<PAGE>
File Nos. 33-82646 and 811-5140
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
[_]
PRE-EFFECTIVE AMENDMENT NO. [_]
[X]
POST-EFFECTIVE AMENDMENT NO. 5
AND/OR
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
[X]
AMENDMENT NO. 18
(CHECK APPROPRIATE BOX OR BOXES.)
JOHN HANCOCK VARIABLE ANNUITY ACCOUNT V
(EXACT NAME OF REGISTRANT)
JOHN HANCOCK MUTUAL LIFE INSURANCE COMPANY
(NAME OF DEPOSITOR)
JOHN HANCOCK PLACE, BOSTON, MA 02117
(ADDRESS OF DEPOSITOR'S PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
DEPOSITOR'S TELEPHONE NUMBER, INCLUDING AREA CODE: (617) 572-5060
SANDRA M. DADALT, ESQUIRE
JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY
JOHN HANCOCK PLACE
BOSTON, MA 02217
(NAME AND ADDRESS OF AGENT FOR SERVICE)
It is proposed that this filing become effective (check appropriate box)
[_] immediately upon filing pursuant to paragraph (b) of Rule 485
[X] on May 1, 1998 pursuant to paragraph (b) of Rule 485
[_] 60 days after filing pursuant to paragraph (a)(1) of Rule 485
[_] on (date) pursuant to paragraph (a)(1) of Rule 485
If appropriate check the following box
[_] this post-effective amendment designates a new effective date for a
previously filed post-effective amendment
Pursuant to the provisions of Rule 24f-2, Registrant has registered an
indefinite amount of the securities being offered.
================================================================================
<PAGE>
<PAGE>
JOHN HANCOCK VARIABLE ANNUITY ACCOUNT V
CROSS REFERENCE SHEET
<TABLE>
<CAPTION>
FORM N-4 ITEM NO. SECTION IN PROSPECTUS
----------------- ---------------------
<C> <S> <C>
1. Cover Page................... Cover Page
2. Definitions.................. Special Terms; Variable Account Valuation
Procedures
3. Synopsis or Highlights....... Summary Information
4. Condensed Financial
Information................. Not Available
5. General Description of
Registrant, Depositor and
Portfolio Companies......... John Hancock, The Account and the Series
Fund; Voting Privileges
6. Deductions................... Charges Variable Annuity Contracts
7. General Description of
Variable Annuity Contracts.. The Contracts; The Accumulation Period; The
Annuity Period; Miscellaneous Provisions;
Changes in Applicable Law-Funding and
Otherwise
8. Annuity Period............... The Annuity Period
9. Death Benefit................ The Accumulation Period; The Annuity Period
10. Purchases and Contract
Values...................... The Contracts; The Accumulation Period;
Variable Account Valuation Procedures;
Performance
11. Redemptions.................. The Accumulation Period; Miscellaneous
Provisions
12. Taxes........................ Federal Income Taxes
13. Legal Proceedings............ Not Applicable
14. Table of Contents of
Statement of
Additional Information...... Table of Contents of Statement of
Additional Information
</TABLE>
<PAGE>
[LOGO OF JOHN HANCOCK APPEARS HERE]
Mutual Life
Insurance Company
INDIVIDUAL COMBINATION FIXED/VARIABLE ANNUITY CONTRACTS
JOHN HANCOCK VARIABLE ANNUITY ACCOUNT V
JOHN HANCOCK SERVICING OFFICE
P.O. Box 111 Boston, Massachusetts 02117
TELEPHONE 800 REAL LIFE (800-732-5543) FAX 617-886-3048
PROSPECTUS MAY 1, 1998
The individual deferred annuity contracts ("Contracts") described in this
prospectus can be funded, at the discretion of the Owner by, at any one time, up
to ten of the twenty-three subaccounts of John Hancock Variable Annuity Account
V ("Account"), a fixed annuity account (the "Fixed Account"), or a combination
of the Fixed Account and up to nine of the subaccounts. The assets of each
subaccount will be invested in a corresponding Portfolio of John Hancock
Variable Series Trust I ("Fund"), a "series type" mutual fund advised by John
Hancock Mutual Life Insurance Company ("John Hancock"). The Fixed Account is a
part of the general account of John Hancock.
This prospectus sets forth concisely information about the Account that a
prospective investor ought to know before investing. A statement of additional
information for the Account, dated May 1, 1998, has been filed with the
Securities and Exchange Commission ("Commission") and is incorporated herein by
reference. This statement, the table of contents of which appears at page 37 of
this prospectus, is available upon request and without charge from John Hancock
at the address or telephone number above.
Only the variable features of the Contracts are described in this prospectus.
For a summary of the fixed features, see "Appendix--The Fixed Account and Fixed
Account Value".
For additional information pertaining to the purchase of a Contract as an
Individual Retirement Annuity, see "Appendix--Variable Annuity Information for
Individual Retirement Annuities".
The prospectus for the Fund, which is attached to this prospectus, describes
the investment objectives, policies and risks of investing in the Portfolios of
the Fund: Managed, Growth & Income, Equity Index, Large Cap Value, Large Cap
Growth, Mid Cap Value, Mid Cap Growth, Diversified Mid Cap Growth (formerly,
Special Opportunities), Real Estate Equity, Small/Mid Cap CORE, Small Cap Value,
Small Cap Growth, Global Equity, International Balanced, International Equity
Index (formerly, International Equities), International Opportunities, Emerging
Markets Equity, Short-Term Bond (formerly, Short-Term U.S. Government), Bond
Index, Sovereign Bond, Strategic Bond, High Yield Bond, and Money Market. (The
Small/Mid Cap CORE, Global Equity, Emerging Markets Equity, Bond Index, and High
Yield Bond Portfolios are not currently available to Owners but are expected to
be made available later in 1998.)
THIS PROSPECTUS SHOULD BE READ AND RETAINED FOR FUTURE REFERENCE.
IT IS NOT VALID UNLESS ATTACHED TO A CURRENT PROSPECTUS FOR THE FUND.
THE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
SYNOPSIS OF EXPENSE INFORMATION . . . . . . . . . . . . . . . . 4
SPECIAL TERMS . . . . . . . . . . . . . . . . . . . . . . . . . 7
SUMMARY INFORMATION . . . . . . . . . . . . . . . . . . . . . . 8
THE VARIABLE ANNUITY . . . . . . . . . . . . . . . . . . . . . . 12
JOHN HANCOCK, THE ACCOUNT AND THE SERIES FUND . . . . . . . . . 12
CHARGES UNDER VARIABLE ANNUITY CONTRACTS . . . . . . . . . . . . 16
Charges For Mortality And Expense Risks . . . . . . . . . . . 16
Charges for Administrative Services . . . . . . . . . . . . . 16
Withdrawal Charge . . . . . . . . . . . . . . . . . . . . . . 16
Nursing Home Waiver . . . . . . . . . . . . . . . . . . . . . 18
Variations in Charges . . . . . . . . . . . . . . . . . . . . 18
Premium or Similar Taxes . . . . . . . . . . . . . . . . . . . 18
THE CONTRACTS . . . . . . . . . . . . . . . . . . . . . . . . . 20
Purchase of Contracts . . . . . . . . . . . . . . . . . . . . 20
THE ACCUMULATION PERIOD . . . . . . . . . . . . . . . . . . . . 20
Accumulation Shares . . . . . . . . . . . . . . . . . . . . . 20
Value of Accumulation Shares . . . . . . . . . . . . . . . . . 20
Transfers To or From Subaccounts . . . . . . . . . . . . . . . 21
Dollar-Cost Averaging . . . . . . . . . . . . . . . . . . . . 21
Surrender of Contract; Partial Withdrawals . . . . . . . . . . 21
Systematic Withdrawal . . . . . . . . . . . . . . . . . . . . 22
Death Benefit Before Date of Maturity . . . . . . . . . . . . 22
THE ANNUITY PERIOD . . . . . . . . . . . . . . . . . . . . . . . 24
Variable Monthly Annuity Payments . . . . . . . . . . . . . . 24
Assumed Investment Rate . . . . . . . . . . . . . . . . . . . 25
Calculation of Annuity Units . . . . . . . . . . . . . . . . . 25
Annuity Options . . . . . . . . . . . . . . . . . . . . . . . 25
Option A: Life Annuity with Five, Ten or Twenty Years Certain 25
Option B: Life Annuity Without Refund . . . . . . . . . . . . 25
Other Conditions . . . . . . . . . . . . . . . . . . . . . . . 26
VARIABLE ACCOUNT VALUATION PROCEDURES . . . . . . . . . . . . . 26
MISCELLANEOUS PROVISIONS . . . . . . . . . . . . . . . . . . . . 27
Restriction on Assignment . . . . . . . . . . . . . . . . . . 27
Deferment of Payment . . . . . . . . . . . . . . . . . . . . . 27
Reservation of Rights . . . . . . . . . . . . . . . . . . . . 27
Owner and Beneficiary . . . . . . . . . . . . . . . . . . . . 27
FEDERAL INCOME TAXES . . . . . . . . . . . . . . . . . . . . . . 27
The Account and John Hancock . . . . . . . . . . . . . . . . . 27
Contracts Purchased Other Than to Fund a Tax Qualified Plan . 28
Diversification Requirements . . . . . . . . . . . . . . . . . 28
Contracts Purchased to Fund a Tax Qualified Plan . . . . . . . 29
PERFORMANCE . . . . . . . . . . . . . . . . . . . . . . . . . . 34
STATE REGULATION . . . . . . . . . . . . . . . . . . . . . . . . 34
REPORTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
VOTING PRIVILEGES . . . . . . . . . . . . . . . . . . . . . . . 35
The Account . . . . . . . . . . . . . . . . . . . . . . . . . 35
John Hancock . . . . . . . . . . . . . . . . . . . . . . . . . 35
CHANGES IN APPLICABLE LAW--FUNDING AND OTHERWISE . . . . . . . . 35
LEGAL MATTERS . . . . . . . . . . . . . . . . . . . . . . . . . 35
DISTRIBUTION OF THE CONTRACTS . . . . . . . . . . . . . . . . . 36
IMPACT OF YEAR 2000 ISSUE. . . . . . . . . . . . . . . . . . . .
REGISTRATION STATEMENT . . . . . . . . . . . . . . . . . . . . . 36
EXPERTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . . . . . . . 36
TABLE OF CONTENTS OF STATEMENT OF ADDITIONAL INFORMATION . . . . 36
APPENDIX--THE FIXED ACCOUNT AND FIXED ACCOUNT VALUE . . . . . . 37
APPENDIX--VARIABLE ANNUITY INFORMATION FOR INDIVIDUAL RETIREMENT
ANNUITIES . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
APPENDIX--ILLUSTRATIVE ACCUMULATED VALUE AND ANNUITY PAYMENT
TABLES . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
</TABLE>
THE CONTRACTS OFFERED BY THIS PROSPECTUS MAY NOT BE AVAILABLE IN ALL STATES.
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN
OFFER TO BUY, SECURITIES IN ANY STATE TO ANY PERSON TO WHOM IT IS UNLAWFUL TO
MAKE OR SOLICIT AN OFFER IN THAT STATE.
<PAGE>
SYNOPSIS OF EXPENSE INFORMATION
The purpose of this synopsis is to assist the Owner in understanding the
various costs and expenses that an Owner will bear directly or indirectly. This
synopsis includes expenses of the Account as well as those of the Fund. This
synopsis does not include any premium taxes that may be applicable. For a more
complete description of the Account charges, see "Charges under Variable Annuity
Contracts." For a more complete description of the investment advisory fee
charged each Portfolio and the annual operating expenses of each Portfolio, see
the prospectus for the Fund.
CONTRACT EXPENSES
Maximum Withdrawal Charge (as a percentage of amount surrendered)/1/ 7.00%
Annual Contract Fee (for Contracts having an Accumulated Value of
$10,000 or less)/2/ . . . . . . . . . . . . . . . . . . . . . . . . $ 30
SEPARATE ACCOUNT ANNUAL EXPENSES
(as a percentage of average account value)
Mortality and Expense Risk Charge . . . . . . . . . . . . . . . . . 1.10%
Administrative Services Charge . . . . . . . . . . . . . . . . . . . 0.30%
-----
Total Separate Account Annual Expenses . . . . . . . . . . . . . . . 1.40%
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average daily net assets)
The figures in the following chart and the Examples which follow reflect the
investment management fees currently payable and the 1997 other fund expenses
allocated to the Fund (except that other fund expenses for the Small/Mid Cap
CORE, Global Equity, Emerging Markets Equity, Bond Index, and High Yield Bond
Portfolios are based upon estimates for the current fiscal year).
<TABLE>
<CAPTION>
Other
Fund
Other Fund Total Expenses
Expenses Fund Absent
Management After Expense Operating Expense
Fund Name Fee Reimbursement Expenses Reimbursement/3/
--------- ---------- ------------- --------- ----------------
<S> <C> <C> <C> <C>
Managed . . . . . . . 0.33% 0.04% 0.37% N/A
Growth & Income . . . 0.25% 0.03% 0.28% N/A
Equity Index. . . . . 0.15% 0.25% 0.40% 0.40%
Large Cap Value . . . 0.75% 0.25% 1.00% 0.31%
Large Cap Growth. . . 0.39% 0.05% 0.44% N/A
Mid Cap Value . . . . 0.80% 0.25% 1.05% 0.34%
Mid Cap Growth. . . . 0.85% 0.25% 1.10% 0.57%
Diversified Mid Cap
Growth . . . . . . . 0.75% 0.10% 0.85% N/A
Real Estate Equity. . 0.60% 0.09% 0.69% N/A
Small/Mid Cap CORE. . 0.80% 0.25% 1.05% N/A
Small Cap Value . . . 0.80% 0.25% 1.05% 0.50%
Small Cap Growth. . . 0.75% 0.25% 1.00% 0.37%
Global Equity . . . . 0.90% 0.25% 1.15% N/A
International Balanced 0.85% 0.25% 1.10% 0.71%
International Equity
Index. . . . . . . . 0.18% 0.19% 0.37% N/A
International
Opportunities. . . . 0.97% 0.25% 1.22% 0.60%
Emerging Markets
Equity . . . . . . . 1.30% 0.25% 1.55% N/A
Short-Term Bond . . . 0.30% 0.21% 0.51% N/A
Bond Index. . . . . . 0.15% 0.25% 0.40% N/A
Sovereign Bond. . . . 0.25% 0.06% 0.31% N/A
Strategic Bond. . . . 0.75% 0.25% 1.00% 0.57%
High Yield Bond . . . 0.65% 0.25% 1.00% 0.57%
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
Other
Fund
Other Fund Total Expenses
Expenses Fund Absent
Management After Expense Operating Expense
Fund Name Fee Reimbursement Expenses Reimbursement/3/
--------- ---------- ------------- --------- ----------------
<S> <C> <C> <C> <C>
Money Market. . . . . 0.25% 0.08% 0.33% N/A
</TABLE>
/1/ Actual Withdrawal Charges may be lower, as the Withdrawal Charge decreases
each year on each anniversary of the date of deposit and limited free
partial withdrawals are allowed.
<TABLE>
<CAPTION>
Years from date
of deposit to Withdrawal
date of withdrawal Charge
------------------ ----------
<S> <C>
7 or more . . . . . . . . . . . . . . . . . . . . 0%
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 . . . . . . . . . . . . . . . . . . . 7%
</TABLE>
An Owner may withdraw in any Contract Year up to 10% of the Accumulated
Value of the Contract as of the beginning of the Contract Year without any
charges.
/2/ The annual contract fee is deducted on Contracts having an Accumulated Value
of less than $10,000. The contract fee is deducted at the beginning of each
Contract year after the first and at a full surrender during a Contract
Year. The contract fee is assessed only during the Accumulation Period. In
the following Examples, the annual contract fee has been expressed as an
annual percentage of assets based on past experience concerning Contract
fees collected on other variable annuity contracts using the same Contract
fee provision.
/3/ John Hancock reimburses a Portfolio when the Portfolio's Other Expenses
exceed 0.25% of its average daily net asset value.
EXAMPLES
The following examples should not be considered representations of past or
future expenses; actual expenses may be greater than or less than those shown
above.
If you surrender your contract at the end of the applicable time period, you
would pay the following current expenses on a $1,000 investment, assuming 5%
annual return on assets:
<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
<S> <C> <C> <C> <C>
MANAGED . . . . . . . . . . . . . . . . $81 $102 $125 $214
GROWTH & INCOME . . . . . . . . . . . . $81 $ 99 $120 $204
EQUITY INDEX . . . . . . . . . . . . . $82 $103 $127 $217
LARGE CAP VALUE . . . . . . . . . . . . $88 $121 $157 $279
LARGE CAP GROWTH . . . . . . . . . . . $82 $104 $129 $221
MID CAP VALUE . . . . . . . . . . . . . $88 $123 $160 $284
MID CAP GROWTH . . . . . . . . . . . . $89 $124 $162 $289
DIVERSIFIED MID CAP GROWTH. . . . . . . $86 $117 $150 $264
REAL ESTATE EQUITY . . . . . . . . . . $85 $112 $142 $247
SMALL/MID CAP CORE. . . . . . . . . . . $88 $123 $160 $284
SMALL CAP VALUE . . . . . . . . . . . . $88 $123 $160 $284
SMALL CAP GROWTH . . . . . . . . . . . $88 $121 $157 $279
GLOBAL EQUITY . . . . . . . . . . . . . $89 $126 $165 $293
INTERNATIONAL BALANCED . . . . . . . . $89 $124 $162 $289
INTERNATIONAL EQUITY INDEX. . . . . . . $82 $104 $128 $220
</TABLE>
5
<PAGE>
<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
<S> <C> <C> <C> <C>
INTERNATIONAL OPPORTUNITIES . . . . . . $90 $128 $169 $300
EMERGING MARKETS EQUITY . . . . . . . . $93 $138 $184 $332
SHORT-TERM BOND . . . . . . . . . . . . $83 $106 $132 $229
BOND INDEX. . . . . . . . . . . . . . . $82 $103 $127 $217
SOVEREIGN BOND . . . . . . . . . . . . $81 $100 $122 $207
STRATEGIC BOND . . . . . . . . . . . . $88 $121 $157 $279
HIGH YIELD BOND . . . . . . . . . . . . $87 $118 $152 $269
MONEY MARKET . . . . . . . . . . . . . $81 $101 $123 $209
</TABLE>
If you annuitize at the end of the applicable time period, or if you do not
surrender your Contract, you would pay the following current expenses on a
$1,000 investment, assuming 5% annual return on assets:
<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
<S> <C> <C> <C> <C>
MANAGED . . . . . . . . . . . . . . . . . . . . . . . . $18 $57 $ 99 $214
GROWTH & INCOME . . . . . . . . . . . . . . . . . . . . $18 $54 $ 94 $204
EQUITY INDEX . . . . . . . . . . . . . . . . . . . . . . $19 $58 $100 $217
LARGE CAP VALUE . . . . . . . . . . . . . . . . . . . . $25 $76 $131 $279
LARGE CAP GROWTH . . . . . . . . . . . . . . . . . . . . $19 $59 $102 $221
MID CAP VALUE . . . . . . . . . . . . . . . . . . . . . $25 $78 $133 $284
MID CAP GROWTH . . . . . . . . . . . . . . . . . . . . . $26 $79 $136 $289
DIVERSIFIED MID CAP GROWTH . . . . . . . . . . . . . . . $23 $72 $123 $264
REAL ESTATE EQUITY . . . . . . . . . . . . . . . . . . . $22 $67 $115 $247
SMALL/MID CAP CORE . . . . . . . . . . . . . . . . . . . $25 $78 $133 $284
SMALL CAP VALUE . . . . . . . . . . . . . . . . . . . . $25 $78 $133 $284
SMALL CAP GROWTH . . . . . . . . . . . . . . . . . . . . $25 $76 $131 $279
GLOBAL EQUITY. . . . . . . . . . . . . . . . . . . . . . $26 $81 $138 $293
INTERNATIONAL BALANCED . . . . . . . . . . . . . . . . . $26 $79 $136 $289
INTERNATIONAL EQUITY INDEX . . . . . . . . . . . . . . . $19 $59 $102 $220
INTERNATIONAL OPPORTUNITIES . . . . . . . . . . . . . . $27 $83 $141 $300
EMERGING MARKETS EQUITY. . . . . . . . . . . . . . . . . $30 $93 $158 $332
SHORT-TERM BOND. . . . . . . . . . . . . . . . . . . . . $20 $62 $106 $229
BOND INDEX . . . . . . . . . . . . . . . . . . . . . . . $19 $58 $100 $217
SOVEREIGN BOND . . . . . . . . . . . . . . . . . . . . . $18 $55 $ 95 $207
STRATEGIC BOND . . . . . . . . . . . . . . . . . . . . . $25 $76 $131 $297
HIGH YIELD BOND. . . . . . . . . . . . . . . . . . . . . $24 $73 $126 $269
MONEY MARKET . . . . . . . . . . . . . . . . . . . . . . $18 $56 $ 96 $209
</TABLE>
6
<PAGE>
SPECIAL TERMS
As used in this prospectus, the following terms have the indicated meanings:
ACCUMULATION SHARE: a unit of measurement used in determining the value of a
Contract prior to the commencement of annuity payments or, if earlier, contract
lapse. The value of an Accumulation Share for each subaccount will reflect the
investment performance of that subaccount and will vary in dollar amount.
ACCUMULATED VALUE OF A CONTRACT: total value of the Accumulation Shares in
that Contract plus the Fixed Account Value of that Contract, if any.
ANNUITANT: the person on whose life the Contract is issued.
ANNUITY OPTION: the provisions under which a series of annuity payments is
made to the Annuitant or other payee, such as the Life Annuity with Ten Years
Certain.
ANNUITY UNIT: a unit of measurement used in determining the amount of each
variable annuity payment. The value of an Annuity Unit for each subaccount will
depend upon the assumed investment rate and the investment performance of that
subaccount and will vary in dollar amount.
BENEFICIARY: the person who receives the proceeds in the event of the death of
the Owner of the Annuitant.
CODE: The Internal Revenue Code of 1986, as amended.
CONTRACT YEAR: a period between anniversaries of the date of issue of the
Contract.
FIXED ACCOUNT: an account that is part of JHVLICO's general account in which
all or a part of the Accumulated Value may be held for accumulation at fixed
rates of interest (not less than 3%) declared by JHVLICO periodically at its
discretion.
OWNER: the person(s) or entity, usually the person(s) or entity to whom the
Contract is issued, who has the sole right to exercise all rights and privileges
under the Contract except as otherwise provided in the Contract.
DATE OF MATURITY OF A CONTRACT: the date elected by the Owner as of which
annuity payments will commence. The election is subject to certain conditions
described in "The Annuity Period".
MINIMUM DEATH BENEFIT: the undertaking of John Hancock under a Contract to
make a payment on the death of the Annuitant at any time before the date of
maturity equal to the greatest of (a) the Accumulated Value of the Contract next
determined following John Hancock's receipt of due proof of death, (b) the
aggregate amount of the purchase payments made under the Contract (reduced to
reflect partial withdrawals and withdrawal charges), or (c) in states where
permitted by law, the highest Accumulated Value of the Contract as of any fifth
interval Contract anniversary preceding the Contract anniversary nearest the
Annuitant's 81st birthday, plus the purchase payments made under the Contract,
adjusted for partial withdrawals and withdrawal charges, since such Contract
anniversary. See "The Accumulation Period--Death Benefit Before Date of
Maturity".
NET PURCHASE PAYMENT: the amount of any purchase payment reduced by applicable
taxes, if any, based on the amount of the purchase payment.
SERVICING OFFICE: P.O. Box 111, Boston, MA 02117.
SURRENDER VALUE: a cash payment made prior to a Contract's maturity, equal to
all or part of the Accumulation Shares credited to the Contract, less any
Withdrawal Charge and contract fee.
7
<PAGE>
SUMMARY INFORMATION
The Contracts are designed both for purchase by individuals doing their own
retirement planning, including plans and trusts that do not qualify for special
tax treatment under the Internal Revenue Code of 1986, as amended ("Code") and
for purchase for persons participating in (1) pension and profit-sharing plans
qualified under Section 401(c) of the Code, known as "H.R. 10 plans", (2)
pension or profit-sharing plans qualified under Sections 401(a) or 403(a) of the
Code, known as "corporate plans", (3) plans qualifying under Section 401(k) of
the Code, (4) annuity purchase plans adopted under the provisions of Section
403(b) of the Code by public school systems and certain other tax-exempt
organizations, (5) individual retirement annuity plans satisfying the
requirements of Section 408 of the Code, and (6) deferred compensation plans
maintained by a state or political subdivision or tax exempt organizations under
Section 457 of the Code.
In order to accommodate "employer-related" plans funded by the Contracts,
contract forms using "unisex" purchase rates, i.e. rates the same for males and
females, are available. Any questions you have as to whether you are
participating in an employer-related plan should be directed to your employer.
Any other question you or your employer may have with respect to this topic can
be asked John Hancock by calling 800 REAL LIFE (800-732-5543) or by writing
Servicing Office, P.O. Box 111, Boston, MA 02117.
THE CONTRACTS
The Contracts offered are deferred annuity Contracts under which purchase
payments may be made in a lump sum or at intervals until the maturity date
selected by the Owner, at which time annuity payments by John Hancock will
begin, if so elected by the Owner.
An application for a Contract is available from a marketing representative.
Upon completion, it is transmitted along with the purchase payment to John
Hancock's Servicing Office for review. (See "Distribution of the Contracts.")
John Hancock also issues variable life insurance policies and other variable
annuity contracts that charge a front-end sales load and other forms of variable
annuity contracts that charge a contingent deferred sales load. These contracts
and policies are offered by means of other prospectuses, but use the same
underlying Fund.
JOHN HANCOCK VARIABLE ANNUITY ACCOUNT V
The Account is a separate investment account of John Hancock, operated as a
unit investment trust, which supports benefits payable under its Contracts.
There are currently twenty-three subaccounts within the Account: Managed, Growth
& Income, Equity Index, Large Cap Value, Large Cap Growth, Mid Cap Value, Mid
Cap Growth, Diversified Mid Cap Growth, Real Estate Equity, Small/Mid Cap CORE,
Small Cap Value, Small Cap Growth, Global Equity, International Balanced,
International Equity Index, International Opportunities, Emerging Markets
Equity, Short-Term Bond, Bond Index, Sovereign Bond, Strategic Bond, High Yield
Bond, and Money Market.
Each Portfolio has a different investment objective. John Hancock receives a
fee from each Portfolio for providing investment management services. In turn,
John Hancock pays a fee to the following sub-investment managers for providing
sub-investment services to the various Portfolios:
<TABLE>
<CAPTION>
NAME OF FUND NAME OF SUB-INVESTMENT MANAGER
------------ ------------------------------
<S> <C>
Managed Independence Investment Associates, Inc.
Growth & Income. . . . . . . . . . . . . . . . . . Independence Investment Associates, Inc.
Equity Index State Street Bank & Trust, N.A.
Large Cap Value. . . . . . . . . . . . . . . . . . T. Rowe Price Associates, Inc.
Large Cap Growth. . . . . . . . . . . . . . . . . . Independence Investment Associates, Inc.
Mid Cap Value Neuberger & Berman Management, Inc.
Mid Cap Growth Janus Capital Corporation
Diversified Mid Cap Growth. . . . . . . . . . . . . John Hancock Advisers, Inc.
Real Estate Equity Independence Investment Associates, Inc.
Small/Mid Cap CORE Goldman Sachs Asset Management
Small Cap Value INVESCO Management & Research, Inc.
Small Cap Growth. . . . . . . . . . . . . . . . . . John Hancock Advisers, Inc.
Global Equity. . . . . . . . . . . . . . . . . . . Scudder Kemper Investments
International Balanced Brinson Partners, Inc.
International Equity Index Independence Investment International Associates, Inc.
International Opportunities Rowe Price-Fleming International, Inc.
Emerging Markets Equity. . . . . . . . . . . . . . Montgomery Asset Management, LLC
Short-Term Bond Independence Investment Associates, Inc.
Bond Index Mellon Bond Associates
Sovereign Bond. . . . . . . . . . . . . . . . . . . John Hancock Advisers, Inc.
Strategic Bond. . . . . . . . . . . . . . . . . . . J.P. Morgan Investment Management, Inc.
High Yield Bond Wellington Management Company, LLP
</TABLE>
8
<PAGE>
The fee paid by John Hancock to the sub-investment managers for these services
is borne by John Hancock and is not charged to the Fund, the Account, or Owners.
For a full description of the Fund, see the prospectus for the Fund following
at the end of this prospectus.
PRINCIPAL UNDERWRITER OF THE ACCOUNT
John Hancock Distributors, Inc., a registered broker-dealer since 1968, makes
the Contracts available through its registered representatives licensed to sell
life insurance policies and annuity contracts.
INVESTMENT OF PURCHASE PAYMENTS
Purchase payments received under the Contracts, after deduction of premium or
similar taxes, if applicable, are allocated by John Hancock to one or more of
the variable subaccounts and the Fixed Account, as directed by the Owner.
Purchase payments should be mailed to the John Hancock Servicing Office, Post
Office Box 111, Boston, MA 02117.
MINIMUM AND MAXIMUM PURCHASE PAYMENTS
The initial purchase payment under a Contract must be at least $5,000 ($1,000
for individual retirement accounts and $50 for all other qualified plans); or
$500 if made pursuant to the Annuity Direct Deposit Program; thereafter any
payment must be at least $50.
The maximum amount that can be deposited into a Contract per Contract Year is
$1,000,000. The maximum amount that can be deposited in or transferred to the
Fixed Account per Contract Year is $100,000, exclusive of the initial deposit
which can be as large as $500,000. Deposits in or transfers to the Fixed Account
can only be made during the first 10 Contract Years. No new deposits may be made
after the Annuitant's 85th birthday. These limits may be waived by John Hancock.
9
<PAGE>
ACCOUNT FEES
The charges made directly to the Account aggregate 1.40% per annum of the
average daily net asset value of the Account and are made up of daily charges
aggregating 1.10% annually for mortality and expense risks assumed (0.45% on an
annual basis for mortality risks and 0.65% on an annual basis for expense risks)
and 0.30% for certain administrative services. (See "Charges Under Variable
Annuity Contracts--Charges for Administrative Services.")
FUND CHARGES
Investment management fees at annual rates ranging from 0.15% to 1.30% of
average daily net assets are paid by the Portfolios to John Hancock. The
Portfolios also incur charges for other expenses incurred in their operations.
Investment management fees and other expenses are reflected in the net asset
value of each Portfolio's shares. For a description of these charges and
expenses, see the prospectus for the Fund.
SALES DEDUCTIONS UPON WITHDRAWALS
A Withdrawal Charge (a contingent deferred sales charge), if applicable, is
deducted from amounts withdrawn prior to maturity. The aggregate Withdrawal
Charges assessed against a Contract will never exceed 7% of the total purchase
payments received. (See "Charges Under Variable Annuity Contracts-- Withdrawal
Charge.")
OTHER CHARGES OR DEDUCTIONS
Deductions are made for any applicable taxes based on the amount of a purchase
payment; currently such taxes in certain states are up to 5% of each purchase
payment. (See "Charges Under Variable Annuity Contracts--Premium or Similar
Taxes.")
Charges are made for any taxes or interest expense attributable to the
Account. An annual contract fee of $30 is deducted on Contracts having an
Accumulated Value of less than $10,000. John Hancock reserves the right to
increase the contract fee up to $50, subject to state regulations. (See "Charges
Under Variable Annuity Contracts--Charges for Administrative Services.")
WITHDRAWAL OR SURRENDER PRIOR TO MATURITY
At any time before annuity payments begin, if the Annuitant is living, a
Contract may be surrendered in full for its Surrender Value or a portion of the
value of the Contract may be withdrawn, subject to certain limits. (See "The
Accumulation Period--Surrender of the Contract; Partial Withdrawal.") A 10%
penalty tax may be applicable to the taxable portion (earnings) withdrawn before
the Owner attains age 59 1/2.
SYSTEMATIC WITHDRAWALS
The Owner may pre-authorize a periodic withdrawal plan. Payments may be
monthly, quarterly, semi-annual or annual, and may be for a specific dollar
amount. A minimum Accumulated Value of $25,000 is required to start the program.
(See "The Accumulation Period--Systematic Withdrawal.")
DOLLAR-COST AVERAGING
The Owner may elect to have amounts transferred automatically from any one of
the variable subaccounts into one or more of the other variable subaccounts.
Transfers may be made monthly, quarterly, semi-annually, or annually for a
minimum of $250. A minimum Accumulated Value of $15,000 is required to start the
program. (See "The Accumulation Period--Dollar-Cost Averaging.")
10
<PAGE>
NURSING HOME WAIVER
If the Owner of the Contract becomes confined to a nursing home facility at
least 90 days after issue and prior to commencement of annuity payments and such
confinement continues for at least 90 consecutive days, then Withdrawal Charges
may be waived on any subsequent surrender or partial withdrawal that is made
prior to 90 days after discharge from the nursing home facility. This benefit is
subject to certain restrictions and may not be available in all states. The
benefit is not available for applicants over age 74. For a complete description
of the terms, conditions, and benefits of the waiver, reference should be made
to the Contract.
GUARANTEED MINIMUM DEATH BENEFIT
Contracts include a death benefit payable on the death of the Annuitant prior
to annuitization that is the greatest of (a) the Accumulated Value of the
Contract, (b) the purchase payments made under the Contract, adjusted for any
prior partial withdrawals and withdrawal charges, or (c) in states where
permitted by law, the highest Accumulated Value of the Contract as of any fifth
interval Contract anniversary preceding the Contract anniversary nearest the
Annuitant's 81st birthday, plus the purchase payments made under the Contract,
adjusted for partial withdrawals and withdrawal charges, since such Contract
anniversary. (See "The Accumulation Period--Death Benefit Before Date of
Maturity.")
10 DAY FREE-LOOK PROVISION
An Owner may surrender the Contract for any reason within 10 days after its
receipt and receive in cash the Accumulated Value of the Contract, plus any
deductions previously made from purchase payments for premium or similar taxes.
Owners surrendering Contracts issued in Hawaii, Idaho, Missouri, Nebraska, North
Carolina, Oklahoma, Oregon, South Carolina, Washington, West Virginia, and Utah,
and all Contracts issued under an individual retirement account, will receive
gross purchase payments made. If the Contract is issued in California to an
Owner 60 years of age or older, the Owner may surrender the Contract within 30
days after its receipt, and, in that event, the gross purchase payments made
will be refunded to the Owner. If the Contract is issued in North Dakota, the
Owner may surrender the Contract within 20 days after its receipt and, in that
event, the gross purchase payments made will be refunded.
THE VARIABLE ANNUITY
A variable annuity is significantly different from a fixed annuity in that it
is the Owner and Annuitant under a variable annuity who assume the risk of
investment gain or loss rather than the insurance company. While under a fixed
annuity the insurance company guarantees a specified interest rate and specified
monthly annuity payments, the amounts of annuity payments under a variable
annuity are not guaranteed and will vary with the investment performance of the
portfolio securities in the underlying Fund.
Based upon the Owner's investment objective, the Owner directs the allocation
of purchase payments and Accumulated Values among the subaccounts on a
continuing basis. There can be no assurance that these investment objectives
will be achieved.
JOHN HANCOCK, THE ACCOUNT AND THE SERIES FUND
JOHN HANCOCK
John Hancock is a mutual life insurance company chartered in Massachusetts in
1862. Its Home Office is at 200 Clarendon Street, Boston, Massachusetts 02117.
It conducts a conventional life insurance business in all of the United States,
the District of Columbia and Puerto Rico. John Hancock sells insurance policies
and annuity contracts directly to customers or through a career agency system,
banks, or broker/dealers.
11
<PAGE>
THE ACCOUNT
The Account is a separate account established under Massachusetts law on May
11, 1987. The Account, although an integral part of John Hancock, meets the
definition of a "separate account" under the Federal securities laws and is
registered as a unit investment trust under the Investment Company Act of 1940,
as amended ("1940 Act").
The Account's assets are the property of John Hancock and the obligations
under the Contracts are the obligations of John Hancock. Each Contract provides
that the portion of the Account's assets equal to the reserves and other
liabilities under the Contract with respect to the Account shall not be
chargeable with liabilities arising out of any other business John Hancock may
conduct. In addition to the net assets and other liabilities for Contracts, the
Account's assets include assets derived from charges made by John Hancock and,
possibly, funds contributed by John Hancock to commence operation of the
subaccounts or their predecessors. From time to time these additional assets may
be transferred in cash by John Hancock to its general account. Before making any
such transfer, John Hancock will consider any possible adverse impact the
transfer might have on any subaccount.
Income, gains and losses, whether or not realized, from assets allocated to
the Account are, in accordance with the Contracts, credited to or charged
against the Account without regard to other income, gains or losses of John
Hancock.
