4 million at
March 31, 1996, December 31, 1995 and December 31, 1994, respectively. Gross
unrealized appreciation on common stocks totaled $1.4 million at March 31,
1996 and $1.7 million at December 31, 1995 and gross unrealized depreciation
totaled $0.0 million at March 31, 1996 and $0.1 million at December 31, 1995.
The fair value of preferred stock totaled $5.0 million at March 31, 1996, $5.2
million at December 31, 1995, and $5.0 million at December 31, 1994.
F-13
<PAGE>
JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AS OF, AND FOR THE PERIODS ENDED MARCH 31, 1996 AND 1995 IS
UNAUDITED.)
NOTE 7--INVESTMENTS--(CONTINUED)
Mortgage loans with outstanding principal balances of $1.1 million and bonds
with amortized cost of $6.0 million were nonincome producing for the three
months ended March 31, 1996. The corresponding amounts for the twelve months
ended December 31, 1995 were $1.1 million and $4.0 million, respectively.
The mortgage loan portfolio was diversified by geographic region and
specific collateral property type as displayed below. The Company controls
credit risk through credit approvals, limits and monitoring procedures.
<TABLE>
<CAPTION>
MARCH 31, 1996
--------------------------------------------------
STATEMENT GEOGRAPHIC STATEMENT
PROPERTY TYPE VALUE CONCENTRATION VALUE
------------- ------------- ------------------ -------------
(IN MILLIONS) (IN MILLIONS)
<S> <C> <C> <C> <C>
Apartments................ $ 57.4 East North Central $ 27.4
Hotels.................... 0.0 East South Central 0.0
Industrial................ 29.8 Middle Atlantic 10.5
Office buildings.......... 12.5 Mountain 11.6
Retail.................... 20.2 New England 19.7
1-4 Family................ 0.0 Pacific 41.5
Agricultural.............. 22.6 South Atlantic 35.4
Other..................... 12.0 West South Central 8.4
------ ------
$154.5 $154.5
====== ======
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1995
--------------------------------------------------
STATEMENT GEOGRAPHIC STATEMENT
PROPERTY TYPE VALUE CONCENTRATION VALUE
------------- ------------- ------------------ -------------
(IN MILLIONS) (IN MILLIONS)
<S> <C> <C> <C> <C>
Apartments................ $ 52.1 East North Central $ 30.1
Hotels.................... 4.5 East South Central 1.9
Industrial................ 25.4 Middle Atlantic 10.5
Office buildings.......... 12.6 Mountain 11.8
Retail.................... 20.3 New England 19.8
Agricultural.............. 19.8 Pacific 41.6
Other..................... 12.0 South Atlantic 31.0
------ ------
$146.7 $146.7
====== ======
</TABLE>
At March 31, 1996, the fair values of the commercial and agricultural
mortgage loans portfolios were $133.7 million and $29.3 million, respectively.
The corresponding amounts as of December 31, 1995 were $132.1 million and
$22.2 million, respectively. The corresponding amounts as of December 31, 1994
were $118.8 million and $27.3 million, respectively.
NOTE 8--REINSURANCE
The Company cedes business to reinsurers to share risks under variable life,
universal life and flexible variable life insurance policies for the purpose
of reducing exposure to large losses. Premiums, benefits and reserves ceded to
reinsurers during the three months ended March 31, 1996 were $24.6 million,
$1.5 million, and $12.0 million, respectively. The corresponding
F-14
<PAGE>
JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AS OF, AND FOR THE PERIODS ENDED MARCH 31, 1996 AND 1995 IS
UNAUDITED.)
NOTE 8--REINSURANCE--(CONTINUED)
amounts during the three months ended March 31, 1995 were $15.6 million, $1.2
million, and $15.3 million, respectively. The corresponding amounts in 1995
were $72.4 million, $8.7 million, and $12.1 million, respectively. The
corresponding amounts in 1994 were $67.5 million, $12.3 million, and $16.3
million, respectively. The corresponding amounts in 1993 were $74.9 million,
$9.8 million, and $14.4 million, respectively.
To the extent that an assuming reinsurance company is unable to meet its
obligations under a reinsurance agreement, the Company remains liable as the
direct insurer on all risks reinsured.
NOTE 9--POLICYHOLDERS' RESERVES AND BENEFICIARIES' FUND
The Company's annuity reserves and deposit fund liabilities that are subject
to discretionary withdrawal (with adjustment), subject to discretionary
withdrawal (without adjustment), and not subject to discretionary withdrawal
provisions are summarized as follows:
<TABLE>
<CAPTION>
MARCH 31,
1996 PERCENT
------------- -------
(IN MILLIONS)
<S> <C> <C>
Subject to discretionary withdrawal (with adjustment):
With market value adjustment........................... $ 0.0 0.0%
At book value less surrender charge.................... 174.5 99.4
------ -----
Total with adjustment.................................. 174.5 99.4
Subject to discretionary withdrawal (without
adjustment) at book value............................. 1.1 0.6
Not to discretionary withdrawal.......................... 0.0 0.0
------ -----
Total annuity reserves and deposit liabilities........... $175.6 100.0%
====== =====
<CAPTION>
DECEMBER 31,
1995 PERCENT
------------- -------
(IN MILLIONS)
<S> <C> <C>
Subject to discretionary withdrawal (with adjustment):
With market value adjustment........................... $ 0.0 0.0%
At book value less surrender charge.................... 115.4 99.1
------ -----
Total with adjustment.................................. 115.4 99.1
Subject to discretionary withdrawal (without
adjustment) at book value............................. 1.0 0.9
Not subject to discretionary withdrawal.................. 0.0 0.0
------ -----
Total annuity reserves and deposit liabilities........... $116.4 100.0%
====== =====
</TABLE>
NOTE 10--COMMITMENTS AND CONTINGENCIES
The Company has extended commitments to purchase long-term bonds and issue
real estate mortgages totalling $9.4 million and $0.0 million, respectively,
at March 31, 1996. The corresponding amounts at December 31, 1995 were $16.6
million and $5.4 million, respectively. The Company monitors the
creditworthiness of borrowers under long-term bond commitments and requires
collateral as deemed necessary. If funded, loans related to real estate
mortgages
F-15
<PAGE>
JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AS OF, AND FOR THE PERIODS ENDED MARCH 31, 1996 AND 1995 IS
UNAUDITED.)
NOTE 10--COMMITMENTS AND CONTINGENCIES--(CONTINUED)
would be fully collateralized by the related properties. The fair values of
the commitments described above were $9.5 million at March 31, 1996 and $23.8
million at December 31, 1995. The majority of these commitments expire in
1996.
In the normal course of its business operations, the Company is involved in
litigation from time to time with claimants, beneficiaries and others, and a
number of litigation matters were pending as of March 31, 1996 and December
31, 1995. 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 of the Company.
F-16
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The estimated expenses of issuance and distribution of the Contracts are as
follows:
<TABLE>
<CAPTION>
AMOUNT*
----------
<S> <C>
Securities and Exchange Commission Registration Fee.............. $86,206.90
Printing Expenses................................................ $
Accounting Fees.................................................. $
Legal Fees and Miscellaneous Expenses............................ $
----------
Total expenses................................................. $
==========
</TABLE>
- --------
* To be filed by amendment.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Pursuant to Section X of JHVLICO's By-Laws and Section 67 of the
Massachusetts Business Corporation Law, JHVLICO indemnifies each director,
former director, officer, and former officer, and his or her heirs and legal
representatives from liability incurred or imposed in connection with any
legal action in which he or she may be involved by reason of any alleged act
or omission as an officer or a director of JHVLICO. 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 or her action was in the best
interest of JHVLICO. JHVLICO may pay expenses incurred in defending an action
or claim in advance of its final disposition, but only upon receipt of an
undertaking by the person indemnified to repay such amounts if he or she
should be determined not to be entitled to indemnification.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
Not Applicable
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
<TABLE>
<C> <S>
1(a). Form of Distribution and Selling Agreement Among John Hancock Mutual
Life Insurance Company, John Hancock Variable Life Insurance Company,
and Registered Broker-Dealers.
1(b). Distribution Agreement by and between John Hancock Mutual Life
Insurance Company and John Hancock Variable Life Insurance Company,
dated August 26, 1993, incorporated by reference from Pre-Effective
Amendment No. 1 to initial Form S-6 Registration statement for John
Hancock Variable Life Account S (File No. 33-64366) filed October 29,
1993.
1(c). Amendment dated August 1, 1994, to Distribution Agreement by and
between John Hancock Mutual Life Insurance Company and John Hancock
Variable Life Insurance Company, dated August 26, 1993, incorporated by
reference from Form N-4 Registration Statement for John Hancock
Variable Annuity Account I (File No. 33-82648), filed August 10, 1994.
3(a). Articles of Incorporation for John Hancock Variable Life Insurance
Company, included in the initial filing of this Registration Statement
on September 22, 1995.
3(b). By-Laws of John Hancock Variable Life Insurance Company, included in
the initial filing of this Registration Statement on September 22,
1995.
4(a). Form of Group Annuity Contract.
</TABLE>
II-1
<PAGE>
<TABLE>
<C> <S>
4(b). Form of Group Annuity Contract Certificate.
4(c). Form of Group Annuity Contract Application.
5. Opinion re: legality.
23(a). Consent of independent auditors.
23(b). Consent of counsel. (Included as part of Exhibit 5.)
24. Powers of Attorney, included in the initial filing of this Registration
Statement on September 22, 1995.
27. Financial Data Schedule.
</TABLE>
ITEM 17. UNDERTAKINGS
(a) The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
i. To include any Prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
ii. To reflect in the Prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the registration statement;
iii. To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or
any material change to such information in the registration statement,
including (but not limited to) any addition or deletion of a managing
underwriter;
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
(b) 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
registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer, or controlling
person of the registrant in the successful defense of any action, suit, or
proceeding) is asserted by such director, officer, or controlling person in
connection with the securities being registered, the registrant will, unless
in the opinion or its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question of
whether such indemnification by it is against public policy as expressed in
the Act and will be governed by the final adjudication of such issue.
II-2
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this amended registration statement to be signed on its behalf
by the undersigned, thereunto duly authorized, in the City of Boston,
Commonwealth of Massachusetts, on this 25th day of June, 1996.
John Hancock Variable Life Insurance
Company
/s/ Henry D. Shaw
By __________________________________
HENRY D. SHAW VICE CHAIRMAN &
PRESIDENT
Pursuant to the requirements of the Securities Act of 1933, the registration
statement has been signed by the following persons in the capacities and on
the date indicated.
SIGNATURE DATE
/s/ Patrick F. Smith Controller
By __________________________________ (Principal 6-24-96
PATRICK F. SMITH Financial Officer
and Principal
Accounting Officer)
/s/ Henry D. Shaw Vice Chairman &
By __________________________________ President (Acting 6-25-96
HENRY D. SHAW Principal Executive
Officer)
For himself and as Attorney in Fact for:
David F. D'Alessandro Chairman
Robert S. Paster Director & Actuary
Michele G. Van Leer Director
Joseph A. Tomlinson Director
Robert R. Reitano Director
Barbara L. Luddy Director
II-3
<PAGE>
Exhibit 1.(a)
MODIFIED GUARANTEED ANNUITY
DISTRIBUTION AND SELLING AGREEMENT
This Agreement is executed and effective on _____________, 199_, among John
Hancock Mutual Life Insurance Company ("John Hancock"), a Massachusetts company,
its wholly-owned subsidiary, John Hancock Variable Life Insurance Company
("JHVLICO"), a Massachusetts corporation (together with John Hancock hereinafter
referred to as "Hancock") and [Broker-Dealer, Inc.] ("Broker-Dealer"), a
[_____________ corporation]. This Agreement establishes the relationship
between Hancock and Broker-Dealer for the marketing, distribution, sale and
servicing of certain individual and group modified guaranteed annuity contracts
issued by JHVLICO (hereinafter referred to as the "Contracts").
WHEREAS, JHVLICO is engaged in the issuance of annuity contracts, including the
Contracts, in compliance with all applicable laws; and
WHEREAS, John Hancock is the principal underwriter of the Contracts; and
WHEREAS, Hancock desires to retain Broker-Dealer for distribution and marketing
of the Contracts and Broker-Dealer desires to provide such services; and
<PAGE>
WHEREAS, Broker-Dealer may assign certain rights or obligations under this
Agreement to one or more insurance agencies that are associated with it (the
"Associated Agencies") pursuant to Section 10 of this Agreement; the parties
agree as follows:
1. Independence of Corporate Entities
----------------------------------
This Agreement and the relationships established hereby do not constitute
an agency, partnership, association or other merging of corporate identities
between Hancock and Broker-Dealer. Broker-Dealer is an independent contractor
and shall maintain errors and omissions coverage in an amount acceptable to
Hancock at all times during which this Agreement, or any provision hereof, is in
effect. Nothing contained herein shall be construed as creating the
relationship of employer and employee between Hancock and Broker-Dealer or
between Hancock and any of Broker-Dealer's Associated Agencies.