There currently are twenty-three subaccounts in the Account: Managed, Growth &
Income, Equity Index, Large Cap Value, Large Cap Growth, Mid Cap Value, Mid Cap
Growth, Diversified Mid Cap Growth, Real Estate Equity, Small/Mid Cap CORE,
Small Cap Value, Small Cap Growth, Global Equity, International Balanced,
International Equity Index, International Opportunities, Emerging Markets
Equity, Short-Term Bond, Bond Index, Sovereign Bond, Strategic Bond, High Yield
Bond, and Money Market. The assets in each are invested in a separate class of
shares issued by the Fund, but the assets of one subaccount are not necessarily
legally insulated from liabilities associated with another subaccount. New
subaccounts may be added and made available to Owners. There is a limitation on
the number of subaccounts that may be utilized over the lifetime of a Contract.
At the current time that limit is eighteen. However, it is John Hancock's
intention to raise that limit later in 1998 to ninety-nine subaccounts. For
purposes of this limit, each deposit or transfer of funds into a subaccount will
count as one "use" of a subaccount even if the subaccount has been used before.
THE SERIES FUND
The Fund is a "series" type of mutual fund which is registered under the 1940
Act as an open-end diversified management investment company and organized as a
Massachusetts business trust. The Fund serves as the investment medium for the
Account and other unit investment trust separate accounts established by John
Hancock and by John Hancock Variable Life Insurance Company for variable life
insurance policies and variable annuity contracts. A full description of the
Fund, its investment objectives, policies and restrictions, its charges and
expenses, and all other aspects of its operation is contained in the attached
prospectus (which should be read carefully before investing) and the statement
of additional information referred to therein, which should be read together
with this prospectus. Among other items, note the description of the need to
monitor events on the part of the Fund's Board of Trustees for possible
conflicts between separate accounts and other consequences.
The following is a brief summary of the investment objectives of each
Portfolio.
12
<PAGE>
Managed Portfolio
The investment objective of this Portfolio is to achieve maximum long-term
total return consistent with prudent investment risk. Investments will be made
in common stocks, convertibles and other equity investments, in bonds and other
fixed income securities and in money market instruments.
Growth & Income Portfolio
The investment objective of this Portfolio is to achieve intermediate and
long-term growth of capital, with income as a secondary consideration. This
objective will be pursued by investments principally in common stocks (and
securities convertible into or with rights to purchase common stocks) of
companies believed to offer growth potential over both the intermediate and the
long term.
Equity Index Portfolio
The investment objective of this Portfolio is to provide investment results
that correspond to the total return of the U.S. market as represented by the S&P
500 utilizing common stocks that are publicly traded in the United States.
Large Cap Value Portfolio
The investment objective of this Portfolio is to provide substantial dividend
income, as well as long-term capital appreciation, through investments in the
common stocks of established companies believed to offer favorable prospects for
increasing dividends and capital appreciation.
Large Cap Growth Portfolio
The investment objective of this Portfolio is to achieve above-average capital
appreciation through the ownership of common stocks (and securities convertible
into with rights to purchase common stocks) of companies believed to offer
above-average capital appreciation opportunities. Current income is not an
objective of the Portfolio.
Mid Cap Value Portfolio
The investment objective of this Portfolio is to provide long-term growth of
capital primarily through investment in the common stocks of medium
capitalization companies believed to sell at a discount to their intrinsic
value.
Mid Cap Growth Portfolio
The investment objective of this Portfolio is to provide long-term growth of
capital through a non-diversified portfolio investing primarily in common stocks
of medium capitalization companies.
Diversified Mid Cap Growth Portfolio
The investment objective of this Portfolio is to provide long-term growth of
capital through a diversified portfolio investing primarily in common stocks of
medium capitalization growth companies.
Real Estate Equity Portfolio
The investment objective of this Portfolio is to provide above-average income
and long-term growth of capital by investment principally in equity securities
of companies in the real estate and related industries.
13
<PAGE>
Small/Mid Cap CORE Portfolio
The investment objective of this Portfolio is to achieve long-term growth of
capital through a broadly diversified portfolio of equity securities of U.S.
issuers which are included in the Russell 2500 Index at the time of investment.
Small Cap Value Portfolio
The investment objective of this Portfolio is to provide long-term growth of
capital by investing in a well diversified portfolio of equity securities of
small capitalization companies exhibiting value characteristics.
Small Cap Growth Portfolio
The investment objective of this Portfolio is to provide long-term growth of
capital through a diversified portfolio investing primarily in common stocks of
small capitalization emerging growth companies.
Global Equity Portfolio
The investment objective of this Portfolio is to achieve long-term growth of
capital through a diversified portfolio of marketable securities, primarily
equity securities, of both U.S. and foreign issuers.
International Balanced Portfolio
The investment objective of this Portfolio is to maximize total U.S. dollar
return, consisting of capital appreciation and current income, through
investment in non-U.S. equity and fixed income securities.
International Equity Index Portfolio
The investment objective of this Portfolio is to provide investment results
that correspond to the total return of the major developed international
(non-U.S.) equity markets, as represented by the MSCI AEFE GDP Index.
International Opportunities Portfolio
The investment objective of this Portfolio is to provide capital appreciation
through investments in common stocks of primarily well-established, non-United
States companies.
Emerging Markets Equity Portfolio
The investment objective of this Portfolio is to achieve capital appreciation
by investing primarily in equity securities of companies in countries having
economies and markets generally considered by the World Bank or the United
Nations to be emerging or developing.
Short-Term Bond Portfolio
The investment objective of this Portfolio is to provide a high level of
current income consistent with a low degree of share price fluctuation through
investment primarily in a diversified portfolio of short- and intermediate-term
investment-grade debt obligations.
Bond Index Portfolio
The investment objective of this Portfolio is to provide investment results
that correspond to the total return and risk characteristics of the U.S.
investment grade fixed income market, as represented by a Lehman Brothers bond
index that tracks the performance of investment grade debt securities.
14
<PAGE>
Sovereign Bond Portfolio
The investment objective of this Portfolio is to provide as high a level of
long-term total rate of return as is consistent with prudent investment risk
through investment primarily in a diversified portfolio of freely marketable
debt securities.
Strategic Bond Portfolio
The investment objective of this Portfolio is to provide total return
consistent with moderate risk of capital and maintenance of liquidity, through a
portfolio of domestic and international fixed income securities.
High Yield Bond Portfolio
The investment objective of this Portfolio is to provide high current income
and capital appreciation with capital preservation through investing primarily
in high yield (below investment grade) debt securities.
Money Market Portfolio
The investment objective of this Portfolio is to provide maximum current
income consistent with capital preservation and liquidity, through investment in
high quality money market instruments.
John Hancock acts as the investment manager for the Fund. Independence
Investment Associates, Inc. ("IIA"), an indirectly-owned subsidiary of John
Hancock with its principal place of business at 53 State Street, Boston, MA
02109, provides sub-investment advice with respect to the Managed, Growth &
Income, Large Cap Growth, Real Estate Equity, and Short-Term Bond Portfolios.
Independence International Associates, Inc., a subsidiary of IIA located at the
same address as IIA, is a sub-investment adviser to the International Equity
Index Portfolio.
John Hancock Advisers, Inc., another directly-owned subsidiary of John
Hancock, located at 101 Huntington Avenue, Boston, MA 02199, provides
sub-investment advice with respect to the Sovereign Bond, Diversified Mid Cap
Growth, and Small Cap Growth Portfolios.
State Street Bank & Trust, N.A., at Two International Place, Boston, MA 02110,
is the sub-investment adviser to the Equity Index Portfolio. T. Rowe Price
Associates, Inc., located at 100 East Pratt St., Baltimore, MD 21202, provides
sub-investment advice with respect to the Large Cap Value Portfolio and, its
subsidiary, Rowe Price-Fleming International, Inc., also located at 100 East
Pratt St., Baltimore, MD 21202, provides sub-investment advice with respect to
the International Opportunities Portfolio.
INVESCO Management & Research located at 101 Federal Street, Boston, MA 02110,
is the sub-investment adviser to the Small Cap Value Portfolio. Janus Capital
Corporation, with its principal place of business at 100 Filmore Street, Denver,
CO 80206, is the sub-investment adviser to the Mid Cap Growth Portfolio.
Neuberger & Berman, LLC, of 605 Third Avenue, New York, NY 10158, provides
sub-investment advice to the Mid Cap Value Portfolio. J.P. Morgan Investment
Management Inc., located at 522 Fifth Avenue, New York, NY 10036, provides
investment advice with respect to the Strategic Bond Portfolio and Brinson
Partners, Inc., of 209 South LaSalle Street, Chicago, IL 60604, does likewise
with respect to the International Balanced Portfolio.
Goldman Sachs & Company, located at One New York Plaza, New York, New York
10004, is sub-investment adviser to the Small/Mid Cap CORE Portfolio. Scudder
Kemper Investments, Inc., located at 345 Park Avenue, New York, New York 10154,
is the sub-investment adviser to the Global Equity Portfolio. Montgomery Asset
Management, LLC, located at 101 California Street, San Francisco, California
94111, is the sub-investment adviser to the Emerging Markets Equity Portfolio.
Mellon Bond Associates, located at
15
<PAGE>
One Mellon Bank Center, Suite 4135, Pittsburgh, Pennsylvania 15258, is the
sub-investment adviser to the Bond Index Portfolio. Wellington Management
Company, LLC, located at 75 State Street, Boston, Massachusetts 02109, is the
sub-investment adviser to the High Yield Bond Portfolio.
John Hancock will purchase and redeem Fund shares for the Account at their net
asset value without any sales or redemption charges. Shares of the Fund
represent an interest in one of the Portfolios of the Fund which corresponds to
the subaccount of the Account. Any dividend or capital gains distributions
received by the Account will be reinvested in Fund shares at their net asset
value as of the dates paid. Any such distribution will result in a reduction in
the value of the Fund shares of the Portfolio from which the distribution was
made. The total net asset value of the Account will not change because of such
distribution, however.
On each Valuation Date, shares of each Portfolio are purchased or redeemed by
John Hancock for each subaccount based on, among other things, the amount of net
purchase payments allocated to the subaccount, dividends and distributions
reinvested, transfers to, from and among subaccounts, all to be effected as of
that date. Such purchases and redemptions are effected at the net asset value
per Fund share for each Portfolio determined on that same Valuation Date.
CHARGES UNDER VARIABLE ANNUITY CONTRACTS
CHARGES FOR MORTALITY AND EXPENSE RISKS
While the variable annuity payments to Annuitants will vary in accordance with
the investment performance of the Account, the amount of such payments will not
be decreased because of adverse mortality experience of Annuitants as a class or
because of an increase in actual expenses of John Hancock over the expense
charges provided for in the Contracts. John Hancock assumes the risk that
Annuitants as a class may live longer than expected (necessitating a greater
number of annuity payments) and that its expenses may be higher than the
deductions for such expenses. John Hancock also provides a minimum death benefit
and waives Withdrawal Charges upon the death of the Annuitant.
In return for the assumption of these mortality and expense risks, John
Hancock charges the Account daily 0.001233% (0.45% on an annual basis) of the
current value of Account net assets for mortality risks and 0.001781% (0.65% on
an annual basis) for expense risks. John Hancock reserves the right to revise
the proportionate amounts of the charge as between mortality risks and expense
risks, should estimates change. Nevertheless, the aggregate charge will not
exceed 1.10% on an annual basis.
CHARGES FOR ADMINISTRATIVE SERVICES
John Hancock maintains an account for each Owner and Annuitant and makes all
disbursements of benefits. John Hancock also furnishes such administrative and
clerical services, including the calculation of Accumulation Share values and
the values and interests determined thereby, as are required for each
subaccount. John Hancock makes disbursements from Account funds to pay
obligations chargeable to the Account and maintains the accounts, records, and
other documents relating to the business of the Account required by regulatory
authorities.
For these and other administrative services, John Hancock makes a daily charge
to the Account of 0.000822% (0.30% on an annual basis) of the current value of
its net assets and assesses, during the Accumulation Period, and a contract fee
of $30 on Contracts having an Accumulated Value of less than $10,000. The
contract fee will be deducted at the beginning of each Contract Year after the
first and at a full surrender during a Contract Year. John Hancock reserves the
right to increase this fee up to a maximum of $50 subject to state regulations.
The contract fee will be deducted from each subaccount and the Fixed Account in
the same proportion that the Accumulated Value of the Contract in that
subaccount or Fixed Account bears to the full Accumulated Value of the Contract.
However, the portion of the contract fee
16
<PAGE>
allocated to the Fixed Account will not be deducted from the Fixed Account to
the extent it would result in an accumulation of purchase payments or other
amounts allocated to the Fixed Account at less than the guaranteed minimum rate
of 3 percent. In such case, the unallocable portion of the contract fee
allocable to the Fixed Account will be deducted proportionately from the
subaccounts, if any.
The administrative services charges were not designed, nor are they expected,
to exceed John Hancock's cost in providing these services.
WITHDRAWAL CHARGE
A Withdrawal Charge, which is a contingent deferred sales charge, may be
assessed whenever a Contract is surrendered for cash prior to maturity
("surrender") or whenever an amount less than the total Accumulated Value of the
Contract is withdrawn from a Contract prior to maturity ("partial withdrawal").
This charge is used to help defray expenses relating to the sales of the
Contracts, including commissions paid to marketing representatives and other
distribution costs.
An Owner may withdraw in any one Contract Year up to 10% of the Accumulated
Value of the Contract as of the beginning of the Contract Year without the
assessment of any charges. If, in any Contract Year, the Owner withdraws an
aggregate amount in excess of 10% of the Accumulated Value of the Contract as of
the beginning of the Contract Year, the amount withdrawn in excess of 10%
subjects the Contract to a Withdrawal Charge to the extent that the excess is
attributable to purchase payments made within seven years of the date of
withdrawal or surrender. Amounts withdrawn to satisfy the minimum distribution
requirements for qualified plans attributable to any one Contract are not
subject to a Withdrawal Charge in any Contract Year. Amounts above the minimum
distribution requirements are subject to a Withdrawal Charge as described above.
Withdrawal Charges are based upon the purchase payments made to date and are
assessed as follows:
<TABLE>
<CAPTION>
Years from
date of Withdrawal
deposit to Charge
date of ------------
withdrawal
----------
<S> <C>
7 or more . . . . . . . . . . . . . . . . 0%
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 . . . . . . . . . . . . . . . 7%
</TABLE>
In no event will the aggregate Withdrawal Charges against a Contract ever
exceed 7% of the total purchase payments received.
Whenever a Withdrawal Charge is imposed, it is deducted from each of the
subaccounts and the Fixed Account as described in "Surrender of Contract;
Partial Withdrawals." All amounts withdrawn plus all contract fees and
Withdrawal Charges are assumed to be deducted first from the earliest purchase
payment, and then from the next earliest purchase payment, and so forth until
all payments have been exhausted, satisfying the first in--first out ("FIFO")
method of accounting. Further withdrawals will be deducted from earnings, to
which no Withdrawal Charge will apply. For a discussion of the taxation of
partial withdrawals, see "Federal Income Taxes--Partial Withdrawals Before
Annuity Starting Date."
To the extent that any Withdrawal Charge is applicable when a surrender is
requested, the Accumulated Value of the Contract will be reduced by the amount
of the Withdrawal Charge in addition to the actual dollar
17
<PAGE>
amount sent to the recipient. The Withdrawal Charge is calculated based upon the
full amount by which the Accumulated Value is reduced, subject to the conditions
noted above.
For example, assume a Contract is issued on January 1, 1998, that the Owner
makes purchase payments of $5,000 on January 1, 1998, $1,000 on January 1, 1999,
and $1,000 on January 1, 2000. Assume that the Accumulated Value of the Contract
on January 1, 2001, is $9,000 and that a partial withdrawal is made by the Owner
in the amount of $6,000 (no tax withholding) on June 1, 2001. The Withdrawal
Charge in this case, assuming no prior partial withdrawals, would equal $229.57.
In calculating the Withdrawal Charge under the FIFO method, the January 1,
1998, $5,000 purchase payment is first reduced by the three $30 Contract Fees on
January 1, 1999, 2000, and 2001, i.e., to $4,910. Ten percent of the Accumulated
Value on January 1, 2001, i.e., $900 is then deducted.
The remaining balance of the $5,000 January 1, 1999, purchase payment, i.e.,
$4,010, is then withdrawn in its entirety and is assessed a Withdrawal Charge of
$160.40 (.04 x $4,010). All of the $1,000 January 1, 1999, purchase payment is
to be withdrawn and is assessed a Withdrawal Charge of $50 (.05 x $1,000). To
make up the remainder of the $6,000 paid to the Owner, $319.57 is withdrawn from
the January 1, 2000, purchase payment. This is assessed a Withdrawal Charge of
$19.17 (.06 x $319.57).
Therefore, the total amount paid to the Owner is $6,000 and the total
Withdrawal Charge is $229.57.
Withdrawals made prior to the Owner attaining age 59 1/2 may be subject to
certain adverse tax consequences. An IRS excise tax of 10% is generally
applicable to the taxable portion (earnings) of a premature withdrawal from the
Contract. (See "Federal Income Taxes--Penalty for Premature Withdrawals.")
To the extent that the proceeds from the Withdrawal Charges may be
insufficient to cover distribution costs, John Hancock may recover them from its
general account assets which may consist of, among other things, proceeds
derived from mortality and expense risk charges deducted from the Account.
NURSING HOME WAIVER
If the Owner of the Contract becomes confined to a nursing home facility at
least 90 days after issue and prior to commencement of annuity payments and
receives skilled nursing care, intermediate care, or custodial care and such
confinement continues for at least 90 consecutive days, then Withdrawal Charges
may be waived on any subsequent surrender or partial withdrawal that is made
prior to 90 days after discharge from the nursing home facility. John Hancock
must receive a written request for withdrawal and written proof of confinement
satisfactory to John Hancock no later than 90 days after discharge from the
nursing home facility. In addition, the confinement must be prescribed by a
physician and medically necessary. The waiver is not available to Contract
applicants over age 74 or to applicants who were confined to a nursing home
facility within the two years prior to the issue date of the Contract. This
benefit may not be available in all states. For a complete description of the
terms, conditions, and benefits of the waiver, reference should be made to the
Contract.
VARIATIONS IN CHARGES
In the future, John Hancock may allow a reduction in or the elimination of the
Withdrawal Charges, the charges for mortality and expense risks, the
administrative services charge, or the annual contract fee assessed on Contracts
sold to groups or classes of individuals in a manner resulting in a reduction in
the expenses associated with the sale of such Contracts or the costs associated
with administering or maintaining such Contracts.
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The entitlement to such a reduction in or elimination of charges and fees will
be determined by John Hancock based upon factors such as the following: (1) the
size of the initial purchase payment, (2) the size of the group or class, (3)
the total amount of purchase payments expected to be received from the group or
class and the manner in which purchase payments are remitted, (4) the nature of
the group or class for which the Contracts are being purchased and the
persistency expected from that group or class as well as the mortality risks
associated with that group or class, (5) the purpose for which the Contracts are
being purchased and whether that purpose makes it likely that costs and expenses
will be reduced, or (6) the level of commissions paid to selling broker/dealers
or marketing representatives with respect to Contracts within the same group or
class.
John Hancock will make any reduction in charges or fees according to its own
rules in effect at the time an application for a Contract is approved. John
Hancock reserves the right to change these rules from time to time. Any
variation in charges or fees will reflect differences in costs and services,
will apply uniformly to all prospective Contract purchasers in the group or
class, and will not be unfairly discriminatory to the interests of any Owner.
PREMIUM OR SIMILAR 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, John Hancock pays a tax on each
premium payment at the time it is made. John Hancock will deduct a charge for
these taxes from the Accumulated Value of the Contract at the time of
annuitization, death, surrender, or withdrawal. Such a charge is equal to the
applicable premium tax percentage stated above times the amount of Accumulated
Value that is applied to an Annuity Option, surrendered, withdrawn, or at death.
The net economic effect of this procedure is not significantly different than if
John Hancock deducted the premium tax from each premium payment when received.
The charges described above (exclusive of taxes) and the Contracts' annuity
purchase rates will apply for the duration of each Contract and, except as noted
above, will not be increased by John Hancock. However, these charges do not
include all of the expenses which may be incurred for the account of Owners and
Annuitants. Additional charges will be made directly to the Account for taxes,
if any, based on the income of, capital gains of, assets in, or the existence
of, the Account and interest on funds borrowed. In addition, John Hancock
reserves the right to deduct premium taxes from premiums when paid. Moreover,
the Account purchases and redeems shares of the Fund at net asset value, a value
which reflects the deduction from the assets of the Fund of its investment
management fee and of certain operating expenses described briefly under
"Summary Information."
THE CONTRACTS
The descriptions herein are based on certain provisions of the Contracts
offered by this Prospectus. Reference should be made to the actual Contracts and
to the terms and limitations of any tax qualified plan which is to be funded by
such Contracts. Tax qualified plans are subject to several requirements and
limitations which may affect the terms of any particular Contract or the
advisability of taking certain action permitted thereby.
PURCHASE OF CONTRACTS
The marketing representative will assist in the completion of the application
for the Contract and will be responsible for its transmittal, together with the
necessary purchase payment, to John Hancock's Servicing
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Office. If the application is complete and the Contract applied for is suitable,
the Contract will be issued and thereafter delivered by the marketing
representative. If the completed application is received in proper order, the
initial purchase payment accompanying the completed application is applied
within two business days after receipt. If an initial purchase payment is not
applied within five business days after receipt, it will be refunded unless John
Hancock has received the consent of the applicant to retain the purchase payment
until receipt of information necessary to complete the issuance of the Contract.
The initial purchase payment must be at least $5,000 ($1,000 for individual
retirement accounts and $50 for all other qualified plans) or $500 if made
pursuant to the Annuity Direct Deposit Program; subsequent payments must be at
least $50 in amount, except where otherwise permitted by John Hancock. Maximum
transfers and payments to any one subaccount in a single Contract Year are
$500,000, ($100,000 into the Fixed Account after the initial premium). Increases
in purchase payments beyond the foregoing limits may be made only with John
Hancock's written consent. While the Annuitant is living and the Contract is in
force, purchase payments may be made at any time before maturity, except that no
new purchase payments may be made after the Annuitant's 85th birthday. These
limits may be waived by John Hancock.
THE ACCUMULATION PERIOD
ACCUMULATION SHARES
Net purchase payments are allocated by John Hancock to any one or more of the
subaccounts or the Fixed Account or allocated among the subaccounts and the
Fixed Account in the proportion specified in the application for the Contract or
as directed by the Owner from time to time. Any change in the election will be
effective as to purchase payments made after the receipt by John Hancock at its
Servicing Office of notice in form satisfactory to John Hancock.
Each net purchase payment allocated to a subaccount purchases Accumulation
Shares of that subaccount at the value of such shares next determined after the
receipt of such net purchase payment at the Servicing Office of John Hancock.
See "Variable Account Valuation Procedures." The number of Accumulation Shares
of a subaccount purchased with a specific purchase payment will be determined by
dividing the net purchase payment by the value of an Accumulation Share in that
subaccount when the net purchase payment is applied. The value of the
Accumulation Shares so purchased will vary in amount thereafter, depending upon
the investment performance of the subaccount and the charges and deductions made
against the subaccount.
VALUE OF ACCUMULATION SHARES
At any date prior to a Contract's maturity date, the total value of the
Accumulation Shares in a subaccount which have been credited to a Contract can
be computed by multiplying the number of such Accumulation Shares by the
appropriate Accumulation Share Value in effect for such date.
TRANSFERS TO OR FROM SUBACCOUNTS
The Owner may elect to transfer all or any part of the Accumulation Shares or
Annuity Units credited to a Contract from one subaccount to another subaccount
or from one subaccount to the Fixed Account or from the Fixed Account to a
subaccount. Any such transfer will result in the redemption and/or purchase of
Accumulation Shares or Annuity Units, whichever is applicable, on the basis of
the respective values next determined after receipt of notice satisfactory to
John Hancock at its Servicing Office. No transfer described in this paragraph
may be made on or within 30 days prior to the date of maturity. Up to 12 such
transfers may be made in any Contract Year without charge. John Hancock reserves
the right to assess a charge of up to $25 per transfer for each additional
transfer beyond the twelve free transfers. Currently, the charge for additional
transfers is zero. A transfer pursuant to the dollar-cost averaging feature
discussed below counts toward the twelve free transfers per year. A maximum of
$1,000,000 may be transferred from one subaccount to another
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in any Contract Year. (For Fixed Account transfers, see "Appendix--Fixed Account
and Fixed Account Value.")
An Owner may request a transfer in writing or, once a written telephone
transfer authorization form is completed by the Owner, the Owner may request a
transfer by telephoning John Hancock at 800 REAL LIFE (800-732-5543) or sending
a written request via the John Hancock fax machine at 617-886-3048. Any written
request should include the Owner's name, daytime telephone number, and Contract
number as well as the names of the subaccounts from which and to which money
will be transferred. John Hancock reserves the right to modify, suspend, or
terminate telephone transfers at any time without notice to the Owners. If the
fax request option becomes unavailable, another means of telecommunication will
be substituted.
An Owner who authorizes telephone transfers will be liable for any loss,
expense or cost arising out of any unauthorized or fraudulent telephone transfer
instructions which John Hancock reasonably believes to be genuine, unless such
loss, expense or cost is the result of John Hancock's mistake or negligence.
John Hancock employs procedures which provide safeguards against the execution
of unauthorized transfers, and which are reasonably designed to confirm that
transfer instructions received by telephone are genuine. These procedures
include requiring personal identification, tape recording calls, and providing
written confirmation to the Owner. If John Hancock does not employ reasonable
procedures to confirm that instructions communicated by telephone are genuine,
it may be liable for any loss due to unauthorized or fraudulent instructions.
DOLLAR-COST AVERAGING
The Owner may elect to have automatically transferred on a monthly, quarterly,
semi-annual or annual basis, at no cost, part of the Accumulation Shares from
any one of the variable subaccounts into one or more of the other subaccounts.
The minimum amount of each transfer is $250. Automatic transfers into the Fixed
Account are not permitted. To begin the program, the Accumulated Value of the
Contract must be at least $15,000. The program continues until the earlier of
12, 24, or 36 (as chosen by the Owner) months or full liquidation of the
variable subaccount from which the transfers are being made. Transfers may be
made via telephone or facsimile machine provided a telephone authorization form
has been completed by the Owner. John Hancock reserves the right to terminate
the dollar-cost averaging program at any time. The dollar-cost averaging feature
cannot be elected if the Owner is currently participating in the systematic
withdrawal plan, discussed below.
SURRENDER OF CONTRACT; PARTIAL WITHDRAWALS
Prior to a Contract's date of maturity, if the Annuitant is living, an Owner
may (i) surrender the Contract for a cash payment representing all of the
Surrender Value of the Contract or (ii) withdraw a portion of Accumulated Value
of the Contract. The appropriate number of Accumulation Shares will be redeemed
at their value next determined after the receipt by John Hancock at its
Servicing Office of notice in form satisfactory to John Hancock. Unless directed
otherwise by the Owner, that portion of the Accumulated Value of the Contract
redeemed in a partial withdrawal (which includes any Withdrawal Charge) will be
redeemed in each subaccount and in the Fixed Account in the same proportion as
the Accumulated Value of the Contract is then allocated among the subaccounts
and the Fixed Account. The redemption value may be more or less than the net
purchase payments applied under the Contract to purchase the Accumulation
Shares, depending upon the market value of the Fund shares held in the
subaccount at the time. The cash payment the Owner will receive will be equal to
the redemption value minus any applicable Withdrawal Charge and any unpaid
contract fees. The cash payment will be made in a single sum, ordinarily within
seven days after receipt of such notice. As described under "Miscellaneous
Provisions--Deferment of Payment," however, redemption and payment may be
delayed under certain circumstances. See "Federal Income Taxes" for possible
adverse tax consequences of certain surrenders and partial withdrawals.
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Any request for a surrender or partial withdrawal should be mailed to the
Servicing Office, Post Office Box 111, Boston, MA 02117.
A partial withdrawal is not permitted in an amount less than $100 or if the
total Accumulated Value of a Contract remaining after the withdrawal would be
less than $1000. A partial withdrawal is not a loan and, once made, cannot be
repaid.
In the event the Accumulated Value of the Contract becomes zero, the Contract
will terminate.
SYSTEMATIC WITHDRAWAL
The Owner may elect to participate in a systematic withdrawal plan, which
enables the Owner to pre-authorize a periodic exercise of the contractual
withdrawal rights described above. Owners entering into such a plan instruct
John Hancock to withdraw a level dollar amount from the Contract on a monthly,
quarterly, semi-annual, or annual basis. The amount deducted will result in the
cancellation of Accumulation Shares from each applicable subaccount in the ratio
that the value of each subaccount bears to the total Accumulated Value.
Currently, systematic withdrawal is available to Owners who have a Contract
Value of $25,000 or more. The Company reserves the right to modify the
eligibility rules or other terms and conditions of this program at any time,
without notice. The minimum withdrawal is $100. Systematic withdrawals are
subject to the Withdrawal Charge described above. The systematic withdrawal will
terminate upon cancellation by the Owner or in the event that the Accumulated
Value of the Contract becomes $5,000 or less. Systematic withdrawal is not
available to Contracts participating in the Dollar-Cost Averaging program. There
may be tax consequences associated with the systematic withdrawal plan. (See
"Federal Income Taxes.")
DEATH BENEFIT BEFORE DATE OF MATURITY
If the Annuitant dies before the date of maturity or the surrender or
termination of a Contract, a death benefit is payable. The death benefit will be
the greatest of (a) the Accumulated Value of the Contract next determined
following receipt at the Servicing Office of John Hancock of due proof of death,
together with any required instructions as to method of settlement, (b) the
amount of the purchase payments made under the Contract reduced by all prior
partial withdrawals (including Withdrawal Charges), if any, or (c) in states
where permitted by law, the highest Accumulated Value of the Contract as of any
fifth interval Contract anniversary preceding the Contract anniversary nearest
the Annuitant's 81st birthday, plus the purchase payments made under the
Contract, adjusted for partial withdrawals (including any Withdrawal Charges),
since such Contract anniversary.
In making the computation described in clause (c) of the preceding sentence,
the Accumulated Value on the fifth Contract anniversary, and on every fifth
anniversary thereafter (until the Contract anniversary preceding the Contract
anniversary that is closest to the Annuitant's 81st birthday) is adjusted for
subsequent premium payments and withdrawals and Withdrawal Charges. The highest
such adjusted Accumulated Value is then compared to the amounts described in
clauses (a) and (b), above. The greatest of these three amounts forms a minimum.
This minimum or "floor" is first established on the fifth Contract anniversary
and may increase on future fifth interval Contract anniversaries as a result of
additional premium payments or favorable investment performance, but it will
never decrease unless partial withdrawals are made. This "stepped-up" death
benefit is provided at no additional cost to the Owner. In the event that the
Owner is different from the Annuitant, the distribution rules required by the
Code will apply, as discussed below.
Payment of the death benefit will be made in a single sum to the beneficiary
designated by the Owner prior to the Annuitant's death unless an optional method
of settlement has been elected by the Owner. If an optional method of settlement
has not been elected by the Owner, the beneficiary may elect an optional method
of settlement in lieu of a single sum. No deduction is made for sales or other
expenses upon such election. Payment will be made in a single sum in any event
if the death benefit is less than $5000. (See
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"Annuity Period--Annuity Options".) If there is no surviving beneficiary, the
Owner, or his or her estate is the beneficiary.
The Code requires certain distribution provisions to be included in any
Contract used to fund other than a tax qualified plan (See "Federal Income
Taxes"). Failure to include the required distribution provisions results in the
Contract not being treated as an annuity for Federal tax purposes. The Code
imposes comparable distribution requirements for Contracts used to fund tax
qualified plans. These required provisions for tax qualified plans will be
reflected by means of separate disclosures and endorsements furnished by John
Hancock to Owners.
The Code distribution requirements are expected to present no practical
problems when the Annuitant and Owner are the same person. Nevertheless, all
Owners of Contracts not used to fund a tax qualified plan and IRA Contract
Owners should be aware that the following distribution requirements are
applicable notwithstanding any provision to the contrary in the Contract (or in
this prospectus) relating to payment of the death benefit or death of the
Annuitant.
If the Owner dies on or after annuity payments have begun, any remaining
benefit must be paid out at least as rapidly as under the method of making
annuity payments then in effect. If the Owner dies before annuity payments have
begun: (a) if the beneficiary is the surviving spouse of the Owner, the
beneficiary may continue the Contract in force as Owner; or (b) if the
beneficiary is not the surviving spouse of the Owner, or if the beneficiary is
the surviving spouse of the Owner but does not choose to continue the Contract,
the entire interest in the Contract on the date of death of the Owner must be:
(i) paid out in full within 5 years of the Owner's death, or (ii) applied in
full towards the purchase of a life annuity on the beneficiary with payments
commencing within 1 year of the Owner's death.
The Code imposes comparable distribution requirements on tax qualified plans.
If the Owner is not the Annuitant, "the entire interest in the Contract on the
date of death of the Owner" is equal to the Surrender Value if paid out in full
within five years of the Owner's death, or is equal to the Accumulated Value if
applied in full towards the purchase of a life annuity on the beneficiary with
payments commencing within one year of the Owner's death.
Note that "the entire interest in the Contract on the date of death of the
Owner" which is payable if the Owner dies before annuity payments have begun may
be an amount less than the death benefit which would have been payable if the
Annuitant had died instead. Note also that notice should be furnished promptly
to John Hancock upon the death of the Owner.
THE ANNUITY PERIOD
During the annuity period, the total value of any one Contract must be
allocated among no more than four "accounts" (i.e., the subaccounts and/or the
Fixed Account). Amounts allocated to the Fixed Account will provide annuity
payments on a fixed basis; amounts allocated to the subaccounts will provide
annuity payments on a variable basis. If more than four accounts are being used
on the maturity date, John Hancock will divide the total Accumulated Value of
the Contract proportionately among the four accounts with the largest
Accumulated Values. Only variable annuity payments are described in this
prospectus.
Annuity payments will commence on the date of maturity of the Contract if the
Annuitant is then living and the Contract is then in force. Each Contract will
provide at the time of its issuance for a Life Annuity with Ten Years Certain.
Under this form of annuity, variable annuity payments are made monthly to the
Annuitant for life and, if the Annuitant dies within ten years after the date of
maturity of the Contract, the payments remaining in the ten-year period will be
made to the contingent payee, subject to the terms of any supplementary
agreement issued. (NOTE: The terminology used in a supplementary agreement may
differ
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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 Annuitant or the Owner 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 Owner, as described in "Annuity Options," prior to the date of
maturity of the Contract. Once a given form of annuity takes effect, it may not
be changed.
If the initial monthly annuity payment under a Contract would be less than
$50, John Hancock may make a single sum payment equal to the total Surrender
Value of the Contract on the date the initial payment would be payable, in place
of all other benefits, or, if agreed to by the Owner, make periodic payments at
quarterly, semi-annual or annual intervals in place of monthly payments.
Each Contract specifies a provisional date of maturity at the time of its
issuance, which date may be no earlier than six months after the date the first
payment is applied to the Contract. The Owner may subsequently elect a different
date of maturity, however. Unless otherwise permitted by John Hancock, such
subsequently-elected date may be no earlier than six months after the date the
first payment is applied to the Contract, nor later than the maximum maturity
age specified in the Contract. The election is made by written notice received
by John Hancock at its Servicing Office before the provisional date of maturity
and at least 31 days prior to the date of maturity. If a date of maturity
different from the provisional date of maturity is not elected by the Owner, the
provisional date of maturity shall be the date of maturity of the Contract.
Particular care should be taken in electing the date of maturity of Contracts
issued under tax qualified plans. (See "Federal Income Taxes.")
VARIABLE MONTHLY ANNUITY PAYMENTS
Variable monthly annuity payments under a Contract are determined by
converting each subaccount's Accumulation Shares credited to the Contract (less
any applicable premium tax) into the respective Annuity Units of each subaccount
on the date of maturity of the Contract or some other date elected for
commencement of variable annuity payments. See "Calculation of Annuity Units."
The amount of each annuity payment after the first payment will depend on the
investment performance of the subaccounts being used. If the actual net
investment return (after deducting all charges) of a subaccount during the
period between the dates for determining two monthly payments based on that
subaccount exceeds the "assumed investment rate" (explained below), the latter
monthly payment will be larger than the former. On the other hand, if the actual
net investment return is less than the assumed investment rate, the latter
monthly payment will be smaller than the former.
ASSUMED INVESTMENT RATE
The assumed investment rate for all Contracts will be3 1/2% per year except as
provided below. The assumed investment rate is significant in determining the
amount of the initial variable monthly annuity payment and the amount by which
subsequent variable monthly payments are more or less than the initial variable
monthly payment.
Where applicable state law so provides, an Owner may elect a variable annuity
option with a different assumed investment rate, not in excess of 6%, if such a
rate is made available by John Hancock in the Owner's state. Election of a
higher assumed investment rate produces a larger initial annuity payment but
also means that eventually the monthly annuity payments would be smaller than if
a lower assumed investment rate had been elected.