2. Authorization
-------------
(A) Hancock hereby authorizes Broker-Dealer to distribute, sell and, to the
extent contemplated in Section 2(C)(iii) below, service the Contracts through
representatives of Broker-Dealer ("Representatives"). These Representatives
will include persons located at Broker-Dealer's retail offices ("branch
representatives") and other persons ("direct representatives"). Broker-Dealer
agrees that it and its Associated Agencies will abide by all rules and
regulations and comply with all applicable state and Federal laws and the rules
2
<PAGE>
and regulations of authorized regulatory agencies affecting the distribution,
sale and servicing of the Contracts.
(B) This Agreement does not limit the rights of Broker-Dealer or Hancock to
offer or sell insurance contracts other than the Contracts or the rights of
Hancock to offer the Contracts through distributors other than Broker-Dealer.
Broker-Dealer warrants that each Representative authorized to distribute, sell
and service the Contracts is (or at all times when legally required will be)
licensed as an insurance agent in the appropriate jurisdiction. Each
Representative that meets JHVLICO's appointment requirements shall be appointed
by JHVLICO as an insurance agent for the purposes contemplated by this
Agreement. At its own expense, Broker-Dealer shall educate and train the
Representatives appointed by JHVLICO. All training materials shall be approved
by Hancock prior to use. Such approval shall not be unreasonably withheld or
delayed. Broker-Dealer shall be responsible for the supervision and control of
all Representatives, and shall be responsible to Hancock for the acts of all
Representatives.
(C) Representatives shall be authorized to (i) solicit and accept
applications for Contracts; (ii) receive for forwarding to Hancock the premiums
paid in connection with any such application; and (iii) service the Contracts by
communicating as appropriate with owners and annuitants under outstanding
Contracts distributed through Broker-Dealer concerning such matters as the
exercise of rights and privileges available to them under the terms of the
Contracts or offered to them by Hancock.
3
<PAGE>
(D) Representatives are not authorized (i) to alter any application or
Contract; (ii) to collect or in any manner receive premiums from applicants in
the form of checks, money orders or electronic funds transfers payable to any
person or entity other than JHVLICO; (iii) to waive any forfeiture; (iv) to make
any settlement of any claim or claims or bind Hancock or any of its "Affiliates"
(as defined below) in any way; (v) to rebate any portion of a payment to any
party either directly or indirectly; (vi) to perform any function other than as
expressly authorized in the preceding paragraph; (vii) to incur any indebtedness
or liability of or expend or contract for the expenditure of the funds of
Hancock; (viii) to accept or give a receipt for any money due or to become due
to Hancock, except for initial premiums covered by this Agreement; or (ix) to
enter into legal proceedings in connection with any matter pertaining to the
business of Hancock without the prior written consent of Hancock, unless Broker-
Dealer, its Affiliate, Associated Agency or a Representative, as the case may
be, is named in such proceedings. As used in this Agreement, the term
"Affiliate" shall mean an affiliated person as defined in Section 2(a)(3) of the
Investment Company Act of 1940.
(E) Hancock shall assume the expense of first year appointment fees for all
Representatives. Thereafter, Broker-Dealer shall assume the expense of all
appointment fees except for (i) any branch representative who sold one or more
of the Contracts or other Hancock annuity contracts in the prior year, and (ii)
any direct representative who sold a total of three or more of the Contracts and
other Hancock annuity contracts in the prior year. In the latter two cases,
Hancock shall assume the expense of the appointment fees.
4
<PAGE>
(F) Hancock, in its sole discretion, may at any time and upon written
notice withhold or withdraw the authority of Broker-Dealer and/or any
Representatives to solicit applications for or to service the Contracts. Upon
such notice, Broker-Dealer agrees to immediately cease all such solicitations
and servicing, and to notify the Representatives of the withdrawals of such
authority. It is understood that Hancock retains the right to reject or
terminate the authorization of any Representative with or without the agreement
of Broker-Dealer.
3. Registration/Licensing of Broker-Dealer and its Representatives
---------------------------------------------------------------
(A) Broker-Dealer represents and warrants to Hancock that Broker-Dealer is
registered as a broker-dealer under the Securities Exchange Act of 1934 (the
"1934 Act") and in such states and other jurisdictions (collectively referred to
hereinafter as "states") as required by the business transacted by it, is a
member in good standing of the National Association of Securities Dealers, Inc.
("NASD"), has obtained any other approvals, licenses, authorizations, orders or
consents which are necessary to enter into and carry out all transactions
contemplated by this Agreement, and is bonded as required by all applicable laws
and regulations.
(B) Broker-Dealer represents and warrants to Hancock that each person
signing an application or enrollment form as agent upon Broker-Dealer's
recommendation, or receiving compensation from Broker-Dealer or its Affiliates
or "Associated Persons" (as that
5
<PAGE>
term is defined in Section 3(a)(18) of the 1934 Act) for soliciting purchases of
the Contracts will be a registered representative or principal of Broker-Dealer
and shall possess all licenses necessary or appropriate to sell life insurance
and Contracts in the state of such signing or solicitation, and will have
received an appropriate appointment or license by or through JHVLICO and a level
of qualification with the NASD appropriate for the Contracts.
(C) Broker-Dealer represents and warrants to Hancock that neither Broker-
Dealer nor any of its Affiliates or Associated Persons will pay any commission,
or portions thereof, or other compensation based upon a percentage of premiums
or other valuable consideration for services rendered in soliciting the purchase
of the Contracts to any person or entity which is not duly licensed or appointed
by Hancock to sell the Contracts in the state of such payment and registered or
otherwise qualified under the 1934 Act and rules thereunder and under any
applicable state laws and rules governing broker-dealers and their related
persons.
(D) To the extent that Broker-Dealer assigns rights or obligations under
this Agreement to an Associated Agency as provided in Section 10 below, Broker-
Dealer represents and warrants to Hancock that such Associated Agency will have
and maintain all governmental approvals, licenses, authorizations, orders or
consents that are necessary for it to be assigned such rights and perform any
such obligations, and that Broker-Dealer and the Associated Agency will conduct
any such networking arrangements in compliance with
6
<PAGE>
any applicable positions of the staff of the Securities and Exchange Commission
("SEC") necessary to avoid registration of any such Associated Agency as a
broker-dealer under the 1934 Act.
4. Compensation
------------
(A) Hancock shall pay to Broker-Dealer the compensation in accordance with
the schedule in Appendix A to this Agreement (attached hereto and specifically
incorporated herein by this reference). The amounts set forth in Section 1
therein are guaranteed by Hancock for a period of one year from the date of this
Agreement and may be modified by Hancock in its sole discretion thereafter.
Such payment shall constitute the sole and exclusive compensation payable by
Hancock with respect to the Contracts issued hereunder and all services rendered
under or in contemplation of this Agreement.
(B) For monthly account purposes, Broker-Dealer shall be paid or entitled
to commissions calculated on the basis of gross written premiums received and
forwarded to Hancock in accordance with this Agreement and Hancock's
requirements. Subject to subsection (A) above, Hancock reserves the right to
change or amend the terms of Appendix A at any time upon written notice to
Broker-Dealer. Broker-Dealer agrees that Hancock shall have no liability with
respect to any compensation payable to any Representatives, and that Broker-
Dealer shall bear the administrative costs of paying such compensation.
7
<PAGE>
5. General Conditions
------------------
(A) Hancock shall be responsible for obtaining approval from the applicable
regulatory authorities of the forms of the applications and Contracts that are
the subject of this Agreement. Hancock reserves the right to withdraw, change
or modify any of the Contracts and/or applications covered by this Agreement,
and to withdraw wholly or in part from the marketing of Contracts in any state
without incurring any liability or obligation to Broker-Dealer.
(B) Hancock represents to Broker-Dealer that, with respect to the
Contracts, (i) JHVLICO has filed with the SEC a registration statement under the
Securities Act of 1933 (the "1933 Act") that has become effective with the SEC
(the "Registration Statement") and (ii) the prospectus relating to the
Contracts, including any supplements or amendments thereto (collectively, the
"Prospectus"), as of its date, contains all material statements and information
which are required to be stated therein by the 1933 Act and the rules and
regulations thereunder and in all material respects conforms to the requirements
thereof, and the Prospectus does not include any untrue statement of a material
fact or omit to state any material fact required to be stated therein or
necessary to make the statements therein not misleading; provided, however, that
the foregoing representations shall not apply to information contained in or
omitted from the Prospectus in reliance upon, and in conformity with,
information furnished to Hancock or any of its Affiliates in writing by Broker-
Dealer or its Affiliate for use in the preparation thereof.
8
<PAGE>
If, at any time when the Prospectus is required by the 1933 Act to be
delivered in connection with sales of the Contracts, any event shall occur or
condition exist as a result of which it is necessary in the reasonable opinion
of counsel for Hancock to further amend or supplement the Prospectus, notice
shall be given to Broker-Dealer of such event or condition and Hancock will
promptly prepare and file with the SEC such amendment or supplement.
Hancock shall, at its expense, provide Broker-Dealer with all necessary
Prospectuses and contract-related forms (including, but not limited to,
applications, Contracts, administrative forms and due diligence materials). In
consultation with Broker-Dealer, Hancock shall determine the supply needed.
(C) Broker-Dealer and its Representatives shall market and distribute the
Contracts for sale to persons for whom the Contracts are suitable. In
accordance with Article III, Section 2 of the Rules of Fair Practice of the
NASD, Broker-Dealer shall take reasonable steps to ensure that no Representative
shall make any recommendation to an applicant to purchase any Contract in the
absence of reasonable grounds to believe that the purchase of the Contract is
suitable for such applicant based upon the facts, if any, disclosed by such
applicant as to his or her other security holdings and as to his or her
financial situation and needs. In reaching a determination of suitability, each
Representative shall make reasonable efforts to obtain (i) information
concerning the applicant's investment objectives, financial status, tax status
and (ii) such other information used or considered to
9
<PAGE>
be reasonable by such Representative in making recommendations to the applicant.
All Contract applications are subject to the acceptance or rejection by Hancock
in its sole discretion.
Broker-Dealer shall use its best efforts to introduce and successfully
offer, sell and service the Contracts. Distribution is to occur only through
qualified Representatives. Broker-Dealer shall ensure that each Representative
is expressly advised that he or she will be responsible for his or her
compliance with applicable federal and state laws and regulations in connection
with the sale of the Contracts. In connection with the sale and servicing of
the Contracts, no Representative shall make any representations not included in
(i) the Prospectus or (ii) sales literature or advertising material, as defined
in subsection (E) below, approved in writing by Hancock.
Hancock, in consultation with Broker-Dealer, shall designate the regions
within the United States where Broker-Dealer shall distribute the Contracts and
the manner and order in which Broker-Dealer will introduce the Contracts to the
regions so designated.
(D) Broker-Dealer shall deliver the current Prospectus, together with all
current supplements thereto, to every applicant for the Contract at or prior to
the time that an application form or other sales literature or advertising
material, as defined below, is submitted to the applicant (other than materials
submitted in compliance with Rule 134 of
10
<PAGE>
the 1933 Act). Hancock shall at all times keep Broker-Dealer informed of the
date of the appropriate current Prospectus and any supplements thereto.
(E) Broker-Dealer shall not publish, circulate or use any sales literature
or advertising material with respect to Hancock or the Contracts without express
written authorization from an authorized officer of Hancock. As used herein,
the terms "sales literature" and "advertising material" mean any material
designed to create interest in Hancock's products or to induce any person to
purchase Hancock's products, including, without limitation, any of the
following: (i) printed and published material, descriptive literature used in
direct mail, newspapers, magazines, radio and television scripts, telephone
scripts, billboards, computer displays and similar displays; (ii) descriptive
literature and sales aids of all kinds, including but not limited to circulars,
leaflets, booklets, depictions, illustrations and form letters; (iii) material
used for recruitment, training and education of agents and Representatives which
is designed to be used or is used to induce the public to purchase Hancock's
products; (iv) prepared sales talks, presentations and material for use by
agents and Representatives in private or public seminars or any other setting;
and (v) the use of the Hancock name or logo or any other identifiers referring
directly or indirectly to JHVLICO or John Hancock or any of their Affiliates.