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CALCULATION OF ANNUITY UNITS
Accumulation Shares are converted into Annuity Units by first multiplying the
number of each subaccount's Accumulation Shares credited to the Contract on the
date of conversion by the appropriate Accumulation Share Value as of ten
calendar days prior to the date the initial variable monthly annuity payment is
due. For each subaccount the resulting value (less any applicable premium tax)
is then multiplied by the applicable annuity purchase rate, which reflects the
age and possibly sex of the Annuitant and the assumed investment rate, specified
in the Contract. This computation determines the amount of each subaccount's
initial monthly variable annuity payment to the Annuitant. The number of each
subaccount's Annuity Units to be credited to the Contract is then determined by
dividing the amount of each subaccount's initial variable monthly annuity
payment by each subaccount's Annuity Unit Value as of ten calendar days prior to
the date the initial payment is due.
ANNUITY OPTIONS
The Owner may elect an Annuity Option during the lifetime of the Annuitant by
written notice received by John Hancock at its Servicing Office prior to the
date of maturity of the Contract. If no option is selected, Option A with Ten
Years Certain will be used. A beneficiary entitled to payment of a death benefit
in a single sum may, if no election has been made by the Owner prior to the
Annuitant's death, elect an Annuity Option by written notice received by John
Hancock at its Servicing Office prior to the date the proceeds become payable.
The Owner may also elect that the Surrender Value be applied to an Annuity
Option at the time of a full surrender of a Contract that has been outstanding
for at least 6 months. However, if the Accumulated Value of the Contract to be
applied is less than $5000 then (i) in the event of annuitization, Option A With
Ten Years Certain will be used and (ii) in the event of death or surrender, no
annuity option will be available. Among the options available are the following
two basic Annuity Options.
OPTION A: LIFE ANNUITY WITH FIVE, TEN OR TWENTY YEARS CERTAIN
Variable monthly payments will be made for a designated period of 5, 10 or 20
years and thereafter as long as the payee lives, with the guarantee that if the
payee dies prior to the end of the 5, 10 or 20 year period, whichever is
applicable, payments will continue for the remainder of the guaranteed period to
a contingent payee, subject to the terms of any supplementary agreement issued.
OPTION B: LIFE ANNUITY WITHOUT REFUND
Variable monthly payments will be made to the payee as long as he lives. No
minimum number of payments is guaranteed.
"Option A: Life Annuity With Five Years Certain" and "Option B: Life Annuity
Without Refund" are not available if the Annuitant is more than 85 years of age
on the date of maturity of the Contract.
OTHER CONDITIONS
John Hancock reserves the right at its sole discretion to make available to
Owners and other payees optional methods of payment in addition to the Annuity
Options described in this Prospectus and the applicable Contract.
Federal income tax requirements currently applicable to H.R. 10 and individual
retirement annuity plans provide that the period of years guaranteed under
Option A cannot be any greater than the joint life expectancies of the payee and
his or her designated beneficiary.
If the Owner dies on or after annuity payments have begun, any remaining
benefit must be paid out at least as rapidly as under the method of making
annuity payments then in effect. The Code imposes a comparable distribution
requirement for Contracts used to fund tax qualified plans.
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VARIABLE ACCOUNT VALUATION PROCEDURES
VALUATION DATE--A Valuation Date is any date on which the New York Stock
Exchange is open for trading and on which the Fund values its shares. On any
date other than a Valuation Date, the Accumulation Share Value or Annuity Unit
Value will be the same as that on the next following Valuation Date.
VALUATION PERIOD--A Valuation Period is that period of time from the beginning
of the day following a Valuation Date to the end of the next following Valuation
Date.
ACCUMULATION SHARE VALUE--The Accumulation Share Value is calculated
separately for each subaccount. The value of one Accumulation Share on any
Valuation Date is determined for each subaccount by multiplying the immediately
preceding Accumulation Share Value by the applicable Net Investment Factor for
the Valuation Period ending on such Valuation Date.
ANNUITY UNIT VALUE--The Annuity Unit Value is calculated separately for each
subaccount. The value of one Annuity Unit on any Valuation Date is determined
for each subaccount by first multiplying the immediately preceding Annuity Unit
Value by the applicable Net Investment Factor for the Valuation Period ending on
such date and then multiplying this product by an adjustment factor which will
neutralize the assumed investment rate used in determining the amounts of
annuity payable. The adjustment factor for a Valuation Period of one day for
Contracts with an assumed investment rate of 3 1/2% per year is .99990575. The
assumed investment rate is neutralized by applying the adjustment factor so that
the variable annuity payments will increase only if the actual net investment
rate of the subaccount exceeds 3 1/2% per year and will decrease only if it is
less than 3 1/2% per year.
NET INVESTMENT FACTOR--The Net Investment Factor for each subaccount for any
Valuation Period is equal to 1 plus the applicable net investment rate for such
Valuation Period. A Net Investment Factor may be more or less than 1. The net
investment rate for each subaccount for any Valuation Period is equal to (a) the
accrued investment income and capital gains and losses, whether realized or
unrealized, of the subaccount for such Valuation Period less (b) the sum of a
deduction for any applicable income taxes and, for each calendar day in the
Valuation Period, a deduction of 0.003836% of the value of each subaccount at
the beginning of the Valuation Period, the result then being divided by (c) the
value of the total net assets of each subaccount at the beginning of the
Valuation Period.
ADJUSTMENT OF UNITS AND VALUES--John Hancock reserves the right to change the
number and value of the Accumulation Shares or Annuity Units or both credited to
any Contract, without the consent of the Owner or any other person, provided
strict equity is preserved and the change does not otherwise affect the
benefits, provisions or investment return of the Contract.
MISCELLANEOUS PROVISIONS
RESTRICTION ON ASSIGNMENT
In order to qualify for favorable tax treatment, certain Contracts may not be
sold, assigned, discounted or pledged as collateral for a loan or as security
for the performance of an obligation or for any other purpose, to any person,
unless the Owner is the trustee of a trust described in Section 401(a) of the
Code. Because an assignment, pledge or other transfer may be a taxable event an
Owner should consult a competent tax adviser before taking any such action.
DEFERMENT OF PAYMENT
Payment of the value of any Accumulation Shares in a single sum upon a
surrender or partial withdrawal will ordinarily be made within seven days after
receipt of the written request therefor by John Hancock at its Servicing Office.
However, redemption may be suspended and payment may be postponed at times (a)
when
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the New York Stock Exchange is closed, other than customary weekend and holiday
closings, (b) when trading on that Exchange is restricted, (c) when an emergency
exists as a result of which disposal of securities in a subaccount is not
reasonably practicable or it is not reasonably practicable to determine the
value of the net assets of a subaccount or (d) when a governmental body having
jurisdiction over the Account by order permits such suspension. Rules and
regulations of the Securities and Exchange Commission, if any are applicable,
will govern as to whether conditions described in (b) or (c) exist.
RESERVATION OF RIGHTS
John Hancock reserves the right to add or delete subaccounts, to change the
underlying investments of any subaccount, to operate the Account in any form
permitted by law and to terminate the Account's registration under the 1940 Act
if such registration should no longer be legally required. Certain changes may,
under applicable laws and regulations, require notice to or approval of Owners.
Otherwise, changes do not require such notice or approval.
OWNER AND BENEFICIARY
The Owner has the sole and absolute power to exercise all rights and
privileges under the Contract, except as otherwise provided by the Contract or
by written notice of the Owner. The Owner and the beneficiary are designated in
the application and may be changed by the Owner, effective upon receipt of
written notice at the Servicing Office, subject to the rights of any assignee of
record, any action taken prior to receipt of the notice and certain other
conditions. While the Annuitant is alive, the Owner may be changed by written
notice. The beneficiary may be changed by written notice no later than receipt
of due proof of the death of the Annuitant. The change will take effect whether
or not the Owner or the Annuitant is then alive.
FEDERAL INCOME TAXES
THE ACCOUNT AND JOHN HANCOCK
John Hancock is taxed as a life insurance company under the Code. The Account
is part of John Hancock's total operations and is not taxed separately as a
"regulated investment company" or otherwise.
The Contracts permit John Hancock to charge against the Account any taxes, or
provisions for taxes, attributable to the operation or existence of the
Contracts or the Account. No specific charge is currently made against the
Account for any such taxes. John Hancock pays such taxes out of its general
account assets which may consists of, among other things, proceeds derived from
mortality and expense risk charges deducted from the Account. Currently, John
Hancock does not anticipate making a charge for income and other taxes because
of the level of such taxes. If the level of current tax is increased, or is
expected to increase in the future, John Hancock reserves the right to make such
a separate charge in the future.
John Hancock assumes no responsibility for determining whether a particular
retirement plan satisfies the applicable requirements of the Code or whether a
particular employee is eligible for inclusion under a plan.
CONTRACTS PURCHASED OTHER THAN TO FUND A TAX QUALIFIED PLAN
The Owner or Other Payee
The Contracts are considered annuity contracts under Section 72 of the Code.
Currently no Federal income tax is payable on increases in Contract Value until
payments are made to the Owner or other payee under such Contract. However, a
Contract owned other than by a natural person is not generally an annuity for
tax purposes and any increase in value thereunder is taxable as ordinary income
as accrued.
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When payments under a Contract are made in the form of an annuity, the amount
of each payment is taxed to the Owner or other payee as ordinary income to the
extent that such payment exceeds an allocable portion of the Owner's "investment
in the contract" (as defined in the Code). In general, an Owner's "investment in
the contract" is the aggregate amount of purchase payments made by him, reduced
by any amounts previously distributed from the Contract that were not subject to
tax. The portion of each variable annuity payment to be excluded from income is
determined by dividing the "investment in the contract," adjusted by any refund
feature, by the number of periodic payments anticipated during the time that
periodic payments are to be made. In the case of a fixed annuity payment, the
amount to be excluded in each year is determined by dividing the "investment in
the contract," adjusted by any refund feature, by the amount of "expected
return" during the time that periodic payments are to be made, and then
multiplying by the amount of the payment.
When a payment under a Contract is made in a single sum, the amount of the
payment is taxed as ordinary income to the Owner or other payee to the extent it
exceeds the Owner's "investment in the contract."
Partial Withdrawals Before Annuity Starting Date
When a payment under a Contract, including a payment under a systematic
withdrawal plan, is less than the amount that would be paid upon the Contract's
complete surrender and such payment is made prior to the commencement of annuity
payments under the Contract, part or all of the payment (the partial withdrawal)
may be taxed to the Owner or other payee as ordinary income.
On the date of the partial withdrawal, if the cash value of the Contract is
greater than the investment in the Contract, any part of such excess value so
withdrawn is subject to tax as ordinary income.
If an individual assigns or pledges any part of the value of a Contract, the
value so pledged or assigned is taxed as ordinary income to the same extent as a
partial withdrawal.
Penalty for Premature Withdrawals
In addition to being included in ordinary income, the taxable portion of any
withdrawal may be subject to a 10-percent penalty tax. The penalty tax does not
apply to payments made to the Owner or other payee after the Owner attains age
59 1/2, or on account of the Owner'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.
DIVERSIFICATION REQUIREMENTS
Each of the Portfolios of the Fund intends to qualify as a regulated
investment company under Subchapter M of the Code and will have to meet the
investment diversification tests of Section 817(h) of the Code and the
underlying regulations. The Treasury Department and the Internal Revenue Service
may, at some future time, issue a ruling or a regulation presenting situations
in which it will deem "investor control" to be present over the assets of the
underlying Portfolios, causing the Owner to be taxed currently on income
credited to the Contracts. In such a case, John Hancock reserves the right to
amend the Contract or the choice of underlying Portfolios to avoid current
taxation to the Owners.
CONTRACTS PURCHASED TO FUND A TAX QUALIFIED PLAN
Withholding on Eligible Rollover Distributions
Recent legislation requires 20% withholding on certain distributions from tax
qualified plans. An Owner wishing to rollover his entire distribution should
have it paid directly to the successor plan. Otherwise, the
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Owner's distribution will be reduced by the 20% mandatory income tax. Consult a
qualified tax adviser before taking such a distribution.
Contracts Purchased under Individual Retirement Annuity Plans (IRA)
In general, the maximum amount of purchase payments deductible each year with
respect to an individual retirement annuity contract (as defined in Section 408
of the Code) issued on the life of an eligible purchaser is the lesser of $2,000
or 100% of compensation includible in gross income. A person may also purchase a
contract for the benefit of his or her spouse (including, for example, a
homemaker who does not work outside the home). Where an individual elects to
deduct amounts contributed on his or her own behalf and on behalf of a spouse,
the maximum amount of purchase payments deductible is $2,000 for each spouse if
their combined compensation is at least equal to the contributed amount.
However, not more than $2,000 can be allocated to either person's account. If an
individual and his or her spouse is an active participant in an
employer-sponsored retirement plan, the individual is permitted to make a
deductible purchase payment only if the adjusted gross incomes of the individual
and his or her spouse are below certain amounts.
No deduction is allowed for purchase payments made in or after the taxable
year in which the Owner has attained the age 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 partial withdrawal, the
payment is taxed as ordinary income.
IRS required minimum distributions must begin no later than April 1 of the
year following the year in which the Owner attains age 70 1/2. The Owner may
incur adverse tax consequences if a distribution on surrender of the Contract or
by partial withdrawal is made prior to his attaining age 59 1/2, except in the
event of his death or total disability or certain other circumstances.
Contracts Purchased under SIMPLE Retirement Accounts (SIMPLE IRAs)
In general, premium payments may be made to a SIMPLE IRA retirement plan
established by a small business employee who employs 100 or fewer employees on
any day during the preceding calendar year. An eligible employee may specify the
percentage of compensation the employee elects to contribute not to exceed
$6,000 a year. The employer must elect to make a matching contribution of up to
3% of the employee's compensation or a non-elective contribution equal to 2% of
the employee's compensation.
Contracts Purchased under Non-Deductible IRAs (Roth IRAs)
In general, for years after 1997, an individual may make purchase payments of
up to $2,000 each year for a new type of non-deductible IRA, known as a Roth
IRA. This $2,000 maximum on purchase payments applies to all of an individual's
annual IRA contributions (deductible and non-deductible), except for rollover
contributions. The maximum amount that can be made to a Roth IRA is phased out
for adjusted gross incomes between $95,000 and $110,000 in the case of single
taxpayers, between $150,000 and $160,000 in the case of married taxpayers filing
jointly, and between $0 and $15,000 in the case of married taxpayers filing
separately.
"Qualified distributions" for Roth IRAs are not includible in gross income or
subject to the penalty tax on early withdrawals. As defined in Section 408A of
the Code, a qualified distribution requires that the individual has held the
Roth IRA for at least five years and, in addition, that the distribution is made
after the individual reaches age 59 1/2, on the individual's death or
disability, or to a qualified first-time home purchaser, subject to a $10,000
lifetime maximum, for the individual, a spouse, a child, a grandchild, or an
ancestor. Non-qualified distributions are treated as being made from
contributions first. When all distributions exceed the amount of contributions,
the excess is includible in gross income. The age 70 1/2 pre-death distribution
rules do not apply to Roth IRAs.
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An individual may make a rollover contribution from a non-Roth IRA, unless the
individual has adjusted gross income over $100,000 or the individual is a
married taxpayer filing a separate return. The individual must pay tax on any
portion of the IRA being rolled over that represents income on a previously
deductible IRA contribution. For rollovers in 1998, the individual may pay that
tax ratably in 1998 and over the succeeding three years. There are no similar
limitations on rollovers from a Roth IRA to another Roth IRA.
Contracts Purchased under Section 403(b) Plans (TSA)
Purchase payments made by an employer which is a public school system or a
tax-exempt organization described in Section 501(c)(3) of the Code under annuity
purchase arrangements described in Section 403(b) of the Code are not taxable
currently to the Owner, to the extent that the aggregate of such amounts does
not exceed the Owner's "exclusion allowance" (as defined in the Code). In
general, an Owner's "exclusion allowance" is determined by multiplying 20% of
his "includible compensation" (as defined in the Code) by the number of years of
his service with the employer and then subtracting from that product the
aggregate amount of purchase payments previously excluded from income and
certain other employer payments to retirement plans in which the Owner is a
participant. Additional limitations applicable to purchase payments are
described in Section 415 of the Code. Deferrals under all plans made at the
election of the Owner generally are limited to an aggregate of $9500 annually.
When payments under a Contract are made in the form of an annuity, such
payments are taxed to the Owner or other payee under the same rules that apply
to such payments under corporate plans (discussed below) except that five-year
averaging and capital gain phase-out are not available.
When payment under a Contract is made in a single sum, such as on surrender of
the contract or by partial withdrawal, the taxable portion of the payment is
taxed as ordinary income and the penalty for premature withdrawals may be
applicable.
Ordinarily an Owner in a Section 403(b) plan does not have any "investment in
the contract" and, thus, any distribution is fully taxed as ordinary income.
Distributions are prohibited before the Owner is age 59 1/2, except on the
Owner's separation from service, death, or disability and except with respect to
distributions attributable to assets held as of December 31, 1988. This
prohibition does not (1) preclude transfers and exchanges to other products that
qualify under Section 403(b) or (2) restrict withdrawals of certain amounts
attributable to pre-January 1, 1989, premium payments.
Contract Loans (Section 403(b) Qualified Contracts Only)
During the Accumulation Period, an Owner may request a loan from the
Accumulated Value of the Contract. If the loan meets the amount and repayment
requirements described below, it will not be reported to the Internal Revenue
Service as a taxable distribution. Forms provided by John Hancock must be used
to apply for a Contract loan. An Owner can obtain these forms by calling
800-REAL LIFE (800-732-5543) or writing to the Servicing Office, P.O. Box 111,
Boston, MA 02117. At the time the loan is issued, John Hancock will provide the
Owner with a detailed loan agreement containing provisions to which the loan
will be subject.
Any loan will be secured by a security interest in the Contract. The loan
amount must be at least $2,500 and may not, at the date of the loan (defined
below), exceed the lesser of: (a) 50% of the Accumulated Value of the Contract;
(b) $50,000; or (c) the sum of 100% of the Accumulated Value of the Subaccounts
and 20% of the Fixed Account Value. That portion of the loan amount up to 20% of
the Accumulated Value of the Contract on the date of the loan will be deducted
from each Subaccount and the Fixed Account in the same proportion as the
Accumulated Value of the Contract is allocated among the Subaccounts and the
Fixed Account on the date of the loan. Any loan amount in excess of 20% of the
Accumulated Value of the Contract
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will be deducted from each Subaccount in the same proportion as the Accumulated
Value of such Subaccount bears to the total Accumulated Value of all the
Subaccounts on the date of the loan.
The total loan amount will be transferred to the Loan Collateral Account on
the date of the loan. The Loan Collateral Account is held in John Hancock's
general investment account and will accrue interest at an effective rate that is
1% less than the Loan Interest Rate described below. The interest accrued on the
Loan Collateral Account will be transferred back to the Subaccounts and the
Fixed Account on each Contract anniversary and will be allocated to each
Subaccount and the Fixed Account in the same proportion as the Accumulated Value
of the Contract is then allocated among the Subaccounts and the Fixed Account.
The date of the loan will be the Valuation Date on which John Hancock receives
at its Home Office all necessary documentation assigning the Contract as the
security for the loan. If such receipt occurs on a date other than a Valuation
Date, the date of the loan will be the Valuation Date next following the date on
which such receipt occurs.
The Loan Interest Rate for this Contract will be determined annually by John
Hancock. Such determination will be made in the calendar month immediately
preceding the calendar month in which the Contract anniversary occurs. The Loan
Interest Rate will apply to any loan made during the Contract year following the
date of determination. Except as otherwise required by applicable state law, the
rate set will not exceed the greater of (a) Moody's Corporate Bond Yield
Average--Monthly Average Corporates, (as published by Moody's Investors Service)
or any successor thereto, for the calendar month which is two months before the
month in which the date of determination occurs or (b) 5%. If Moody's Corporate
Bond Yield Average--Monthly Average Corporates is no longer published, John
Hancock reserves the right to select a substitute that it deems appropriate,
subject to applicable law, regulation, or other state requirement. When a new
rate is determined: (a) John Hancock may increase the previous rate if the
increase would be at least 1/2%; and (b) John Hancock must reduce the previous
rate if the decrease would be at least 1/2%. John Hancock will notify the Owner
of the applicable Loan Interest Rate at the time a loan is made. The Loan
Interest Rate for any given loan will be fixed for the entire loan period.
Accrued interest on a loan will be added to the loan daily and will bear
interest from that date at the Loan Interest Rate.
Repayment of principal and interest will be amortized in level installments
payable no less frequently than quarterly over a period of no more than five
years, except as provided by law. The repayment due dates and installment
amounts will be provided in a repayment schedule sent to the Owner prior to the
first installment due date. The principal portion of each loan repayment will be
transferred back to the Subaccounts and the Fixed Account at the time of each
loan repayment, and will be allocated to each Subaccount and the Fixed Account
in the same proportion as the Accumulated Value of the Contract is then
allocated among the Subaccounts and the Fixed Account.
Prepayment of the entire loan will be permitted. In addition, loan repayments
in excess of regularly scheduled repayments that do not repay the entire Loan
Balance (outstanding loan amount plus loan interest accrued to date) will be
applied to reduce the length of the loan. Such excess loan repayments do not
replace the regularly scheduled loan payments.
If any scheduled loan repayment is not made within 90 calendar days after the
repayment due date, the Loan Balance or such other amount as required by
applicable law shall then be considered in default. To the extent that the
Accumulated Value contains (i) salary reduction contributions made on or before
December 31, 1988 and (ii) earnings credited on such contributions on or before
such date (together referred to as "pre-1988 contributions") at the time of
default, a foreclosure shall be made on such "pre-1988 contributions" with
regard to the default. That is, an amount equal to the amount in default with
respect to such "pre-1988 contributions" (including withdrawal charges and any
accrued and unpaid interest to the date of the default) will be withdrawn from
the Accumulated Value of the Contract to repay the amount in default. To the
extent that the amount in default exceeds the amount of "pre-1988
contributions," no actual foreclosure on the loan security shall be made until
the earliest of the Owner attaining age 59 1/2, separating from service, dying
or
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becoming disabled (as defined in IRC section 72(m)(7)) and prior to the
occurrence of such an event, the excess shall be considered a deemed
distribution reportable to the Owner.
If the Contract is surrendered while there is an outstanding Loan Balance or
if the Annuitant dies while there is an outstanding Loan Balance, an amount,
positive or negative, will be determined by subtracting the outstanding Loan
Balance from the Loan Collateral Account on the date of surrender or death. If
such amount is positive, it will be added to the Surrender Value or to the Death
Benefit, as applicable. If such amount is negative, it will be subtracted from
the Surrender Value or the Death Benefit, as applicable. If at any time the Loan
Balance exceeds the sum of the Surrender Value and the Loan Collateral Account,
the loan will be subject to the excessive loan balance provisions set forth in
the loan agreement.
Contract loans are subject to conditions and requirements under the Internal
Revenue Code and, where applicable, ERISA, as well as the terms of any
retirement plan in connection with which the Contract has been acquired. For
example, if loan payments are not made when due, or if John Hancock otherwise
finds it necessary to exercise its rights to use all or part of the value under
a Contract to repay a Contract loan, serious adverse tax consequences may
result. The tax and ERISA rules relating to Contract loans are complex and in
many cases unclear. For these reasons, and because the rules vary depending on
the individual circumstances of each Contract, John Hancock cautions that
employers and Owners should take particular care to consult with qualified
advisers before taking action with respect to Contract loans.
Contracts Purchased under Corporate Plans
In general, purchase payments made by a corporation under a qualified pension
or profit-sharing plan described in Section 401(a) of the Code or a qualified
annuity plan described in Section 403(a) of the Code are deductible by the
corporation and are not taxable currently to the employees.
When payments under a Contract are made in the form of an annuity, the amount
of each payment is taxed to the Annuitant or other payee as ordinary income
except in those cases where the Annuitant has an "investment in the contract"
(as defined in the Code). In general, an Annuitant's "investment in the
contract" is the aggregate amount of purchase payments made by him. If an
Annuitant has an "investment in the contract," a portion of each annuity payment
is excluded from income until the investment in the contract is recovered. The
amount to be excluded in each year, in the case of a variable annuity payment,
is determined by dividing the "investment in the contract," adjusted by any
refund feature, by the number of periodic payments anticipated during the time
that periodic payments are to be made. The calculation for fixed annuity
payments is somewhat different.
When payment under a Contract is made in a single sum or a total distribution
is made within one taxable year of the Annuitant or other payee, the amount of
the payment is taxed to the Annuitant or other payee to the extent it exceeds
the Annuitant's "investment in the contract." If such payment is made after the
Annuitant has attained age 59 1/2, or on account of his death, retirement or
other termination of employment or on account of his death after termination of
employment, five year averaging and a phase-out of capital gains treatment for
pre-1974 contributions may be available with respect to one distribution. Other
rules may be available to taxpayers who have attained age 50 prior to January 1,
1986.
IRS required minimum distributions must begin no later than April 1 of the
year following the year in which the Annuitant attains age 70 1/2 even if the
Annuitant has not retired.
Contracts Purchased under H.R. 10 Plans (Self-Employed)
Self-employed persons, including partnerships, may establish tax qualified
pension and profit-sharing plans and annuity plans for themselves and for their
employees. Generally, the maximum amount of purchase payments deductible each
year with respect to variable annuity contracts issued on the life of
self-employed persons is $30,000 or 25% of "earned income" (as defined in the
Code), whichever is less. Self-employed
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persons must also make purchase payments for their employees (who have met
certain eligibility requirements) at least at the same rate as they do for
themselves. In general, such purchase payments are deductible in full and are
not taxable currently to such employees.
Tax qualified plans may permit self-employed persons and their employees to
make additional purchase payments themselves (which are not deductible) of up to
10% of earned income or compensation.
When payments under a Contract are made in the form of an annuity, such
payments are taxed to the Annuitant or other payee under the same rules that
apply to such payments under corporate plans (discussed earlier).
The tax treatment of single sum payments is also the same as under corporate
plans except that five year averaging may be unavailable to a self-employed
Annuitant on termination of service for reasons other than disability.
The same rules that apply to commencement of annuity payments under corporate
plans apply to H.R. 10 plans.
Contracts Purchased By Top-Heavy Plans
Certain corporate and H.R. 10 plans may be characterized under Section 416 of
the Code as "top-heavy plans" if a significant portion of the plan assets is
held for the benefit of the "key employees" (as defined in the Code). Care must
be taken to consider the special limitations applicable to top-heavy plans and
the potentially adverse tax consequences to key employees.
Contracts Purchased Under Government Deferred Compensation Plans (Section 457)
Participants in certain deferred compensation plans maintained by a state, a
political subdivision of a state, or their agencies or instrumentalities or by
tax-exempt organizations are permitted to exclude a portion of their
compensation from gross income. Amounts so deferred (including any income
thereon) shall be includible in gross income only for the taxable year in which
such amounts are paid or otherwise made available to the Annuitant or other
payee.
In general, the maximum amount of compensation which may be deferred under
such tax-favored plans is the lesser of $7500 or33 1/3% of the participant's
"includible compensation" (as defined in the Code). The deferred compensation
plan itself must satisfy several conditions, among which are that the plan must
not permit distributions prior to the participant's separation from service
(except in the case of an unforeseen emergency), and that all compensation
deferred under the plan shall remain solely the employer's property and may be
subject to the claims of its creditors.
When payment under a Contract is made in the form of an annuity, or in a
single sum such as on surrender of the Contract or by partial withdrawal, the
payment is taxed as ordinary income.
Withholding of Taxes
John Hancock is obligated to withhold taxes from certain payments unless the
recipient elects otherwise. The withholding rate varies depending upon the
nature and the amount of the distribution. John Hancock will notify the Owner or
other payee in advance of the first payment of his or her right to elect out of
withholding and furnish a form on which the election may be made. Any election
must be received by John Hancock in advance of the payment in order to avoid
withholding.
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See Your Own Tax Adviser
The above description of Federal income tax consequences of owning a Contract
and of the different kinds of tax qualified plans which may be funded by the
Contracts is only a brief summary and is not intended as tax advice. Nor does it
include a discussion of Federal estate and gift tax or state tax consequences.
Tax laws and regulations are subject to change and such changes may be
retroactive. The rules governing the provisions of tax qualified plans are
extremely complex and often difficult to understand. Anything less than full
compliance with the applicable rules, all of which are subject to change from
time to time, can have adverse tax consequences. For example, premature
withdrawals are generally subject to a 10-percent penalty tax. The taxation of
an Annuitant or other payee has become so complex and confusing that great care
must be taken to avoid pitfalls. For further information a prospective purchaser
should consult a qualified tax adviser.
PERFORMANCE
The Account may, from time to time, advertise certain performance information
with respect to its subaccounts. THE PERFORMANCE INFORMATION IS BASED ON
HISTORICAL INVESTMENT EXPERIENCE OF THE SUBACCOUNTS AND DOES NOT INDICATE OR
REPRESENT FUTURE PERFORMANCE.
The subaccounts may include total return in advertisements. When a subaccount
advertises its total return, it will usually be calculated for one year, five
years, and ten years or for the life of the applicable portfolio. Total return
is the percentage change between the value of a hypothetical investment in the
subaccount at the beginning of the relevant period to the value of the
investment at the end of the period, assuming the deduction of any Withdrawal
Charge which would be payable if the Contract Owner surrendered the Contract at
the end of the period indicated. Total return at the Account level reflects all
Contract charges (other than premium tax charges)--Withdrawal Charge, mortality
and expense risk charges, administrative service charge, and the annual contract
fee (as reflected under "Synopsis of Expense Information") --and is therefore
lower than total return at the Fund level where no comparable charges have been
deducted. Because the Contracts were first offered in 1998, a total return
figure does not necessarily correspond to the total return actually earned by
any Contract Owner.
The Money Market Subaccount may advertise "current yield" and "effective
yield." Current yield refers to the income earned by the subaccount over a
seven-day period and then annualized; i.e., the income earned in the period is
assumed to be earned every seven days over a 52-week period and stated as a
percentage of the investment. Effective yield is calculated similarly but, when
annualized, the income earned by the investment is assumed to be reinvested in
the subaccount and thus compounded in the course of a 52-week period. The
effective yield will be slightly higher than the current yield because of this
compounding effect of the assumed reinvestment.
The other subaccounts may also advertise current yield. For these subaccounts,
the current yield will be calculated by dividing the annualization of the income
earned by the subaccount during a recent thirty-day period by the maximum
offering price per unit at the end of such period. In all cases, current yield
and effective yield reflect the recurring charges on the Account level including
the annual contract fee but do not reflect any premium tax charge or any
Withdrawal Charge.
Performance information for the subaccounts may be compared to other variable
annuity separate accounts or other investment products surveyed by Lipper
Analytical Services, Inc., an independent service which monitors and ranks the
performance of investment companies, or tracked by other rating services,
companies, publications, or persons who independently monitor and rank
investment company performance. Performance figures are calculated in accordance
with standardized methods established by each reporting service.
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STATE REGULATION
John Hancock is subject to the provisions of the Massachusetts insurance laws
applicable to mutual life insurance companies and to regulation and supervision
by the Massachusetts Commissioner of Insurance. John Hancock is also subject to
the applicable insurance laws of all the other states and jurisdictions in which
it does an insurance business.
REPORTS
Reports will be furnished at least annually to an Owner showing the number and
value of Accumulation Shares credited to the variable annuity contract and
containing the financial statements of the Fund.
VOTING PRIVILEGES
THE ACCOUNT
All of the assets in the subaccounts of the Account are invested in shares of
the corresponding Portfolios of the Fund. John Hancock will vote the shares of
each of the Portfolios of the Fund which are deemed attributable to qualifying
variable annuity contracts or variable life insurance policies at meetings of
the Fund's shareholders in accordance with instructions received from owners of
such contracts or policies. Shares of the Fund held in the Account which are not
attributable to such contracts or policies (or other variable annuity contracts
issued by John Hancock) and those for which instructions from owners are not
received will be represented by John Hancock at the meeting and will be voted
for and against each matter in the same proportion as the votes based upon the
instructions received from the owners of all such contracts and policies funded
through the Account's corresponding variable subaccounts.
The number of Fund shares held in each subaccount deemed attributable to each
owner is determined by dividing a Contract's Accumulation Share Value (or for a
Contract under which annuity payments have commenced, the equivalent) in the
subaccount by the net asset value of one share in the corresponding Fund
Portfolio in which the assets of that subaccount are invested. Fractional votes
will be counted. The number of shares as to which the owner may give
instructions will be determined as of the record date for the Fund's meeting.
Owners of Contracts may give instructions regarding the election of the Board
of Trustees of the Fund, ratification of the selection of independent auditors,
approval of the Fund's investment management agreement and other matters
requiring a vote under the 1940 Act. Owners will be furnished information and
forms by John Hancock in order that voting instructions may be given.
JOHN HANCOCK
An Owner (or the Annuitant if a different person) will have the right to vote
at annual meetings of all John Hancock policyholders for the election of members
of the Board of Directors of John Hancock and on other corporate matters, if
any, where a policyholders' vote is taken. The Owner (or the Annuitant if a
different person) may cast only one vote as the holder of a variable annuity
contract, irrespective of the value of the contract or the number of variable
annuity contracts held.
CHANGES IN APPLICABLE LAW--FUNDING AND OTHERWISE
The voting privileges described in this prospectus are afforded based on John
Hancock's understanding of applicable Federal securities law requirements. To
the extent that applicable law, regulations or interpretations change to
eliminate or restrict the need for such voting privileges, John Hancock reserves
the
35
<PAGE>
right to proceed in accordance with any such revised requirements. John Hancock
also reserves the right, subject to compliance with applicable law, including
approval of Owners if so required, to transfer assets determined by John Hancock
to be associated with the class of contracts to which the Contracts belong from
the Account to another separate account or subaccount by withdrawing the same
percentage of each investment in the Account with appropriate adjustments to
avoid odd lots and fractions.
LEGAL MATTERS
The legal validity of the Contracts has been passed upon by Ronald J. Bocage,
Vice President and Counsel of John Hancock.
DISTRIBUTION OF THE CONTRACTS
John Hancock Distributors, Inc. ("Distributors"), a wholly-owned subsidiary of
John Hancock, located at 197 Clarendon Street, Boston, MA 02117, is registered
as a broker-dealer with the Commission under the Securities Exchange Act of 1934
and is a member of the National Association of Securities Dealers, Inc.
Distributors acts as principal underwriter and distributor of the Contracts
pursuant to a distribution agreement it has entered into with John Hancock and
John Hancock Variable Life Insurance Company. The Contracts may be purchased
through either Distributors' registered representatives licensed to sell John
Hancock life insurance policies and annuity contracts or other registered
broker-dealers whose representatives are authorized by applicable law to sell
variable annuity contracts. The compensation paid to such broker-dealers is not
expected to exceed 3% of purchase payments.
Distributors' registered representatives are compensated for sales of the
Contracts on a commission and service fee basis by Distributors, and John
Hancock reimburses Distributors for such compensation and for other direct and
indirect expenses actually incurred in connection with the marketing and sale of
the Contracts. In addition, John Hancock performs certain insurance underwriting
and determines whether to accept or reject the application for a Contract.
IMPACT OF YEAR 2000 ISSUE
The advent of the Year 2000 presents a technological challenge to John
Hancock. Responding to this challenge, John Hancock has developed a plan to
modify or replace significant portions of its computer information and automated
technologies so that its systems will function properly with respect to dates in
the year 2000 and thereafter. The plan also involves coordination and testing
with business partners to ensure that external factors do not adversly impact
John Hancock's systems. John Hancock presently believes that with modifications
to existing systems. and conversions to new technologies, the year 2000 issue
will not pose significant operational problems for its computer systems.
However, if certain modifications and conversions are not made or are not
completely on time, the year 2000 issue could have an adverse impact on the
operations of John Hancock.
John Hancock expects the project to be substantially complete by early 1999.
This completion target was derived utilizing numerous assumptions of future
events, including availability of certain resources and other factors. However,
there can be no guarantee that this estimate will be achieved, that these steps
will be sufficient, or that actual results may not differ materially from those
anticipated.
36
<PAGE>
REGISTRATION STATEMENT
This Prospectus omits certain information contained in the Registration
Statement which has been filed with the Securities and Exchange Commission. More
details may be obtained from the Commission upon payment of the prescribed fee.
EXPERTS
The financial statements of the Account and of John Hancock included in the
Statement of Additional Information have been audited by Ernst & Young LLP,
independent auditors, whose reports thereon appear in the Statement of
Additional Information and have been so included in reliance on their reports
given on their authority as experts in accounting and auditing.
FINANCIAL STATEMENTS
Financial statements of the Account and John Hancock may be found in the
Statement of Additional Information. The financial statements of John Hancock
should be distinguished from the financial statements of the Account and should
be considered only as bearing upon the ability of John Hancock to meet its
obligations under the Contracts.
TABLE OF CONTENTS OF STATEMENT OF ADDITIONAL INFORMATION
<TABLE>
<CAPTION>
Cross Reference to
Page Page in Prospectus
---- ------------------
<S> <C> <C>
Business History . . . . . . . . . . . . . . . . 1 12-13
Distribution Agreement and Other Services . . . . 1 16, 20, 36
Distribution Agreement . . . . . . . . . . . . 1 36
Investment Advisory Agreement . . . . . . . . . 1 16
Custodian Agreement . . . . . . . . . . . . . . 2 --
Independent Auditors . . . . . . . . . . . . . 2 36
Calculation of Performance Data . . . . . . . . . 3 34
Calculation of Annuity Payments . . . . . . . . . 4 24-25
Financial Statements . . . . . . . . . . . . . . 6 36
</TABLE>
37
<PAGE>
Because of exemptive and exclusionary provisions, interests in John Hancock's
general account have not been registered under the Securities Act of 1933 and
the general account has not been registered as an investment company under the
1940 Act. Accordingly, neither the general account nor any interests therein are
subject to the provisions of these Acts, and John Hancock has been advised that
the staff of the Commission has not reviewed the disclosure in this Prospectus
relating to the Fixed Account. Disclosure regarding the Fixed Account may,
however, be subject to certain generally-applicable provisions of the Federal
securities laws relating to accuracy and completeness of statements made in
prospectuses.
APPENDIX--THE FIXED ACCOUNT AND FIXED ACCOUNT VALUE
INVESTMENTS IN THE FIXED ACCOUNT
Net purchase payments will be allocated to the Fixed Account in accordance
with the selection made by the Owner in the application. The Owner may change
such selection by notice satisfactory to John Hancock at its Servicing Office.
Any selection must specify what percentage of the purchase payment is to be
allocated to the Fixed Account. The percentage must be a whole number.
The Value in the Fixed Account, at any time prior to annuitization, is equal
to:
(a) net purchase payments allocated to the Fixed Account; plus
(b) Variable Account Value (amounts held in the subaccounts of the Variable
Account) transferred to the Fixed Account; plus
(c) interest credited on amounts held in the Fixed Account; less
(d) any prior partial withdrawals from the Fixed Account; less
(e) amounts transferred out of the Fixed Account to the Variable Account;
less
(f) any applicable charges deducted from the Fixed Account.
INTEREST TO BE CREDITED
Prior to annuitization, John Hancock will credit interest (calculated on a
compound basis) to purchase payments allocated to the Fixed Account at rates
declared by John Hancock, subject to a minimum rate of 3%. For purposes of this
section, Variable Account Value transferred to the Fixed Account shall be
treated as a purchase payment.
Under current practice, the interest rate credited to amounts held in the
Fixed Account will be based on the size of the initial payment to the Contract.
If the initial payment was $10,000 or more, a higher interest rate will be
credited. The rate of interest credited on each amount may vary based upon when
that amount was first allocated to the Fixed Account.
TRANSFER AND REDUCTIONS OF FIXED ACCOUNT VALUE
During the accumulation period, the Owner may transfer Fixed Account Value to
one or more subaccounts of the Variable Account or may transfer Variable Account
Value into the Fixed Account. The maximum amount that may be deposited or
transferred to the Fixed Account in a Contract Year is $100,000, exclusive of
any initial deposit made to the Fixed Account at the time the Contract is
issued; such initial deposit may be as large as $500,000. After the tenth
Contract Year, no deposits or transfers may be made into the Fixed Account. John
Hancock may waive these limits. Sums on deposit in the subaccounts may not be
transferred into the Fixed Account within six months of a transfer out of the
Fixed Account. Transfers out of the Fixed Account may be made once in a Contract
Year. During the first Contract Year, one transfer out of the Fixed Account may
be made at any time. During each subsequent Contract Year, one transfer out of
the Fixed Account may be made provided such transfer does not occur until the
later of (a) 180 days after the prior transfer and (b) the onset of the
following Contract Year. No more than 20% of the Fixed Account Value
38
<PAGE>
may be transferred out of the Fixed Account per Contract year. After
annuitization, the amount of any fixed annuity allocation may not be changed.
Up to 12 transfers into or out of subaccounts may be made in any Contract Year
without charge. (See "Transfers To or From Subaccounts.") Any transfer to or
from the Fixed Account will count toward the twelve free transfer limit.
Currently, the charge for transfers beyond twelve is $0; however, JHVLICO
reserves the right to assess a charge of up to $25 per transfer for each
additional transfer beyond the twelve free transfers.
Transfers will be made after receipt of notice satisfactory to John Hancock at
its Servicing Office. Transfer requests received by John Hancock before 4:00
p.m. Eastern Time on a business day will be valued as of the close of that day.
Any requests received after 4:00 p.m. or on a non-business day will be valued as
of the close of the next business day.
An Owner may request a transfer in writing or, once a written telephone
transfer authorization form is completed by the Owner, the Owner may request a
transfer by telephoning John Hancock at 800 REAL LIFE (800-732-5543) or sending
a written request to John Hancock via the John Hancock fax machine at
617-886-3048. Any written request should include the Owner's name, daytime
telephone number, and contract number as well as the names of the subaccounts or
Fixed Account from which and to which money will be transferred. John Hancock
reserves the right to modify, suspend, or terminate telephone transfers at any
time without notice to the Owners. If the fax request option becomes
unavailable, another means of telecommunication will be substituted.
An Owner who authorizes telephone transfers will be liable for any loss,
expense or cost arising out of any unauthorized or fraudulent telephone transfer
instructions which John Hancock reasonably believes to be genuine, unless such
loss, expense or cost is the result of John Hancock's mistake or negligence.
John Hancock employs procedures which provide adequate safeguards against the
execution of unauthorized transfers, and which are reasonably designed to
confirm that transfer instructions received by telephone are genuine. These
procedures include requiring personal identification, tape recording calls, and
providing written confirmation to the Owner. If JHVLICO does not employ
reasonable procedures to confirm that instructions communicated by telephone are
genuine, it may be liable for any loss due to unauthorized or fraudulent
instructions.
FIXED ANNUITY PAYMENT VALUES
The dollar amount of each fixed annuity payment will be determined by dividing
the amount applied under the fixed annuity option (net of any applicable premium
taxes) by $1,000 and multiplying the result by the greater of: (a) the
applicable factor shown in the appropriate table in the Contract; or (b) the
factor currently offered by John Hancock at the time of annuitization. This
current factor may be based on the sex of the payee unless prohibited by law.
39
<PAGE>
APPENDIX--VARIABLE ANNUITY INFORMATION FOR INDIVIDUAL RETIREMENT ANNUITIES
To help you understand your purchase of this Contract as an Individual
Retirement Annuity (IRA), we are providing the following summary.
I. Accumulation Shares--Each net purchase payment you make into your Contract
is allocated to the subaccounts you select, and Accumulation Shares are
purchased. This is the unit of measurement used to determine the value of your
Contract. The number of shares purchased in any subaccount is based on the share
value of that subaccount next determined after receipt of the payment at our
Servicing Office. The values of shares fluctuate with the daily investment
performance of the corresponding subaccount. The growth in the value of your
Contract, to the extent invested in the Separate Account, is neither guaranteed
nor projected and varies with the investment Portfolio you have selected. Each
net purchase payment allocated to the Fixed Account will be credited interest,
as determined by John Hancock. The minimum guarantee rate is 3%. More details
appear under "Accumulation Shares" in this Prospectus and in the "Appendix--The
Fixed Account and Fixed Account Value."
II. Separate Account and Series Fund Charges--The assets of the Separate
Account are charged for services and guarantees. The annualized charge equals
1.40%. Fees varying by Portfolio are charged against the Series Fund for
investment management and advisory services. Details appear under "Charges Under
the Annuity Contracts" in this Prospectus and "Management of the Fund" in the
accompanying Series Fund prospectus.
III. Deductions from the Contract--The full amount of each deposit is applied
to the Contract. At or after the purchase date, one or more of the following
charges may be made, depending on circumstances.
1. WITHDRAWAL CHARGE--In each Contract Year, you may withdraw as much as
10% of the Accumulated Value of your Contract as of the beginning of the
Contract Year without charge. Withdrawals in excess of this amount will be
subject to the following charges:
<TABLE>
<CAPTION>
Years from Date of Withdrawal
Deposit Charge
to Date of ------------
Withdrawal
------------------
<S> <C>
7 or more . . . . . . . . . . . . . . . . 0%
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 . . . . . . . . . . . . . . . 7%
</TABLE>
For the purpose of calculating the withdrawal charge, deposits are considered
to be withdrawn on a "first-in first- out" basis. Earnings are considered to be
withdrawn last and without charge. This is described in more detail under
"Withdrawal Charge" in this Prospectus.
2. Contract Fee--John Hancock currently deducts $30 from the Accumulated
Value of the Contract as a contract fee if the Accumulated Value is less than
$10,000. This occurs annually or at the time of surrender. Please refer to
"Charges for Administrative Services" in this Prospectus.
3. State Premium Tax--Some states and local governments impose a premium or
similar tax on annuities. John Hancock only deducts this tax when required to
do so. Please refer to "Premium or Similar Taxes" in this Prospectus.
40
<PAGE>
APPENDIX--ILLUSTRATIVE ACCUMULATED VALUE AND ANNUITY PAYMENT TABLES
The following Tables present illustrative periodic Accumulated Values and
annuity payments that would have resulted under a Contract described in this
prospectus had such values and payments been based exclusively upon the
investment experience of the seven specified subaccounts, assuming investment by
each of those subaccounts in the related Portfolio in the Fund and its
predecessors during the periods shown. The other subaccounts are not
illustrated, because of the limited time that they and their related Fund
Portfolios have been available. The Contracts described in this prospectus were
first offered in 1998.
For years ended December 31, 1986, and prior thereto, values have been
calculated based upon the actual investment results of the three corresponding
variable life insurance managed separate accounts which were the predecessors to
the Growth & Income, Sovereign Bond, and Money Market Portfolios, as if the Fund
had been in existence prior to March 28, 1986, the date of its reorganization.
The Tables assume investment of a single purchase payment of $10,000, net of
any deductions from purchase payments, and that charges under the Contracts have
been made at an annual rate of 1.40% for mortality and expense risks and
administrative services. The tables also reflect actual investment management
fees and other portfolio expenses for the periods illustrated. Absent expense
reimbursements by John Hancock to certain of the Portfolios for some periods,
the values illustrated would have been lower.
WHAT THE TABLES ILLUSTRATE
Subject to the foregoing, each Table I presents for the periods shown the
illustrative periodic Accumulated Values for each Account which would have
resulted at yearly intervals under a Contract where a net single purchase
payment of $10,000 was made, based upon the investment performance of the
applicable funding medium.
Subject to the foregoing, each Table II indicates, at annual intervals,
illustrative monthly variable annuity payments for each subaccount which would
have been received by an Annuitant or other payee, assuming that an initial
annuity payment of $100 was received in the month and year indicated in the
respective Tables. The form of annuity illustrated is a life annuity with
payments guaranteed for 10 years.
The results shown should not be considered a representation of the future. A
program of the type illustrated in the Tables does not assure a profit or
protect against depreciation in declining markets.
41
<PAGE>
ILLUSTRATIVE PERIODIC ACCUMULATED VALUES AND ACCUMULATED VALUES
GROWTH & INCOME SUBACCOUNT
TABLE I--ACCUMULATION PERIOD--ILLUSTRATIVE ACCUMULATED VALUES WHICH WOULD HAVE
RESULTED IF A $10,000 NET PURCHASE PAYMENT CONTRACT HAD BEEN ISSUED JANUARY 2,
1975
<TABLE>
<CAPTION>
Accumulated Value
on December 31
Contract Year Commencing of the same year
------------------------ -------------------
<S> <C>
January 1975 . . . . . . . . . . . . . . . $ 12,768.53
January 1976 . . . . . . . . . . . . . . . 14,847.74
January 1977 . . . . . . . . . . . . . . . 13,070.47
January 1978 . . . . . . . . . . . . . . . 13,674.30
January 1979 . . . . . . . . . . . . . . . 15,670.05
January 1980 . . . . . . . . . . . . . . . 20,154.18
January 1981 . . . . . . . . . . . . . . . 20,054.68
January 1982 . . . . . . . . . . . . . . . 25,323.38
January 1983 . . . . . . . . . . . . . . . 30,428.51
January 1984 . . . . . . . . . . . . . . . 31,429.08
January 1985 . . . . . . . . . . . . . . . 41,769.30
January 1986 . . . . . . . . . . . . . . . 47,665.34
January 1987 . . . . . . . . . . . . . . . 48,842.45
January 1988 . . . . . . . . . . . . . . . 56,368.07
January 1989 . . . . . . . . . . . . . . . 71,995.40
January 1990 . . . . . . . . . . . . . . . 72,809.18
January 1991 . . . . . . . . . . . . . . . 90,446.27
January 1992 . . . . . . . . . . . . . . . 97,127.06
January 1993 . . . . . . . . . . . . . . . 108,553.53
January 1994 . . . . . . . . . . . . . . . 106,452.30
January 1995 . . . . . . . . . . . . . . . 140,886.25
January 1996 . . . . . . . . . . . . . . . 166,849.35
January 1997 . . . . . . . . . . . . . . . 213,632.01
</TABLE>
TABLE II--ANNUITY PERIOD--ILLUSTRATIVE MONTHLY VARIABLE ANNUITY PAYMENTS AN
ANNUITANT WOULD HAVE RECEIVED ASSUMING A FIRST ANNUITY PAYMENT OF $100 IN
JANUARY 1975.
<TABLE>
<CAPTION>
Payment
Month For Month
----- -----------
<S> <C>
January 1975 . . . . . . . . . . . . . . . . . . $100.00
January 1976 . . . . . . . . . . . . . . . . . . 126.05
January 1977 . . . . . . . . . . . . . . . . . . 139.99
January 1978 . . . . . . . . . . . . . . . . . . 121.58
January 1979 . . . . . . . . . . . . . . . . . . 123.59
January 1980 . . . . . . . . . . . . . . . . . . 136.47
January 1981 . . . . . . . . . . . . . . . . . . 168.49
January 1982 . . . . . . . . . . . . . . . . . . 163.12
January 1983 . . . . . . . . . . . . . . . . . . 198.05
January 1984 . . . . . . . . . . . . . . . . . . 227.32
January 1985 . . . . . . . . . . . . . . . . . . 228.10
January 1986 . . . . . . . . . . . . . . . . . . 294.22
January 1987 . . . . . . . . . . . . . . . . . . 331.86
January 1988 . . . . . . . . . . . . . . . . . . 330.06
January 1989 . . . . . . . . . . . . . . . . . . 363.60
January 1990 . . . . . . . . . . . . . . . . . . 429.63
January 1991 . . . . . . . . . . . . . . . . . . 432.97
January 1992 . . . . . . . . . . . . . . . . . . 496.00
January 1993 . . . . . . . . . . . . . . . . . . 543.10
January 1994 . . . . . . . . . . . . . . . . . . 585.08
January 1995 . . . . . . . . . . . . . . . . . . 556.35
January 1996 . . . . . . . . . . . . . . . . . . 706.64
January 1997 . . . . . . . . . . . . . . . . . . 813.93
January 1998. . . . . . . . . . . . . . . . . . . 965.18
</TABLE>
The amounts shown are based on the investment performance of the Growth &
Income Subaccount, the Growth & Income Portfolio, and its predecessors. All
amounts reflect the provisions of the Contracts described in this Prospectus,
including annuity tables based on the standard assumed investment rate of 3 1/2%
per annum. The amounts shown do not reflect the deduction for any applicable
premium tax. See text preceding these Tables.
42
<PAGE>
SOVEREIGN BOND SUBACCOUNT
TABLE I--ACCUMULATION PERIOD--ILLUSTRATIVE ACCUMULATED VALUES WHICH WOULD HAVE
RESULTED IF A $10,000 NET PURCHASE PAYMENT CONTRACT HAD BEEN ISSUED JUNE 2, 1980
<TABLE>
<CAPTION>
Accumulated Value
on December 31
Contract year Commencing of the same year
------------------------ -------------------
<S> <C>
June 1980 . . . . . . . . . . . . . . . . . $10,229.93
June 1981 . . . . . . . . . . . . . . . . . 10,496.01
June 1982 . . . . . . . . . . . . . . . . . 13,331.26
June 1983 . . . . . . . . . . . . . . . . . 13,948.51
June 1984 . . . . . . . . . . . . . . . . . 15,749.99
June 1985 . . . . . . . . . . . . . . . . . 18,880.47
June 1986 . . . . . . . . . . . . . . . . . 21,134.54
June 1987 . . . . . . . . . . . . . . . . . 21,393.33
June 1988 . . . . . . . . . . . . . . . . . 22,818.87
June 1989 . . . . . . . . . . . . . . . . . 25,363.52
June 1990 . . . . . . . . . . . . . . . . . 26,898.56
June 1991 . . . . . . . . . . . . . . . . . 30,947.25
June 1992 . . . . . . . . . . . . . . . . . 32,856.05
June 1993 . . . . . . . . . . . . . . . . . 35,891.25
June 1994 . . . . . . . . . . . . . . . . . 34,484.11
June 1995 . . . . . . . . . . . . . . . . . 40,650.17
June 1996 . . . . . . . . . . . . . . . . . 41,731.05
June 1997 . . . . . . . . . . . . . . . . . 45,310.84
</TABLE>
TABLE II--ANNUITY PERIOD--ILLUSTRATIVE MONTHLY VARIABLE ANNUITY PAYMENTS AN
ANNUITANT WOULD HAVE RECEIVED ASSUMING A FIRST ANNUITY PAYMENT OF $100 IN JUNE
1980.
<TABLE>
<CAPTION>
Payment
Month For Month
----- -----------
<S> <C>
June 1980 . . . . . . . . . . . . . . . . . . . $100.00
June 1981 . . . . . . . . . . . . . . . . . . . 96.02
June 1982 . . . . . . . . . . . . . . . . . . . 104.33
June 1983 . . . . . . . . . . . . . . . . . . . 124.70
June 1984 . . . . . . . . . . . . . . . . . . . 119.06
June 1985 . . . . . . . . . . . . . . . . . . . 142.91
June 1986 . . . . . . . . . . . . . . . . . . . 161.39
June 1987 . . . . . . . . . . . . . . . . . . . 161.44
June 1988 . . . . . . . . . . . . . . . . . . . 166.85
June 1989 . . . . . . . . . . . . . . . . . . . 175.39
June 1990 . . . . . . . . . . . . . . . . . . . 179.74
June 1991 . . . . . . . . . . . . . . . . . . . 192.24
June 1992 . . . . . . . . . . . . . . . . . . . 205.19
June 1993 . . . . . . . . . . . . . . . . . . . 219.34
June 1994 . . . . . . . . . . . . . . . . . . . 212.72
June 1995 . . . . . . . . . . . . . . . . . . . 224.64
June 1996 . . . . . . . . . . . . . . . . . . . 228.63
June 1997 . . . . . . . . . . . . . . . . . . . 235.28
</TABLE>
The amounts shown are based on the investment performance of the Sovereign
Subaccount, the Sovereign Portfolio, and its predecessors. All amounts reflect
the provisions of the Contracts described in this Prospectus, including annuity
tables based on the standard assumed investment rate of 3 1/2% per annum. The
amounts shown do not reflect the deduction for any applicable premium tax. See
text preceding these Tables.
43
<PAGE>
MONEY MARKET SUBACCOUNT
TABLE I--ACCUMULATION PERIOD--ILLUSTRATIVE ACCUMULATED VALUES WHICH WOULD HAVE
RESULTED IF A $10,000 NET PURCHASE PAYMENT CONTRACT HAD BEEN ISSUED MAY 13, 1982
<TABLE>
<CAPTION>
Accumulated Value
on December 31
Contract Year Commencing of the same year
------------------------ -------------------
<S> <C>
May 1982 . . . . . . . . . . . . . . . . . $10,454.08
May 1983 . . . . . . . . . . . . . . . . . 11,209.15
May 1984 . . . . . . . . . . . . . . . . . 12,215.99
May 1985 . . . . . . . . . . . . . . . . . 13,028.02
May 1986 . . . . . . . . . . . . . . . . . 13,707.73
May 1987 . . . . . . . . . . . . . . . . . 14,422.37
May 1988 . . . . . . . . . . . . . . . . . 15,314.17
May 1989 . . . . . . . . . . . . . . . . . 16,504.28
May 1990 . . . . . . . . . . . . . . . . . 17,639.99
May 1991 . . . . . . . . . . . . . . . . . 18,435.21
May 1992 . . . . . . . . . . . . . . . . . 18,841.95
May 1993 . . . . . . . . . . . . . . . . . 19,150.05
May 1994 . . . . . . . . . . . . . . . . . 19,657.28
May 1995 . . . . . . . . . . . . . . . . . 20,506.13
May 1996 . . . . . . . . . . . . . . . . . 21,299.24
May 1997 . . . . . . . . . . . . . . . . . 22,149.45
</TABLE>
TABLE II--ANNUITY PERIOD--ILLUSTRATIVE MONTHLY VARIABLE ANNUITY PAYMENTS AN
ANNUITANT WOULD HAVE RECEIVED ASSUMING A FIRST ANNUITY PAYMENT OF $100 IN MAY
1982.
<TABLE>
<CAPTION>
Payment
Month For Month
----- -----------
<S> <C>
May 1982 . . . . . . . . . . . . . . . . . . . . $100.00
May 1983 . . . . . . . . . . . . . . . . . . . . 103.34
May 1984 . . . . . . . . . . . . . . . . . . . . 107.59
May 1985 . . . . . . . . . . . . . . . . . . . . 112.85
May 1986 . . . . . . . . . . . . . . . . . . . . 115.94
May 1987 . . . . . . . . . . . . . . . . . . . . 117.28
May 1988 . . . . . . . . . . . . . . . . . . . . 119.52
May 1989 . . . . . . . . . . . . . . . . . . . . 123.57
May 1990 . . . . . . . . . . . . . . . . . . . . 128.27
May 1991 . . . . . . . . . . . . . . . . . . . . 131.70
May 1992 . . . . . . . . . . . . . . . . . . . . 131.78
May 1993 . . . . . . . . . . . . . . . . . . . . 129.76
May 1994 . . . . . . . . . . . . . . . . . . . . 127.42
May 1995 . . . . . . . . . . . . . . . . . . . . 127.48
May 1996 . . . . . . . . . . . . . . . . . . . . 128.26
May 1997 . . . . . . . . . . . . . . . . . . . . 128.72
</TABLE>
The amounts shown are based on the investment performance of the Money Market
Subaccount, the Money Market Portfolio, and its predecessors. All amounts
reflect the provisions of the Contracts described in this Prospectus, including
annuity tables based on the standard assumed investment rate of 3 1/2% per
annum. The amounts shown do not reflect the deduction for any applicable premium
tax. See text preceding these Tables.
44
<PAGE>
LARGE CAP GROWTH SUBACCOUNT
TABLE I--ACCUMULATION PERIOD--ILLUSTRATIVE ACCUMULATED VALUES WHICH WOULD HAVE
RESULTED IF A $10,000 NET PURCHASE PAYMENT HAD BEEN ISSUED NOVEMBER 24, 1987
<TABLE>
<CAPTION>
Accumulated Value
on December 31
Contract Year Commencing of the same year
------------------------ -------------------
<S> <C>
November 1987 . . . . . . . . . . . . . . . $10,239.60
November 1988 . . . . . . . . . . . . . . . 11,531.81
November 1989 . . . . . . . . . . . . . . . 15,108.39
November 1990 . . . . . . . . . . . . . . . 15,668.24
November 1991 . . . . . . . . . . . . . . . 19,383.96
November 1992 . . . . . . . . . . . . . . . 21,015.39
November 1993 . . . . . . . . . . . . . . . 23,586.33
November 1994 . . . . . . . . . . . . . . . 23,031.38
November 1995 . . . . . . . . . . . . . . . 29,897.25
November 1996 . . . . . . . . . . . . . . . 34,867.83
November 1997 . . . . . . . . . . . . . . . 45,026.80
</TABLE>
TABLE II--ANNUITY PERIOD--ILLUSTRATIVE MONTHLY VARIABLE ANNUITY PAYMENTS AN
ANNUITANT WOULD HAVE RECEIVED ASSUMING A FIRST ANNUITY PAYMENT OF $100 IN
NOVEMBER 1987.
<TABLE>
<CAPTION>
Payment
Month For Month
----- -----------
<S> <C>
November 1987 . . . . . . . . . . . . . . . . . $100.00
November 1988 . . . . . . . . . . . . . . . . . 109.59
November 1989 . . . . . . . . . . . . . . . . . 135.20
November 1990 . . . . . . . . . . . . . . . . . 135.73
November 1991 . . . . . . . . . . . . . . . . . 164.04
November 1992 . . . . . . . . . . . . . . . . . 168.91
November 1993 . . . . . . . . . . . . . . . . . 189.46
November 1994 . . . . . . . . . . . . . . . . . 182.81
November 1995 . . . . . . . . . . . . . . . . . 218.63
November 1996 . . . . . . . . . . . . . . . . . 253.37
November 1997 . . . . . . . . . . . . . . . . . 310.32
</TABLE>
The amounts shown are based on the investment performance of the Large Cap
Growth Subaccount and the Large Cap Growth Portfolio. All amounts reflect the
provisions of the Contracts described in this Prospectus, including annuity
tables based on the standard assumed investment rate of 3 1/2% per annum. The
amounts shown do not reflect the deduction for any applicable premium tax. See
text preceding the Tables.
45
<PAGE>
MANAGED SUBACCOUNT
TABLE I--ACCUMULATION PERIOD--ILLUSTRATIVE ACCUMULATED VALUES WHICH WOULD HAVE
RESULTED IF A $10,000 NET PURCHASE PAYMENT HAD BEEN ISSUED NOVEMBER 9, 1987
<TABLE>
<CAPTION>
Accumulated Value
on December 31
Contract Year Commencing of the same year
------------------------ -------------------
<S> <C>
November 1987 . . . . . . . . . . . . . . . $10,226.76
November 1988 . . . . . . . . . . . . . . . 11,240.26
November 1989 . . . . . . . . . . . . . . . 13,380.15
November 1990 . . . . . . . . . . . . . . . 13,629.51
November 1991 . . . . . . . . . . . . . . . 16,394.96
November 1992 . . . . . . . . . . . . . . . 17,414.83
November 1993 . . . . . . . . . . . . . . . 19,167.24
November 1994 . . . . . . . . . . . . . . . 18,479.74
November 1995 . . . . . . . . . . . . . . . 23,160.13
November 1996 . . . . . . . . . . . . . . . 25,285.76
November 1997 . . . . . . . . . . . . . . . 29,606.13
</TABLE>
TABLE II--ANNUITY PERIOD--ILLUSTRATIVE MONTHLY VARIABLE ANNUITY PAYMENTS AN
ANNUITANT WOULD HAVE RECEIVED ASSUMING A FIRST ANNUITY PAYMENT OF $100 IN
NOVEMBER 1987.
<TABLE>
<CAPTION>
Payment
Month For Month
----- -----------
<S> <C>
November 1987 . . . . . . . . . . . . . . . . . $100.00
November 1988 . . . . . . . . . . . . . . . . . 109.87
November 1989 . . . . . . . . . . . . . . . . . 121.52
November 1990 . . . . . . . . . . . . . . . . . 114.66
November 1991 . . . . . . . . . . . . . . . . . 136.05
November 1992 . . . . . . . . . . . . . . . . . 142.02
November 1993 . . . . . . . . . . . . . . . . . 156.17
November 1994 . . . . . . . . . . . . . . . . . 146.42
November 1995 . . . . . . . . . . . . . . . . . 168.78
November 1996 . . . . . . . . . . . . . . . . . 180.91
November 1997 . . . . . . . . . . . . . . . . . 201.84
</TABLE>
The amounts shown are based on the investment performance of the Managed
Subaccount and the Managed Portfolio. All amounts reflect the provisions of the
Contracts described in this Prospectus, including annuity tables based on the
standard assumed investment rate of 3 1/2% per annum. The amounts shown do not
reflect the deduction for any applicable premium tax. See text preceding the
Tables.
46
<PAGE>
REAL ESTATE EQUITY SUBACCOUNT
TABLE I--ACCUMULATION PERIOD--ILLUSTRATIVE ACCUMULATED VALUES WHICH WOULD HAVE
RESULTED IF A $10,000 NET PURCHASE PAYMENT HAD BEEN ISSUED FEBRUARY 14, 1989
<TABLE>
<CAPTION>
Accumulated Value
on December 31
Contract Year Commencing of the same year
------------------------ -------------------
<S> <C>
February 1989 . . . . . . . . . . . . . . . $10,442.26
February 1990 . . . . . . . . . . . . . . . 8,035.55
February 1991 . . . . . . . . . . . . . . . 10,579.75
February 1992 . . . . . . . . . . . . . . . 12,103.83
February 1993 . . . . . . . . . . . . . . . 14,001.34
February 1994 . . . . . . . . . . . . . . . 14,202.33
February 1995 . . . . . . . . . . . . . . . 15,728.80
February 1996 . . . . . . . . . . . . . . . 20,639.15
February 1997 . . . . . . . . . . . . . . . 23,856.53
</TABLE>
TABLE II--ANNUITY PERIOD--ILLUSTRATIVE MONTHLY VARIABLE ANNUITY PAYMENTS AN
ANNUITANT WOULD HAVE RECEIVED ASSUMING A FIRST ANNUITY PAYMENT OF $100 IN
FEBRUARY 1989.
<TABLE>
<CAPTION>
Payment
Month For Month
----- -----------
<S> <C>
February 1989 . . . . . . . . . . . . . . . . . $100.00
February 1990 . . . . . . . . . . . . . . . . . 95.91
February 1991 . . . . . . . . . . . . . . . . . 85.47
February 1992 . . . . . . . . . . . . . . . . . 99.80
February 1993 . . . . . . . . . . . . . . . . . 115.44
February 1994 . . . . . . . . . . . . . . . . . 118.80
February 1995 . . . . . . . . . . . . . . . . . 112.48
February 1996 . . . . . . . . . . . . . . . . . 124.74
February 1997 . . . . . . . . . . . . . . . . . 158.12
February 1998 . . . . . . . . . . . . . . . . . 170.24
</TABLE>
The amounts shown are based on the investment performance of the Real Estate
Equity Subaccount and the Real Estate Equity Portfolio. All amounts reflect the
provisions of the Contracts described in this Prospectus, including annuity
tables based on the standard assumed investment rate of 3 1/2% per annum. The
amounts shown do not reflect the deduction for any applicable premium tax. See
text preceding the Tables.
47
<PAGE>
INTERNATIONAL EQUITY INDEX SUBACCOUNT
TABLE I--ACCUMULATION PERIOD--ILLUSTRATIVE ACCUMULATED VALUES WHICH WOULD HAVE
RESULTED IF A $10,000 NET PURCHASE PAYMENT HAD BEEN ISSUED FEBRUARY 10, 1989
<TABLE>
<CAPTION>
Accumulated Value
on December 31
Contract Year Commencing of the same year
------------------------ -------------------
<S> <C>
February 1989 . . . . . . . . . . . . . . . $11,099.72
February 1990 . . . . . . . . . . . . . . . 10,051.49
February 1991 . . . . . . . . . . . . . . . 12,229.24
February 1992 . . . . . . . . . . . . . . . 11,861.11
February 1993 . . . . . . . . . . . . . . . 15,450.90
February 1994 . . . . . . . . . . . . . . . 14,305.70
February 1995 . . . . . . . . . . . . . . . 15,237.67
February 1996 . . . . . . . . . . . . . . . 16,406.62
February 1997 . . . . . . . . . . . . . . . 15,366.71
</TABLE>
TABLE II--ANNUITY PERIOD--ILLUSTRATIVE MONTHLY VARIABLE ANNUITY PAYMENTS AN
ANNUITANT WOULD HAVE RECEIVED ASSUMING A FIRST ANNUITY PAYMENT OF $100 IN
FEBRUARY 1989.
<TABLE>
<CAPTION>
Payment
Month For Month
----- -----------
<S> <C>
February 1989 . . . . . . . . . . . . . . . . . $100.00
February 1990 . . . . . . . . . . . . . . . . . 96.77
February 1991 . . . . . . . . . . . . . . . . . 89.90
February 1992 . . . . . . . . . . . . . . . . . 103.84
February 1993 . . . . . . . . . . . . . . . . . 98.31
February 1994 . . . . . . . . . . . . . . . . . 123.78
February 1995 . . . . . . . . . . . . . . . . . 103.66
February 1996 . . . . . . . . . . . . . . . . . 114.78
February 1997 . . . . . . . . . . . . . . . . . 115.51
February 1998 . . . . . . . . . . . . . . . . . 108.73
</TABLE>
The amounts shown are based on the investment performance of the International
Equity Index Subaccount and the International Equity Index Portfolio. All
amounts reflect the provisions of the Contracts described in this Prospectus,
including annuity tables based on the standard assumed investment rate of3 1/2%
per annum. The amounts shown do not reflect the deduction for any applicable
premium tax. See text preceding the Tables.
48
<PAGE>
[LOGO OF JOHN HANCOCK JOHN HANCOCK
APPEARS HERE] MUTUAL LIFE INSURANCE COMPANY
ANNUITY TRANSFERLINE
AUTHORIZATION FORM
- --------------------------------------------------------------------------------
INSTRUCTIONS: Please complete and sign where indicated. If your Contract will
be jointly owned, each Owner must sign. An acknowledgement letter will be sent
as soon as your Contract is issued.
THIS COMPLETED FORM MUST BE SUBMITTED WITH THE APPLICATION.
- -------------------------------------------------------------------------------
( ) Yes! I want TRANSFERLINE, John Hancock's telephone transfer program that
permits fast and toll-free transfers of funds within my Contract, as
conditions dictate.
As the applicant for a Contract funded by John Hancock Variable Series Trust I
(the "Fund"), I hereby authorize John Hancock, on behalf of the Fund, to act
upon my telephone instructions to:
(1) reallocate my then current value held in any one or more subaccounts,
(2) to change the allocation of future purchase payments to the subaccounts,
and
(3) change the allocation of my subaccount elections as they are applied
under the Dollar-Cost Averaging option (if available on my Contract).
I understand that John Hancock employs the following procedures reasonably
designed to confirm that the instructions received by telephone are genuine:
requiring disclosure of personal identification; tape recording calls; and
providing the Owner with a confirmation of the transfer. As long as John Hancock
follows such procedures, I will not hold John Hancock or the Fund (or any of
their successors) liable for any loss, expense, or cost resulting from any
unauthorized or fraudulent telephone instructions.
I further understand that this authorization is limited by the conditions and
procedures for telephone account transfers and investment option changes set
forth in the prospectus describing my Contract.
I further understand that this authorization will continue in force unless and
until the earlier of (a) written revocation received by John Hancock at its
Servicing Office or (b) John Hancock discontinues this service.
Signature(s) of Prospective
Contract Owner(s)
Date: /s/
------------------------------- -------------------------------
Date: /s/
------------------------------- -------------------------------
Questions call: 800 REAL LIFE (800-732-5543)
Mail to: John Hancock Servicing Office
P.O. Box 111
Boston, MA 02117
49
<PAGE>
[LOGO OF JOHN HANCOCK APPEARS HERE]
CONTRACTS ISSUED BY JOHN HANCOCK MUTUAL LIFE INSURANCE COMPANY
200 CLARENDON STREET, BOSTON, MASSACHUSETTS 02117
S8154 ML 5/98
50
<PAGE>
PART C. OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS
(A) FINANCIAL STATEMENTS
<TABLE>
<C> <S>
1. Statement of Assets and Liabilities, John Hancock Variable Annuity
Account V, at December 31, 1997. (Part B)
2. Statement of Operations, John Hancock Variable Annuity Account V, year
ended December 31, 1997. (Part B)
3. Statement of Changes in Net Assets, John Hancock Variable Annuity
Account V, for each of the two years in the period ended December 31,
1997. (Part B)
4. Notes to Financial Statements, John Hancock Variable Annuity Account V.
(Part B)
5. Statement of Financial Position, John Hancock Mutual Life Insurance
Company, at December 31, 1997 and December 31, 1996. (Part B)
6. Summary of Operations and Changes in Policyholders' Contingency
Reserves, John Hancock Mutual Life Insurance Company, for each of the
two years in the period ended December 31, 1997. (Part B)
7. Statement of Cash Flows, John Hancock Mutual Life Insurance Company,
for each of the two years in the period ended December 31, 1997. (Part
B)
8. Notes to Financial Statements, John Hancock Mutual Life Insurance
Company. (Part B)
(B) EXHIBITS:
1. John Hancock Board Resolution establishing the John Hancock Variable
Annuity Account V, included in Post-Effective Amendment No. 1 to this
File No. 33-82646, filed April 25, 1995.
2. Not Applicable.
3.(a) Form of Distribution and Servicing Agreement by and among John Hancock
Distributors, Inc., John Hancock Mutual Life Insurance Company, and John
Hancock Variable Life Insurance Company, incorporated by reference from
Pre-Effective Amendment No. 2 to Form S-6 Registration Statement for
John Hancock Variable Life Account S (File No. 333-15075) filed April
23, 1997.
(b) Specimen Variable Contracts Selling between John Hancock Distributors,
Inc., and selling broker-dealers, incorporated by reference from Pre-
Effective Amendment No. 2 to Form S-6 Registration Statement for John
Hancock Variable Life Account S (File No. 333-15075) filed April 23,
1997.
4. Form of periodic payment deferred annuity contract, included in initial
Form N-4 Registration Statement and Post-Effective Amendment No. 3 to
the Form N-4 Registration Statement to this File No. 33-82646, filed
August 10, 1994, and December 13, 1997, respectively.