The cost of preparing, printing in quantity and distributing or publishing
any sales literature or advertising material shall be borne by the party that
prepares such sales literature or advertising material. Broker-Dealer shall be
responsible for ensuring that all
11
<PAGE>
sales literature and advertising materials used by Broker-Dealer and its
Representatives have been filed with and approved by any state or Federal
securities or insurance regulatory entities, to the extent such filing or
approval may be required in connection with such use.
Broker-Dealer shall not alter, obliterate, deface or remove any trade name,
brand, trademark or service mark of Hancock. Broker-Dealer may use Hancock's
name and trademark (i) only for purposes expressly contemplated by this
Agreement and (ii) only upon prior written approval by Hancock. Broker-Dealer
shall immediately cease its use of Hancock's name and all trademarks, service
marks or other proprietary rights of Hancock upon termination of this Agreement.
(F) Neither Broker-Dealer, its Associated Agencies and their Affiliates,
nor any of their Associated Persons or Representatives shall suggest, recommend,
solicit, encourage or induce purchasers of Contracts to exchange those Contracts
for annuity contracts of any insurance company that is not an Affiliate of
Hancock, unless, in the opinion of counsel reasonably acceptable to Hancock, a
reasonable likelihood exists that failure to do so would violate a legal
obligation or duty on the part of Broker-Dealer or such Associated Agency,
Affiliate, Associated Person or Representative. This subsection (F), however,
shall not prohibit conduct that results in isolated exchanges based on the
circumstances of particular Contract owners, and that is not part of a
systematic pattern of conduct.
12
<PAGE>
6. Confirmations and Maintenance of Books and Records
--------------------------------------------------
(A) Hancock, as agent for Broker-Dealer, will confirm to the applicant in
accordance with Rule 10b-10 under the 1934 Act the issuance of each Contract and
such other information as may be required by Rule 10b-10 or SEC administrative
interpretations thereunder.
(B) JHVLICO, John Hancock and Broker-Dealer agree to keep all records
required by federal and state laws and regulations, to maintain books, accounts
and records so as to clearly and accurately disclose the precise nature and
details of the transactions, and to assist one another in the timely preparation
of records. To the extent that such records maintained by JHVLICO, John Hancock
or Broker-Dealer (the "Maintaining Party") are necessary to satisfy the
recordkeeping requirements imposed by Federal securities laws and regulations on
any other party to this Agreement (the "Responsible Party"), the Responsible
Party may, with the Maintaining Party's consent, appoint the Maintaining Party
as its agent for the purpose of keeping and maintaining such records. As
required by 1934 Act Rule 17a-4(i), such records will be the exclusive property
of the Responsible Party, but that shall not preclude the Maintaining Party from
having access to such data or records or keeping copies thereof for its own
files; and, as the Responsible Party may request, the Maintaining Party shall,
as soon as practicable, deliver to the Responsible Party, or provide the
Responsible Party with reasonable access to, data or records held by it for the
Responsible Party pursuant to this Agreement in a form mutually agreed to by
such parties. In order to
13
<PAGE>
comply with 1934 Act Rule 17a-4(i), with respect to books and records maintained
or preserved subject thereto, the Maintaining Party hereby undertakes to permit
examination of such books and records at any time or from time to time during
business hours by representatives or designees of the SEC, and to promptly
furnish to the SEC or its designee true, correct, complete and current hard copy
of any or all of such books and records.
(C) Each party hereto shall promptly furnish to any other party hereto any
reports and information which such other party may request for the purpose of
meeting reporting and recordkeeping requirements under the insurance laws of any
state and under the Federal or state securities laws or the rules of the NASD.
7. Indemnification
---------------
(A) Broker-Dealer agrees to indemnify and hold John Hancock and JHVLICO
harmless from and against any loss, cost, expense, liability, claim or damage
incurred by John Hancock or JHVLICO (including, but not limited to, fines,
penalties, and reasonable attorneys' fees) arising as a result of any action or
inaction of Broker-Dealer, any Associated Agency, or the Representatives, in
connection with the distribution, marketing, sale and servicing of the
Contracts, including, but not limited to, losses, costs, expenses, liabilities,
claims or damages which arise out of or are based upon the following:
14
<PAGE>
(i) any unauthorized use of sales literature or advertising materials or
any verbal or written misrepresentations or any unlawful sales practices
concerning a Contract by a Representative; or
(ii) any failure of Broker-Dealer, an Associated Agency, or the
Representatives to comply with all applicable state insurance laws and
regulations including, but not limited to, state licensing requirements,
rebate laws and replacement regulations; or
(iii) any failure of Broker-Dealer, an Associated Agency, or the
Representatives to comply with all applicable state and Federal securities
laws and regulations applicable to the performance of their obligations
under this Agreement, including, but not limited to, requirements for the
registration, licensing or qualification of broker-dealers and their
Associated Persons; or
(iv) failure by the Representatives or any Associated Agency to comply
with the provisions of this Agreement and any agreement made to receive and
process any premiums collected from applicants.
(B) John Hancock and JHVLICO each agree to indemnify and hold Broker-Dealer
and any Associated Agency harmless from and against any loss, cost, expense,
liability, claim, or damage incurred by Broker-Dealer or the Associated Agency
(including
15
<PAGE>
but not limited to, fines, penalties, and reasonable attorneys' fees) arising
out of or based upon the following:
(i) the form of the Contracts, or the applications, Prospectuses or sales
literature and advertising materials related thereto created by Hancock;
provided that JHVLICO and John Hancock shall not be liable in any such
case, to the extent that any such loss, cost, expense, liability, claim or
damage arises as a result of material included in the Prospectus or sales
literature and advertising materials in reliance upon and in conformity
with information furnished by Broker-Dealer in writing for use in the
preparation thereof; or
(ii) any claim, complaint or grievance brought against the Broker-Dealer
and/or any Associated Agency due to Hancock's failure to honor or properly
service the Contracts in accordance with the terms thereof; provided,
however, that JHVLICO and John Hancock shall not be liable for failure to
provide any service that Broker-Dealer has in writing agreed with JHVLICO
and/or John Hancock to provide.
The indemnities and agreements to hold harmless in this section shall, upon
the same terms and conditions, also extend to and inure to the benefit of each
director and officer of the indemnified party and any person controlling the
indemnified party within the meaning of Section 15 of the 1933 Act or Section 20
of the 1934 Act.
16
<PAGE>
8. Accounting
----------
(A) Any premiums received for Hancock by Broker-Dealer, by reason of this
Agreement, shall belong to Hancock and shall be received and held by Broker-
Dealer in a fiduciary capacity only. All such premiums shall be delivered
promptly to Hancock.
(B) Broker-Dealer shall instruct the Representatives to remit all premiums
to Hancock immediately upon receipt, in such manner as shall be mutually agreed
upon in writing by Broker-Dealer and Hancock, together with all applications and
related information. All premiums shall be in the form of checks, money orders
or electronic funds transfers payable to JHVLICO and shall be accompanied by
listings identifying the applications to which they relate.
9. Cooperation
-----------
Hancock and Broker-Dealer agree to cooperate with respect to investigating
and defending, or otherwise resolving all claims, complaints or grievances which
may be made against Hancock, Broker-Dealer, any Affiliated Agency or any
Representative involving the solicitation of applications for, the sale or the
servicing of the Contracts. Hancock and the Broker-Dealer agree to consult with
each other with respect to the disposition of any claims, complaints or
grievances. Hancock and the Broker-Dealer shall each immediately notify the
other of any such claims, complaints or grievances of which it becomes aware and
shall
17
<PAGE>
promptly reduce such notice to writing if oral. Hancock and the Broker-Dealer
each shall promptly forward to the other any notice of claim or relevant
information concerning a potential claim, complaint or grievance which may come
into its possession, and shall promptly forward to Hancock copies of any legal
papers served involving such claim, complaint or grievance.
Broker-Dealer shall immediately notify Hancock of the issuance by any
regulatory body of any order with respect to the operation or business of
Broker-Dealer, or the initiation of any proceeding for any purpose relating to
the sale of the Contracts, and of any other actions or circumstances that may
prevent the lawful offer or sale of any of the Contracts in any state or
jurisdiction. In addition, Broker-Dealer shall promptly advise Hancock if
Broker-Dealer or any of its Affiliated Agencies or a Representative is or
becomes subject to any proceedings or is sanctioned or suspended (i) by the SEC
or NASD, (ii) by any court, or (iii) by any state regulatory authority.
10. Assignment and Delegation
-------------------------
Broker-Dealer may assign rights or obligations under this Agreement to an
insurance agency that is deemed to be an "Associated Person" of Broker-Dealer,
within the meaning of Section 3(a)(18) of the 1934 Act, to the extent necessary
or appropriate in order to comply with applicable laws or regulations. If
obligations under this Agreement are assigned to such an Associated Agency as
permitted herein, Broker-Dealer shall not be
18
<PAGE>
relieved of any such obligations. No other assignment of this Agreement or any
commissions hereunder or any interest herein shall be valid unless authorized in
advance in writing by an authorized officer of Hancock. Hancock may allocate or
delegate any of its duties or obligations under this Agreement to any of its
Affiliates.
11. Termination
-----------
(A) Any party may terminate this Agreement with or without cause, by giving
sixty (60) days written notice to the other parties.
(B) This Agreement shall terminate automatically in the event that any
party (i) ceases doing business and elects to be dissolved; (ii) becomes
insolvent or admits in writing its inability to pay its debts as they come due;
(iii) files a voluntary petition in bankruptcy or for reorganization or is
adjudicated as a bankrupt or insolvent; or (iv) has a liquidator, trustee,
rehabilitator, receiver, or similar official appointed over its affairs or a
substantial portion of its assets, and such appointment shall not have been
terminated and discharged within thirty (30) days.
(C) This Agreement shall automatically terminate when required by any
governmental authority or court of law. If any law, regulation, order or ruling
of any governmental authority or court of law prohibits or makes illegal
compliance by any party
19
<PAGE>
with any obligation hereunder, then this Agreement may be terminated by any
party immediately upon written notice to the other parties.
(D) Notwithstanding the foregoing, all conditions, duties, and obligations
of this Agreement will remain in effect with respect to Contracts issued prior
to the termination of this Agreement.
12. Notice
------
All notices shall be deemed to have been given three (3) days after the
date mailed in a United States Post Office, enclosed in a certified pre-paid
envelope addressed to the respective parties at the addresses below or at such
other addresses as may be required in writing by the party concerned.
John Hancock: Broker-Dealer:
- ------------------------------------- ------------------------------------
John Hancock Mutual Life Insurance Company [Broker-Dealer Name]
P.O. Box 111 [Broker-Dealer Address]
Boston, MA 02117
JHVLICO:
- ------------------------------------
John Hancock Variable Life Insurance Company
P.O. Box 111
Boston, MA 02117
20
<PAGE>
13. Waiver
------
The failure of any party to insist, in any one or more instances, on
performance of any of the terms and conditions of this Agreement shall not be
construed as a waiver or relinquishment of any rights granted hereunder or of
the future performance of any term, covenant, or condition, but the obligations
of the parties with respect thereto shall continue in full force and effect.
14. Entire Contract
---------------
This Agreement constitutes the entire Agreement among the parties and
supersedes all previous agreements or understandings, written or oral, between
the parties with respect to the subject matter set forth herein. The headings
of the sections of this Agreement are inserted for convenience only and shall
not constitute a part thereof or affect in any way the meaning or interpretation
of this Agreement. No amendments of or other changes to this Agreement shall be
valid unless signed by an authorized officer of each of the parties hereto.
15. Choice of Law
-------------
The internal laws of the Commonwealth of Massachusetts shall govern all
matters concerning validity, performance and interpretation of this Agreement.
21
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement in
triplicate on the day and year first written above.
John Hancock Mutual Life Insurance Company
By: ______________________________________
Title: ______________________________________
John Hancock Variable Life Insurance Company
By: ______________________________________
Title: ______________________________________
[Broker-Dealer Name]
By: ______________________________________
Title: ______________________________________
22
<PAGE>
MODIFIED GUARANTEED ANNUITY
APPENDIX A
Compensation Schedule
1. Base Commission
---------------
Broker-Dealer shall be paid compensation according to the following
schedule for premiums received and accepted by Hancock with respect to any
issued Contract subject to the Agreement of which this Appendix A forms a part.
[As used in this Appendix A, a premium "rolled over" ( a "rollover premium")
shall refer to a premium payment that is reinvested in the same or another
Guarantee Period (i) at the expiration of a current Guarantee Period or (ii)
pursuant to an exercise of an annual option to change a Guarantee Period, where
the duration of the new Guarantee Period is greater than the time remaining in
the current Guarantee Period. As used in this Appendix A, a premium "restarted"
(a "restart premium") shall refer to a premium payment received when, at the
expiration of a Guarantee Period, a Contract is exchanged for a new Contract
issued in its place at an interest rate that is higher than the Subsequent
Guarantee Rate which JHVLICO would otherwise provide. As used in this Appendix
A, the terms Guarantee Period and Subsequent Guarantee Rate have the same
meaning as ascribed to each in the Prospectus.]
<TABLE>
<CAPTION>
Annuitant Issue Age Initial Premiums [Rollover/Restart Premiums]
<S> <C> <C>
0-75% % % %
76-80% % % %
</TABLE>
2. Return of Commission (Chargebacks)
----------------------------------
2.1 In the event that any Contract is not issued, or is canceled because
of a dishonored premium check, or is fully canceled within any "Right to Cancel"
provision in the Contract, Hancock will deduct from any future payments due
under this Appendix A all compensation paid to Broker-Dealer with respect to
such Contract.
2.2 In the event that any Contract is fully or partially surrendered, and
any portion of such surrender is allocable under the policy form to any premium
received [,"rolled over" or "restarted"] during the twelve months immediately
preceding the date of full or partial surrender, Hancock will deduct, from any
future payments due under this Appendix A, 100% of all compensation paid to
Broker-Dealer with respect to such premiums received [, "rolled or" or
"restated"] during the twelve months immediately preceding the date of the full
or partial surrender.
Any payment of the death benefit required by the death of the Owner of the
Contract, if the owner is not the annuitant, shall be considered a full
surrender subject to
23
<PAGE>
the return of compensation provisions described above if any portion of such
death benefit is allocable under the policy form to any premium received [,
"rolled over" or "restarted"] during the twelve months preceding the date of
payment of such death benefit.
[Additionally, in the event that, pursuant to an exercise of an annual
option to change a Guarantee Period, a new Guarantee Period is selected that is
shorter than the time remaining in the current Guarantee Period, Hancock will
deduct, from any future payments due under this Appendix A, an amount equal to
_________________.]
2.3 No compensation shall be payable to Broker-Dealer with respect to any
issued Contract purchased with funds withdrawn from any Hancock annuity, life,
long term care, disability or mutual fund product. In the event that any
compensation is paid by Hancock for such a purchase, Broker-Dealer shall
promptly pay Hancock such compensation or Hancock shall have the right to deduct
said amount paid from any future payments due Broker-Dealer.
2.4 No compensation shall be payable in the event that Hancock rejects an
application.
2.5 No compensation shall be payable in the event that Hancock determines
that any person signing the related application or the person or entity
receiving such compensation for soliciting purchases of the Contracts is not
duly licensed to sell the Contracts in the state of such attempted sale and
registered or otherwise qualified under the 1934 Act and rules thereunder and
any applicable state laws and rules governing broker-dealers and their related
persons.
2.6 If the amount of any chargeback exceeds payments due to Broker-Dealer,
then Broker-Dealer shall promptly pay Hancock the amount of the excess following
Hancock's written request. Broker-Dealer is solely and ultimately responsible
for collection and payment of the chargeback to Hancock. If Broker-Dealer does
not pay the chargeback or excess in question to Hancock, then Hancock may deduct
such chargeback or excess from any payments otherwise due Broker-Dealer under
any other agreement it may have with Hancock and seek any remedies available by
law to collect any such chargeback where payment cannot be collected under this
Agreement.
3. Termination of Agreement
------------------------
If the Agreement to which this Appendix A forms a part terminates, no
further payments of any kind will be made to Broker-Dealer except with respect
to Contracts issued prior to the date of such termination. [Will Hancock
continue to pay any commissions on "rollovers", "restarts" or elections of new
Guarantee Periods of longer durations?]
24
<PAGE>
EXHIBIT 4(a)
[LOGO OF JOHN HANCOCK VARIABLE
LIFE INSURANCE COMPANY
APPEAR HERE] John Hancock Place
PO Box 717
Boston, Massachusetts 02117
JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY
(the "Company")
John Hancock Place
PO Box 717
Boston, Massachusetts 02117
CONTRACT HOLDER: [Declaration Insurance and Investors Trust]
ANNUITY CONTRACT NUMBER: [12345]
SINGLE PREMIUM MODIFIED GUARANTEE GROUP ANNUITY [00000]
John Hancock Variable Life Insurance Company will provide the benefits stated in
this contract. This contract is issued in consideration of the master
application for this contract and payment of the premium. A certificate
evidencing participation under this contract will be issued to each member of
the eligible group from whom we receive a fully completed enrollment application
and the required premium contribution.
If a certificate is in force under this contract on such certificate's Date of
Maturity, we will begin to pay an annuity to the Annuitant under such
certificate unless otherwise directed by the Participant. Each annuity payment
will be determined in accordance with the provisions of Section 14. Unless
another option offered in Section 15 is elected, annuity payments will be
payable for a guaranteed period of 10 years as long thereafter as the Annuitant
lives.
A Death Benefit, as stated in Section 13, will be payable if the Annuitant's
death occurs before the Date of Maturity and before the Surrender Date.
The Date of Issue of this group annuity contract is [November 1, 1995].
Signed for the Company at Boston, Massachusetts.
President Secretary
Single Premium Modified Guarantee Annuity - Annuity payable to the Annuitant
beginning on the Date of Maturity for a guaranteed period of 10 years and as
long thereafter as the Annuitant lives.
Nonparticipating - not eligible for dividends
Form MVABD96
<PAGE>
Contract Provisions Alphabetical Guide
------------------- ------------------
Section Section
1. Definitions 7. Annual Option to Change Guarantee Period
2. Interpretation of Contract 15. Annuity Payments
Provisions
3. The Participant and The 20. Assignment
Beneficiary
4. The Contract 19. Claims of Creditors
5. Interest on Premium 8. Continuation of Contract
6. Premium Taxes 14. Converting the Accumulated Value to
Annuity Payments
7. Annual Option to Change 13. Death Benefit
Guarantee Period
8. Continuation of Contract 1. Definitions
9. Withdrawals 10. Early Withdrawal Charge
10. Early Withdrawal Charge 5. Interest on Premium
11. Market Value Adjustment 2. Interpretation of Contract Provisions
12. Request and Payment of 11. Market Value Adjustment
Surrender Value
13. Death Benefit 18. Minimum Monthly Annuity Payment Rates
14. Converting the Accumulated 21. Miscellaneous
Value to Annuity Payments
15. Annuity Payments 17. Misstatement of Age or Sex
16. Proof of Age 6. Premium Taxes
17. Misstatement of Age or Sex 16. Proof of Age
18. Minimum Monthly Annuity 12. Request and Payment of Surrender Value
Payment Rates
19. Claims of Creditors 4. The Contract
20. Assignment 3. The Participant and The Beneficiary
21. Miscellaneous 9. Withdrawals
<PAGE>
- --------------------------------------------------------------------------------
1. DEFINITIONS
- --------------------------------------------------------------------------------
The following terms are commonly used throughout this group annuity contract and
the annuity certificates issued thereunder.
The term "Accumulated Value" during the Initial Guarantee Period means the
premium plus earned interest, less any withdrawals and applicable deduction for
contract fees and any applicable deduction for premium taxes or similar taxes.
The term "Accumulated Value" during any Subsequent Guarantee Period is equal to
the Accumulated Value as of the end of the preceding Guarantee Period, including
any Market Value Adjustments made, in accordance with section 11, plus earned
interest, less any withdrawals and applicable deduction for contract fees and
any applicable deduction for premium or similar taxes during such Guarantee
Period.
The term "Annuitant" means, for any given annuity certificate, the individual
designated as such in the application for the certificate.
The term "Beneficiary" is defined in Section 3.
The term "Certificate Year" means, for any given certificate, the 12 month
period following the Date of Issue and each 12 month period thereafter.
The term "Date of Issue" means, for any given certificate, the date shown in
Section 1 of the certificate.
The term "Date of Maturity" is the date annuity payments under the certificate
begin, in accordance with Section 14.
The term "Free Withdrawal Value" means, for any Certificate Year, an amount
totaling 10% of the Accumulated Value calculated as of the first day of the
Certificate Year, reduced by any prior withdrawals made during the Certificate
Year.
The term "In Force" means that the Annuitant is living and the Surrender Value
of the certificate has not become payable.
The term "Initial Guarantee Period" means the period of time beginning on the
Date of Issue. It continues for the period as elected in the application,
unless a new Guarantee Period has been elected in accordance with Section 7.
The term "Guarantee Period" refers to either the Initial Guarantee Period or any
Subsequent Guarantee Period.
The term "Last Valuation Date" means the earliest of the Date of Maturity, the
Surrender Date, and the date of the Annuitant's death.
The term "Market Value Adjustment" is defined in Section 11.
The term "Market Value Adjustment Factor" is defined in Section 11.
The term "Measuring Person" means the person on whose life annuity payments will
be based.
The term "Participant" is defined in Section 3.
The term "Subsequent Guarantee Period" shall mean the period of time beginning
on the first day following the expiry of the immediately preceding Guarantee
Period. A Subsequent Guarantee Period shall continue for the same duration as
the prior Guarantee Period, unless we are otherwise notified by the Participant
in accordance with Sections 7 and 8.
The term "Surrender Date" means the date we receive written notice from the
Participant requesting payment of the Surrender Value.
<PAGE>
The term "Surrender Value" means the Accumulated Value of the Participant's
certificate, less, if applicable, any certificate fees, any income taxes
withheld, any deduction for premium taxes or similar taxes, any early withdrawal
charge, and adjusted by any Market Value Adjustment.
The term "we", "us", and "our" refer to the Company.
The term "withdrawal" means, unless otherwise specified, the amount withdrawn
prior to any deductions or adjustments.
The term "written notice" means, unless otherwise stated, a notice in writing
satisfactory to us which is received at our Home Office in Boston,
Massachusetts.
<PAGE>
- --------------------------------------------------------------------------------
2. INTERPRETATION OF CONTRACT PROVISIONS
- --------------------------------------------------------------------------------
All section references appearing in this contract refer to sections of this
group annuity contract only.
Each of the provisions shall apply to each certificate issued by us under this
group annuity contract as if it were the only certificate issued.
- --------------------------------------------------------------------------------
3. THE PARTICIPANT AND THE BENEFICIARY
- --------------------------------------------------------------------------------
The participant and the beneficiary will be as shown in the application unless
the Participant changes them or they are changed by the terms of this provision.
With regard to joint Participants, at the first death of a joint Participant
prior to the Date of Maturity and prior to the Surrender Date, the Beneficiary
will be the surviving Participant notwithstanding that the designated
Beneficiary may be different.
If the Annuitant dies and there is no surviving Beneficiary, the Participant
will be the Beneficiary, but if the Participant was the Annuitant, then the
Participant's estate will be the Beneficiary.
The Participant has the sole and absolute power to exercise all rights and
privileges without the consent of any other person except as provided by this
group annuity contract or the certificate unless the Participant provides
otherwise by written notice.
While the Annuitant is alive, the Participant may change the Participant by
written notice. The Participant may change the Beneficiary by written notice no
later than our receipt of the required proof of the Annuitant's death. A change
will take effect when the notice is signed if we acknowledge receipt of the
notice at our Home Office. The change will take effect whether or not the
Participant or the Annuitant is then alive. A change shall be subject to the
rights of any assignee of record with us and subject to any payment made or
other action taken by us before we acknowledge receipt. Regarding joint
Participants, signatures of both joint Participants are required for any
transactions requiring written notification from a Participant.
- --------------------------------------------------------------------------------
4. THE CONTRACT
- --------------------------------------------------------------------------------
The entire contract between the contract holder and us consists of this group
annuity contract, the master application, the certificates issued under it and
all of the enrollment applications for such certificates. Either party, the
contract holder or us, may terminate the contract at any time without cause upon
30 days prior written notice.
Certificate years, certificate months, and certificate anniversaries are
measured from the Date of Issue of the particular certificate.
Only the President, Vice President, the Secretary, or an Assistant Secretary of
the Company has authority to waive or modify any of the conditions or provisions
of this group annuity contract or certificates issued under it.