5. Form of annuity contract application, included in initial
Form N-4 Registration Statement and Post-Effective Amendment No. 3 to
the Form N-4 Registration Statement to this File No. 33-82646, filed
August 10, 1994, and December 13, 1997, respectively.
6. Charter and By-Laws of John Hancock Mutual Life Insurance Company,
included in Post-Effective Amendment No. 1 to this File No. 33-82646,
filed April 25, 1995
7. Not Applicable.
8. Not Applicable.
9. Opinion and Consent of Counsel as to legality of interests being
offered, included in the initial Form N-4 Registration Statement to this
File No. 33-82646 filed August 10, 1994.
10.A Consent of Independent Auditors.
10.B Representation of Counsel
11. Not Applicable.
</TABLE>
C-1
<PAGE>
<TABLE>
<C> <S>
12. Not Applicable.
13. Diagram of Subsidiaries of John Hancock Mutual Life Insurance Company
incorporated by reference from Post-Effective Amendment No. 19 to Form N-
1A Registration Statement of John Hancock Variable Series Trust I (File
No. 33-2081) filed February 27, 1998.
14. Power of Attorney of Robert J. Tarr, Jr., incorporated by reference from
Post-Effective Amendment No. 4 to Registration Statement of John Hancock
Mutual Variable Life Account UV (File No. 33-63900) filed April 23, 1997.
Copy of Power of Attorney for Michael C. Hawley, filed on May 1, 1996.
Copies of Powers of Attorney for all other directors, included in Post-
Effective Amendment No. 1 to this File No. 33-82646, filed April 25, 1995.
27. Financial Data Schedule.
</TABLE>
ITEM 25. DIRECTORS AND OFFICERS OF THE DEPOSITOR
DIRECTORS
<TABLE>
<CAPTION>
NAME POSITION WITH DEPOSITOR
---- -----------------------
<S> <C>
Foster L. Aborn......... Vice Chairman of the Board
Samuel W. Bodman........ Director
Nelson S. Gifford....... Director
Richard F. Syron........ Director
William L. Boyan........ Vice Chairman of the Board
E. James Morton......... Director
John F. Magee........... Director
John M. Connors, Jr..... Director
Stephen L. Brown........ Chairman of the Board and Chief Executive Officer
Michael C. Hawley ...... Director
I. MacAllister Booth.... Director
C. Vincent Vappi........ Director
Robert J. Tarr, Jr...... Director
David F. D'Alessandro... President and Chief Operating Officer
Joan T. Bok............. Director
Robert E. Fast.......... Director
Lawrence K. Fish........ Director
Kathleen F. Feldstein... Director
Wayne A. Budd........... Director
EXECUTIVE OFFICERS OTHER THAN DIRECTORS
Thomas E. Moloney....... Executive Vice President and Chief Financial Officer
Diane M. Capstaff....... Executive Vice President
Barry J. Rubenstein..... Senior Vice President, Counsel, and Secretary
Richard S. Scipione..... General Counsel
</TABLE>
All of the above-named officers and directors can be contacted at the
following business address: John Hancock Mutual Life Insurance Company, John
Hancock Place, P.O. Box 111, Boston, MA 02117.
ITEM 26. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT
Registrant is a separate account of John Hancock, operated as a unit
investment trust. Registrant supports benefits payable under John Hancock's
variable annuity contracts by investing in shares of John Hancock Variable
Series Trust I (the "Fund") a "series" type of mutual fund, registered under
the Investment Company Act of 1940 (the "Act") as an open-end management
investment company. The Registrant and other separate accounts of John Hancock
and John Hancock Variable Life Insurance Company ("JHVLICO") own all of the
Fund's outstanding shares. The purchasers of variable annuity and variable
life insurance contracts, in connection with which the Fund is used, will have
the opportunity to instruct John Hancock and JHVLICO with respect to the
voting of the shares of the Series Fund held by Registrant as to certain
matters. Subject to the voting instructions, John Hancock directly controls
Registrant.
C-2
<PAGE>
A diagram of the subsidiaries of John Hancock is incorporated by reference
from Exhibit 17 to Post-Effective Amendment No. 19 to Form N-1A Registration
Statement of John Hancock Variable Series Trust I (File No. 33-2081) filed
February 27, 1998.
ITEM 27. NUMBER OF CONTRACT OWNERS
As of March 30, 1998, the number of Contract Owners of all forms of the
Contracts offered by the Account was 51,276.
ITEM 28. INDEMNIFICATION
Article 9a of the By-Laws of John Hancock provides indemnification to each
present and former trustee, officer, and employee of John Hancock against
litigation expenses and liabilities incurred while acting as such, subject to
limitations of law, including under the Act. No indemnification shall be paid
if a director or officer is finally adjudicated not to have acted in good
faith in the reasonable belief that his action was in the best interest of
John Hancock. John Hancock may pay expenses incurred in defending an action or
claim in advance of its final disposition, but only upon receipt of an
undertaking by the person indemnified to repay such amounts if he or she
should be determined not be entitled to indemnification.
Reference is made to Article VI of the ByLaws of the Fund, filed as Exhibit
2 to Post Effective Amendment No. 2 to the Fund's Registration Statement (File
No. 33-2081) dated April 12, 1988, which provides that the Fund shall
indemnify or advance any expenses to the trustees, shareholders, officers, or
employees of the Fund to the extent set forth in the Declaration of Trust.
Sections 6.3 through 6.17 of the Declaration of Trust, included as Exhibit 1
to the Fund's Post Effective Amendment No. 2, relate to the indemnification of
trustees, shareholders, officers, and employees. It is provided that the
Registrant shall indemnify any trustee made a party to any proceeding by
reason of service in that capacity if the trustee (a) acted in good faith and
(b) reasonably believed, (1) in the case of conduct in the trustee's official
capacity with the Fund, that the conduct was in the best interest of the Fund
and (2) in all other cases, that the conduct was at least not opposed to the
best interests of the Fund, and (c) in the case of any criminal proceeding,
the Fund shall indemnify the trustee if the trustee acted in good faith and
had no reasonable cause to believe that the conduct was unlawful.
Indemnification may not be made by the Fund unless authorized in each case by
a determination by the Board of Trustees or by special legal counsel or by the
shareholders. Neither indemnification nor advancement of expenses may be made
if the trustee or officer has incurred liability by reason of willful
misfeasance, bad faith, gross negligence, or reckless disregard of duties
involved in the conduct of his office ("Disabling Conduct"). The means for
determining whether indemnification shall be made shall be (1) a final
decision on the merits by a court or other body before whom the proceeding was
brought that the person to be indemnified was not liable by reason of
Disabling Conduct or (2) in the absence of such a decision, a reasonable
determination, based upon a review of the facts, that such person was not
liable by reason of Disabling Conduct. Such latter determination may be made
either (a) by the vote of a majority of a quorum of Trustees of the Fund who
are neither "interested" persons of the Fund (as defined in the Act) nor
parties to the proceeding or (b) by an independent legal counsel in a written
opinion. The advancement of legal expenses may not occur unless the trustee or
officer agrees to repay the advance (unless it is ultimately determined that
he is entitled to indemnification) and at least one of three conditions is
satisfied: (1) he provides security for his agreement to repay, (2) the Fund
is insured against loss by reason of lawful advances, or (3) a majority of a
quorum of the Trustees of the Fund who are not interested persons and are not
parties to the proceedings, or independent counsel in a written opinion,
determine that there is reason to believe that the trustees or officer will be
found entitled to indemnification.
Similar types of provisions dealing with the indemnification of the Fund's
officers and trustees are hereby incorporated by reference from documents
previously filed with the Commission, specifically, Section 14 of the
Investment Management Agreement by and between John Hancock Variable Series
Trust I and John Hancock Mutual Life Insurance Company (Exhibit 5.f. to Post-
Effective Amendment No. 4 to the Registration Statement
C-3
<PAGE>
of the Fund (File No. 33-2081) dated April, 1989), Section 14 of the
Investment Management Agreement by and between John Hancock Variable Series
Trust I and John Hancock Mutual Life Insurance Company (Exhibit 5.a. to the
Fund's Registration Statement (File No. 33-2081) dated December 11, 1985),
Section 14 of the Investment Management Agreement by and between John Hancock
Variable Series Trust and John Hancock Mutual Life Insurance Company (Exhibit
5.g. to Post-Effective Amendment No. 9 to the Fund's Registration Statement
(File No. 33-2081) dated March 2, 1994), Section 14 of the Investment Management
Agreement By and Between John Hancock Variable Series Trust I and John Hancock
Mutual Life Insurance Company (Exhibit 5.k. to Post-Effective Amendment No. 13
to the Fund's Registration Statement (File No. 33-2081) dated April 30, 1996),
Section 14 of the Investment Management Agreement By and Between John Hancock
Variable Series Trust I and John Hancock Mutual Life Insurance Company (Exhibit
5.v. to Post-Effective Amendment No. 19 to the Fund's Registration Statement
(File No. 3-2081) dated April __, 1998, Section 7 of the Underwriting and
Administrative Services Agreement by and between John Hancock Variable Series
Trust I and John Hancock Mutual Life Insurance Company (Exhibit 6 to Post-
Effective Amendment No. 4 to the Registration Statement of the Fund (File No.
33-2081) dated April, 1986, Section 15 of the Transfer Agency Agreement by and
between John Hancock Variable Series Trust I and John Hancock Mutual Life
Insurance Company (Exhibit 9 to Pre-Effective Amendment No. 1 to the
Registration Statement of the Fund (File No. 33-2081) dated March 13, 1986), and
Section 6 of the Underwriting and Indemnity Agreement By and Among John Hancock
Series Trust, John Hancock Distributors, Inc., and John Hancock Mutual Life
Insurance Company (Exhibit 6.b. to Post-Effective Amendment No. 14 to Form N-1A
Registration Statement of the Fund (File No. 33-2081) filed February 28, 1997).
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers, and controlling persons of
the Registrant pursuant to the foregoing provisions or otherwise, the
Registrant has been advised that, in the opinion of the Securities and
Exchange Commission, such indemnification is against public policy as
expressed in that Act and is, therefore, unenforceable. In the event that a
claim for 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 of its counsel the matter has been settled by a
controlling precedent, submit to a court of appropriate jurisdiction the
question of whether indemnification by it is against public policy as
expressed in that Act and will be governed by the final adjudication of such
issue.
ITEM 29. PRINCIPAL UNDERWRITERS
(a) John Hancock Distributors, Inc., is also the principal underwriter for
the Fund, John Hancock Variable Annuity Accounts U and I, and John Hancock
Variable Life Accounts U, V, and S, and John Hancock Mutual Variable Life
Insurance Account UV.
(b) Reference is made to the response to Item 25, above.
(c) The information under "Distribution Agreements and Other Services--
Distribution Agreement" in the statement of additional information forming
a part of this registration statement is incorporated herein by reference.
ITEM 30. LOCATION OF ACCOUNTS AND RECORDS
The following entities prepare, maintain, and preserve the records required
by Section 31(a) of the Act for the Registrant and the Fund (as indicated
below) through written agreements between the parties to the effect that such
services will be provided to the Registrant and/or the Fund for such periods
prescribed by the Rules and Regulations of the Commission under the Act and
such records will be surrendered promptly on request:
John Hancock Distributors, Inc., John Hancock Place, Boston, Massachusetts,
02117, serves as Registrant's distributor and principal underwriter, and in such
capacities, keeps records regarding shareholders account records and cancelled
stock certificates. John Hancock (at the same address), in its capacity as
Registrant's depositor, investment adviser, and transfer agent, keeps all other
records required by Section 31(a) of the Act.
ITEM 31. MANAGEMENT SERVICES
Not applicable.
C-4
<PAGE>
ITEM 32. UNDERTAKINGS
(a) Registrant hereby undertakes to file a post-effective amendment to
this Registration Statement as frequently as is necessary to ensure that
the audited financial statements in the registration statement are never
more than 16 months old for so long as payments under the variable annuity
contracts may be accepted.
(b) Registrant hereby undertakes to include as part of any application to
purchase a contract offered by the prospectus a space that an applicant can
check to request a Statement of Additional Information.
(c) Registrant hereby undertakes to deliver any Statement of Additional
Information and any financial statements required to be made available
under Form N-4 promptly upon written or oral request.
(d) Registrant represents that, in connection with the sale of the
Contracts offered pursuant to this registration statement, it has complied
with the conditions of the SEC no-action letter regarding the purchase of
variable annuity contracts under retirement plans meeting the requirements
of Section 403(b) of the Internal Revenue Code (American Council of Life
Insurance (pub. avail. Nov. 28, 1988)). Specifically, Registrant has (1)
included appropriate disclosure regarding the redemption restrictions
imposed by Section 403(b)(11) in the prospectus; (b) included appropriate
disclosure regarding the redemption restrictions imposed by Section
403(b)(11) in any sales literature used in connection with the offer of the
Contracts; (3) instructed sales representatives specifically to bring the
redemption restrictions imposed by Section 403(b)(11) to the attention of
potential plan participants; and (4) obtained from each plan participant
who purchases a Section 403(b) annuity contract, prior to or at the time of
such purchase, a signed statement acknowledging the participant's
understanding of (a) the restrictions on redemptions imposed by Section
403(b)(11) and (b) the investment alternatives available under the
employer's Section 403(b) arrangement to which the participant may elect to
transfer his contract value.
(e) John Hancock Mutual Life Insurance Company represents that the fees and
charges deducted under the Policies, in the aggregate, are reasonable in
relation to the services rendered, the expenses expected to be incurred, and
the risks assumed by the insurance company.
C-5
<PAGE>
SIGNATURES
As required by the Securities Act of 1933 and the Investment Company Act of
1940, Registrant has caused this Registration Statement to be signed on its
behalf, in the City of Boston and the Commonwealth of Massachusetts on this
29th day of April, 1998. Registrant certifies that it meets the requirements
of the Rule 485(b) of the 1933 Act for effectiveness of this Statement.
John Hancock Variable Annuity Account V
(Registrant)
By John Hancock Mutual Life Insurance
Company
By /s/ Stephen L. Brown
-------------------------------------
Stephen L. Brown
Chairman of the Board and
Chief Executive Officer
John Hancock Mutual Life Insurance
Company (Depositor)
By /s/ Stephen L. Brown
--------------------------------------
Stephen L. Brown
Chairman of the Board and
Chief Executive Officer
C-6
<PAGE>
AS REQUIRED BY THE SECURITIES ACT OF 1933 AND THE INVESTMENT COMPANY ACT OF
1940, THIS REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN
THEIR CAPACITIES WITH JOHN HANCOCK MUTUAL LIFE INSURANCE COMPANY AND ON THE
DATES INDICATED.
SIGNATURE TITLE DATE
/s/ Thomas E. Moloney Chief Financial
- ------------------------------------- Officer (Principal 4/29/98
THOMAS E. MOLONEY Financial Officer
and Principal
Accounting Officer)
/s/ Stephen L. Brown Chairman of the
- ------------------------------------- Board and Chief 4/29/98
STEPHEN L. BROWN Executive Officer
FOR HIMSELF AND AS (Principal
ATTORNEY-IN-FACT Executive Officer)
FOR: Foster L. Aborn Vice Chairman of the Board
David F. D'Alessandro President and Chief Operating Officer
William L. Boyan Vice Chairman of the Board
<TABLE>
<S> <C> <C> <C>
Nelson S. Gifford Director Joan T. Bok Director
Richard F. Syron Director Michael C. Hawley Director
John F. Magee Director Samuel W. Bodman Director
John M. Connors, Jr. Director E. James Morton Director
Robert J. Tarr, Jr. Director Lawrence K. Fish Director
C. Vincent Vappi Director Kathleen F. Feldstein Director
Robert E. Fast Director
I. MacAllister Booth Director
</TABLE>
C-7
<PAGE>
INDEX TO EXHIBITS
FORM N-4
JOHN HANCOCK VARIABLE ANNUITY ACCOUNT V
<TABLE>
<CAPTION>
EXHIBITS
--------
<C> <S>
10.A Consent of Independent Auditors.
10.B Representation of Counsel
27. Financial Data Schedule
</TABLE>
C-8
<PAGE>
[LOGO OF JOHN HANCOCK APPEARS HERE]
Mutual Life
Insurance Company
INDIVIDUAL COMBINATION FIXED/VARIABLE ANNUITY CONTRACTS
JOHN HANCOCK VARIABLE ANNUITY ACCOUNT V
JOHN HANCOCK SERVICING OFFICE
P.O. Box 111
Boston, Massachusetts 02117
TELEPHONE 800 REAL LIFE (800-732-5543)
FAX 617-886-3048
PROSPECTUS MAY 1, 1998
The individual deferred annuity contracts ("Contracts") described in this
prospectus can be funded, at the discretion of the Owner by, at any one time, up
to ten of the twenty-three subaccounts of John Hancock Variable Annuity Account
V ("Account"), a fixed annuity account (the "Fixed Account"), or a combination
of the Fixed Account and up to nine of the subaccounts. The assets of each
subaccount will be invested in a corresponding Portfolio of John Hancock
Variable Series Trust I ("Fund"), a "series type" mutual fund advised by John
Hancock Mutual Life Insurance Company ("John Hancock"). The Fixed Account is a
part of the general account of John Hancock.
This prospectus sets forth concisely information about the Account that a
prospective investor ought to know before investing. A statement of additional
information for the Account, dated May 1, 1998, has been filed with the
Securities and Exchange Commission ("Commission") and is incorporated herein by
reference. This statement, the table of contents of which appears at page 38 of
this prospectus, is available upon request and without charge from John Hancock
at the address or telephone number above.
Only the variable features of the Contracts are described in this prospectus.
For a summary of the fixed features, see "Appendix--The Fixed Account and Fixed
Account Value".
For additional information pertaining to the purchase of a Contract as an
Individual Retirement Annuity, see "Appendix--Variable Annuity Information for
Individual Retirement Annuities".
The prospectus for the Fund, which is attached to this prospectus, describes
the investment objectives, policies and risks of investing in the Portfolios of
the Fund: Managed, Growth & Income, Equity Index, Large Cap Value, Large Cap
Growth, Mid Cap Value, Mid Cap Growth, Diversified Mid Cap Growth (formerly,
Special Opportunities), Real Estate Equity, Small/Mid Cap CORE, Small Cap Value,
Small Cap Growth, Global Equity, International Balanced, International Equity
Index (formerly, International Equities), International Opportunities, Emerging
Markets Equity, Short-Term Bond (formerly, Short-Term U.S. Government), Bond
Index, Sovereign Bond, Strategic Bond, High Yield Bond, and Money Market. (The
Small/Mid Cap CORE, Global Equity, Emerging Markets Equity, Bond Index, and High
Yield Bond Portfolios are not currently available to Owners but are expected to
be made available later in 1998.)
THIS PROSPECTUS SHOULD BE READ AND RETAINED FOR FUTURE REFERENCE.
IT IS NOT VALID UNLESS ATTACHED TO A CURRENT PROSPECTUS FOR THE FUND.
THE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
SYNOPSIS OF EXPENSE INFORMATION . . . . . . . . . . . . . 4
CONDENSED FINANCIAL INFORMATION . . . . . . . . . . . . . 7
SPECIAL TERMS . . . . . . . . . . . . . . . . . . . . . . 9
SUMMARY INFORMATION . . . . . . . . . . . . . . . . . . . 10
THE VARIABLE ANNUITY. . . . . . . . . . . . . . . . . . . 13
JOHN HANCOCK, THE ACCOUNT AND THE SERIES FUND . . . . . . 13
CHARGES UNDER VARIABLE ANNUITY CONTRACTS. . . . . . . . . 16
Charges For Mortality And Expense Risks . . . . . . . . 16
Charges for Administrative Services . . . . . . . . . . 17
Withdrawal Charge . . . . . . . . . . . . . . . . . . . 17
Variations in Charges . . . . . . . . . . . . . . . . . 19
Premium or Similar Taxes. . . . . . . . . . . . . . . . 19
THE CONTRACTS . . . . . . . . . . . . . . . . . . . . . . 19
Purchase of Contracts . . . . . . . . . . . . . . . . . 20
THE ACCUMULATION PERIOD . . . . . . . . . . . . . . . . . 20
Accumulation Shares . . . . . . . . . . . . . . . . . . 20
Value of Accumulation Shares. . . . . . . . . . . . . . 20
Transfers To and From Subaccounts. . . . . . . . . . . 20
Dollar-Cost Averaging . . . . . . . . . . . . . . . . . 21
Surrender of Contract; Partial Withdrawals. . . . . . . 21
Systematic Withdrawal . . . . . . . . . . . . . . . . . 22
Death Benefit Before Date of Maturity . . . . . . . . . 22
THE ANNUITY PERIOD. . . . . . . . . . . . . . . . . . . . 23
Variable Monthly Annuity Payments . . . . . . . . . . . 24
Assumed Investment Rate . . . . . . . . . . . . . . . . 24
Calculation of Annuity Units. . . . . . . . . . . . . . 24
Annuity Options . . . . . . . . . . . . . . . . . . . . 25
Option A: Life Annuity with Five, Ten or Twenty Years
Certain . . . . . . . . . . . . . . . . . . . . . . . 25
Option B: Life Annuity Without Refund . . . . . . . . . 25
Other Conditions. . . . . . . . . . . . . . . . . . . . 25
VARIABLE ACCOUNT VALUATION PROCEDURES . . . . . . . . . . 25
MISCELLANEOUS PROVISIONS. . . . . . . . . . . . . . . . . 26
Restriction on Assignment . . . . . . . . . . . . . . . 26
Deferment of Payment. . . . . . . . . . . . . . . . . . 26
Reservation of Rights . . . . . . . . . . . . . . . . . 27
Owner and Beneficiary . . . . . . . . . . . . . . . . . 27
FEDERAL INCOME TAXES. . . . . . . . . . . . . . . . . . . 27
The Account and John Hancock. . . . . . . . . . . . . . 27
Contracts Purchased Other Than to Fund a Tax Qualified
Plan. . . . . . . . . . . . . . . . . . . . . . . . . 27
Diversification Requirements. . . . . . . . . . . . . . 28
Contracts Purchased to Fund a Tax Qualified Plan. . . . 28
PERFORMANCE . . . . . . . . . . . . . . . . . . . . . . . 33
STATE REGULATION. . . . . . . . . . . . . . . . . . . . . 34
REPORTS . . . . . . . . . . . . . . . . . . . . . . . . . 34
VOTING PRIVILEGES . . . . . . . . . . . . . . . . . . . . 34
The Account . . . . . . . . . . . . . . . . . . . . . . 34
John Hancock. . . . . . . . . . . . . . . . . . . . . . 35
CHANGES IN APPLICABLE LAW--FUNDING AND OTHERWISE. . . . . 35
LEGAL MATTERS . . . . . . . . . . . . . . . . . . . . . . 35
DISTRIBUTION OF THE CONTRACTS . . . . . . . . . . . . . . 35
IMPACT OF YEAR 2000 ISSUE . . . . . . . . . . . . . . . . 35
REGISTRATION STATEMENT. . . . . . . . . . . . . . . . . . 35
EXPERTS . . . . . . . . . . . . . . . . . . . . . . . . . 36
FINANCIAL STATEMENTS. . . . . . . . . . . . . . . . . . . 36
TABLE OF CONTENTS OF STATEMENT OF ADDITIONAL INFORMATION. 36
APPENDIX--THE FIXED ACCOUNT AND FIXED ACCOUNT VALUE . . . 37
APPENDIX--VARIABLE ANNUITY INFORMATION FOR INDIVIDUAL
RETIREMENT ANNUITIES. . . . . . . . . . . . . . . . . . 39
APPENDIX--ILLUSTRATIVE ACCUMULATED VALUE AND ANNUITY
PAYMENT TABLES. . . . . . . . . . . . . . . . . . . . . 40
</TABLE>
THE CONTRACTS OFFERED BY THIS PROSPECTUS MAY NOT BE AVAILABLE IN ALL STATES.
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN
OFFER TO BUY, SECURITIES IN ANY STATE TO ANY PERSON TO WHOM IT IS UNLAWFUL TO
MAKE OR SOLICIT AN OFFER IN THAT STATE.
<PAGE>
SYNOPSIS OF EXPENSE INFORMATION
The purpose of this synopsis is to assist the Owner in understanding the
various costs and expenses that an Owner will bear directly or indirectly. This
synopsis includes expenses of the Account as well as those of the Fund. This
synopsis does not include any premium taxes that may be applicable. For a more
complete description of the Account charges, see "Charges under Variable Annuity
Contracts." For a more complete description of the investment advisory fee
charged each Portfolio and the annual operating expenses of each Portfolio, see
the prospectus for the Fund.
CONTRACT EXPENSES
Maximum Withdrawal Charge (as a percentage of amount surrendered)/1/ . . 8.00%
Annual Contract Fee (for Contracts having an Accumulated Value of
$10,000 or less)/2/ . . . . . . . . . . . . . . . . . . . . . . . . . . $30
SEPARATE ACCOUNT ANNUAL EXPENSES
(as a percentage of average account value)
Mortality and Expense Risk Charge. . . . . . . . . . . . . . . . . . . . 1.15%
Administrative Services Charge . . . . . . . . . . . . . . . . . . . . . 0.35%
----
Total Separate Account Annual Expenses . . . . . . . . . . . . . . . . . 1.50%
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average daily net assets)
The figures in the following chart and the Examples which follow reflect the
investment management fees currently payable and the 1997 other fund expenses
allocated to the Fund (except that other fund expenses for the Small/Mid Cap
CORE, Global Equity, Emerging Markets Equity, Bond Index, and High Yield Bond
Portfolios are based upon estimates for the current fiscal year).
<TABLE>
<CAPTION>
Other
Fund
Other Fund Total Expenses
Expenses Fund Absent
Management After Expense Operating Expense
Fund Name Fee Reimbursement Expenses Reimbursement/3/
--------- ---------- ------------- --------- ----------------
<S> <C> <C> <C> <C>
Managed . . . . . . . 0.33% 0.04% 0.37% N/A
Growth & Income . . . 0.25% 0.03% 0.28% N/A
Equity Index. . . . . 0.15% 0.25% 0.40% 0.40%
Large Cap Value . . . 0.75% 0.25% 1.00% 0.31%
Large Cap Growth. . . 0.39% 0.05% 0.44% N/A
Mid Cap Value . . . . 0.80% 0.25% 1.05% 0.34%
Mid Cap Growth. . . . 0.85% 0.25% 1.10% 0.57%
Diversified Mid Cap
Growth . . . . . . . 0.75% 0.10% 0.85% N/A
Real Estate Equity. . 0.60% 0.09% 0.69% N/A
Small/Mid Cap CORE. . 0.80% 0.25% 1.05% N/A
Small Cap Value . . . 0.80% 0.25% 1.05% 0.50%
Small Cap Growth. . . 0.75% 0.25% 1.00% 0.37%
Global Equity . . . . 0.90% 0.25% 1.15% N/A
International Balanced 0.85% 0.25% 1.10% 0.71%
International Equity
Index. . . . . . . . 0.18% 0.19% 0.37% N/A
International
Opportunities. . . . 0.97% 0.25% 1.22% 0.60%
Emerging Markets
Equity . . . . . . . 1.30% 0.25% 1.55% N/A
Short-Term Bond . . . 0.30% 0.21% 0.51% N/A
Bond Index . . . . . 0.15% 0.25% 0.40% N/A
Sovereign Bond . . . 0.25% 0.06% 0.31% N/A
Strategic Bond . . . 0.75% 0.25% 1.00% 0.57%
High Yield Bond . . . 0.65% 0.25% 0.90% N/A
Money Market . . . . 0.25% 0.08% 0.33% N/A
</TABLE>
4
<PAGE>
/1/ Actual Withdrawal Charges may be lower, as the Withdrawal Charge decreases
each year on each anniversary of the date of deposit and limited free
partial withdrawals are allowed.
<TABLE>
<CAPTION>
Years from date
of deposit to Withdrawal
date of withdrawal Charge
------------------ ----------
<S> <C>
7 or more. . . . . . . . . . . . . . . . 0%
5 but less than 7. . . . . . . . . . . . 6%
3 but less than 5. . . . . . . . . . . . 7%
less than 3. . . . . . . . . . . . . . . 8%
</TABLE>
An Owner may withdraw in any Contract Year up to 10% of the Accumulated
Value of the Contract as of the beginning of the Contract Year without any
charges.
/2/ The annual contract fee is deducted on Contracts having an Accumulated Value
of less than $10,000. The contract fee is deducted at the beginning of each
Contract year after the first and at a full surrender during a Contract
Year. The contract fee is assessed only during the Accumulation Period. In
the following Examples, the annual contract fee has been expressed as an
annual percentage of assets based on past experience concerning Contract
fees collected on other variable annuity contracts using the same Contract
fee provision.
/3/ John Hancock reimburses a Portfolio when the Portfolio's Other Expenses
exceed 0.25% of its average daily net asset value.
EXAMPLES
The following examples should not be considered representations of past or
future expenses; actual expenses may be greater than or less than those shown
above.
If you surrender your contract at the end of the applicable time period, you
would pay the following current expenses on a $1,000 investment, assuming 5%
annual return on assets:
<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
<S> <C> <C> <C> <C>
MANAGED. . . . . . . . . . . . . . $ 91 $132 $166 $224
GROWTH & INCOME. . . . . . . . . . $ 91 $129 $161 $215
EQUITY INDEX . . . . . . . . . . . $ 92 $133 $167 $227
LARGE CAP VALUE. . . . . . . . . . $ 98 $151 $198 $289
LARGE CAP GROWTH . . . . . . . . . $ 92 $134 $169 $232
MID CAP VALUE. . . . . . . . . . . $ 98 $152 $200 $293
MID CAP GROWTH . . . . . . . . . . $ 99 $154 $203 $298
DIVERSIFIED MID CAP GROWTH . . . . $ 96 $146 $190 $274
REAL ESTATE EQUITY . . . . . . . . $ 95 $142 $182 $257
SMALL/MID CAP CORE . . . . . . . . $ 98 $152 $200 $293
SMALL CAP VALUE . . . . . . . . . $ 98 $152 $200 $293
SMALL CAP GROWTH . . . . . . . . . $ 98 $151 $198 $289
GLOBAL EQUITY. . . . . . . . . . . $ 99 $155 $205 $303
INTERNATIONAL BALANCED . . . . . . $ 99 $154 $203 $298
INTERNATIONAL EQUITY INDEX . . . . $ 92 $134 $169 $231
INTERNATIONAL OPPORTUNITIES . . . $100 $158 $209 $310
EMERGING MARKETS EQUITY. . . . . . $103 $167 $225 $341
SHORT-TERM BOND . . . . . . . . . $ 93 $136 $173 $239
BOND INDEX . . . . . . . . . . . . $ 92 $133 $167 $227
SOVEREIGN BOND . . . . . . . . . . $ 91 $130 $163 $218
STRATEGIC BOND . . . . . . . . . . $ 98 $151 $198 $289
HIGH YIELD BOND. . . . . . . . . . $ 97 $148 $193 $279
MONEY MARKET . . . . . . . . . . . $ 91 $131 $164 $220
</TABLE>
5
<PAGE>
If you annuitize at the end of the applicable time period, or if you do not
surrender your Contract, you would pay the following current expenses on a
$1,000 investment, assuming 5% annual return on assets:
<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
<S> <C> <C> <C> <C>
MANAGED . . . . . . . . . . . . . . $ 19 $ 60 $104 $224
GROWTH & INCOME . . . . . . . . . . $ 19 $ 58 $ 99 $215
EQUITY INDEX . . . . . . . . . . . $ 20 $ 61 $105 $227
LARGE CAP VALUE . . . . . . . . . . $ 26 $ 79 $136 $289
LARGE CAP GROWTH . . . . . . . . . $ 20 $ 62 $107 $232
MID CAP VALUE . . . . . . . . . . . $ 26 $ 81 $138 $293
MID CAP GROWTH . . . . . . . . . . $ 27 $ 82 $141 $298
DIVERSIFIED MID CAP GROWTH . . . . $ 24 $ 75 $128 $274
REAL ESTATE EQUITY . . . . . . . . $ 23 $ 70 $120 $257
SMALL/MID CAP CORE. . . . . . . . . $ 26 $ 81 $138 $293
SMALL CAP VALUE . . . . . . . . . . $ 26 $ 81 $138 $293
SMALL CAP GROWTH . . . . . . . . . $ 26 $ 79 $136 $289
GLOBAL EQUITY . . . . . . . . . . . $ 27 $ 84 $143 $303
INTERNATIONAL BALANCED . . . . . . $ 27 $ 82 $141 $298
INTERNATIONAL EQUITY INDEX . . . . $ 20 $ 62 $107 $231
INTERNATIONAL OPPORTUNITIES . . . . $ 28 $ 86 $146 $310
EMERGING MARKETS EQUITY . . . . . . $ 31 $ 96 $163 $341
SHORT-TERM BOND . . . . . . . . . . $ 21 $ 65 $111 $239
BOND INDEX. . . . . . . . . . . . . $ 20 $ 61 $105 $227
SOVEREIGN BOND . . . . . . . . . . $ 19 $ 58 $101 $218
STRATEGIC BOND . . . . . . . . . . $ 26 $ 79 $136 $289
HIGH YIELD BOND . . . . . . . . . . $ 25 $ 76 $131 $279
MONEY MARKET . . . . . . . . . . . $ 19 $ 59 $102 $220
</TABLE>
6
<PAGE>
JOHN HANCOCK VARIABLE ANNUITY ACCOUNT V
CONDENSED FINANCIAL INFORMATION
The table below reflects the historical information for a share outstanding
throughout the period for John Hancock Variable Annuity Account V.
SELECTED DATA FOR EACH ACCUMULATION SHARE OUTSTANDING THROUGHOUT THE PERIOD:
<TABLE>
<CAPTION>
Period from
Year-End Year-End January 26, 1995
December 31, December 31, to December 31,
1997 1996 1995
------------- ------------ ------------------
<S> <C> <C> <C>
GROWTH & INCOME SUBACCOUNT
Accumulation share value:
Beginning of period . . . . $15.437 $13.048 $10.000
End of period . . . . . . . $19.746 $15.437 $13.048
Number of Accumulation Shares
outstanding at end of period 5,327,037 3,891,413 1,659,869
SOVEREIGN BOND SUBACCOUNT
Accumulation share value:
Beginning of period . . . . $11.957 $11.659 $10.000
End of period . . . . . . . $12.969 $11.957 $11.659
Number of Accumulation Shares
outstanding at end of period 1,765,587 1,370,328 682,290
MONEY MARKET SUBACCOUNT
Accumulation share value:
Beginning of period . . . . $10.798 $10.406 $10.000
End of period . . . . . . . $11.217 $10.798 $10.406
Number of Accumulation Shares
outstanding at end of period 1,238,762 1,400,049 663,755
LARGE CAP GROWTH SUBACCOUNT
Accumulation share value:
Beginning of period . . . . $14.881 $12,773 $10.000
End of period . . . . . . . $19.198 $14.881 $12.773
Number of Accumulation Shares
outstanding at end of period 2,074,430 1,504,358 646,863
MANAGED SUBACCOUNT
Accumulation share value:
Beginning of period . . . . $13.497 $12.375 $10.000
End of period . . . . . . . $15.788 $13.497 $12.375
Number of Accumulation Shares
outstanding at end of period 8,216,039 6,865,907 3,049,661
REAL ESTATE EQUITY SUBACCOUNT
Accumulation share value:
Beginning of period . . . . $14.865 $11.339 $10.000
End of period . . . . . . . $17.165 $14.865 $11.339
Number of Accumulation Shares
outstanding at end of period 466,871 233,153 92,658
INTERNATIONAL EQUITIES
SUBACCOUNT
Accumulation share value:
Beginning of period . . . . $11.936 $11.097 $10.000
End of period . . . . . . . $11.168 $11.936 $11.097
Number of Accumulation Shares
outstanding at end of period 580,528 483,836 180,112
SHORT-TERM U.S. GOVERNMENT
SUBACCOUNT
Accumulation share value:
Beginning of period . . . . $11.128 $10.903 $10.000
End of period . . . . . . . $11.665 $11.128 $10.903
Number of Accumulation Shares
outstanding at end of period 685,486 663,991 281,217
SPECIAL OPPORTUNITIES
SUBACCOUNT
Accumulation share value:
Beginning of period . . . . $17.067 $13.292 $10.000
End of period . . . . . . . $17.403 $17.067 $13.292
Number of Accumulation Shares
outstanding at end of period 1,747,007 1,606,062 492,166
</TABLE>
7
<PAGE>
<TABLE>
<CAPTION>
Period from
Year-End May 1, 1996
December 31, to December 31,
1997 1996
------------- -----------------
<S> <C> <C>
EQUITY INDEX SUBACCOUNT
Accumulation Share Value
Beginning of period . . . . . . . . . . . $11.309 $10.000
End of Period. . . . . . . . . . . . . . . $14.794 $11.309
Number of Accumulation Shares outstanding at
end of period . . . . . . . . . . . . . . . 685,246 125,245
LARGE CAP VALUE
Accumulation Share Value
Beginning of period. . . . . . . . . . . . $11.277 $10.000
End of Period. . . . . . . . . . . . . . . $14.282 $11.277
Number of Accumulation Shares outstanding at
end of period . . . . . . . . . . . . . . . 668,796 244,514
MID CAP GROWTH SUBACCOUNT
Accumulation Share Value
Beginning of period. . . . . . . . . . . . $10.166 $10.000
End of Period. . . . . . . . . . . . . . . $11.687 $10.166
Number of Accumulation Shares outstanding at
end of period . . . . . . . . . . . . . . . 510,743 286,257
MID CAP VALUE SUBACCOUNT
Accumulation Share Value
Beginning of period. . . . . . . . . . . . $11.502 $10.000
End of period. . . . . . . . . . . . . . . $14.987 $11.502
Number of Accumulation Shares outstanding at
end of period . . . . . . . . . . . . . . . 486,455 103,390
SMALL CAP GROWTH SUBACCOUNT
Accumulation Share Value
Beginning of period. . . . . . . . . . . . $9.851 $10.000
End of period. . . . . . . . . . . . . . . $11.089 $9.851
Number of Accumulation Shares outstanding at
end of period . . . . . . . . . . . . . . . 442,227 212,844
SMALL CAP VALUE SUBACCOUNT
Accumulation Share Value
Beginning of period. . . . . . . . . . . . $10.923 $10.000
End of period. . . . . . . . . . . . . . . $13.521 $10.923
Number of Accumulation Shares outstanding at
end of period . . . . . . . . . . . . . . . 308,239 76,095
STRATEGIC BOND SUBACCOUNT
Accumulation Share Value
Beginning of period. . . . . . . . . . . . $10.565 $10.000
End of period. . . . . . . . . . . . . . . $11.350 $10.565
Number of Accumulation Shares outstanding at
end of period . . . . . . . . . . . . . . . 257,401 100,631
INTERNATIONAL OPPORTUNITIES SUBACCOUNT
Accumulation Share Value
Beginning of period. . . . . . . . . . . . $10.565 $10.000
End of period. . . . . . . . . . . . . . . $10.611 $10.565
Number of Accumulation Shares outstanding at
end of period . . . . . . . . . . . . . . . 232,719 125,200
INTERNATIONAL BALANCED SUBACCOUNT
Accumulation Share Value
Beginning of period. . . . . . . . . . . . $10.566 $10.000
End of period. . . . . . . . . . . . . . . $10.684 $10.566
Number of Accumulation Shares outstanding at
end of period . . . . . . . . . . . . . . . 93,191 49,785
</TABLE>
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<PAGE>
SPECIAL TERMS
As used in this prospectus, the following terms have the indicated meanings:
ACCUMULATION SHARE: a unit of measurement used in determining the value of a
Contract prior to the commencement of annuity payments or, if earlier, contract
lapse. The value of an Accumulation Share for each subaccount will reflect the
investment performance of that subaccount and will vary in dollar amount.