- --------------------------------------------------------------------------------
5. INTEREST ON PREMIUM
- --------------------------------------------------------------------------------
Premium must be at least $5,000. Premium earns interest for as long as it
remains in the certificate beginning on the date it is credited. Interest will
be credited daily and will then earn interest from such date. During the
Initial Guarantee Period, the interest rate credited will be based upon our
declared initial interest rate then in effect and will apply throughout the
Initial Guarantee Period. During any Subsequent Guarantee Period, the interest
rate credited on any given day will be at least equal to our declared interest
rate then in effect for new certificates commencing at the expiry of the
immediately preceding Guarantee Period. All such declared interest rates will
be expressed on an annual effective basis. The interest credited on any given
day will be at a rate which, if compounded daily for one year, would equal the
applicable declared interest rate.
<PAGE>
- --------------------------------------------------------------------------------
6. PREMIUM TAXES
- --------------------------------------------------------------------------------
A deduction for a premium tax or a similar tax will be made from the Accumulated
Value at the time of annuitization. If we pay a tax on the premium at the time
such premium is paid, then we will deduct a charge for these taxes from the
Accumulated Value for the amount withdrawn or surrendered, at the time of
annuitization, death, surrender, or withdrawal.
- --------------------------------------------------------------------------------
7. ANNUAL OPTION TO CHANGE GUARANTEE PERIOD
- --------------------------------------------------------------------------------
Once each Certificate Year, the Participant may elect, by written notice, from
among those Guarantee Periods currently offered, a new Guarantee Period of a
different duration, provided that the Accumulated Value after such election is
at least $4,000. The Accumulated Value at the beginning of the new Guarantee
Period will be equal to (a) multiplied by (b), where:
(a) is equal to the Accumulated Value at the time of transfer; and
(b) is equal to the Market Value Adjustment Factor (as determined in
accordance with section 11), applicable at the time of transfer.
We reserve the right to charge a contract fee for any such change of Guarantee
Period by reducing the Accumulated Value at the beginning of the new Guarantee
Period by an amount not to exceed $50.
Early withdrawal charges, if any, (as determined in accordance with section 10)
under the new Guarantee Period, will continue to be measured from the Date of
Issue of the certificate.
- --------------------------------------------------------------------------------
8. CONTINUATION OF CONTRACT
- --------------------------------------------------------------------------------
Within 30 days prior to the end of any Guarantee Period, we will provide the
Participant with written notice of the expiry of any such Guarantee Period. At
the end of any Guarantee Period, a Subsequent Guarantee Period of the same
duration as the immediately preceding Guarantee Period, if available, will
commence. We reserve the right to change the duration of guarantee periods
offered. The effective date of the Subsequent Guarantee Period will be the
first day following the expiry of the immediately preceding Guarantee Period.
If the duration of the immediately preceding Guarantee Period is no longer
available, then the next closest Guarantee Period of greater duration will
become effective. The Participant may also elect, by written notice within 30
days prior to the expiry of such Guarantee Period, a Subsequent Guarantee Period
of a different duration from among those that are then available. Except as
otherwise provided, a Guarantee Period is not available if it extends beyond the
Annuitant's 85th birthday. Also, except as otherwise provided, if a new
Guarantee Period becomes effective that causes the contract to continue beyond
the Provisional Date of Maturity, then the Provisional Date of Maturity will
become the Annuitant's 85th birthday.
Early withdrawal charges, if any, (as determined in accordance with section 10)
under any Subsequent Guarantee Period, will continue to be measured from the
Date of Issue of the certificate.
6
<PAGE>
- --------------------------------------------------------------------------------
9. WITHDRAWALS
- --------------------------------------------------------------------------------
The Participant may make a withdrawal of less than the Surrender Value provided
that any such withdrawal is $500 or more and the Accumulated Value after the
withdrawal is $4000 or more. Upon written request, at any time during each
Certificate Year, the Participant may make a withdrawal of the Free Withdrawal
Value. If the Free Withdrawal Value is less than $500, then any written request
for the Free Withdrawal Value must be for the entire Free Withdrawal Value.
Prior to payment, the amount of any withdrawal will first be reduced by any
applicable income taxes, premium taxes, and similar taxes, and any applicable
early withdrawal charge, and then adjusted by any applicable Market Value
Adjustment (in accordance with section 11). The Free Withdrawal Value will not
be subject to an early withdrawal charge or a Market Value Adjustment.
A withdrawal will be effective on the date we receive written notice from the
Participant. The amount of any withdrawal will be deducted from the Accumulated
Value. To make a withdrawal that is to be effective on the last day of any
Guarantee Period, we must receive written notice from the Participant within 30
days prior to the expiry of such Guarantee Period.
We may defer payment of a withdrawal in the same manner as we may defer payment
of the Surrender Value, described in Section 12.
- --------------------------------------------------------------------------------
10. EARLY WITHDRAWAL CHARGE
- --------------------------------------------------------------------------------
During each Certificate Year the Participant may make withdrawals in an amount
not to exceed the Free Withdrawal Value without incurring an early withdrawal
charge. Prior to the last day of any Guarantee Period, withdrawals in excess of
the Free Withdrawal Value will be subject to an early withdrawal charge in
accordance with the table shown below. Withdrawals that occur on the last day
of any Guarantee Period will not be subject to an early withdrawal charge.
The charge (expressed as a percentage of the amount subject to the charge) is
shown below.
---------------------------------------------------
Years From Date of Issue Early Withdrawal
Charge
---------------------------------------------------
7 or more No Charge
---------------------------------------------------
6, but less than 7 1%
---------------------------------------------------
5, but less than 6 2%
---------------------------------------------------
4, but less than 5 3%
---------------------------------------------------
3, but less than 4 4%
---------------------------------------------------
2, but less than 3 5%
---------------------------------------------------
1, but less than 2 6%
---------------------------------------------------
Less than 1 Year 7%
---------------------------------------------------
A withdrawal, other than withdrawals made on the last day of any Guarantee
Period, will be deemed to have been "made" on the date we receive written
notice. For purposes of such determination, payment of the Surrender Value will
be deemed a withdrawal.
7
<PAGE>
- --------------------------------------------------------------------------------
11. MARKET VALUE ADJUSTMENT
- --------------------------------------------------------------------------------
During each Certificate Year, the Participant may make withdrawals in an amount
not to exceed the Free Withdrawal Value without incurring a Market Value
Adjustment. Prior to the last day of any Guarantee Period, withdrawals in
excess of the Free Withdrawal Value, reduced by any early withdrawal charge, if
applicable, will be adjusted up or down by the application of a Market Value
Adjustment.
The Market Value Adjustment is equal to A times (B - 1) where:
A is (i) any withdrawal in excess of the Free Withdrawal Value, less (ii) any
early withdrawal charge, if applicable, and
B is the Market Value Adjustment Factor below:
n
--
[ 1 + G ]12
[ ------- ]
[ 1+c+.005 ]
Where:
g = The guaranteed rate in effect for the current guarantee period
(expressed as a decimal).
c = The current rate (expressed as a decimal) in effect for durations
equal to the number of years remaining in the current Guarantee
Period (years rounded up to the nearest whole number). If not
available, the Company will declare a rate solely for this purpose
that is consistent with rates for durations that are currently
available.
n = The number of complete months from the date of withdrawal to the end
of the current Guarantee Period. (Where less than one complete month
remains, n will equal one unless a withdrawal is made on the last
day of the Guarantee Period at which time no adjustment will apply.)
The Market Value Adjustment may be positive or negative.
Withdrawals that occur on the last day of any Guarantee Period will not be
subject to a Market Value Adjustment.
- --------------------------------------------------------------------------------
12. REQUEST AND PAYMENT OF SURRENDER VALUE
- --------------------------------------------------------------------------------
Upon receipt of written notice from the Participant before the Annuitant's death
and the Date of Maturity, we will pay the Surrender Value.
The Surrender Value will be determined by us as of the date of receipt of
written notice. We may defer payment of a Surrender Value for the period
provided by law. We will not defer payment more than six months beyond the date
we receive written notice. If we defer payment for more than 30 days, we will
pay interest on the Surrender Value at a rate equal to the greater of (i) the
rate required by law; and (ii) the rate declared by us. Any Surrender Value
available under the certificate will not be less than the minimum value required
by statute of the state in which the certificate is delivered.
<PAGE>
- --------------------------------------------------------------------------------
13. DEATH BENEFIT
- --------------------------------------------------------------------------------
We will pay a Death Benefit to the Beneficiary if and when the Annuitant dies
before the Date of Maturity and before the Surrender Date, and we receive at our
Home Office proof satisfactory to us that such death has occurred. The Death
Benefit is the Accumulated Value as of the date of the Annuitant's death.
We will pay interest on proceeds in one sum in the event of the Annuitant's
death from the date of death to the date of payment. We will pay interest on
the proceeds at a rate equal to the greater of: (i) the rate required by law;
and (ii) the rate declared by us.
The Death Benefit available under the certificate will never be less than the
minimum benefit required by statute of the state in which the certificate is
delivered.
As an alternative to a single payment of the Death Benefit, an Accumulated Value
of $5,000 or more may be converted to annuity payments subject to Sections 14
and 15. If the Participant has not elected an annuity payment option before the
Annuitant's death, the Beneficiary may elect an option before the Death Benefit
is paid.
Notwithstanding any of the above, the following will apply upon the death of the
Participant, if the Accumulated Value has not already been converted into an
annuity:
(i) If the Beneficiary is the spouse of the Participant, the Beneficiary may
continue the certificate in force as Participant.
(ii) If the Beneficiary is not the spouse of the Participant, we will pay the
Death Benefit in full to the Beneficiary within 5 years of the
Participant's death or apply the Accumulated Value in full towards the
purchase of a life annuity on the Beneficiary with payments beginning
within 1 year of the Participant's death.
- --------------------------------------------------------------------------------
14. CONVERTING THE ACCUMULATED VALUE TO ANNUITY PAYMENTS
- --------------------------------------------------------------------------------
By written notice, the Participant may elect the Date of Maturity at any time
before the Provisional Date of Maturity, provided that the Date elected is (i)
no later than the Annuitant's 85th birthday, without our prior approval; (ii) at
least 31 days after our receipt of the written notice; and (iii) at least six
months after the date the premium was applied to the certificate. If no other
election is made, the Date of Maturity will be the Provisional Date of Maturity
shown in Section 1 of the certificate.
On the Date of Maturity or other date elected to begin annuity payments, we will
convert the Accumulated Value of the certificate adjusted by any Market Value
Adjustment, into annuity payments.
We will determine the annuity payments by: (i) dividing the adjusted Accumulated
Value by $1,000; and (ii) multiplying the result by the annuity payment rate
then in effect for the option elected in Section 15.
The annuity payment will never be less than that available by applying the
adjusted Accumulated Value to buy an immediate annuity offered by us. If the
annuity payments are made monthly, the annuity payment rate is guaranteed to be
at least that provided in the Monthly Annuity Payment Rate Table in Section 18.
9
<PAGE>
- --------------------------------------------------------------------------------
15. ANNUITY PAYMENTS
- --------------------------------------------------------------------------------
The following annuity payment options are available for each certificate under
this contract:
a. Life Annuity with a guaranteed period of 5, 10, or 20 years. Under this
option we will make payments for the guaranteed period elected, and as long
thereafter as the Measuring Person lives.
b. Life Annuity. Under this option, we will make payments throughout the
lifetime of the Measuring person. No further payments will be made after
the death of the Measuring Person.
c. Any other options which may be made available by us.
The Participant may choose an option by written notice before the Last Valuation
Date.
The "Life Annuity" and the "Life Annuity with a guaranteed period of 5 Years"
payment options are not available without our prior approval for a Measuring
Person older than age 85.
Only an Accumulated Value, as adjusted, of $5,000 or more may be applied to one
of the annuity payment options offered.
If the amount of the first annuity payment would be less than $50, we may make a
single payment on the date the first payment would have been payable in place of
all other benefits provided by the certificate. The single payment will be equal
to the Surrender Value, or in the case of the Participant's or Annuitant's
death, the Death Benefit.
While the Annuitant is living: (i) the Measuring Person will be the Annuitant;
and (ii) the payee will be the Annuitant unless otherwise directed by the
Participant.
If the Annuitant dies and the Death Benefit is used to provide annuity payments,
then: (i) the Measuring Person will be the Beneficiary; and (ii) the Payee will
be the Beneficiary unless we are otherwise instructed by the Beneficiary after
the Annuitant's death.
If the Participant of the certificate dies on or after annuity payments have
begun, any remaining benefit under such annuity on the date of the Participant's
death must be paid out at least as rapidly as under the method of making annuity
payments then in effect.
When annuity payments begin, we will issue a supplementary agreement for the
annuity option elected.
- --------------------------------------------------------------------------------
16. PROOF OF AGE
- --------------------------------------------------------------------------------
Before making the first annuity payment, we may require proof of the correct age
of the Measuring Person. We also have the right to require proof that the
Measuring Person is living on the date each annuity payment is made.