ACCUMULATED VALUE OF A CONTRACT: total value of the Accumulation Shares in that
Contract plus the Fixed Account Value of that Contract, if any.
ANNUITANT: the person on whose life the Contract is issued.
ANNUITY OPTION: the provisions under which a series of annuity payments is made
to the Annuitant or other payee, such as the Life Annuity with Ten Years
Certain.
ANNUITY UNIT: a unit of measurement used in determining the amount of each
variable annuity payment. The value of an Annuity Unit for each subaccount will
depend upon the assumed investment rate and the investment performance of that
subaccount and will vary in dollar amount.
BENEFICIARY: the person who receives the proceeds in the event of the death of
the Owner or the Annuitant.
CODE: The Internal Revenue Code of 1986, as amended.
CONTRACT YEAR: a period between anniversaries of the date of issue of the
Contract.
FIXED ACCOUNT: an account that is part of JHVLICO's general account in which all
or a part of the Accumulated Value may be held for accumulation at fixed rates
of interest (not less than 3%) declared by JHVLICO periodically at its
discretion.
OWNER: the person(s) or entity, usually the person(s) or entity to whom the
Contract is issued, who has the sole right to exercise all rights and privileges
under the Contract except as otherwise provided in the Contract.
DATE OF MATURITY OF A CONTRACT: the date elected by the Owner as of which
annuity payments will commence. The election is subject to certain conditions
described in "The Annuity Period".
MINIMUM DEATH BENEFIT: the undertaking of John Hancock under a Contract to make
a payment on the death of the Annuitant at any time before the date of maturity
equal to the greatest of (a) the Accumulated Value of the Contract next
determined following John Hancock's receipt of due proof of death, (b) the
aggregate amount of the purchase payments made under the Contract (reduced to
reflect partial withdrawals and withdrawal charges), or (c) in states where
permitted by law, the highest Accumulated Value of the Contract as of any third
interval Contract anniversary preceding the Contract anniversary nearest the
Annuitant's 81st birthday, plus the purchase payments made under the Contract,
adjusted for partial withdrawals and withdrawal charges, since such Contract
anniversary. See "The Accumulation Period--Death Benefit Before Date of
Maturity".
NET PURCHASE PAYMENT: the amount of any purchase payment reduced by applicable
taxes, if any, based on the amount of the purchase payment.
SERVICING OFFICE: P.O. Box 111, Boston, MA 02117.
SURRENDER VALUE: a cash payment made prior to a Contract's maturity, equal to
all or part of the Accumulation Shares credited to the Contract, less any
Withdrawal Charge and contract fee.
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<PAGE>
SUMMARY INFORMATION
The Contracts are designed both for purchase by individuals doing their own
retirement planning, including plans and trusts that do not qualify for special
tax treatment under the Internal Revenue Code of 1986, as amended ("Code") and
for purchase for persons participating in (1) pension and profit-sharing plans
qualified under Section 401(c) of the Code, known as "H.R. 10 plans", (2)
pension or profit-sharing plans qualified under Sections 401(a) or 403(a) of the
Code, known as "corporate plans", (3) plans qualifying under Section 401(k) of
the Code, (4) annuity purchase plans adopted under the provisions of Section
403(b) of the Code by public school systems and certain other tax-exempt
organizations, (5) individual retirement annuity plans satisfying the
requirements of Section 408 of the Code, and (6) deferred compensation plans
maintained by a state or political subdivision or tax exempt organizations under
Section 457 of the Code.
In order to accommodate "employer-related" plans funded by the Contracts,
contract forms using "unisex" purchase rates, i.e. rates the same for males and
females, are available. Any questions you have as to whether you are
participating in an employer-related plan should be directed to your employer.
Any other question you or your employer may have with respect to this topic can
be asked John Hancock by calling 800 REAL LIFE (800-732-5543) or by writing
Servicing Office, P.O. Box 111, Boston, MA 02117.
THE CONTRACTS
The Contracts offered are deferred annuity Contracts under which purchase
payments may be made in a lump sum or at intervals until the maturity date
selected by the Owner, at which time annuity payments by John Hancock will
begin, if so elected by the Owner.
An application for a Contract is available from a marketing representative.
Upon completion, it is transmitted along with the purchase payment to John
Hancock's Servicing Office for review. (See "Distribution of the Contracts.")
John Hancock also issues variable annuity contracts that charge a front-end
sales load and other forms of variable annuity contracts. These contracts are
offered by means of other prospectuses, but use the same underlying Fund.
JOHN HANCOCK VARIABLE ANNUITY ACCOUNT V
The Account is a separate investment account of John Hancock, operated as a
unit investment trust, which supports benefits payable under its Contracts.
There are currently twenty-three subaccounts within the Account: Managed, Growth
& Income, Equity Index, Large Cap Value, Large Cap Growth, Mid Cap Value, Mid
Cap Growth, Diversified Mid Cap Growth, Real Estate Equity, Small/Mid Cap CORE,
Small Cap Value, Small Cap Growth, Global Equity, International Balanced,
International Equity Index, International Opportunities, Emerging Markets
Equity, Short-Term Bond, Bond Index, Sovereign Bond, Strategic Bond, High Yield
Bond, and Money Market. The assets of each subaccount are invested in a
corresponding Portfolio of the Fund.
Each Portfolio has a different investment objective. John Hancock receives a
fee from each Portfolio for providing investment management services. In turn,
John Hancock pays a fee to the following sub-investment managers for providing
sub-investment services to the various Portfolios:
<TABLE>
<CAPTION>
NAME OF FUND NAME OF SUB-INVESTMENT MANAGER
------------ ------------------------------
<S> <C>
Managed Independence Investment Associates, Inc.
Growth & Income. . . . . . . . . . . . . Independence Investment Associates, Inc.
Equity Index State Street Bank & Trust, N.A.
Large Cap Value. . . . . . . . . . . . . T. Rowe Price Associates, Inc.
Large Cap Growth. . . . . . . . . . . . Independence Investment Associates, Inc.
Mid Cap Value Neuberger & Berman Management, Inc.
Mid Cap Growth Janus Capital Corporation
Diversified Mid Cap Growth. . . . . . . John Hancock Advisers, Inc.
Real Estate Equity Independence Investment Associates, Inc.
Small/Mid Cap CORE Goldman Sachs Asset Management
Small Cap Value INVESCO Management & Research, Inc.
Small Cap Growth. . . . . . . . . . . . John Hancock Advisers, Inc.
Global Equity. . . . . . . . . . . . . . Scudder Kemper Investments
International Balanced Brinson Partners, Inc.
International Equity Index Independence Investment International Associates, Inc.
International Opportunities Rowe Price-Fleming International, Inc.
Emerging Markets Equity. . . . . . . . . Montgomery Asset Management, LLC
Short-Term Bond Independence Investment Associates, Inc.
Bond Index Mellon Bond Associates
Sovereign Bond. . . . . . . . . . . . . John Hancock Advisers, Inc.
Strategic Bond. . . . . . . . . . . . . J.P. Morgan Investment Management, Inc.
High Yield Bond Wellington Management Company, LLP
</TABLE>
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<PAGE>
The fee paid by John Hancock to the sub-investment managers for these services
is borne by John Hancock and is not charged to the Fund, the Account, or Owners.
For a full description of the Fund, see the prospectus for the Fund following
at the end of this prospectus.
PRINCIPAL UNDERWRITER OF THE ACCOUNT
John Hancock Distributors, Inc., a registered broker-dealer since 1968, makes
Contracts available through its registered representatives licensed to sell life
insurance policies and annuity contracts.
INVESTMENT OF PURCHASE PAYMENTS
Purchase payments received under the Contracts, after deduction of premium or
similar taxes, if applicable, are allocated by John Hancock to one or more of
the variable subaccounts and the Fixed Account, as directed by the Owner.
Purchase payments should be mailed to the John Hancock Servicing Office, Post
Office Box 111, Boston, MA 02117.
MINIMUM AND MAXIMUM PURCHASE PAYMENTS
The initial purchase payment under a Contract must be at least $5,000 ($1,000
for individual retirement accounts and qualified plans); thereafter any payment
must be at least $50.
The maximum amount that can be deposited into a Contract per Contract Year is
$500,000. The maximum amount that can be deposited in or transferred to the
Fixed Account per Contract Year is $100,000, exclusive of the initial deposit
which can be as large as $500,000. Deposits in or transfers to the Fixed Account
can only be made during the first 10 Contract Years. No new deposits may be made
after Annuitant's 85th birthday. These limits may be waived by John Hancock.
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<PAGE>
ACCOUNT FEES
The charges made directly to the Account aggregate 1.50% per annum of the
average daily net asset value of the Account and are made up of daily charges
aggregating 1.15% annually for mortality and expense risks assumed (0.45% on an
annual basis for mortality risks and 0.70% on an annual basis for expense risks)
and 0.35% for certain administrative services. (See "Charges Under Variable
Annuity Contracts--Charges for Administrative Services.")
FUND CHARGES
Investment management fees at annual rates ranging from 0.15% to 1.30% of
average daily net assets are paid by the Portfolios to John Hancock. The
Portfolios also incur charges for other expenses incurred in their operations.
Investment management fees and other expenses are reflected in the net asset
value of each Portfolio's shares. For a description of these charges and
expenses, see the prospectus for the Fund.
SALES DEDUCTIONS UPON WITHDRAWALS
A Withdrawal Charge (a contingent deferred sales charge), if applicable, is
deducted from amounts withdrawn prior to maturity. The aggregate Withdrawal
Charges assessed against a Contract will never exceed 8% of the total purchase
payments received. (See "Charges Under Variable Annuity Contracts-- Withdrawal
Charge.")
OTHER CHARGES OR DEDUCTIONS
Deductions are made for any applicable taxes based on the amount of a purchase
payment; currently such taxes in certain states are up to 5% of each purchase
payment. (See "Charges Under Variable Annuity Contracts--Premium or Similar
Taxes.")
Charges are made for any taxes or interest expense attributable to the
Account. An annual contract fee of $30 is deducted on Contracts having an
Accumulated Value of less than $10,000. John Hancock reserves the right to
increase the contract fee up to $50, subject to state regulations. (See "Charges
Under Variable Annuity Contracts--Charges for Administrative Services.")
WITHDRAWAL PRIOR TO MATURITY
At any time before annuity payments begin, if the Annuitant is living, a
Contract may be surrendered in full for its Surrender Value or a portion of the
value of the Contract may be withdrawn, subject to certain limits. (See "The
Accumulation Period--Surrender of the Contract; Partial Withdrawal.") A 10%
penalty tax may be applicable to the taxable portion (earnings) withdrawn before
the Owner attains age 59 1/2.
SYSTEMATIC WITHDRAWALS
The Owner may pre-authorize a periodic withdrawal plan. Payments may be
monthly, quarterly, semi-annual or annual, and may be for a level dollar amount.
A minimum Accumulated Value of $25,000 is required to start the program. (See
"The Accumulation Period--Systematic Withdrawal.")
DOLLAR-COST AVERAGING
The Owner may elect to have amounts transferred automatically from any one of
the variable subaccounts into one or more of the other variable subaccounts.
Transfers may be made monthly, quarterly, semi-annually, or annually for a
minimum of $250. A minimum Accumulated Value of $20,000 is required to start the
program. (See "The Accumulation Period--Dollar-Cost Averaging.")
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<PAGE>
GUARANTEED MINIMUM DEATH BENEFIT
Contracts include a death benefit payable on the death of the Annuitant prior
to annuitization that is the greatest of (a) the Accumulated Value of the
Contract, (b) the purchase payments made under the Contract, adjusted for any
prior partial withdrawals and withdrawal charges, or (c) in states where
permitted by law, the highest Accumulated Value of the Contract as of any third
interval Contract anniversary preceding the Contract anniversary nearest the
Annuitant's 81st birthday, plus the purchase payments made under the Contract,
adjusted for partial withdrawals and withdrawal charges, since such Contract
anniversary. (See "The Accumulation Period--Death Benefit Before Date of
Maturity.")
10 DAY FREE-LOOK PROVISION
An Owner may surrender the Contract for any reason within 10 days after its
receipt and receive in cash the Accumulated Value of the Contract, plus any
deductions previously made from purchase payments for premium or similar taxes.
Owners surrendering Contracts issued in Hawaii, Idaho, Missouri, Nebraska, North
Carolina, Oklahoma, Oregon, South Carolina, Washington, West Virginia, and Utah,
and all Contracts issued under an individual retirement account, will receive
gross purchase payments made. If the Contract is issued in California to an
Owner 60 years of age or older, the Owner may surrender the Contract within 30
days after its receipt, and, in that event, the gross purchase payments made
will be refunded to the Owner. If the Contract is issued in North Dakota, the
Owner may surrender the Contract within 20 days after its receipt and, in that
event, the gross purchase payments made will be refunded.
THE VARIABLE ANNUITY
A variable annuity is significantly different from a fixed annuity in that it
is the Owner and Annuitant under a variable annuity who assume the risk of
investment gain or loss rather than the insurance company. While under a fixed
annuity the insurance company guarantees a specified interest rate and specified
monthly annuity payments, the amounts of annuity payments under a variable
annuity are not guaranteed and will vary with the investment performance of the
portfolio securities in the underlying Fund.
Based upon the Owner's investment objective, the Owner directs the allocation
of purchase payments and Accumulated Values among the subaccounts on a
continuing basis. There can be no assurance that these investment objectives
will be achieved.
JOHN HANCOCK, THE ACCOUNT AND THE SERIES FUND
JOHN HANCOCK
John Hancock is a mutual life insurance company chartered in Massachusetts in
1862. Its Home Office is at 200 Clarendon Street, Boston, Massachusetts 02117.
It conducts a conventional life insurance business in all of the United States,
the District of Columbia and Puerto Rico. John Hancock sells insurance policies
and annuity contracts directly to customers or through a career agency system,
banks, or broker/dealers.
THE ACCOUNT
The Account is a separate account established under Massachusetts law on May
11, 1987. The Account, although an integral part of John Hancock, meets the
definition of a "separate account" under the Federal securities laws and is
registered as a unit investment trust under the Investment Company Act of 1940,
as amended ("1940 Act").
The Account's assets are the property of John Hancock and the obligations
under the Contracts are the obligations of John Hancock. Each Contract provides
that the portion of the Account's assets equal to the reserves and other
liabilities under the Contract with respect to the Account shall not be
chargeable with
13
<PAGE>
liabilities arising out of any other business John Hancock may conduct. In
addition to the net assets and other liabilities for Contracts, the Account's
assets include assets derived from charges made by John Hancock and, possibly,
funds contributed by John Hancock to commence operation of the subaccounts or
their predecessors. From time to time these additional assets may be transferred
in cash by John Hancock to its general account. Before making any such transfer,
John Hancock will consider any possible adverse impact the transfer might have
on any subaccount.
Income, gains and losses, whether or not realized, from assets allocated to
the Account are, in accordance with the Contracts, credited to or charged
against the Account without regard to other income, gains or losses of John
Hancock.
There currently are twenty-three subaccounts in the Account: Managed, Growth &
Income, Equity Index, Large Cap Value, Large Cap Growth, Mid Cap Value, Mid Cap
Growth, Diversified Mid Cap Growth, Real Estate Equity, Small/Mid Cap CORE,
Small Cap Value, Small Cap Growth, Global Equity, International Balanced,
International Equity Index, International Opportunities, Emerging Markets
Equity, Short-Term Bond, Bond Index, Sovereign Bond, Strategic Bond, High Yield
Bond, and Money Market. The assets in each are invested in a separate class of
shares issued by the Fund, but the assets of one subaccount are not necessarily
legally insulated from liabilities associated with another subaccount. New
subaccounts may be added and made available to Owners.
There is a limitation on the number of subaccounts that may be utilized over
the lifetime of a Contract. At the current time that limit is eighteen.
However, it is John Hancock's intention to raise that limit later in 1998 to
ninety-nine subaccounts. For purposes of this limit, each deposit or transfer
of funds into a subaccount will count as one "use" of a subaccount even if the
subaccount has been used before.
THE SERIES FUND
The Fund is a "series" type of mutual fund which is registered under the 1940
Act as an open-end diversified management investment company and organized as a
Massachusetts business trust. The Fund serves as the investment medium for the
Account and other unit investment trust separate accounts established by John
Hancock and by John Hancock Variable Life Insurance Company for variable life
insurance policies and variable annuity contracts. A full description of the
Fund, its investment objectives, policies and restrictions, its charges and
expenses, and all other aspects of its operation is contained in the attached
prospectus (which should be read carefully before investing) and the statement
of additional information referred to therein, which should be read together
with this prospectus. Among other items, note the description of the need to
monitor events on the part of the Fund's Board of Trustees for possible
conflicts between separate accounts and other consequences.
The following is a brief summary of the investment objectives of each
Portfolio.
Managed Portfolio
The investment objective of this Portfolio is to achieve maximum long-term
total return consistent with prudent investment risk. Investments will be made
in common stocks, convertibles and other equity investments, in bonds and other
fixed income securities and in money market instruments.
Growth & Income Portfolio
The investment objective of this Portfolio is to achieve intermediate and
long-term growth of capital, with income as a secondary consideration. This
objective will be pursued by investments principally in common stocks (and
securities convertible into or with rights to purchase common stocks) of
companies believed to offer growth potential over both the intermediate and the
long term.
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<PAGE>
Equity Index Portfolio
The investment objective of this Portfolio is to provide investment results
that correspond to the total return of the U.S. market as represented by the S&P
500 utilizing common stocks that are publicly traded in the United States.
Large Cap Value Portfolio
The investment objective of this Portfolio is to provide substantial dividend
income, as well as long-term capital appreciation, through investments in the
common stocks of established companies believed to offer favorable prospects for
increasing dividends and capital appreciation.
Large Cap Growth Portfolio
The investment objective of this Portfolio is to achieve above-average capital
appreciation through the ownership of common stocks (and securities convertible
into with rights to purchase common stocks) of companies believed to offer
above-average capital appreciation opportunities. Current income is not an
objective of the Portfolio.
Mid Cap Value Portfolio
The investment objective of this Portfolio is to provide long-term growth of
capital primarily through investment in the common stocks of medium
capitalization companies believed to sell at a discount to their intrinsic
value.
Mid Cap Growth Portfolio
The investment objective of this Portfolio is to provide long-term growth of
capital through a non-diversified portfolio investing primarily in common stocks
of medium capitalization companies.
Diversified Mid Cap Growth Portfolio
The investment objective of this Portfolio is to provide long-term growth of
capital through a diversified portfolio investing primarily in common stocks of
medium capitalization growth companies.
Real Estate Equity Portfolio
The investment objective of this Portfolio is to provide above-average income
and long-term growth of capital by investment principally in equity securities
of companies in the real estate and related industries.
Small/Mid Cap CORE Portfolio
The investment objective of this Portfolio is to achieve long-term growth of
capital through a broadly diversified portfolio of equity securities of U.S.
issuers which are included in the Russell 2500 Index at the time of investment.
Small Cap Value Portfolio
The investment objective of this Portfolio is to provide long-term growth of
capital by investing in a well diversified portfolio of equity securities of
small capitalization companies exhibiting value characteristics.
Small Cap Growth Portfolio
The investment objective of this Portfolio is to provide long-term growth of
capital through a diversified portfolio investing primarily in common stocks of
small capitalization emerging growth companies.
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<PAGE>
Global Equity Portfolio
The investment objective of this Portfolio is to achieve long-term growth of
capital through a diversified portfolio of marketable securities, primarily
equity securities, of both U.S. and foreign issuers.
International Balanced Portfolio
The investment objective of this Portfolio is to maximize total U.S. dollar
return, consisting of capital appreciation and current income, through
investment in non-U.S. equity and fixed income securities.
International Equity Index Portfolio
The investment objective of this Portfolio is to provide investment results
that correspond to the total return of the major developed international
(non-U.S.) equity markets, as represented by the MSCI AEFE GDP Index.
International Opportunities Portfolio
The investment objective of this Portfolio is to provide capital appreciation
through investments in common stocks of primarily well-established, non-United
States companies.
Emerging Markets Equity Portfolio
The investment objective of this Portfolio is to achieve capital appreciation
by investing primarily in equity securities of companies in countries having
economies and markets generally considered by the World Bank or the United
Nations to be emerging or developing.
Short-Term Bond Portfolio
The investment objective of this Portfolio is to provide a high level of
current income consistent with a low degree of share price fluctuation through
investment primarily in a diversified portfolio of short- and intermediate-term
investment-grade debt obligations.
Bond Index Portfolio
The investment objective of this Portfolio is to provide investment results
that correspond to the total return and risk characteristics of the U.S.
investment grade fixed income market, as represented by a Lehman Brothers bond
index that tracks the performance of investment grade debt securities.
Sovereign Bond Portfolio
The investment objective of this Portfolio is to provide as high a level of
long-term total rate of return as is consistent with prudent investment risk,
through investment primarily in a diversified portfolio of freely marketable
debt securities. Total rate of return consists of current income, including
interest and discount accruals, and capital appreciation. Although the Sovereign
Bond Portfolio does not have a significant portion of its assets in high yield
securities, further information in this regard may be found under "Investment
Objectives and Policies" in the Fund prospectus.
Strategic Bond Portfolio
The investment objective of this Portfolio is to provide a high total return
consistent with moderate risk of capital and maintenance of liquidity, from a
portfolio of domestic and international fixed income securities.
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<PAGE>
High Yield Bond Index
The investment objective of this Portfolio is to provide high current income
and capital appreciation through investing primarily in high yield (below
investment grade) debt securities.
Money Market Portfolio
The investment objective of this Portfolio is to provide maximum current
income consistent with capital preservation and liquidity. It seeks to achieve
this objective by investing in a managed portfolio of high quality money market
instruments.
John Hancock acts as the investment manager for the Fund. Independence
Investment Associates, Inc. ("IIA"), an indirectly-owned subsidiary of John
Hancock with its principal place of business at 53 State Street, Boston, MA
02109, provides sub-investment advice with respect to the Managed, Growth &
Income, Large Cap Growth, Real Estate Equity, and Short-Term Bond Portfolios.
Independence International Associates, Inc., a subsidiary of IIA located at the
same address as IIA, is sub-investment adviser to the International Equity Index
Portfolio.
John Hancock Advisers, Inc., another directly-owned subsidiary of John
Hancock, located at 101 Huntington Avenue, Boston, MA 02199, provides
sub-investment advice with respect to the Sovereign Bond, Diversified Mid Cap
Growth, and Small Cap Growth Portfolios.
State Street Bank & Trust, N.A., at Two International Place, Boston, MA 02110,
is the sub-investment adviser to the Equity Index Portfolio. T. Rowe Price
Associates, Inc., located at 100 East Pratt St., Baltimore, MD 21202, provides
sub-investment advice with respect to the Large Cap Value Portfolio and, its
subsidiary, Rowe Price-Fleming International, Inc., also located at 100 East
Pratt St., Baltimore, MD 21202, provides sub-investment advice with respect to
the International Opportunities Portfolio.
INVESCO Management & Research located at 101 Federal Street, Boston, MA 02110,
is the sub-investment adviser to the Small Cap Value Portfolio. Janus Capital
Corporation, with its principal place of business at 100 Filmore Street, Denver,
CO 80206, is the sub-investment adviser to the Mid Cap Growth Portfolio.
Neuberger & Berman, LLC, of 605 Third Avenue, New York, NY 10158, provides
sub-investment advice to the Mid Cap Value Portfolio. J.P. Morgan Investment
Management Inc., located at 522 Fifth Avenue, New York, NY 10036, provides
investment advice with respect to the Strategic Bond Portfolio and Brinson
Partners, Inc., of 209 South LaSalle Street, Chicago, IL 60604, does likewise
with respect to the International Balanced Portfolio.
Goldman Sachs & Company, located at One New York Plaza, New York, New York
10004, is sub-investment adviser to the Small/Mid Cap CORE Portfolio. Scudder
Kemper Investments, Inc., located at 345 Park Avenue, New York, New York 10154,
is the sub-investment adviser to the Global Equity Portfolio. Montgomery Asset
Management, LLC, located at 101 California Street, San Francisco, California
94111, is the sub-investment adviser to the Emerging Markets Equity Portfolio.
Mellon Bond Associates, located at One Mellon Bank Center, Suite 4135,
Pittsburgh, Pennsylvania 15258, is the sub-investment adviser to the Bond Index
Portfolio. Wellington Management Company, LLC, located at 75 State Street,
Boston, Massachusetts 02109, is the sub-investment adviser to the High Yield
Bond Portfolio.
John Hancock will purchase and redeem Fund shares for the Account at their net
asset value without any sales or redemption charges. Shares of the Fund
represent an interest in one of the Portfolios of the Fund which corresponds to
the subaccount of the Account. Any dividend or capital gains distributions
received by the Account will be reinvested in Fund shares at their net asset
value as of the dates paid. Any such distribution will result in a reduction in
the value of the Fund shares of the Portfolio from which the distribution was
made. The total net asset value of the Account will not change because of such
distribution, however.
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<PAGE>
On each Valuation Date, shares of each Portfolio are purchased or redeemed by
John Hancock for each subaccount based on, among other things, the amount of net
purchase payments allocated to the subaccount, dividends and distributions
reinvested, transfers to, from and among subaccounts, all to be effected as of
that date. Such purchases and redemptions are effected at the net asset value
per Fund share for each Portfolio determined on that same Valuation Date.
CHARGES UNDER VARIABLE ANNUITY CONTRACTS
CHARGES FOR MORTALITY AND EXPENSE RISKS
While the variable annuity payments to Annuitants will vary in accordance with
the investment performance of the Account, the amount of such payments will not
be decreased because of adverse mortality experience of Annuitants as a class or
because of an increase in actual expenses of John Hancock over the expense
charges provided for in the Contracts. John Hancock assumes the risk that
Annuitants as a class may live longer than expected (necessitating a greater
number of annuity payments) and that its expenses may be higher than the
deductions for such expenses. John Hancock also provides a minimum death benefit
and waives Withdrawal Charges upon the death of the Annuitant.
In return for the assumption of these mortality and expense risks, John
Hancock charges the Account daily 0.001233% (0.45% on an annual basis) of the
current value of Account net assets for mortality risks and 0.001918% (0.70% on
an annual basis) for expense risks. John Hancock reserves the right to revise
the proportionate amounts of the charge as between mortality risks and expense
risks, should estimates change. Nevertheless, the aggregate charge will not
exceed 1.15% on an annual basis.
CHARGES FOR ADMINISTRATIVE SERVICES
John Hancock maintains an account for each Owner and Annuitant and makes all
disbursements of benefits. John Hancock also furnishes such administrative and
clerical services, including the calculation of Accumulation Share values and
the values and interests determined thereby, as are required for each
subaccount. John Hancock makes disbursements from Account funds to pay
obligations chargeable to the Account and maintains the accounts, records, and
other documents relating to the business of the Account required by regulatory
authorities.
For these and other administrative services, John Hancock makes a daily charge
to the Account of 0.000959% (0.35% on an annual basis) of the current value of
its net assets and assesses, during the Accumulation Period, a contract fee of
$30 on Contracts having an Accumulated Value of less than $10,000. The contract
fee will be deducted at the beginning of each Contract Year after the first and
at a full surrender during a Contract Year. John Hancock reserves the right to
increase this fee up to a maximum of $50 subject to state regulations. The
contract fee will be deducted from each subaccount and the Fixed Account in the
same proportion that the Accumulated Value of the Contract in that subaccount or
Fixed Account bears to the full Accumulated Value of the Contract. However, the
portion of the contract fee allocated to the Fixed Account will not be deducted
from the Fixed Account to the extent it would result in an accumulation of
purchase payments or other amounts allocated to the Fixed Account at less than
the guaranteed minimum rate of 3 percent. In such case, the unallocable portion
of the contract fee allocable to the Fixed Account will be deducted
proportionately from the subaccounts, if any.
WITHDRAWAL CHARGE
A Withdrawal Charge, which is a contingent deferred sales charge, may be
assessed whenever a Contract is surrendered for cash prior to maturity ("total
withdrawal" or "surrender") or whenever an amount less than the total
Accumulated Value of the Contract is withdrawn from a Contract prior to maturity
("partial withdrawal"). This charge is used to help defray expenses relating to
the sales of the Contracts, including commissions paid to marketing
representatives and other distribution costs.
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An Owner may withdraw in any one Contract Year up to 10% of the Accumulated
Value of the Contract as of the beginning of the Contract Year without the
assessment of any charges. If, in any Contract Year, the Owner withdraws an
aggregate amount in excess of 10% of the Accumulated Value of the Contract as of
the beginning of the Contract Year, the amount withdrawn in excess of 10%
subjects the Contract to a Withdrawal Charge to the extent that the excess is
attributable to purchase payments made within seven years of the date of
withdrawal or surrender. Amounts withdrawn to satisfy the minimum distribution
requirements for qualified plans attributable to any one Contract are not
subject to a Withdrawal Charge in any Contract Year. Amounts above the minimum
distribution requirements are subject to a Withdrawal Charge as described above.
Withdrawal Charges are based upon the purchase payments made to date and are
assessed as follows:
<TABLE>
<CAPTION>
Years from date
of deposit to Withdrawal
date of withdrawal Charge
------------------ ----------
<S> <C>
7 or more . . . . . . . . . . . . . . . . . . . . 0%
5 but less than 7 . . . . . . . . . . . . . . . . 6%
3 but less than 5 . . . . . . . . . . . . . . . . 7%
less than 3 . . . . . . . . . . . . . . . . . . . 8%
</TABLE>
In no event will the aggregate Withdrawal Charges against a Contract ever exceed
8% of the total purchase payments received.
Whenever a Withdrawal Charge is imposed, it is deducted from each of the
subaccounts and the Fixed Account in the proportion that the Accumulated Value
from each bears to the total Accumulated Value. All amounts withdrawn plus all
contract fees and Withdrawal Charges are assumed to be deducted first from the
earliest purchase payment, and then from the next earliest purchase payment, and
so forth until all payments have been exhausted, satisfying the first in--first
out ("FIFO") method of accounting. Further withdrawals will be deducted from
earnings, to which no Withdrawal Charge will apply. For a discussion of the
taxation of partial withdrawals, see "Federal Income Taxes--Partial Withdrawals
Before Annuity Starting Date."
To the extent that any Withdrawal Charge is applicable when a total or partial
withdrawal is requested, the Accumulated Value of the Contract will be reduced
by the amount of the Withdrawal Charge in addition to the actual dollar amount
sent to the recipient. The Withdrawal Charge is calculated based upon the full
amount by which the Accumulated Value is reduced, subject to the conditions
noted above.
For example, assume a Contract is issued on January 1, 1995, that the Owner
makes purchase payments of $5,000 on January 1, 1995, $1,000 on January 1, 1996,
and $1,000 on January 1, 1997. Assume that the Accumulated Value of the Contract
on January 1, 1998, is $9,000 and that a partial withdrawal is made by the Owner
in the amount of $6,000 (no tax withholding) on June 1, 1998. The Withdrawal
Charge in this case, assuming no prior partial withdrawals, would equal $399.89.
In calculating the Withdrawal Charge under the FIFO method, the January 1,
1995, $5,000 purchase payment is first reduced by the three $30 Contract Fees on
January 1, 1996, 1997, and 1998, i.e., to $4,910. Ten percent of the Accumulated
Value on January 1, 1998, i.e., $900 is then deducted.
The remaining balance of the $5,000 January 1, 1995, purchase payment, i.e.,
$4,010, is then withdrawn in its entirety and is assessed a Withdrawal Charge of
$280.70 (.07 x $4,010). All of the $1,000 January 1, 1996, purchase payment is
to be withdrawn and is assessed a Withdrawal Charge of $80 (.08 x $1,000). To
make up the remainder of the $6,000 paid to the Owner, $489.89 is withdrawn from
the January 1, 1997, purchase payment. This is assessed a Withdrawal Charge of
$39.19 (.08 x $489.89).
Therefore, the total amount paid to the Owner is $6,000 and the total
Withdrawal Charge is $399.89.
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Withdrawals made prior to the Owner attaining age 59 1/2 may be subject to
certain adverse tax consequences. An IRS excise tax of 10% is generally
applicable to the taxable portion (earnings) of a premature withdrawal from the
Contract. (See "Federal Income Taxes--Penalty for Premature Withdrawals.")
To the extent that the proceeds from the Withdrawal Charges may be
insufficient to cover distribution costs, John Hancock may recover them from its
general account assets which may consist of, among other things, proceeds
derived from any other charges deducted pursuant to the Contracts.
VARIATIONS IN CHARGES
In the future, John Hancock may allow a reduction in or the elimination of the
Withdrawal Charges, the charges for mortality and expense risks, the
administrative services charge, or the annual contract fee assessed on Contracts
sold to groups or classes of individuals in a manner resulting in a reduction in
the expenses associated with the sale of such Contracts or the costs associated
with administering or maintaining such Contracts.
The entitlement to such a reduction in or elimination of charges and fees will
be determined by John Hancock based upon factors such as the following: (1) the
size of the initial purchase payment, (2) the size of the group or class, (3)
the total amount of purchase payments expected to be received from the group or
class and the manner in which purchase payments are remitted, (4) the nature of
the group or class for which the Contracts are being purchased and the
persistency expected from that group or class as well as the mortality risks
associated with that group or class, (5) the purpose for which the Contracts are
being purchased and whether that purpose makes it likely that costs and expenses
will be reduced, or (6) the level of commissions paid to selling broker/dealers
or marketing representatives with respect to Contracts within the same group or
class.
John Hancock will make any reduction in charges or fees according to its own
rules in effect at the time an application for a Contract is approved. John
Hancock reserves the right to change these rules from time to time. Any
variation in charges or fees will reflect differences in costs and services,
will apply uniformly to all prospective Contract purchasers in the group or
class, and will not be unfairly discriminatory to the interests of any Owner.
PREMIUM OR SIMILAR 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 and Kentucky, however, John Hancock pays
a tax on each premium payment at the time it is made. John Hancock will deduct a
charge for these taxes from the Accumulated Value of the Contract at the time of
annuitization, death, surrender, or withdrawal. Such a charge is equal to the
applicable premium tax percentage stated above times the amount of Accumulated
Value that is applied to an Annuity Option, surrendered, withdrawn, or at death.
The net economic effect of this procedure is not significantly different than if
John Hancock deducted the premium tax from each premium payment when received.