- --------------------------------------------------------------------------------
17. MISSTATEMENT OF AGE OR SEX
- --------------------------------------------------------------------------------
If the age or sex of the Measuring Person has been misstated, we will adjust the
amount of each annuity payment to reflect the correct age and sex. Any
overpayment will be repaid to us. If it is not repaid, we will deduct the
overpayment from future payments we make under the certificate. Any underpayment
will be added to future payments we make under the certificate. Interest on any
overpayment will be accrued at an annual rate of 6% to the date or dates of
settlement.
<PAGE>
- --------------------------------------------------------------------------------
18. MINIMUM MONTHLY ANNUITY PAYMENT RATES
- --------------------------------------------------------------------------------
The rates shown below are guaranteed minimum rates. The actual rates that we
will apply will be the greater of these guaranteed minimum rates and the current
rates in effect at the time annuity payments begin. Information regarding our
current rates is available upon request.
MONTHLY ANNUITY PAYMENT RATE TABLE
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Life Annuity with Guaranteed Period
-----------------------------------
Age of Measuring
Person on Birthday
Nearest Date of
First Payment 5 Years 10 Years 20 Years Life Annuity
------------- ------- -------- -------- ------------
<S> <C> <C> <C> <C>
55 4.25 4.22 4.11 4.25
56 4.33 4.30 4.17 4.34
57 4.41 4.38 4.23 4.42
58 4.50 4.47 4.30 4.52
59 4.60 4.56 4.37 4.61
60 4.70 4.66 4.44 4.72
61 4.81 4.76 4.51 4.83
62 4.93 4.86 4.58 4.95
63 5.05 4.98 4.65 5.07
64 5.18 5.10 4.72 5.21
65 5.32 5.22 4.79 5.35
66 5.47 5.36 4.86 5.51
67 5.63 5.50 4.93 5.67
68 5.80 5.65 5.00 5.85
69 5.98 5.80 5.06 6.04
70 6.18 5.96 5.12 6.25
71 6.39 6.14 5.18 6.47
72 6.62 6.31 5.23 6.71
73 6.86 6.50 5.28 6.97
74 7.12 6.69 5.32 7.26
75 7.39 6.89 5.35 7.56
76 7.69 7.09 5.39 7.90
77 8.01 7.29 5.41 8.26
78 8.34 7.49 5.43 8.65
79 8.69 7.69 5.45 9.07
80 9.07 7.89 5.47 9.53
81 9.46 8.08 5.48 10.03
82 9.87 8.26 5.49 10.57
83 10.30 8.43 5.49 11.16
84 10.74 8.59 5.50 11.79
85 and over 11.19 8.74 5.50 12.48
</TABLE>
Interest is at an annual rate of 3%.
<PAGE>
- --------------------------------------------------------------------------------
19. CLAIMS OF CREDITORS
- --------------------------------------------------------------------------------
The Accumulated Value and all payments under the certificate will be exempt from
the claims of creditors to the extent permitted by law.
- --------------------------------------------------------------------------------
20. ASSIGNMENT
- --------------------------------------------------------------------------------
The Participant may assign any or all of the Participant's interests in the
certificate, except as otherwise provided, without the consent of any person
other than an irrevocable Beneficiary.
We will be on notice of an assignment only when a duplicate of the original
assignment is received at our Home Office. We assume no responsibility for the
validity or sufficiency of an assignment.
If a certificate is issued as a tax-sheltered annuity, an individual retirement
annuity, or under a plan qualified under section 401(a) of the Internal Revenue
Code, it is subject to assignment restrictions for federal income tax purposes.
In this event, the certificate can not be sold, assigned, discounted, or pledged
as collateral for a loan or as security for the performance of an obligation or
for any other purpose to any person other than us.
- --------------------------------------------------------------------------------
21. MISCELLANEOUS
- --------------------------------------------------------------------------------
We will furnish the Participant with any reports required by law.
<PAGE>
Communications about this group annuity contract may be sent to:
John Hancock Variable Life Insurance Company
Annuity Service Center
PO Box 853
200 Clarendon Street
Boston, MA 02117
or to any Agency of the Company.
Single Premium Modified Guarantee Annuity -- Annuity payable to the Annuitant
beginning on the Date of Maturity for a guaranteed period of 10 years and as
long thereafter as the Annuitant lives.
Nonparticipating - not eligible for dividends
Form MVABD96 Printed in U.S.A.
<PAGE>
EXHIBIT 4(B)
[LOGO OF JOHN HANCOCK FINANCIAL SERVICES APPEARS HERE]
Variable Life Insurance Company John Hancock Place
Boston, Massachusetts 02117
ANNUITY CERTIFICATE NUMBER [ 0000000]
PARTICIPANT AT ISSUE [JOHN DOE] GROUP CONTRACT NUMBER [12345]
ANNUITANT [JOHN DOE]
GROUP ANNUITY CERTIFICATE
John Hancock Variable Life Insurance Company ("the Company") will provide the
benefits stated in this certificate. We are issuing this certificate in
consideration of the application and payment of the premium. The provisions on
this and the following pages make up your certificate.
If the certificate is in force on the Date of Maturity, we will begin to pay an
annuity to the Annuitant unless otherwise directed by the Participant. Each
annuity payment will be determined in accordance with the provisions of Section
14. Unless another option offered in Section 15 is elected, annuity payments
will be payable for a guaranteed period of 10 years as long thereafter as the
Annuitant lives.
A Death Benefit, as stated in Section 13, will be payable if the Annuitant's
death occurs before the Date of Maturity and before the Surrender Date.
Single Premium Modified Guarantee Annuity - Annuity payable to the Annuitant
beginning on the Date of Maturity for a guaranteed period of 10 years and as
long thereafter as the Annuitant lives.
Nonparticipating - not eligible for dividends
<PAGE>
<TABLE>
<CAPTION>
Policy Provisions Alphabetical Guide
----------------- ------------------
Section Section
<C> <S> <C> <C>
1. Certificate Specifications 7. Annual Option to Change Guarantee Period
2. Definitions 15. Annuity Payments
3. The Participant and The Beneficiary 20. Assignment
4. The Contract 1. Certificate Specifications
5. Interest on Premium 19. Claims of Creditors
6. Premium Taxes 8. Continuation of Contract
7. Annual Option to Change Guarantee Period 14. Converting the Accumulated Value to Annuity
Payments
8. Continuation of Contract 13. Death Benefit
9. Withdrawals 2. Definitions
10. Early Withdrawal Charge 10. Early Withdrawal Charge
11. Market Value Adjustment 5. Interest on Premium
12. Request and Payment of Surrender Value 11. Market Value Adjustment
13. Death Benefit 18. Minimum Monthly Annuity Payment Rates
14. Converting the Accumulated Value to 21. Miscellaneous
Annuity Payments
15. Annuity Payments 17. Misstatement of Age or Sex
16. Proof of Age 6. Premium Taxes
17. Misstatement of Age or Sex 16. Proof of Age
18. Minimum Monthly Annuity Payment Rates 12. Request and Payment of Surrender Value
19. Claims of Creditors 4. The Contract
20. Assignment 3. The Participant and The Beneficiary
21. Miscellaneous 9. Withdrawals
</TABLE>
2
<PAGE>
- --------------------------------------------------------------------------------
1. CERTIFICATE SPECIFICATIONS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
------------------------------------------------------
<S> <C>
Annuity Certificate Number 0000000
Group Annuity Contract Number 0000000
Date of Issue May 1, 1995
Provisional Date of Maturity May 1, 2012
------------------------------------------------------
</TABLE>
<TABLE>
<S> <C>
PARTICIPANT AT ISSUE John Doe
ANNUITANT John Doe
ISSUE AGE 45
</TABLE>
<TABLE>
<CAPTION>
- -----------------------------------------------------
<S> <C>
Premium Payment $30,000.00
Initial Interest Rate* 6.25%
Initial Guarantee Period X Certificate Years
- -----------------------------------------------------
</TABLE>
* This interest rate is guaranteed on the premium for the duration of the
Initial Guarantee Period.
3
<PAGE>
THIS PAGE INTENTIONALLY LEFT BLANK
4
<PAGE>
- --------------------------------------------------------------------------------
2. DEFINITIONS
- --------------------------------------------------------------------------------
The following terms are commonly used throughout this annuity certificate:
The term "Accumulated Value" during the Initial Guarantee Period means the
premium plus earned interest, less any withdrawals and applicable deduction for
contract fees and any applicable deduction for premium taxes or similar taxes.
The term "Accumulated Value" during any Subsequent Guarantee Period is equal to
the Accumulated Value as of the end of the preceding Guarantee Period, including
any Market Value Adjustments made, in accordance with section 11, plus earned
interest, less any withdrawals and applicable deduction for contract fees and
any applicable deduction for premium or similar taxes during such Guarantee
Period.
The term "Annuitant" means, for any given annuity certificate, the individual
designated as such in the application for the certificate.
The term "Beneficiary" is defined in Section 3.
The term "Certificate Year" means, for any given certificate, the 12 month
period following the Date of Issue and each 12 month period thereafter.
The term "Date of Issue" means, the date shown in Section 1.
The term "Date of Maturity" is the date annuity payments under the certificate
begin, in accordance with Section 14.
The term "Free Withdrawal Value" means, for any Certificate Year, an amount
totaling 10% of the Accumulated Value calculated as of the first day of the
Certificate Year, reduced by any prior withdrawals made during the Certificate
Year.
The term "In Force" means that the Annuitant is living and the Surrender Value
of the certificate has not become payable.
The term "Initial Guarantee Period" means the period of time beginning on the
Date of Issue. It continues for the period as elected in the application,
unless a new Guarantee Period has been elected in accordance with Section 7.
The term "Guarantee Period" refers to either the Initial Guarantee Period or any
Subsequent Guarantee Period.
The term "Last Valuation Date" means the earliest of the Date of Maturity, the
Surrender Date, and the date of the Annuitant's death.
The term "Market Value Adjustment" is defined in Section 11.
The term "Market Value Adjustment Factor" is defined in Section 11.
The term "Measuring Person" means the person on whose life annuity payments will
be based.
The term "Participant" is defined in Section 3.
The term "Subsequent Guarantee Period" shall mean the period of time beginning
on the first day following the expiry of the immediately preceding Guarantee
Period. A Subsequent Guarantee Period shall continue for the same duration as
the prior Guarantee Period, unless we are otherwise notified by you in
accordance with Sections 7 and 8.
The term "Surrender Date" means the date we receive your written notice
requesting payment of the Surrender Value.
5
<PAGE>
The term "Surrender Value" means the Accumulated Value of your certificate,
less, if applicable, any certificate fees, any income taxes withheld, any
deduction for premium taxes or similar taxes, any early withdrawal charge, and
adjusted by any Market Value Adjustment.
The term "we", "us", and "our" refer to the Company.
The term "withdrawal" means, unless otherwise specified, the amount withdrawn
prior to any deductions or adjustments.
The term "written notice" means, unless otherwise stated, a notice in writing
satisfactory to us which is received at our Home Office in Boston,
Massachusetts.
The terms "you" and "your" refer to the Participant of this certificate.
6
<PAGE>
- --------------------------------------------------------------------------------
3. THE PARTICIPANT AND THE BENEFICIARY
- --------------------------------------------------------------------------------
The participant and the beneficiary will be as shown in the application unless
you change them or they are changed by the terms of this provision. With regard
to joint Participants, at the first death of a joint Participant prior to the
Date of Maturity and prior to the Surrender Date, the Beneficiary will be the
surviving Participant notwithstanding that the designated Beneficiary may be
different.
If the Annuitant dies and there is no surviving Beneficiary, you will be the
Beneficiary, but if you were the Annuitant, your estate will be the Beneficiary.
You have the sole and absolute power to exercise all rights and privileges
without the consent of any other person except as provided by this certificate
or unless you provide otherwise by written notice.
While the Annuitant is alive, you may change the Participant by written notice.
You may change the Beneficiary by written notice no later than our receipt of
the required proof of the Annuitant's death. A change will take effect when the
notice is signed if we acknowledge receipt of the notice at our Home Office.
The change will take effect whether or not you or the Annuitant is then alive.
A change shall be subject to the rights of any assignee of record with us and
subject to any payment made or other action taken by us before we acknowledge
receipt. Regarding joint Participants, signatures of both joint Participants
are required for any transactions requiring written notification from a
Participant.
- --------------------------------------------------------------------------------
4. THE CONTRACT
- --------------------------------------------------------------------------------
The contract is an agreement between the contract owner and the Company. This
certificate is a summary of the Group Annuity Contract. The entire contract
consists of the Group Annuity Contract, this certificate, and the application, a
copy of which is attached.