The charges described above (exclusive of taxes) and the Contracts' annuity
purchase rates will apply for the duration of each Contract and, except as noted
above, will not be increased by John Hancock. However, these charges do not
include all of the expenses which may be incurred for the account of Owners and
Annuitants. Additional charges may be made directly to the Account for taxes, if
any, based on the income of, capital gains of, assets in, or the existence of,
the Account and interest on funds borrowed. In
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<PAGE>
addition, John Hancock reserves the right to deduct premium taxes from premiums
when paid. Moreover, the Account purchases and redeems shares of the Fund at net
asset value, a value which reflects the deduction from the assets of the Fund of
its investment management fee and of certain operating expenses described
briefly under "Summary Information."
THE CONTRACTS
The descriptions herein are based on certain provisions of the Contracts
offered by this Prospectus. Reference should be made to the actual Contracts and
to the terms and limitations of any tax qualified plan which is to be funded by
such Contracts. Tax qualified plans are subject to several requirements and
limitations which may affect the terms of any particular Contract or the
advisability of taking certain action permitted thereby.
PURCHASE OF CONTRACTS
The marketing representative will assist in the completion of the application
for the Contract and will be responsible for its transmittal, together with the
necessary purchase payment, to John Hancock's Servicing Office. If the
application is complete and the Contract applied for is suitable, the Contract
will be issued and thereafter delivered by the marketing representative. If the
completed application is received in proper order, the initial purchase payment
accompanying the completed application is applied within two business days after
receipt. If an initial purchase payment is not applied within five business days
after receipt, it will be refunded unless John Hancock has received the consent
of the applicant to retain the purchase payment until receipt of information
necessary to complete the issuance of the Contract.
The initial purchase payment must be at least $5,000 ($1,000 for individual
retirement accounts and qualified plans) and subsequent payments must be at
least $50 in amount, except where otherwise permitted by John Hancock. Maximum
transfers and payments to any one subaccount in a single Contract Year are
$500,000, ($100,000 into the Fixed Account after the initial premium). Increases
in purchase payments beyond the foregoing limits may be made only with John
Hancock's written consent. While the Annuitant is living and the Contract is in
force, purchase payments may be made at any time before maturity, except that no
new purchase payments may be made after the Annuitant's 85th birthday. These
limits may be waived by John Hancock.
THE ACCUMULATION PERIOD
ACCUMULATION SHARES
Net purchase payments are allocated by John Hancock to any one or more of the
subaccounts or the Fixed Account or allocated among the subaccounts and the
Fixed Account in the proportion specified in the application for the Contract or
as directed by the Owner from time to time. Any change in the election will be
effective as to purchase payments made after the receipt by John Hancock at its
Servicing Office of notice in form satisfactory to John Hancock.
Each net purchase payment allocated to a subaccount purchases Accumulation
Shares of that subaccount at the value of such shares next determined after the
receipt of such net purchase payment at the Servicing Office of John Hancock.
See "Variable Account Valuation Procedures." The number of Accumulation Shares
of a subaccount purchased with a specific purchase payment will be determined by
dividing the net purchase payment by the value of an Accumulation Share in that
subaccount when the net purchase payment is applied. The value of the
Accumulation Shares so purchased will vary in amount thereafter, depending upon
the investment performance of the subaccount and the charges and deductions made
against the subaccount.
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<PAGE>
VALUE OF ACCUMULATION SHARES
At any date prior to a Contract's maturity date, the total value of the
Accumulation Shares in a subaccount which have been credited to a Contract can
be computed by multiplying the number of such Accumulation Shares by the
appropriate Accumulation Share Value in effect for such date.
TRANSFERS TO AND FROM SUBACCOUNTS
Not more often than twelve times in each Contract Year, but not on or within
30 days prior to the date of maturity, the Owner may elect to transfer all or
any part of the Accumulation Shares or Annuity Units credited to a Contract from
one subaccount to another. Any such transfer will result in the redemption and
purchase of Accumulation Shares or Annuity Units, whichever is applicable, on
the basis of the respective values next determined after receipt of notice
satisfactory to John Hancock at its Servicing Office. (For Fixed Account
transfers, see "Appendix--Fixed Account and Fixed Account Value.") A transfer
pursuant to the dollar-cost averaging feature discussed below counts toward the
twelve transfers per year.
An Owner may request a transfer in writing or, once a written telephone
transfer authorization form is completed by the Owner, the Owner may request a
transfer by telephoning John Hancock at 800 REAL LIFE (800-732-5543) or sending
send a written request via the John Hancock fax machine at 617-886-3048. Any
written request should include the Owner's name, daytime telephone number, and
Contract number as well as the names of the subaccounts from which and to which
money will be transferred. John Hancock reserves the right to modify, suspend,
or terminate telephone transfers at any time without notice to the Owners. If
the fax request option becomes unavailable, another means of telecommunication
will be substituted.
An Owner who authorizes telephone transfers will be liable for any loss,
expense or cost arising out of any unauthorized or fraudulent telephone transfer
instructions which John Hancock reasonably believes to be genuine, unless such
loss, expense or cost is the result of John Hancock's mistake or negligence.
John Hancock employs procedures which provide safeguards against the execution
of unauthorized transfers, and which are reasonably designed to confirm that
transfer instructions received by telephone are genuine. These procedures
include requiring personal identification, tape recording calls, and providing
written confirmation to the Owner. If JHVLICO does not employ reasonable
procedures to confirm that instructions communicated by telephone are genuine,
it may be liable for any loss due to unauthorized or fraudulent instructions.
DOLLAR-COST AVERAGING
The Owner may elect to have automatically transferred on a monthly, quarterly,
semi-annual or annual basis, at no cost, part of the Accumulation Shares from
any one of the variable subaccounts into one or more of the other subaccounts.
The minimum amount of each transfer is $250. Automatic transfers into the Fixed
Account are not permitted. To begin the program, the Accumulated Value of the
Contract must be at least $20,000. The program continues until the earlier of
12, 24, or 36 (as chosen by the Owner) months or full liquidation of the
variable subaccount from which the transfers are being made. Transfers may be
made via telephone or facsimile machine provided a telephone authorization form
has been completed by the Owner. John Hancock reserves the right to terminate
the dollar-cost averaging program at any time. The dollar-cost averaging feature
cannot be elected if the Owner is currently participating in the systematic
withdrawal plan, discussed below.
SURRENDER OF CONTRACT; PARTIAL WITHDRAWALS
Prior to its date of maturity, if the Annuitant is living, a Contract may be
surrendered for a cash payment representing all or part of the total Accumulated
Value of the Contract. The appropriate number of Accumulation Shares will be
redeemed at their value next determined after the receipt by John Hancock at its
Servicing Office of notice in form satisfactory to John Hancock. Unless directed
otherwise by the Owner, that portion of the Accumulated Value of the Contract
redeemed in a partial withdrawal will be redeemed in each
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<PAGE>
subaccount and in the Fixed Account in the same proportion as the Accumulated
Value of the Contract is then allocated among the subaccounts and the Fixed
Account. The redemption value may be more or less than the net purchase payments
applied under the Contract to purchase the Accumulation Shares, depending upon
the market value of the Fund shares held in the subaccount at the time. The cash
payment the Owner will receive will be equal to the Accumulated Value minus any
applicable Withdrawal Charge and any unpaid contract fees. The resulting cash
payment will be made in a single sum, ordinarily within seven days after receipt
of such notice. As described under "Miscellaneous Provisions--Deferment of
Payment," however, redemption and payment may be delayed under certain
circumstances. See "Federal Income Taxes" for possible adverse tax consequences
of certain surrenders and partial withdrawals.
Any request for a surrender or partial withdrawal should be mailed to the
Servicing Office, Post Office Box 111, Boston, MA 02117.
A partial withdrawal is not permitted in an amount less than $100 or if the
total Accumulated Value of a Contract remaining after the withdrawal would be
less than $1000. A partial withdrawal is not a loan and, once made, cannot be
repaid.
In the event the Accumulated Value of the Contract becomes zero, the Contract
will terminate.
SYSTEMATIC WITHDRAWAL
The Owner may elect to participate in a systematic withdrawal plan, which
enables the Owner to pre-authorize a periodic exercise of the contractual
withdrawal rights described above. Owners entering into such a plan instruct
John Hancock to withdraw a level dollar amount from the Contract on a monthly,
quarterly, semi-annual, or annual basis. The amount deducted will result in the
cancellation of Accumulation Shares from each applicable subaccount in the ratio
that the value of each subaccount bears to the total Accumulated Value.
Currently, systematic withdrawal is available to Owners who have a Contract
Value of $25,000 or more. The Company reserves the right to modify the
eligibility rules or other terms and conditions of this program at any time,
without notice. 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. Withdrawals are subject to the Withdrawal
Charge described above. The systematic withdrawal will terminate upon
cancellation by the Owner or in the event that the Accumulated Value of the
Contract becomes $5,000 or less. Systematic withdrawal is not available to
Contracts participating in the Dollar-Cost Averaging program. There may be tax
consequences associated with the systematic withdrawal plan. (See "Federal
Income Taxes.")
DEATH BENEFIT BEFORE DATE OF MATURITY
If the Annuitant dies before the date of maturity or the surrender or
termination of a Contract, a death benefit is payable. The death benefit will be
the greatest of (a) the Accumulated Value of the Contract next determined
following receipt at the Servicing Office of John Hancock of due proof of death,
together with any required instructions as to method of settlement, (b) the
amount of the purchase payments made under the Contract reduced by all prior
partial withdrawals (including Withdrawal Charges), if any, or (c) in states
where permitted by law, the highest Accumulated Value of the Contract as of any
third interval Contract anniversary preceding the Contract anniversary nearest
the Annuitant's 81st birthday, plus the purchase payments made under the
Contract, adjusted for partial withdrawals (including any Withdrawal Charges),
since such Contract anniversary.
In making the computation described in clause (c) of the preceding sentence,
the Accumulated Value on the third Contract anniversary, and on every third
anniversary thereafter (until the Contract anniversary preceding the Contract
anniversary that is closest to the Annuitant's 81st birthday) is adjusted for
subsequent premium payments and withdrawals and Withdrawal Charges. The highest
such adjusted Accumulated Value is then compared to the amounts described in
clauses (a) and (b), above. The greatest of these three amounts
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<PAGE>
forms a minimum. This minimum or "floor" is first established on the third
Contract anniversary and may increase on future third interval Contract
anniversaries as a result of additional premium payments or favorable investment
performance, but it will never decrease unless partial withdrawals are made.
This "stepped-up" death benefit is provided at no additional cost to the Owner.
In the event that the Owner is different from the Annuitant, the distribution
rules required by the Code will apply, as discussed below.
Payment of the death benefit will be made in a single sum to the beneficiary
designated by the Owner prior to the Annuitant's death unless an optional method
of settlement has been elected by the Owner. If an optional method of settlement
has not been elected by the Owner, the beneficiary may elect an optional method
of settlement in lieu of a single sum. No deduction is made for sales or other
expenses upon such election. Payment will be made in a single sum in any event
if the death benefit is less than $5000. (See "Annuity Period--Annuity
Options".) If there is no surviving beneficiary, the Owner, or his or her estate
is the beneficiary.
The Code requires certain distribution provisions to be included in any
Contract used to fund other than a tax qualified plan (See "Federal Income
Taxes"). Failure to include the required distribution provisions results in the
Contract not being treated as an annuity for Federal tax purposes. The Code
imposes comparable distribution requirements for Contracts used to fund tax
qualified plans. These required provisions for tax qualified plans will be
reflected by means of separate disclosures and endorsements furnished by John
Hancock to Owners.
The Code distribution requirements are expected to present no practical
problems when the Annuitant and Owner are the same person. Nevertheless, all
Owners of Contracts not used to fund a tax qualified plan and IRA Contract
Owners should be aware that the following distribution requirements are
applicable notwithstanding any provision to the contrary in the Contract (or in
this prospectus) relating to payment of the death benefit or death of the
Annuitant.
If the Owner dies on or after annuity payments have begun, any remaining
benefit must be paid out at least as rapidly as under the method of making
annuity payments then in effect. If the Owner dies before annuity payments have
begun: (a) if the beneficiary is the surviving spouse of the Owner, the
beneficiary may continue the Contract in force as Owner; or (b) if the
beneficiary is not the surviving spouse of the Owner, or if the beneficiary is
the surviving spouse of the Owner but does not choose to continue the Contract,
the entire interest in the Contract on the date of death of the Owner must be:
(i) paid out in full within 5 years of the Owner's death, or (ii) applied in
full towards the purchase of a life annuity on the beneficiary with payments
commencing within 1 year of the Owner's death.
The Code imposes comparable distribution requirements on tax qualified plans.
If the Owner is not the Annuitant, "the entire interest in the Contract on the
date of death of the Owner" is equal to the Surrender Value if paid out in full
within five years of the Owner's death, or is equal to the Accumulated Value if
applied in full towards the purchase of a life annuity on the beneficiary with
payments commencing within one year of the Owner's death.
Note that "the entire interest in the Contract on the date of death of the
Owner" which is payable if the Owner dies before annuity payments have begun may
be an amount less than the death benefit which would have been payable if the
Annuitant had died instead. Note also that notice should be furnished promptly
to John Hancock upon the death of the Owner.
THE ANNUITY PERIOD
During the annuity period, the total value of any one Contract must be
allocated among no more than four "accounts" (i.e., the subaccounts and/or the
Fixed Account). Amounts allocated to the Fixed Account
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<PAGE>
will provide annuity payments on a fixed basis; amounts allocated to the
subaccounts will provide annuity payments on a variable basis. If more than four
accounts are being used on the maturity date, John Hancock will divide the total
Accumulated Value of the Contract proportionately among the four accounts with
the largest Accumulated Values. Only variable annuity payments are described in
this prospectus.
Annuity payments will commence on the date of maturity of the Contract if the
Annuitant is then living and the Contract is then in force. Each Contract will
provide at the time of its issuance for a Life Annuity with Ten Years Certain.
Under this form of annuity, variable annuity payments are made monthly to the
Annuitant for life and, if the Annuitant dies within ten years after the date of
maturity of the Contract, the payments remaining in the ten-year period will be
made to the contingent payee, subject to the terms of any supplementary
agreement issued. (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 Annuitant or the Owner 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 Owner, as described in "Annuity Options," prior to the date of
maturity of the Contract. Once a given form of annuity takes effect, it may not
be changed.
If the initial monthly annuity payment under a Contract would be less than
$50, John Hancock may make a single sum payment equal to the total Surrender
Value of the Contract on the date the initial payment would be payable, in place
of all other benefits, or, if agreed to by the Owner, make periodic payments at
quarterly, semi-annual or annual intervals in place of monthly payments.
Each Contract specifies a provisional date of maturity at the time of its
issuance, which date may be no earlier than six months after the date the first
payment is applied to the Contract. The Owner may subsequently elect a different
date of maturity, however. Unless otherwise permitted by John Hancock, such
subsequently-elected date may be no earlier than six months after the date the
first payment is applied to the Contract, nor later than the maximum maturity
age specified in the Contract. The election is made by written notice received
by John Hancock at its Servicing Office before the provisional date of maturity
and at least 31 days prior to the date of maturity. If a date of maturity
different from the provisional date of maturity is not elected by the Owner, the
provisional date of maturity shall be the date of maturity of the Contract.
Particular care should be taken in electing the date of maturity of Contracts
issued under tax qualified plans. (See "Federal Income Taxes.")
VARIABLE MONTHLY ANNUITY PAYMENTS
Variable monthly annuity payments under a Contract are determined by
converting each subaccount's Accumulation Shares credited to the Contract (less
any applicable premium tax) into the respective Annuity Units of each subaccount
on the date of maturity of the Contract or some other date elected for
commencement of variable annuity payments. See "Calculation of Annuity Units."
The amount of each annuity payment after the first payment will depend on the
investment performance of the subaccounts being used. If the actual net
investment return (after deducting all charges) of a subaccount during the
period between the dates for determining two monthly payments based on that
subaccount exceeds the "assumed investment rate" (explained below), the latter
monthly payment will be larger than the former. On the other hand, if the actual
net investment return is less than the assumed investment rate, the latter
monthly payment will be smaller than the former.
ASSUMED INVESTMENT RATE
The assumed investment rate for all Contracts will be 3 1/2% per year except
as provided below. The assumed investment rate is significant in determining the
amount of the initial variable monthly annuity
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<PAGE>
payment and the amount by which subsequent variable monthly payments are more or
less than the initial variable monthly payment.
Where applicable state law so provides, an Owner may elect a variable annuity
option with a different assumed investment rate, not in excess of 6%, if such a
rate is made available by John Hancock in the Owner's state. Election of a
higher assumed investment rate produces a larger initial annuity payment but
also means that eventually the monthly annuity payments would be smaller than if
a lower assumed investment rate had been elected.
CALCULATION OF ANNUITY UNITS
Accumulation Shares are converted into Annuity Units by first multiplying the
number of each subaccount's Accumulation Shares credited to the Contract on the
date of conversion by the appropriate Accumulation Share Value as of ten
calendar days prior to the date the initial variable monthly annuity payment is
due. For each subaccount the resulting value (less any applicable premium tax)
is then multiplied by the applicable annuity purchase rate, which reflects the
age and possibly sex of the Annuitant and the assumed investment rate, specified
in the Contract. This computation determines the amount of each subaccount's
initial monthly variable annuity payment to the Annuitant. The number of each
subaccount's Annuity Units to be credited to the Contract is then determined by
dividing the amount of each subaccount's initial variable monthly annuity
payment by each subaccount's Annuity Unit Value as of ten calendar days prior to
the date the initial payment is due.
ANNUITY OPTIONS
The Owner may elect an Annuity Option during the lifetime of the Annuitant by
written notice received by John Hancock at its Servicing Office prior to the
date of maturity of the Contract. If no option is selected, Option A with Ten
Years Certain will be used. A beneficiary entitled to payment of a death benefit
in a single sum may, if no election has been made by the Owner prior to the
Annuitant's death, elect an Annuity Option by written notice received by John
Hancock at its Servicing Office prior to the date the proceeds become payable.
The Owner may also elect that the Surrender Value be applied to an Annuity
Option at the time of a full surrender of a Contract that has been outstanding
for at least 6 months. No option may be elected if the Accumulated Value of the
Contract to be applied is less than $5000. Among the options available are the
following two basic Annuity Options.
OPTION A: LIFE ANNUITY WITH FIVE, TEN OR TWENTY YEARS CERTAIN
Variable monthly payments will be made for a designated period of 5, 10 or 20
years and thereafter as long as the payee lives, with the guarantee that if the
payee dies prior to the end of the 5, 10 or 20 year period, whichever is
applicable, payments will continue for the remainder of the guaranteed period to
a contingent payee, subject to the terms of any supplementary agreement issued.
OPTION B: LIFE ANNUITY WITHOUT REFUND
Variable monthly payments will be made to the payee as long as he lives. No
minimum number of payments is guaranteed.
OTHER CONDITIONS
John Hancock reserves the right at its sole discretion to make available to
Owners and other payees optional methods of payment in addition to the Annuity
Options described in this Prospectus and the applicable Contract.
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Federal income tax requirements currently applicable to H.R. 10 and individual
retirement annuity plans provide that the period of years guaranteed under
Option A cannot be any greater than the joint life expectancies of the payee and
his or her designated beneficiary.
If the Owner dies on or after annuity payments have begun, any remaining
benefit must be paid out at least as rapidly as under the method of making
annuity payments then in effect. The Code imposes a comparable distribution
requirement for Contracts used to fund tax qualified plans.
VARIABLE ACCOUNT VALUATION PROCEDURES
VALUATION DATE--A Valuation Date is any date on which the New York Stock
Exchange is open for trading and on which the Fund values its shares. On any
date other than a Valuation Date, the Accumulation Share Value or Annuity Unit
Value will be the same as that on the next following Valuation Date.
VALUATION PERIOD--A Valuation Period is that period of time from the beginning
of the day following a Valuation Date to the end of the next following Valuation
Date.
ACCUMULATION SHARE VALUE--The Accumulation Share Value is calculated separately
for each subaccount. The value of one Accumulation Share on any Valuation Date
is determined for each subaccount by multiplying the immediately preceding
Accumulation Share Value by the applicable Net Investment Factor for the
Valuation Period ending on such Valuation Date.
ANNUITY UNIT VALUE--The Annuity Unit Value is calculated separately for each
subaccount. The value of one Annuity Unit on any Valuation Date is determined
for each subaccount by first multiplying the immediately preceding Annuity Unit
Value by the applicable Net Investment Factor for the Valuation Period ending on
such date and then multiplying this product by an adjustment factor which will
neutralize the assumed investment rate used in determining the amounts of
annuity payable. The adjustment factor for a Valuation Period of one day for
Contracts with an assumed investment rate of3 1/2% per year is .99990575. The
assumed investment rate is neutralized by applying the adjustment factor so that
the variable annuity payments will increase only if the actual net investment
rate of the subaccount exceeds3 1/2% per year and will decrease only if it is
less than3 1/2% per year.
NET INVESTMENT FACTOR--The Net Investment Factor for each subaccount for any
Valuation Period is equal to 1 plus the applicable net investment rate for such
Valuation Period. A Net Investment Factor may be more or less than 1. The net
investment rate for each subaccount for any Valuation Period is equal to (a) the
accrued investment income and capital gains and losses, whether realized or
unrealized, of the subaccount for such Valuation Period less (b) the sum of a
deduction for any applicable income taxes and, for each calendar day in the
Valuation Period, a deduction of 0.004110% of the value of each subaccount at
the beginning of the Valuation Period, the result then being divided by (c) the
value of the total net assets of each subaccount at the beginning of the
Valuation Period.
ADJUSTMENT OF UNITS AND VALUES--John Hancock reserves the right to change the
number and value of the Accumulation Shares or Annuity Units or both credited to
any Contract, without the consent of the Owner or any other person, provided
strict equity is preserved and the change does not otherwise affect the
benefits, provisions or investment return of the Contract.
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MISCELLANEOUS PROVISIONS
RESTRICTION ON ASSIGNMENT
In order to qualify for favorable tax treatment, certain Contracts may not be
sold, assigned, discounted or pledged as collateral for a loan or as security
for the performance of an obligation or for any other purpose, to any person,
unless the Owner is the trustee of a trust described in Section 401(a) of the
Code. Because an assignment, pledge or other transfer may be a taxable event an
Owner should consult a competent tax adviser before taking any such action.
DEFERMENT OF PAYMENT
Payment of the value of any Accumulation Shares in a single sum upon a
surrender or partial withdrawal will ordinarily be made within seven days after
receipt of the written request therefor by John Hancock at its Servicing Office.
However, redemption may be suspended and payment may be postponed at times (a)
when the New York Stock Exchange is closed, other than customary weekend and
holiday closings, (b) when trading on that Exchange is restricted, (c) when an
emergency exists as a result of which disposal of securities in a subaccount is
not reasonably practicable or it is not reasonably practicable to determine the
value of the net assets of a subaccount or (d) when a governmental body having
jurisdiction over the Account by order permits such suspension. Rules and
regulations of the Securities and Exchange Commission, if any are applicable,
will govern as to whether conditions described in (b) or (c) exist.
RESERVATION OF RIGHTS
John Hancock reserves the right to add or delete subaccounts, to change the
underlying investments of any subaccount, to operate the Account in any form
permitted by law and to terminate the Account's registration under the 1940 Act
if such registration should no longer be legally required. Certain changes may,
under applicable laws and regulations, require notice to or approval of Owners.
Otherwise, changes do not require such notice or approval.
OWNER AND BENEFICIARY
The Owner has the sole and absolute power to exercise all rights and
privileges under the Contract, except as otherwise provided by the Contract or
by written notice of the Owner. The Owner and the beneficiary are designated in
the application and may be changed by the Owner, effective upon receipt of
written notice at the Servicing Office, subject to the rights of any assignee of
record, any action taken prior to receipt of the notice and certain other
conditions. While the Annuitant is alive, the Owner may be changed by written
notice. The beneficiary may be changed by written notice no later than receipt
of due proof of the death of the Annuitant. The change will take effect whether
or not the Owner or the Annuitant is then alive.
FEDERAL INCOME TAXES
THE ACCOUNT AND JOHN HANCOCK
John Hancock is taxed as a life insurance company under the Code. The Account
is part of John Hancock's total operations and is not taxed separately as a
"regulated investment company" or otherwise.
The Contracts permit John Hancock to charge against the Account any taxes, or
provisions for taxes, attributable to the operation or existence of the
Contracts or the Account. No specific charge is currently made against the
Account for any such taxes. John Hancock pays such taxes out of its general
account assets which may consists of, among other things, proceeds derived from
mortality and expense risk charges deducted from the Account. Currently, John
Hancock does not anticipate making a charge for income and other taxes
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because of the level of such taxes. If the level of current tax is increased, or
is expected to increase in the future, John Hancock reserves the right to make
such a separate charge in the future.
John Hancock assumes no responsibility for determining whether a particular
retirement plan satisfies the applicable requirements of the Code or whether a
particular employee is eligible for inclusion under a plan.
CONTRACTS PURCHASED OTHER THAN TO FUND A TAX QUALIFIED PLAN
The Owner or Other Payee
The Contracts are considered annuity contracts under Section 72 of the Code.
Currently no Federal income tax is payable on increases in Contract Value until
payments are made to the Owner or other payee under such Contract. However, a
Contract owned other than by a natural person is not generally an annuity for
tax purposes and any increase in value thereunder is taxable as ordinary income
as accrued.
When payments under a Contract are made in the form of an annuity, the amount
of each payment is taxed to the Owner or other payee as ordinary income to the
extent that such payment exceeds an allocable portion of the Owner's "investment
in the contract" (as defined in the Code). In general, an Owner's "investment in
the contract" is the aggregate amount of purchase payments made by him, reduced
by any amounts previously distributed from the Contract that were not subject to
tax. The portion of each variable annuity payment to be excluded from income is
determined by dividing the "investment in the contract," adjusted by any refund
feature, by the number of periodic payments anticipated during the time that
periodic payments are to be made. In the case of a fixed annuity payment, the
amount to be excluded in each year is determined by dividing the "investment in
the contract," adjusted by any refund feature, by the amount of "expected
return" during the time that periodic payments are to be made, and then
multiplying by the amount of the payment."
When a payment under a Contract is made in a single sum, the amount of the
payment is taxed as ordinary income to the Owner or other payee to the extent it
exceeds the Owner's "investment in the contract."
Partial Withdrawals Before Annuity Starting Date
When a payment under a Contract, including a payment under a systematic
withdrawal plan, is less than the amount that would be paid upon the Contract's
complete surrender and such payment is made prior to the commencement of annuity
payments under the Contract, part or all of the payment (the partial withdrawal)
may be taxed to the Owner or other payee as ordinary income.
On the date of the partial withdrawal, if the cash value of the Contract is
greater than the investment in the Contract, any part of such excess value so
withdrawn is subject to tax as ordinary income.
If an individual assigns or pledges any part of the value of a Contract, the
value so pledged or assigned is taxed as ordinary income to the same extent as a
partial withdrawal.
Penalty for Premature Withdrawals
In addition to being included in ordinary income, the taxable portion of any
withdrawal may be subject to a 10-percent penalty tax. The penalty tax does not
apply to payments made to the Owner or other payee after the Owner attains age
59 1/2, or on account of the Owner'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.
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DIVERSIFICATION REQUIREMENTS
Each of the Portfolios of the Fund intends to qualify as a regulated
investment company under Subchapter M of the Code and will have to meet the
investment diversification tests of Section 817(h) of the Code and the
underlying regulations. The Treasury Department and the Internal Revenue Service
may, at some future time, issue a ruling or a regulation presenting situations
in which it will deem "investor control" to be present over the assets of the
underlying Portfolios, causing the Owner to be taxed currently on income
credited to the Contracts. In such a case, John Hancock reserves the right to
amend the Contract or the choice of underlying Portfolios to avoid current
taxation to the Owners.
CONTRACTS PURCHASED TO FUND A TAX QUALIFIED PLAN
Withholding on Eligible Rollover Distributions
Recent legislation requires 20% withholding on certain distributions from tax
qualified plans. An Owner wishing to rollover his entire distribution should
have it paid directly to the successor plan. Otherwise, the Owner's distribution
will be reduced by the 20% mandatory income tax. Consult a qualified tax adviser
before taking such a distribution.
Contracts Purchased under Individual Retirement Annuity Plans (IRA)
In general, the maximum amount of purchase payments deductible each year with
respect to an individual retirement annuity contract (as defined in Section 408
of the Code) issued on the life of an eligible purchaser is the lesser of $2,000
or 100% of compensation includible in gross income. A person may also purchase a
contract for the benefit of his or her spouse (including, for example, a
homemaker who does not work outside the home). Where an individual elects to
deduct amounts contributed on his or her own behalf and on behalf of a spouse,
the maximum amount of purchase payments deductible is $2,000 for each spouse if
their combined compensation is at least equal to the contributed amount.
However, not more than $2,000 can be allocated to either person's account. If an
individual and his or her spouse is an active participant in an
employer-sponsored retirement plan, the individual is permitted to make a
deductible purchase payment only if the adjusted gross incomes of the individual
and his or her spouse are below certain amounts.
No deduction is allowed for purchase payments made in or after the taxable
year in which the Owner has attained the age 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 partial withdrawal, the
payment is taxed as ordinary income.
IRS required minimum distributions must begin no later than April 1 of the
year following the year in which the Owner attains age 70 1/2. The Owner may
incur adverse tax consequences if a distribution on surrender of the Contract or
by partial withdrawal is made prior to his attaining age 59 1/2, except in the
event of his death or total disability or certain other circumstances.
Contracts Purchased under Non-Deductible IRAs (Roth IRAs)
In general, for years after 1997, an individual may make purchase payments of
up to $2,000 each year for a new type of non-deductible IRA, known as a Roth
IRA. This $2,000 maximum on purchase payments applies to all of an individual's
annual IRA contributions (deductible and non-deductible), except for rollover
contributions. The maximum amount that can be made to a Roth IRA is phased out
for adjusted gross incomes between $95,000 and $110,000 in the case of single
taxpayers, between $150,000 and $160,000 in the case of married taxpayers filing
jointly, and between $0 and $15,000 in the case of married taxpayers filing
separately.
"Qualified distributions" for Roth IRAs are not includible in gross income or
subject to the penalty tax on early withdrawals. As defined in Section 408A of
the Code, a qualified distribution requires that the
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individual has held the Roth IRA for at least five years and, in addition, that
the distribution is made after the individual reaches age 59 1/2, on the
individual's death or disability, or to a qualified first-time home purchaser,
subject to a $10,000 lifetime maximum, for the individual, a spouse, a child, a
grandchild, or an ancestor. Non-qualified distributions are treated as being
made from contributions first. When all distributions exceed the amount of
contributions, the excess is includible in gross income. The age 70 1/2
pre-death distribution rules do not apply to Roth IRAs.
An individual may make a rollover contribution from a non-Roth IRA, unless the
individual has adjusted gross income over $100,000 or the individual is a
married taxpayer filing a separate return. The individual must pay tax on any
portion of the IRA being rolled over that represents income on a previously
deductible IRA contribution. For rollovers in 1998, the individual may pay that
tax ratably in 1998 and over the succeeding three years. There are no similar
limitations on rollovers from a Roth IRA to another Roth IRA.
Contracts Purchased under SIMPLE Retirement Accounts (SIMPLE IRAs)
In general, premium payments may be made to a SIMPLE IRA retirement plan
established by a small business employee who employs 100 or fewer employees on
any day during the preceding calendar year. An eligible employee may specify the
percentage of compensation the employee elects to contribute not to exceed
$6,000 a year. The employer must elect to make a matching contribution of up to
3% of the employee's compensation or a non-elective contribution equal to 2% of
the employee's compensation.
Contracts Purchased under Section 403(b) Plans (TSA)
Purchase payments made by an employer which is a public school system or a
tax-exempt organization described in Section 501(c)(3) of the Code under annuity
purchase arrangements described in Section 403(b) of the Code are not taxable
currently to the Owner, to the extent that the aggregate of such amounts does
not exceed the Owner's "exclusion allowance" (as defined in the Code). In
general, an Owner's "exclusion allowance" is determined by multiplying 20% of
his "includible compensation" (as defined in the Code) by the number of years of
his service with the employer and then subtracting from that product the
aggregate amount of purchase payments previously excluded from income and
certain other employer payments to retirement plans in which the Owner is a
participant. Additional limitations applicable to purchase payments are
described in Section 415 of the Code. Deferrals under all plans made at the
election of the Owner generally are limited to an aggregate of $9500 annually.
When payments under a Contract are made in the form of an annuity, such
payments are taxed to the Owner or other payee under the same rules that apply
to such payments under corporate plans (discussed below) except that five-year
averaging and capital gain phase-out are not available.
When payment under a Contract is made in a single sum, such as on surrender of
the contract or by partial withdrawal, the taxable portion of the payment is
taxed as ordinary income and the penalty for premature withdrawals may be
applicable.
Ordinarily an Owner in a Section 403(b) plan does not have any "investment in
the contract" and, thus, any distribution is fully taxed as ordinary income.
Distributions are prohibited before the Owner is age 59 1/2, except on the
Owner's separation from service, death, or disability and except with respect to
distributions attributable to assets held as of December 31, 1988. This
prohibition does not (1) preclude transfers and exchanges to other products that
qualify under Section 403(b) or (2) restrict withdrawals of certain amounts
attributable to pre-January 1, 1989, premium payments.
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Contract Loans (Section 403(b) Qualified Contracts Only)
During the Accumulation Period, an Owner may request a loan from the
Accumulated Value of the Contract. If the loan meets the amount and repayment
requirements described below, it will not be reported to the Internal Revenue
Service as a taxable distribution. Forms provided by John Hancock must be used
to apply for a Contract loan. An Owner can obtain these forms by calling
800-REAL LIFE (800-732-5543) or writing to the Servicing Office, P.O. Box 111,
Boston, MA 02117. At the time the loan is issued, John Hancock will provide the
Owner with a detailed loan agreement containing provisions to which the loan
will be subject.
Any loan will be secured by a security interest in the Contract. The loan
amount must be at least $2,500 and may not, at the date of the loan (defined
below), exceed the lesser of: (a) 50% of the Accumulated Value of the Contract;
(b) $50,000; or (c) the sum of 100% of the Accumulated Value of the Subaccounts
and 20% of the Fixed Account Value. That portion of the loan amount up to 20% of
the Accumulated Value of the Contract on the date of the loan will be deducted
from each Subaccount and the Fixed Account in the same proportion as the
Accumulated Value of the Contract is allocated among the Subaccounts and the
Fixed Account on the date of the loan. Any loan amount in excess of 20% of the
Accumulated Value of the Contract will be deducted from each Subaccount in the
same proportion as the Accumulated Value of such Subaccount bears to the total
Accumulated Value of all the Subaccounts on the date of the loan.
The total loan amount will be transferred to the Loan Collateral Account on
the date of the loan. The Loan Collateral Account is held in John Hancock's
general investment account and will accrue interest at an effective rate that is
1% less than the Loan Interest Rate described below. The interest accrued on the
Loan Collateral Account will be transferred back to the Subaccounts and the
Fixed Account on each Contract anniversary and will be allocated to each
Subaccount and the Fixed Account in the same proportion as the Accumulated Value
of the Contract is then allocated among the Subaccounts and the Fixed Account.
The date of the loan will be the Valuation Date on which John Hancock receives
at its Home Office all necessary documentation assigning the Contract as the
security for the loan. If such receipt occurs on a date other than a Valuation
Date, the date of the loan will be the Valuation Date next following the date on
which such receipt occurs.
The Loan Interest Rate for this Contract will be determined annually by John
Hancock. Such determination will be made in the calendar month immediately
preceding the calendar month in which the Contract anniversary occurs. The Loan
Interest Rate will apply to any loan made during the Contract year following the
date of determination. Except as otherwise required by applicable state law, the
rate set will not exceed the greater of (a) Moody's Corporate Bond Yield
Average--Monthly Average Corporates, (as published by Moody's Investors Service)
or any successor thereto, for the calendar month which is two months before the
month in which the date of determination occurs or (b) 5%. If Moody's Corporate
Bond Yield Average--Monthly Average Corporates is no longer published, John
Hancock reserves the right to select a substitute that it deems appropriate,
subject to applicable law, regulation, or other state requirement. When a new
rate is determined: (a) John Hancock may increase the previous rate if the
increase would be at least 1/2%; and (b) John Hancock must reduce the previous
rate if the decrease would be at least 1/2%. John Hancock will notify the Owner
of the applicable Loan Interest Rate at the time a loan is made. The Loan
Interest Rate for any given loan will be fixed for the entire loan period.
Accrued interest on a loan will be added to the loan daily and will bear
interest from that date at the Loan Interest Rate.
Repayment of principal and interest will be amortized in level installments
payable no less frequently than quarterly over a period of no more than five
years, except as provided by law. The repayment due dates and installment
amounts will be provided in a repayment schedule sent to the Owner prior to the
first installment due date. The principal portion of each loan repayment will be
transferred back to the Subaccounts and the Fixed Account at the time of each
loan repayment, and will be allocated to each Subaccount and the
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Fixed Account in the same proportion as the Accumulated Value of the Contract is
then allocated among the Subaccounts and the Fixed Account.