Certificate years, certificate months, and certificate anniversaries are
measured from the Date of Issue of this certificate.
Only the President, a Vice President, the Secretary, or an Assistant Secretary
of the Company has authority to waive or modify any of the provisions of the
contract.
- --------------------------------------------------------------------------------
5. INTEREST ON PREMIUM
- --------------------------------------------------------------------------------
Premium must be at least $5,000. Premium earns interest for as long as it
remains in the certificate beginning on the date it is credited. Interest will
be credited daily and will then earn interest from such date. During the
Initial Guarantee Period, the interest rate credited will be based upon our
declared initial interest rate then in effect and will apply throughout the
Initial Guarantee Period. During any Subsequent Guarantee Period, the interest
rate credited on any given day will be at least equal to our declared interest
rate then in effect for new certificates commencing at the expiry of the
immediately preceding Guarantee Period. All such declared interest rates will
be expressed on an annual effective basis. The interest credited on any given
day will be at a rate which, if compounded daily for one year, would equal the
applicable declared interest rate.
- --------------------------------------------------------------------------------
6. PREMIUM TAXES
- --------------------------------------------------------------------------------
A deduction for a premium tax or a similar tax will be made from the Accumulated
Value at the time of annuitization. If we pay a tax on the premium at the time
such premium is paid, then we will deduct a charge for these taxes from the
Accumulated Value for the amount withdrawn or surrendered, at the time of
annuitization, death, surrender, or withdrawal.
7
<PAGE>
- --------------------------------------------------------------------------------
7. ANNUAL OPTION TO CHANGE GUARANTEE PERIOD
- --------------------------------------------------------------------------------
Once each Certificate Year, you may elect, by written notice, from among those
Guarantee Periods currently offered, a new Guarantee Period of a different
duration, provided that the Accumulated Value after such election is at least
$4,000. The Accumulated Value at the beginning of the new Guarantee Period will
be equal to (a) multiplied by (b), where:
(a) is equal to the Accumulated Value at the time of transfer; and
(b) is equal to the Market Value Adjustment Factor (as determined in
accordance with section 11), applicable at the time of transfer.
We reserve the right to charge a contract fee for any such change of Guarantee
Period by reducing the Accumulated Value at the beginning of the new Guarantee
Period by an amount not to exceed $50.
Early withdrawal charges, if any, (as determined in accordance with section 10)
under the new Guarantee Period, will continue to be measured from the Date of
Issue of this certificate.
- --------------------------------------------------------------------------------
8. CONTINUATION OF CONTRACT
- --------------------------------------------------------------------------------
Within 30 days prior to the end of any Guarantee Period, we will provide you
with written notice of the expiry of any such Guarantee Period. At the end of
any Guarantee Period, a Subsequent Guarantee Period of the same duration as the
immediately preceding Guarantee Period, if available, will commence. We reserve
the right to change the duration of guarantee periods offered. The effective
date of the Subsequent Guarantee Period will be the first day following the
expiry of the immediately preceding Guarantee Period. If the duration of the
immediately preceding Guarantee Period is no longer available, then the next
closest Guarantee Period of greater duration will become effective. You may also
elect, by written notice within 30 days prior to the expiry of such Guarantee
Period, a Subsequent Guarantee Period of a different duration from among those
that are then available. Except as otherwise provided, a Guarantee Period is
not available if it extends beyond the Annuitant's 85th birthday. Also, except
as otherwise provided, if a new Guarantee Period becomes effective that causes
the contract to continue beyond the Provisional Date of Maturity, then the
Provisional Date of Maturity will become the Annuitant's 85th birthday.
Early withdrawal charges, if any, (as determined in accordance with section 10)
under any Subsequent Guarantee Period, will continue to be measured from the
Date of Issue of this certificate.
- --------------------------------------------------------------------------------
9. WITHDRAWALS
- --------------------------------------------------------------------------------
You may make a withdrawal of less than the Surrender Value provided that any
such withdrawal is $500 or more and the Accumulated Value after the withdrawal
is $4000 or more. Upon written request, at any time during each Certificate
Year, you may make a withdrawal of the Free Withdrawal Value. If the Free
Withdrawal Value is less than $500, then any written request for the Free
Withdrawal Value must be for the entire Free Withdrawal Value.
Prior to payment, the amount of any withdrawal will first be reduced by any
applicable income taxes, premium taxes, and similar taxes, and any applicable
early withdrawal charge, and then adjusted by any applicable Market Value
Adjustment (in accordance with section 11). The Free Withdrawal Value will not
be subject to an early withdrawal charge or a Market Value Adjustment.
8
<PAGE>
A withdrawal will be effective on the date we receive your written notice. The
amount of any withdrawal will be deducted from the Accumulated Value. To make a
withdrawal that is to be effective on the last day of any Guarantee Period, we
must receive written notice from you within 30 days prior to the expiry of such
Guarantee Period.
We may defer payment of a withdrawal in the same manner as we may defer payment
of the Surrender Value, described in Section 12.
- --------------------------------------------------------------------------------
10. EARLY WITHDRAWAL CHARGE
- --------------------------------------------------------------------------------
During each Certificate Year you may make withdrawals in an amount not to exceed
the Free Withdrawal Value without incurring an early withdrawal charge. Prior
to the last day of any Guarantee Period, withdrawals in excess of the Free
Withdrawal Value will be subject to an early withdrawal charge in accordance
with the table shown below. Withdrawals that occur on the last day of any
Guarantee Period will not be subject to an early withdrawal charge.
The charge (expressed as a percentage of the amount subject to the charge) is
shown below.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------
Years From Date of Issue Early Withdrawal Charge
- ------------------------------------------------------------------------------
7 or more No Charge
- ------------------------------------------------------------------------------
<S> <C>
6, but less than 7 1%
- ------------------------------------------------------------------------------
5, but less than 6 2%
- ------------------------------------------------------------------------------
4, but less than 5 3%
- ------------------------------------------------------------------------------
3, but less than 4 4%
- ------------------------------------------------------------------------------
2, but less than 3 5%
- ------------------------------------------------------------------------------
1, but less than 2 6%
- ------------------------------------------------------------------------------
Less than 1 Year 7%
- ------------------------------------------------------------------------------
</TABLE>
A withdrawal, other than withdrawals made on the last day of any Guarantee
Period, will be deemed to have been "made" on the date we receive written
notice. For purposes of such determination, payment of the Surrender Value will
be deemed a withdrawal.
9
<PAGE>
- --------------------------------------------------------------------------------
11. MARKET VALUE ADJUSTMENT
- --------------------------------------------------------------------------------
During each Certificate Year, you may make withdrawals in an amount not to
exceed the Free Withdrawal Value without incurring a Market Value Adjustment.
Prior to the last day of any Guarantee Period, withdrawals in excess of the Free
Withdrawal Value, reduced by any early withdrawal charge, if applicable, will be
adjusted up or down by the application of a Market Value Adjustment.
The Market Value Adjustment is equal to A times (B - 1) where:
A is (i) any withdrawal in excess of the Free Withdrawal Value, less (ii) any
early withdrawal charge, if applicable, and
B is the Market Value Adjustment Factor below:
/n/
[ 1 + g ]----
[--------------]/12/
[ 1 + c + .005 ]
Where:
g = The guaranteed rate in effect for the current guarantee period
(expressed as a decimal).
c = The current rate (expressed as a decimal) in effect for durations
equal to the number of years remaining in the current Guarantee
Period (years rounded up to the nearest whole number). If not
available, the Company will declare a rate solely for this purpose
that is consistent with rates for durations that are currently
available.
n = The number of complete months from the date of withdrawal to the end
of the current Guarantee Period. (Where less than one complete month
remains, n will equal one unless a withdrawal is made on the last
day of the Guarantee Period at which time no adjustment will apply.)
The Market Value Adjustment may be positive or negative.
Withdrawals that occur on the last day of any Guarantee Period will not be
subject to a Market Value Adjustment.
- --------------------------------------------------------------------------------
12. REQUEST AND PAYMENT OF SURRENDER VALUE
- --------------------------------------------------------------------------------
Upon receipt of written notice from you before the Annuitant's death and the
Date of Maturity, we will pay the Surrender Value.
The Surrender Value will be determined by us as of the date of receipt of
written notice. We may defer payment of a Surrender Value for the period
provided by law. We will not defer payment more than six months beyond the date
we receive written notice. If we defer payment for more than 30 days, we will
pay interest on the Surrender Value at a rate equal to the greater of (i) the
rate required by law; and (ii) the rate declared by us. Any Surrender Value
available under this certificate will not be less than the minimum value
required by statute of the state in which the certificate is delivered.
10
<PAGE>
- --------------------------------------------------------------------------------
13. DEATH BENEFIT
- --------------------------------------------------------------------------------
We will pay a Death Benefit to the Beneficiary if and when the Annuitant dies
before the Date of Maturity and before the Surrender Date, and we receive at our
Home Office proof satisfactory to us that such death has occurred. The Death
Benefit is the Accumulated Value as of the date of the Annuitant's death.
We will pay interest on proceeds in one sum in the event of the Annuitant's
death from the date of death to the date of payment. We will pay interest on
the proceeds at a rate equal to the greater of: (i) the rate required by law;
and (ii) the rate declared by us.
The Death Benefit available under the certificate will never be less than the
minimum benefit required by statute of the state in which the certificate is
delivered.
As an alternative to a single payment of the Death Benefit, an Accumulated Value
of $5,000 or more may be converted to annuity payments subject to Sections 14
and 15. If you have not elected an annuity payment option before the
Annuitant's death, the Beneficiary may elect an option before the Death Benefit
is paid.
Notwithstanding any of the above, the following will apply upon the death of the
Participant, if the Accumulated Value has not already been converted into an
annuity:
(i) If the Beneficiary is the spouse of the Participant, the Beneficiary may
continue the certificate in force as Participant.
(ii) If the Beneficiary is not the spouse of the Participant, we will pay the
Death Benefit in full to the Beneficiary within 5 years of the
Participant's death or apply the Accumulated Value in full towards the
purchase of a life annuity on the Beneficiary with payments beginning
within 1 year of the Participant's death.
- --------------------------------------------------------------------------------
14. CONVERTING THE ACCUMULATED VALUE TO ANNUITY PAYMENTS
- --------------------------------------------------------------------------------
By written notice, the Participant may elect the Date of Maturity at any time
before the Provisional Date of Maturity, provided that the Date elected is (i)
no later than the Annuitant's 85th birthday, without our prior approval; (ii) at
least 31 days after our receipt of the written notice; and (iii) at least six
months after the date the premium was applied to the certificate. If no other
election is made, the Date of Maturity will be the Provisional Date of Maturity
shown in Section 1.
On the Date of Maturity or other date elected to begin annuity payments, we will
convert the Accumulated Value of the certificate adjusted by any Market Value
Adjustment, into annuity payments.
We will determine the annuity payments by: (i) dividing the adjusted Accumulated
Value by $1,000; and (ii) multiplying the result by the annuity payment rate
then in effect for the option elected in Section 15.
The annuity payment will never be less than that available by applying the
adjusted Accumulated Value to buy an immediate annuity offered by us. If the
annuity payments are made monthly, the annuity payment rate is guaranteed to be
at least that provided in the Monthly Annuity Payment Rate Table in Section 18.
11
<PAGE>
- --------------------------------------------------------------------------------
15. ANNUITY PAYMENTS
- --------------------------------------------------------------------------------
The following annuity payment options are available under this certificate:
a. Life Annuity with a guaranteed period of 5, 10, or 20 years. Under this
option we will make payments for the guaranteed period elected, and as long
thereafter as the Measuring Person lives.
b. Life Annuity. Under this option, we will make payments throughout the
lifetime of the Measuring person. No further payments will be made after the
death of the Measuring Person.
c. Any other options which may be made available by us.
You may choose an option by written notice before the Last Valuation Date.
The "Life Annuity" and the "Life Annuity with a guaranteed period of 5 Years"
payment options are not available without our prior approval for a Measuring
Person older than age 85.
Only an Accumulated Value, as adjusted, of $5,000 or more may be applied to one
of the annuity payment options offered.
If the amount of the first annuity payment would be less than $50, we may make a
single payment on the date the first payment would have been payable in place of
all other benefits provided by this certificate. The single payment will be
equal to the Surrender Value, or in the case of the Participant's or Annuitant's
death, the Death Benefit.
While the Annuitant is living: (i) the Measuring Person will be the Annuitant;
and (ii) the payee will be the Annuitant unless otherwise directed by you.
If the Annuitant dies and the Death Benefit is used to provide annuity payments,
then: (i) the Measuring Person will be the Beneficiary; and (ii) the Payee will
be the Beneficiary unless we are otherwise instructed by the Beneficiary after
the Annuitant's death.
If the Participant of this certificate dies on or after annuity payments have
begun, any remaining benefit under such annuity on the date of the Participant's
death must be paid out at least as rapidly as under the method of making annuity
payments then in effect.
When annuity payments begin, we will issue a supplementary agreement for the
annuity option elected.
- --------------------------------------------------------------------------------
16. PROOF OF AGE
- --------------------------------------------------------------------------------
Before making the first annuity payment, we may require proof of the correct
age of the Measuring Person. We also have the right to require proof that the
Measuring Person is living on the date each annuity payment is made.
- --------------------------------------------------------------------------------
17. MISSTATEMENT OF AGE OR SEX
- --------------------------------------------------------------------------------
If the age or sex of the Measuring Person has been misstated, we will adjust the
amount of each annuity payment to reflect the correct age and sex. Any
overpayment will be repaid to us. If it is not repaid, we will deduct the
overpayment from future payments we make under the certificate. Any underpayment
will be added to future payments we make under the certificate. Interest on any
overpayment will be accrued at an annual rate of 6% to the date or dates of
settlement.
12
<PAGE>
- --------------------------------------------------------------------------------
18. MINIMUM MONTHLY ANNUITY PAYMENT RATES
- --------------------------------------------------------------------------------
The rates shown below are guaranteed minimum rates. The actual rates that we
will apply will be the greater of these guaranteed minimum rates and the current
rates in effect at the time annuity payments begin. Information regarding our
current rates is available upon request.
MONTHLY ANNUITY PAYMENT RATE TABLE
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Life Annuity with Guaranteed Period
-----------------------------------
Age of Measuring
Person on Birthday
Nearest Date of
First Payment 5 Years 10 Years 20 Years Life Annuity
------------- ------- -------- -------- ------------
<S> <C> <C> <C> <C>
55 4.25 4.22 4.11 4.25
56 4.33 4.30 4.17 4.34
57 4.41 4.38 4.23 4.42
58 4.50 4.47 4.30 4.52
59 4.60 4.56 4.37 4.61
60 4.70 4.66 4.44 4.72
61 4.81 4.76 4.51 4.83
62 4.93 4.86 4.58 4.95
63 5.05 4.98 4.65 5.07
64 5.18 5.10 4.72 5.21
65 5.32 5.22 4.79 5.35
66 5.47 5.36 4.86 5.51
67 5.63 5.50 4.93 5.67
68 5.80 5.65 5.00 5.85
69 5.98 5.80 5.06 6.04
70 6.18 5.96 5.12 6.25
71 6.39 6.14 5.18 6.47
72 6.62 6.31 5.23 6.71
73 6.86 6.50 5.28 6.97
74 7.12 6.69 5.32 7.26
75 7.39 6.89 5.35 7.56
76 7.69 7.09 5.39 7.90
77 8.01 7.29 5.41 8.26
78 8.34 7.49 5.43 8.65
79 8.69 7.69 5.45 9.07
80 9.07 7.89 5.47 9.53
81 9.46 8.08 5.48 10.03
82 9.87 8.26 5.49 10.57
83 10.30 8.43 5.49 11.16
84 10.74 8.59 5.50 11.79
85 and over 11.19 8.74 5.50 12.48
</TABLE>
Interest is at an annual rate of 3%.
13
<PAGE>
- --------------------------------------------------------------------------------
19. CLAIMS OF CREDITORS
- --------------------------------------------------------------------------------
The Accumulated Value and all payments under the certificate will be exempt from
the claims of creditors to the extent permitted by law.
- --------------------------------------------------------------------------------
20. ASSIGNMENT
- --------------------------------------------------------------------------------
You may assign any or all of your interests in this certificate, except as
otherwise provided, without the consent of any person other than an irrevocable
Beneficiary.
We will be on notice of an assignment only when a duplicate of the original
assignment is received at our Home Office. We assume no responsibility for the
validity or sufficiency of an assignment.
If this certificate is issued as a tax-sheltered annuity, an individual
retirement annuity, or under a plan qualified under section 401(a) of the
Internal Revenue Code, it is subject to assignment restrictions for federal
income tax purposes. In this event, the certificate can not be sold, assigned,
discounted, or pledged as collateral for a loan or as security for the
performance of an obligation or for any other purpose to any person other than
us.
- --------------------------------------------------------------------------------
21. MISCELLANEOUS
- --------------------------------------------------------------------------------
We will furnish you with any reports required by law.
14
<PAGE>
Communications about this annuity certificate may be sent to:
John Hancock Variable Life Insurance Company
Annuity Service Center
P.O. Box 853
200 Clarendon Street
Boston, MA 02117
or to any Agency of the Company.
Single Premium Modified Guarantee Annuity -- Annuity payable to the Annuitant
beginning on the Date of Maturity for a guaranteed period of 10 years and as
long thereafter as the Annuitant lives.
Nonparticipating - not eligible for dividends
VBP96M Printed in U.S.A.
<PAGE>
- --------------------------------------------------------------------------------
============ Application for Market Value Adjusted Annuity
ANNUITIES John Hancock Variable LIfe Insurance Company
- ------------ John Hancock Place, P.O. Box 853, Boston, MA 02117
John Hancock Group Contract Number_____________
============ ------------------------------------------------------------------
Participant
_______________________ _________/______/_________ _____/____/____ [_]Male
Name Social Security No./Tax ID Date of Birth [_]Female
______________________________________________________________________
Street City State Zip Code
- --------------------------------------------------------------------------------
Joint Participant (spouse only)
_______________________ _________/______/_________ _____/____/____ [_]Male
Name Social Security No./Tax ID Date of Birth [_]Female
______________________________________________________________________
Street City State Zip Code
- --------------------------------------------------------------------------------
Annuitant (if other than Participant)
_______________________ _________/______/_________ _____/____/____ [_]Male
Name Social Security No./Tax ID Date of Birth [_]Female
______________________________________________________________________
Street City State Zip Code
- --------------------------------------------------------------------------------
Beneficiary Relationship Provisional Date of Maturity:
Guarantee Period ending
prior to the Annultant's
[_] 85th Birthday (Non-Qualified)
[_] 70th Birthday (Qualified)
[_] Other age ___________
- --------------------------------------------------------------------------------
Certificate Provisions *Initial Guarantee Period: [_] 7 Years
Premium Payment $______________ [_] 3 Years [_] 8 Years
[_] 5 Years [_] 9 Years
Initial Interest Rate_______% [_] 6 Years [_] 10 Years
[_] Other _____________________
Effective Date ____/____/____ *all guarantee periods subject to
availability
- --------------------------------------------------------------------------------
Tax Qualified Plans Special Requests
[_] IRA [_] Direct Transfer
[_] Rollover [_] Other
- --------------------------------------------------------------------------------
Will the Annuity applied for replace or change any [_]Yes [_]No
existing annuity or life insurance?
If yes, Issuer_______________ Contract Type____________ Contract Number_________
[_]1035 Exchange (please submit cost basis information)
Have you purchased another John Hancock
annuity during the previous 12 months? [_]Yes [_]No
[_] Receipt of a Prospectus is hereby acknowledged. If not checked, a prospectus
will be mailed to you.
Any person who, with intent to defraud or knowing that he is facilitating a
fraud against an issuer, submits an application or files a claim containing a
false or deceptive statement is guilty of insurance fraud.
I hereby represent my answers to the above questions to be true and correct to
the best of my knowledge and belief.
Amounts payable under the certificate may be subject to a market value
adjustment.
Signatures
------------------------------- -----------------------------------
Joint Participant, if any
Signed at:
------------------------------- -------------------------
Annuitant, if other Participant City State
------------------------------- -----------------------------------
Registered Representative Date
- --------------------------------------------------------------------------------
Registered Representative
Is the annuity applied for intended to replace or change any existing annuity or
life insurance? [_] Yes [_] No
Broker/Dealer___________________________________________ Agency Code___________
Registered Representative Name__________________________ Number________________
- --------------------------------------------------------------------------------
Form 156-MVA-96
<PAGE>
EXHIBIT 5
[John Hancock Mutual Life Insurance Company Letterhead]
JUNE 29, 1996
Board of Directors
John Hancock Variable Life Insurance Company
Re: John Hancock Variable Life Insurance Company
Registration Statement on Form S-1
----------------------------------
Dear Directors:
In my capacity as Counsel of John Hancock Variable Life Insurance
Company (the "Company"), I have represented the Company in connection with its
development of deferred annuities of a type which contemplates fixed benefits,
subject to a market value adjustment. I have participated in the preparation of
the Registration Statement on Form S-1 to be filed by the Company with the
Securities and Exchange Commission under the Securities Act of 1933 for the
registration of interests in these deferred annuity contracts to be issued by
the Company on an individual and group basis (the "Registration Statements").
I am of the following opinion: the Company is a corporation duly
organized and validly existing under the laws of the Commonwealth of
Massachusetts and the interests in the deferred annuity contracts, when issued
as contemplated in the Registration Statement, will be legal and binding
obligations of the Company in accordance with the terms of the deferred annuity
contracts.
In arriving at the forgoing opinion, I have reviewed the Registration
Statement on Form S-1, including the prospectus, and relevant proceedings of the
Board of Directors.
I hereby consent to the filing of my opinion as a exhibit to the
Registration Statement.
Very truly yours,
/s/ Sandra M. DaDalt, Esq.
--------------------------
Sandra M. DaDalt, Esq.
Counsel
<PAGE>
EXHIBIT 23(a)
Consent of Independent Auditors
We consent to the reference to our firm under the caption "Experts" and to the
use of our report dated February 7, 1996, in Amendment No. 1 to the Registration
Statement (Form S-1 No. 33-62895) and the related Prospectus of John Hancock
Variable Life Insurance Company.
/s/ ERNST & YOUNG
Boston, Massachusetts
June 21, 1996
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 7
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM STATEMENTS
OF FINANCIAL POSITION STATEMENTS OF OPERATIONS AND UNASSIGNED DEFICIT AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C> <C>
<PERIOD-TYPE> 3-MOS YEAR
<FISCAL-YEAR-END> DEC-31-1996 DEC-31-1995
<PERIOD-START> JAN-01-1996 JAN-01-1995
<PERIOD-END> MAR-31-1996 DEC-31-1995
<DEBT-HELD-FOR-SALE> 601,955,739 552,783,491
<DEBT-CARRYING-VALUE> 0 0
<DEBT-MARKET-VALUE> 0 0
<EQUITIES> 6,436,330 6,692,979
<MORTGAGE> 154,500,550 146,730,102
<REAL-ESTATE> 36,433,160 36,381,549
<TOTAL-INVEST> 799,325,779 742,588,121
<CASH> 48,439,623 76,623,174
<RECOVER-REINSURE> 0 0
<DEFERRED-ACQUISITION> 0 0
<TOTAL-ASSETS> 3,626,030,209 3,446,285,957
<POLICY-LOSSES> 0 0
<UNEARNED-PREMIUMS> 0 0
<POLICY-OTHER> 678,507,978 671,135,547
<POLICY-HOLDER-FUNDS> 0 0
<NOTES-PAYABLE> 0 0
0 0
5,030,000 5,030,000
<COMMON> 1,406,330 1,662,979
<OTHER-SE> 0 0
<TOTAL-LIABILITY-AND-EQUITY> 3,626,030,209 3,446,285,957
113,823,714 453,853,570
<INVESTMENT-INCOME> 17,821,652 62,111,216
<INVESTMENT-GAINS> (2,368) 561,845
<OTHER-INCOME> 87,650,044 202,905,077
<BENEFITS> 204,828,153 646,890,183
<UNDERWRITING-AMORTIZATION> 0 0
<UNDERWRITING-OTHER> 0 0
<INCOME-PRETAX> 12,026,843 60,023,019
<INCOME-TAX> 8,069,665 28,397,605
<INCOME-CONTINUING> 3,957,178 31,625,414
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 3,957,178 31,625,414
<EPS-PRIMARY> 0 0
<EPS-DILUTED> 0 0
<RESERVE-OPEN> 0 0
<PROVISION-CURRENT> 0 0
<PROVISION-PRIOR> 0 0
<PAYMENTS-CURRENT> 0 0
<PAYMENTS-PRIOR> 0 0
<RESERVE-CLOSE> 0 0
<CUMULATIVE-DEFICIENCY> 0 0
</TABLE>