Prepayment of the entire loan will be permitted. In addition, loan repayments
in excess of regularly scheduled repayments that do not repay the entire Loan
Balance (outstanding loan amount plus loan interest accrued to date) will be
applied to reduce the length of the loan. Such excess loan repayments do not
replace the regularly scheduled loan payments.
If any scheduled loan repayment is not made within 90 calendar days after the
repayment due date, the Loan Balance or such other amount as required by
applicable law shall then be considered in default. To the extent that the
Accumulated Value contains (i) salary reduction contributions made on or before
December 31, 1988 and (ii) earnings credited on such contributions on or before
such date (together referred to as "pre-1988 contributions") at the time of
default, a foreclosure shall be made on such "pre-1988 contributions" with
regard to the default. That is, an amount equal to the amount in default with
respect to such "pre-1988 contributions" (including withdrawal charges and any
accrued and unpaid interest to the date of the default) will be withdrawn from
the Accumulated Value of the Contract to repay the amount in default. To the
extent that the amount in default exceeds the amount of "pre-1988
contributions," no actual foreclosure on the loan security shall be made until
the earliest of the Owner attaining age 59 1/2, separating from service, dying
or becoming disabled (as defined in IRC section 72(m)(7)) and prior to the
occurrence of such an event, the excess shall be considered a deemed
distribution reportable to the Owner.
If the Contract is surrendered while there is an outstanding Loan Balance or
if the Annuitant dies while there is an outstanding Loan Balance, an amount,
positive or negative, will be determined by subtracting the outstanding Loan
Balance from the Loan Collateral Account on the date of surrender or death. If
such amount is positive, it will be added to the Surrender Value or to the Death
Benefit, as applicable. If such amount is negative, it will be subtracted from
the Surrender Value or the Death Benefit, as applicable. If at any time the Loan
Balance exceeds the sum of the Surrender Value and the Loan Collateral Account,
the loan will be subject to the excessive loan balance provisions set forth in
the loan agreement.
Contract loans are subject to conditions and requirements under the Internal
Revenue Code and, where applicable, ERISA, as well as the terms of any
retirement plan in connection with which the Contract has been acquired. For
example, if loan payments are not made when due, or if John Hancock otherwise
finds it necessary to exercise its rights to use all or part of the value under
a Contract to repay a Contract loan, serious adverse tax consequences may
result. The tax and ERISA rules relating to Contract loans are complex and in
many cases unclear. For these reasons, and because the rules vary depending on
the individual circumstances of each Contract, John Hancock cautions that
employers and Owners should take particular care to consult with qualified
advisers before taking action with respect to Contract loans.
Contracts Purchased under Corporate Plans
In general, purchase payments made by a corporation under a qualified pension
or profit-sharing plan described in Section 401(a) of the Code or a qualified
annuity plan described in Section 403(a) of the Code are deductible by the
corporation and are not taxable currently to the employees.
When payments under a Contract are made in the form of an annuity, the amount
of each payment is taxed to the Annuitant or other payee as ordinary income
except in those cases where the Annuitant has an "investment in the contract"
(as defined in the Code). In general, an Annuitant's "investment in the
contract" is the aggregate amount of purchase payments made by him. If an
Annuitant has an "investment in the contract," a portion of each annuity payment
is excluded from income until the investment in the contract is recovered. The
amount to be excluded in each year, in the case of a variable annuity payment,
is determined by dividing the "investment in the contract," adjusted by any
refund feature, by the number of periodic payments anticipated during the time
that periodic payments are to be made. The calculation for fixed annuity
payments is somewhat different.
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When payment under a Contract is made in a single sum or a total distribution
is made within one taxable year of the Annuitant or other payee, the amount of
the payment is taxed to the Annuitant or other payee to the extent it exceeds
the Annuitant's "investment in the contract." If such payment is made after the
Annuitant has attained age 59 1/2, or on account of his death, retirement or
other termination of employment or on account of his death after termination of
employment, five year averaging and a phase-out of capital gains treatment for
pre-1974 contributions may be available with respect to one distribution. Other
rules may be available to taxpayers who have attained age 50 prior to January 1,
1986.
IRS required minimum distributions must begin no later than April 1 of the
year following the year in which the Annuitant attains age 70 1/2 even if the
Annuitant has not retired.
Contracts Purchased under H.R. 10 Plans (Self-Employed)
Self-employed persons, including partnerships, may establish tax qualified
pension and profit-sharing plans and annuity plans for themselves and for their
employees. Generally, the maximum amount of purchase payments deductible each
year with respect to variable annuity contracts issued on the life of
self-employed persons is $30,000 or 25% of "earned income" (as defined in the
Code), whichever is less. Self-employed persons must also make purchase payments
for their employees (who have met certain eligibility requirements) at least at
the same rate as they do for themselves. In general, such purchase payments are
deductible in full and are not taxable currently to such employees.
Tax qualified plans may permit self-employed persons and their employees to
make additional purchase payments themselves (which are not deductible) of up to
10% of earned income or compensation.
When payments under a Contract are made in the form of an annuity, such
payments are taxed to the Annuitant or other payee under the same rules that
apply to such payments under corporate plans (discussed earlier).
The tax treatment of single sum payments is also the same as under corporate
plans except that five year averaging may be unavailable to a self-employed
Annuitant on termination of service for reasons other than disability.
The same rules that apply to commencement of annuity payments under corporate
plans apply to H.R. 10 plans.
Contracts Purchased By Top-Heavy Plans
Certain corporate and H.R. 10 plans may be characterized under Section 416 of
the Code as "top-heavy plans" if a significant portion of the plan assets is
held for the benefit of the "key employees" (as defined in the Code). Care must
be taken to consider the special limitations applicable to top-heavy plans and
the potentially adverse tax consequences to key employees.
Contracts Purchased Under Government Deferred Compensation Plans (Section 457)
Participants in certain deferred compensation plans maintained by a state, a
political subdivision of a state, or their agencies or instrumentalities or by
tax-exempt organizations are permitted to exclude a portion of their
compensation from gross income. Amounts so deferred (including any income
thereon) shall be includible in gross income only for the taxable year in which
such amounts are paid or otherwise made available to the Annuitant or other
payee.
In general, the maximum amount of compensation which may be deferred under
such tax-favored plans is the lesser of $7500 or 33 1/3% of the participant's
"includible compensation" (as defined in the Code). The deferred compensation
plan itself must satisfy several conditions, among which are that the plan must
not permit distributions prior to the participant's separation from service
(except in the case of an unforeseen
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emergency), and that all compensation deferred under the plan shall remain
solely the employer's property and may be subject to the claims of its
creditors.
When payment under a Contract is made in the form of an annuity, or in a
single sum such as on surrender of the Contract or by partial withdrawal, the
payment is taxed as ordinary income.
Withholding of Taxes
John Hancock is obligated to withhold taxes from certain payments unless the
recipient elects otherwise. The withholding rate varies depending upon the
nature and the amount of the distribution. John Hancock will notify the Owner or
other payee in advance of the first payment of his or her right to elect out of
withholding and furnish a form on which the election may be made. Any election
must be received by John Hancock in advance of the payment in order to avoid
withholding.
See Your Own Tax Adviser
The above description of Federal income tax consequences of owning a Contract
and of the different kinds of tax qualified plans which may be funded by the
Contracts is only a brief summary and is not intended as tax advice. Nor does it
include a discussion of Federal estate and gift tax or state tax consequences.
Tax laws and regulations are subject to change and such changes may be
retroactive. The rules governing the provisions of tax qualified plans are
extremely complex and often difficult to understand. Anything less than full
compliance with the applicable rules, all of which are subject to change from
time to time, can have adverse tax consequences. For example, premature
withdrawals are generally subject to a 10-percent penalty tax. The taxation of
an Annuitant or other payee has become so complex and confusing that great care
must be taken to avoid pitfalls. For further information a prospective purchaser
should consult a qualified tax adviser.
PERFORMANCE
The Account may, from time to time, advertise certain performance information
with respect to its subaccounts. THE PERFORMANCE INFORMATION IS BASED ON
HISTORICAL INVESTMENT EXPERIENCE OF THE SUBACCOUNTS AND DOES NOT INDICATE OR
REPRESENT FUTURE PERFORMANCE.
The subaccounts may include total return in advertisements. When a subaccount
advertises its total return, it will usually be calculated for one year, five
years, and ten years or for the life of the applicable portfolio. Total return
is the percentage change between the value of a hypothetical investment in the
subaccount at the beginning of the relevant period to the value of the
investment at the end of the period, assuming the deduction of any Withdrawal
Charge which would be payable if the Contract Owner surrendered the Contract at
the end of the period indicated. Total return at the Account level reflects all
Contract charges (other than premium tax charges)--Withdrawal Charge, mortality
and expense risk charges, administrative service charge, and the annual contract
fee (as reflected under "Synopsis of Expense Information")--and is therefore
lower than total return at the Fund level where no comparable charges have been
deducted. Because the Contracts were first offered in 1995, a total return
figure does not necessarily correspond to the total return actually earned by
any Contract Owner.
The Money Market Subaccount may advertise "current yield" and "effective
yield." Current yield refers to the income earned by the subaccount over a
seven-day period and then annualized; i.e., the income earned in the period is
assumed to be earned every seven days over a 52-week period and stated as a
percentage of the investment. Effective yield is calculated similarly but, when
annualized, the income earned by the investment is assumed to be reinvested in
the subaccount and thus compounded in the course of a 52-week period. The
effective yield will be slightly higher than the current yield because of this
compounding effect of the assumed reinvestment.
35
<PAGE>
The other subaccounts may also advertise current yield. For these subaccounts,
the current yield will be calculated by dividing the annualization of the income
earned by the subaccount during a recent thirty-day period by the maximum
offering price per unit at the end of such period. In all cases, current yield
and effective yield reflect the recurring charges on the Account level including
the annual contract fee but do not reflect any premium tax charge or any
Withdrawal Charge.
Performance information for the subaccounts may be compared to other variable
annuity separate accounts or other investment products surveyed by Lipper
Analytical Services, Inc., an independent service which monitors and ranks the
performance of investment companies, or tracked by other rating services,
companies, publications, or persons who independently monitor and rank
investment company performance. Performance figures are calculated in accordance
with standardized methods established by each reporting service.
STATE REGULATION
John Hancock is subject to the provisions of the Massachusetts insurance laws
applicable to mutual life insurance companies and to regulation and supervision
by the Massachusetts Commissioner of Insurance. John Hancock is also subject to
the applicable insurance laws of all the other states and jurisdictions in which
it does an insurance business.
REPORTS
Reports will be furnished at least annually to an Owner showing the number and
value of Accumulation Shares credited to the variable annuity contract and
containing the financial statements of the Fund.
VOTING PRIVILEGES
THE ACCOUNT
All of the assets in the subaccounts of the Account are invested in shares of
the corresponding Portfolios of the Fund. John Hancock will vote the shares of
each of the Portfolios of the Fund which are deemed attributable to qualifying
variable annuity contracts or variable life insurance policies at meetings of
the Fund's shareholders in accordance with instructions received from owners of
such contracts or policies. Shares of the Fund held in the Account which are not
attributable to such contracts or policies (or other variable annuity contracts
issued by John Hancock) and those for which instructions from owners are not
received will be represented by John Hancock at the meeting and will be voted
for and against each matter in the same proportion as the votes based upon the
instructions received from the owners of all such contracts and policies funded
through the Account's corresponding variable subaccounts.
The number of Fund shares held in each subaccount deemed attributable to each
owner is determined by dividing a Contract's Accumulation Share Value (or for a
Contract under which annuity payments have commenced, the equivalent) in the
subaccount by the net asset value of one share in the corresponding Fund
Portfolio in which the assets of that subaccount are invested. Fractional votes
will be counted. The number of shares as to which the owner may give
instructions will be determined as of the record date for the Fund's meeting.
Owners of Contracts may give instructions regarding the election of the Board
of Trustees of the Fund, ratification of the selection of independent auditors,
approval of the Fund's investment management agreement and other matters
requiring a vote under the 1940 Act. Owners will be furnished information and
forms by John Hancock in order that voting instructions may be given.
36
<PAGE>
JOHN HANCOCK
An Owner (or the Annuitant if a different person) will have the right to vote
at annual meetings of all John Hancock policyholders for the election of members
of the Board of Directors of John Hancock and on other corporate matters, if
any, where a policyholders' vote is taken. The Owner (or the Annuitant if a
different person) may cast only one vote as the holder of a variable annuity
contract, irrespective of the value of the contract or the number of variable
annuity contracts held.
CHANGES IN APPLICABLE LAW--FUNDING AND OTHERWISE
The voting privileges described in this prospectus are afforded based on John
Hancock's understanding of applicable Federal securities law requirements. To
the extent that applicable law, regulations or interpretations change to
eliminate or restrict the need for such voting privileges, John Hancock reserves
the right to proceed in accordance with any such revised requirements. John
Hancock also reserves the right, subject to compliance with applicable law,
including approval of Owners if so required, to transfer assets determined by
John Hancock to be associated with the class of contracts to which the Contracts
belong from the Account to another separate account or subaccount by withdrawing
the same percentage of each investment in the Account with appropriate
adjustments to avoid odd lots and fractions.
LEGAL MATTERS
The legal validity of the Contracts has been passed upon by Ronald J. Bocage,
Vice President and Counsel of John Hancock.
DISTRIBUTION OF THE CONTRACTS
John Hancock Distributors, Inc. ("Distributors"), a wholly-owned subsidiary of
John Hancock, located at 197 Clarendon Street, Boston, MA 02117, is registered
as a broker-dealer with the Commission under the Securities Exchange Act of 1934
and is a member of the National Association of Securities Dealers, Inc.
Distributors acts as principal underwriter and distributor of the Contracts
pursuant to a distribution agreement it has entered into with John Hancock and
John Hancock Variable Life Insurance Company. The Contracts may be purchased
through either Distributors' registered representatives licensed to sell John
Hancock life insurance policies and annuity contracts or other registered
broker-dealers whose representatives are authorized by applicable law to sell
variable annuity contracts. The compensation paid to such broker-dealers is not
expected to exceed 3% of purchase payments.
Distributors' registered representatives are compensated for sales of the
Contracts on a commission and service fee basis by Distributors, and John
Hancock reimburses Distributors for such compensation and for other direct and
indirect expenses actually incurred in connection with the marketing and sale of
the Contracts. In addition, John Hancock performs certain insurance underwriting
and determines whether to accept or reject the application for a Contract.
IMPACT OF YEAR 2000 ISSUE
The advent of the Year 2000 presents a technological challenge to John
Hancock. Responding to this challenge, John Hancock has developed a plan to
modify or replace significant portions of its computer information and automated
technologies so that its systems will function properly with respect to dates in
the year 2000 and thereafter. The plan also involves coordination and testing
with business partners to ensure that external factors do not adversly impact
John Hancock's systems. John Hancock presently believes that with modifications
to existing systems. and conversions to new technologies, the year 2000 issue
will not pose
37
<PAGE>
significant operational problems for its computer systems. However, if certain
modifications and conversions are not made or are not completely on time, the
year 2000 issue could have an adverse impact on the operations of John Hancock.
John Hancock expects the project to be substantially complete by early 1999.
This completion target was derived utilizing numerous assumptions of future
events, including availability of certain resources and other factors. However,
there can be no guarantee that this estimate will be achieved, that these steps
will be sufficient, or that actual results may not differ materially from those
anticipated.
REGISTRATION STATEMENT
This Prospectus omits certain information contained in the Registration
Statement which has been filed with the Securities and Exchange Commission. More
details may be obtained from the Commission upon payment of the prescribed fee.
EXPERTS
The financial statements of the Account and of John Hancock included in the
Statement of Additional Information have been audited by Ernst & Young LLP,
independent auditors, whose reports thereon appear in the Statement of
Additional Information and have been so included in reliance on their reports
given on their authority as experts in accounting and auditing.
FINANCIAL STATEMENTS
Financial statements of the Account and John Hancock may be found in the
Statement of Additional Information. The financial statements of John Hancock
should be distinguished from the financial statements of the Account and should
be considered only as bearing upon the ability of John Hancock to meet its
obligations under the Contracts.
TABLE OF CONTENTS OF STATEMENT OF ADDITIONAL INFORMATION
<TABLE>
<CAPTION>
Cross Reference to
Page Page in Prospectus
---- ------------------
<S> <C> <C>
Business History . . . . . . . . . . . . . . . . . 1 13-14
Distribution Agreement and Other Services. . . . . 1 16, 35-36
Distribution Agreement . . . . . . . . . . . . . 1 35-36
Investment Advisory Agreement. . . . . . . . . . 1 16
Custodian Agreement. . . . . . . . . . . . . . . 2 --
Independent Auditors . . . . . . . . . . . . . . 2 36
Calculation of Performance Data. . . . . . . . . . 3 33-34
Calculation of Annuity Payments. . . . . . . . . . 4 25-26
Financial Statements . . . . . . . . . . . . . . . 6 36
</TABLE>
38
<PAGE>
Because of exemptive and exclusionary provisions, interests in John Hancock's
general account have not been registered under the Securities Act of 1933 and
the general account has not been registered as an investment company under the
1940 Act. Accordingly, neither the general account nor any interests therein are
subject to the provisions of these Acts, and John Hancock has been advised that
the staff of the Commission has not reviewed the disclosure in this Prospectus
relating to the Fixed Account. Disclosure regarding the Fixed Account may,
however, be subject to certain generally-applicable provisions of the Federal
securities laws relating to accuracy and completeness of statements made in
prospectuses.
APPENDIX--THE FIXED ACCOUNT AND FIXED ACCOUNT VALUE
INVESTMENTS IN THE FIXED ACCOUNT
Net purchase payments will be allocated to the Fixed Account in accordance
with the selection made by the Owner in the application. The Owner may change
such selection by notice satisfactory to John Hancock at its Servicing Office.
Any selection must specify what percentage of the purchase payment is to be
allocated to the Fixed Account. The percentage must be a whole number.
The Value in the Fixed Account, at any time prior to annuitization, is equal
to:
(a) net purchase payments allocated to the Fixed Account; plus
(b) Variable Account Value (amounts held in the subaccounts of the Variable
Account) transferred to the Fixed Account; plus
(c) interest credited on amounts held in the Fixed Account; less
(d) any prior partial withdrawals from the Fixed Account; less
(e) amounts transferred out of the Fixed Account to the Variable Account;
less
(f) any applicable charges deducted from the Fixed Account.
INTEREST TO BE CREDITED
Prior to annuitization, John Hancock will credit interest (calculated on a
compound basis) to purchase payments allocated to the Fixed Account at rates
declared by John Hancock, subject to a minimum rate of 3%. For purposes of this
section, Variable Account Value transferred to the Fixed Account shall be
treated as a purchase payment.
Under current practice, the interest rate credited to amounts held in the
Fixed Account will be based on the size of the initial payment to the Contract.
If the initial payment was $10,000 or more, a higher interest rate will be
credited. The rate of interest credited on each amount may vary based upon when
that amount was first allocated to the Fixed Account.
TRANSFER AND REDUCTIONS OF FIXED ACCOUNT VALUE
The Owner may transfer Fixed Account Value to one or more subaccounts of the
Variable Account or may transfer Variable Account Value into the Fixed Account.
The maximum amount that may be deposited or transferred to the Fixed Account in
a Contract Year is $100,000, exclusive of any initial deposit made to the Fixed
Account at the time the Contract is issued; such initial deposit may be as large
as $500,000. After the tenth Contract Year, no deposits or transfers may be made
into the Fixed Account. John Hancock may waive these limits.
Sums on deposit in the subaccounts may be transferred into the Fixed Account
up to twelve times within a Contract Year during the accumulation period, but
not within six months of a transfer out of the Fixed Account. Transfers out of
the Fixed Account may be made only once in a Contract Year and only on or within
39
<PAGE>
30 days after a Contract anniversary. No more than the greater of 20% of the
Fixed Account Value or $500 may be transferred out of the Fixed Account per
Contract Year. After annuitization, the amount of any fixed annuity allocation
may not be changed.
Transfers will be made after receipt of notice satisfactory to John Hancock at
its Servicing Office. Transfer requests received by John Hancock before 4:00
p.m. Eastern Time on a business day will be valued as of the close of that day.
Any requests received after 4:00 p.m. or on a non-business day will be valued as
of the close of the next business day.
An Owner may request a transfer in writing or, once a written telephone
transfer authorization form is completed by the Owner, the Owner may request a
transfer by telephoning John Hancock at 800 REAL LIFE (800-732-5543) or sending
a written request to John Hancock via the John Hancock fax machine at
617-886-3048. Any written request should include the Owner's name, daytime
telephone number, and contract number as well as the names of the subaccounts or
Fixed Account from which and to which money will be transferred. John Hancock
reserves the right to modify, suspend, or terminate telephone transfers at any
time without notice to the Owners. If the fax request option becomes
unavailable, another means of telecommunication will be substituted.
An Owner who authorizes telephone transfers will be liable for any loss,
expense or cost arising out of any unauthorized or fraudulent telephone transfer
instructions which John Hancock reasonably believes to be genuine, unless such
loss, expense or cost is the result of John Hancock's mistake or negligence.
John Hancock employs procedures which provide adequate safeguards against the
execution of unauthorized transfers, and which are reasonably designed to
confirm that transfer instructions received by telephone are genuine. These
procedures include requiring personal identification, tape recording calls, and
providing written confirmation to the Owner. If JHVLICO does not employ
reasonable procedures to confirm that instructions communicated by telephone are
genuine, it may be liable for any loss due to unauthorized or fraudulent
instructions.
FIXED ANNUITY PAYMENT VALUES
The dollar amount of each fixed annuity payment will be determined by dividing
the amount applied under the fixed annuity option (net of any applicable premium
taxes) by $1,000 and multiplying the result by the greater of: (a) the
applicable factor shown in the appropriate table in the Contract; or (b) the
factor currently offered by John Hancock at the time of annuitization. This
current factor may be based on the sex of the payee unless prohibited by law.
40
<PAGE>
APPENDIX--VARIABLE ANNUITY INFORMATION FOR INDIVIDUAL RETIREMENT ANNUITIES
To help you understand your purchase of this Contract as an Individual
Retirement Annuity (IRA), we are providing the following summary.
I. Accumulation Shares--Each net purchase payment you make into your Contract
is allocated to the subaccounts you select, and Accumulation Shares are
purchased. This is the unit of measurement used to determine the value of your
Contract. The number of shares purchased in any subaccount is based on the share
value of that subaccount next determined after receipt of the payment at our
Servicing Office. The values of shares fluctuate with the daily investment
performance of the corresponding subaccount. The growth in the value of your
Contract, to the extent invested in the Separate Account, is neither guaranteed
nor projected and varies with the investment Portfolio you have selected. Each
net purchase payment allocated to the Fixed Account will be credited interest,
as determined by John Hancock. The minimum guarantee rate is 3%. More details
appear under "Accumulation Shares" in this Prospectus and in the "Appendix--The
Fixed Account and Fixed Account Value."
II. Separate Account and Series Fund Charges--The assets of the Separate
Account are charged for services and guarantees. The annualized charge equals
1.50%. Fees varying by Portfolio are charged against the Series Fund for
investment management and advisory services. Details appear under "Charges Under
the Annuity Contracts" in this Prospectus and "Management of the Fund" in the
accompanying Series Fund prospectus.
III. Deductions from the Contract--The full amount of each deposit is applied
to the Contract. At or after the purchase date, one or more of the following
charges may be made, depending on circumstances.
1. WITHDRAWAL CHARGE--In each Contract Year, you may withdraw as much as
10% of the Accumulated Value of your Contract as of the beginning of the
Contract Year without charge. Withdrawals in excess of this amount will be
subject to the following charges:
<TABLE>
<CAPTION>
Years from Date
of Deposit to Withdrawal
Date of Withdrawal Charge
------------------ ----------
<S> <C>
7 or more . . . . . . . . . . . . . . . . . . . . 0%
5 but less than 7 . . . . . . . . . . . . . . . . 6%
3 but less than 5 . . . . . . . . . . . . . . . . 7%
less than 3 . . . . . . . . . . . . . . . . . . . 8%
</TABLE>
For the purpose of calculating the withdrawal charge, deposits are considered
to be withdrawn on a "first-in first-out" basis. Earnings are considered to be
withdrawn last and without charge. This is described in more detail under
"Withdrawal Charge" in this Prospectus.
2. CONTRACT FEE--John Hancock currently deducts $30 from the Accumulated
Value of the Contract as a contract fee if the Accumulated Value is less than
$10,000. This occurs annually or at the time of surrender. Please refer to
"Charges for Administrative Services" in this Prospectus.
3. STATE PREMIUM TAX--Some states and local governments impose a premium or
similar tax on annuities. John Hancock only deducts this tax when required to
do so. Please refer to "Premium or Similar Taxes" in this Prospectus.
41
<PAGE>
APPENDIX--ILLUSTRATIVE ACCUMULATED VALUE AND ANNUITY PAYMENT TABLES
The following Tables present illustrative periodic Accumulated Values and
annuity payments that would have resulted under a Contract described in this
prospectus had such values and payments been based exclusively upon the
investment experience of the seven specified subaccounts, assuming investment by
each of those subaccounts in the related Portfolio in the Fund and its
predecessors during the periods shown. The other subaccounts are not
illustrated, because of the limited time that they and their related Fund
Portfolios have been available. The Contracts described in this prospectus were
first offered in 1995.
For years ended December 31, 1986, and prior thereto, values have been
calculated based upon the actual investment results of the three corresponding
variable life insurance managed separate accounts which were the predecessors to
the Growth & Income, Sovereign Bond, and Money Market Portfolios, as if the Fund
had been in existence prior to March 28, 1986, the date of its reorganization.
The Tables assume investment of a single purchase payment of $10,000, net of
any deductions from purchase payments, and that charges under the Contracts have
been made at an annual rate of 1.50% for mortality and expense risks and
administrative services. The tables also reflect actual investment management
fees and other portfolio expenses for the periods illustrated. Absent expense
reimbursements by John Hancock to certain of the Portfolios for some periods,
the values illustrated would have been lower.
WHAT THE TABLES ILLUSTRATE
Subject to the foregoing, each Table I presents for the periods shown the
illustrative periodic Accumulated Values for each Account which would have
resulted at yearly intervals under a Contract where a net single purchase
payment of $10,000 was made, based upon the investment performance of the
applicable funding medium.
Subject to the foregoing, each Table II indicates, at annual intervals,
illustrative monthly variable annuity payments for each subaccount which would
have been received by an Annuitant or other payee, assuming that an initial
annuity payment of $100 was received in the month and year indicated in the
respective Tables. The form of annuity illustrated is a life annuity with
payments guaranteed for 10 years.
The results shown should not be considered a representation of the future. A
program of the type illustrated in the Tables does not assure a profit or
protect against depreciation in declining markets.
ILLUSTRATIVE PERIODIC ACCUMULATED VALUES AND ANNUITY PAYMENTS
GROWTH & INCOME SUBACCOUNT
TABLE I--ACCUMULATION PERIOD--ILLUSTRATIVE ACCUMULATED VALUES WHICH WOULD HAVE
RESULTED IF A $10,000 NET PURCHASE PAYMENT CONTRACT HAD BEEN ISSUED JANUARY 2,
1975
<TABLE>
<CAPTION>
Accumulated Value
on December 31
Contract Year Commencing of the same year
------------------------ -------------------
<S> <C>
January 1975 . . . . . . . . . . . . . . . . 12,755.81
January 1976 . . . . . . . . . . . . . . . . 14,818.13
January 1977 . . . . . . . . . . . . . . . . 13,031.36
January 1978 . . . . . . . . . . . . . . . . 13,619.76
January 1979 . . . . . . . . . . . . . . . . 15,591.96
January 1980 . . . . . . . . . . . . . . . . 20,033.70
January 1981 . . . . . . . . . . . . . . . . 19,914.88
January 1982 . . . . . . . . . . . . . . . . 25,121.73
January 1983 . . . . . . . . . . . . . . . . 30,156.05
January 1984 . . . . . . . . . . . . . . . . 31,116.54
January 1985 . . . . . . . . . . . . . . . . 41,312.63
January 1986 . . . . . . . . . . . . . . . . 47,097.10
January 1987 . . . . . . . . . . . . . . . . 48,211.94
January 1988 . . . . . . . . . . . . . . . . 55,584.82
January 1989 . . . . . . . . . . . . . . . . 70,924.09
January 1990 . . . . . . . . . . . . . . . . 71,650.24
January 1991 . . . . . . . . . . . . . . . . 88,913.44
January 1992 . . . . . . . . . . . . . . . . 95,382.31
January 1993 . . . . . . . . . . . . . . . . 106,491.92
January 1994 . . . . . . . . . . . . . . . . 104,325.44
January 1995 . . . . . . . . . . . . . . . . 137,933.51
January 1996 . . . . . . . . . . . . . . . . 163,189.31
January 1997 . . . . . . . . . . . . . . . . 208,737.18
</TABLE>
42
<PAGE>
TABLE II--ANNUITY PERIOD--ILLUSTRATIVE MONTHLY VARIABLE ANNUITY PAYMENTS WHICH
AN ANNUITANT WOULD HAVE RECEIVED ASSUMING A FIRST ANNUITY PAYMENT OF $100 IN
JANUARY 1975.
<TABLE>
<CAPTION>
Payment
Month For Month
----- -----------
<S> <C>
January 1975 . . . . . . . . . . . . . . 100.00
January 1976 . . . . . . . . . . . . . . 125.93
January 1977 . . . . . . . . . . . . . . 139.72
January 1978 . . . . . . . . . . . . . . 121.21
January 1979 . . . . . . . . . . . . . . 123.09
January 1980 . . . . . . . . . . . . . . 135.79
January 1981 . . . . . . . . . . . . . . 167.48
January 1982 . . . . . . . . . . . . . . 161.98
January 1983 . . . . . . . . . . . . . . 196.48
January 1984 . . . . . . . . . . . . . . 225.28
January 1985 . . . . . . . . . . . . . . 225.83
January 1986 . . . . . . . . . . . . . . 291.00
January 1987 . . . . . . . . . . . . . . 327.91
January 1988 . . . . . . . . . . . . . . 325.80
January 1989 . . . . . . . . . . . . . . 358.55
January 1990 . . . . . . . . . . . . . . 423.24
January 1991 . . . . . . . . . . . . . . 427.37
January 1992 . . . . . . . . . . . . . . 487.59
January 1993 . . . . . . . . . . . . . . 533.33
January 1994 . . . . . . . . . . . . . . 573.95
January 1995 . . . . . . . . . . . . . . 545.25
January 1996 . . . . . . . . . . . . . . 691.83
January 1997 . . . . . . . . . . . . . . 796.08
January 1998 . . . . . . . . . . . . . .
</TABLE>
The amounts shown are based on the investment performance of the Growth &
Income Subaccount, the Growth & Income Portfolio, and its predecessors. All
amounts reflect the provisions of the Contracts described in this Prospectus,
including annuity tables based on the standard assumed investment rate of3 1/2%
per annum. The amounts shown do not reflect the deduction for any applicable
premium tax. See text preceding these Tables.
43
<PAGE>
SOVEREIGN BOND SUBACCOUNT
TABLE I--ACCUMULATION PERIOD--ILLUSTRATIVE ACCUMULATED VALUES WHICH WOULD HAVE
RESULTED IF A $10,000 NET PURCHASE PAYMENT CONTRACT HAD BEEN ISSUED JUNE 2,
1980.
<TABLE>
<CAPTION>
Accumulated Value
on December 31
Contract Year Commencing of the same year
------------------------ -------------------
<S> <C>
June 1980 . . . . . . . . . . . . . . . . . . 10,223.96
June 1981 . . . . . . . . . . . . . . . . . . 10,479.40
June 1982 . . . . . . . . . . . . . . . . . . 13,296.87
June 1983 . . . . . . . . . . . . . . . . . . 13,898.62
June 1984 . . . . . . . . . . . . . . . . . . 15,677.98
June 1985 . . . . . . . . . . . . . . . . . . 18,775.37
June 1986 . . . . . . . . . . . . . . . . . . 20,995.90
June 1987 . . . . . . . . . . . . . . . . . . 21,231.75
June 1988 . . . . . . . . . . . . . . . . . . 22,623.89
June 1989 . . . . . . . . . . . . . . . . . . 25,121.68
June 1990 . . . . . . . . . . . . . . . . . . 26,572.35
June 1991 . . . . . . . . . . . . . . . . . . 30,539.94
June 1992 . . . . . . . . . . . . . . . . . . 32,390.12
June 1993 . . . . . . . . . . . . . . . . . . 35,345.21
June 1994 . . . . . . . . . . . . . . . . . . 33,925.32
June 1995 . . . . . . . . . . . . . . . . . . 39,951.50
June 1996 . . . . . . . . . . . . . . . . . . 40,972.79
June 1997 . . . . . . . . . . . . . . . . . . 44,443.05
</TABLE>
TABLE II--ANNUITY PERIOD--ILLUSTRATIVE MONTHLY VARIABLE ANNUITY PAYMENTS WHICH
AN ANNUITANT WOULD HAVE RECEIVED ASSUMING A FIRST ANNUITY PAYMENT OF $100 IN
JUNE 1980.
<TABLE>
<CAPTION>
Payment
Month For Month
----- -----------
<S> <C>
June 1980 . . . . . . . . . . . . . . . . 100.00
June 1981 . . . . . . . . . . . . . . . . 95.93
June 1982 . . . . . . . . . . . . . . . . 104.12
June 1983 . . . . . . . . . . . . . . . . 124.33
June 1984 . . . . . . . . . . . . . . . . 118.58
June 1985 . . . . . . . . . . . . . . . . 142.20
June 1986 . . . . . . . . . . . . . . . . 160.43
June 1987 . . . . . . . . . . . . . . . . 160.31
June 1988 . . . . . . . . . . . . . . . . 165.52
June 1989 . . . . . . . . . . . . . . . . 173.81
June 1990 . . . . . . . . . . . . . . . . 177.91
June 1991 . . . . . . . . . . . . . . . . 187.50
June 1992 . . . . . . . . . . . . . . . . 202.68
June 1993 . . . . . . . . . . . . . . . . 216.43
June 1994 . . . . . . . . . . . . . . . . 209.49
June 1995 . . . . . . . . . . . . . . . . 221.21
June 1996 . . . . . . . . . . . . . . . . 224.91
June 1997 . . . . . . . . . . . . . . . .
</TABLE>
The amounts shown are based on the investment performance of the Sovereign
Subaccount, the Sovereign Portfolio, and its predecessors. All amounts reflect
the provisions of the Contracts described in this Prospectus, including annuity
tables based on the standard assumed investment rate of 3 1/2% per annum. The
amounts shown do not reflect the deduction for any applicable premium tax. See
text preceding these Tables.
44
<PAGE>
MONEY MARKET SUBACCOUNT
TABLE I--ACCUMULATION PERIOD--ILLUSTRATIVE ACCUMULATED VALUES WHICH WOULD HAVE
RESULTED IF A $10,000 NET PURCHASE PAYMENT CONTRACT HAD BEEN ISSUED MAY 13, 1982
<TABLE>
<CAPTION>
Accumulated Value
on December 31
Contract Year Commencing of the same year
------------------------ -------------------
<S> <C>
May 1982 . . . . . . . . . . . . . . . . . . 10,447.10
May 1983 . . . . . . . . . . . . . . . . . . 11,190.47
May 1984 . . . . . . . . . . . . . . . . . . 12,183.44
May 1985 . . . . . . . . . . . . . . . . . . 12,980.32
May 1986 . . . . . . . . . . . . . . . . . . 13,643.90
May 1987 . . . . . . . . . . . . . . . . . . 14,340.86
May 1988 . . . . . . . . . . . . . . . . . . 15,212.41
May 1989 . . . . . . . . . . . . . . . . . . 16,378.23
May 1990 . . . . . . . . . . . . . . . . . . 17,463.09
May 1991 . . . . . . . . . . . . . . . . . . 18,231.23
May 1992 . . . . . . . . . . . . . . . . . . 18,614.20
May 1993 . . . . . . . . . . . . . . . . . . 18,898.77
May 1994 . . . . . . . . . . . . . . . . . . 19,379.82
May 1995 . . . . . . . . . . . . . . . . . . 20,196.48
May 1996 . . . . . . . . . . . . . . . . . . 20,956.66
May 1997 . . . . . . . . . . . . . . . . . . 21,771.42
</TABLE>
TABLE II--ANNUITY PERIOD--ILLUSTRATIVE MONTHLY VARIABLE ANNUITY PAYMENTS WHICH
AN ANNUITANT WOULD HAVE RECEIVED ASSUMING A FIRST ANNUITY PAYMENT OF $100 IN MAY
1982.
<TABLE>
<CAPTION>
Payment
Month For Month
----- -----------
<S> <C>
May 1982 . . . . . . . . . . . . . . . . 100.00
May 1983 . . . . . . . . . . . . . . . . 103.24
May 1984 . . . . . . . . . . . . . . . . 107.37
May 1985 . . . . . . . . . . . . . . . . 112.51
May 1986 . . . . . . . . . . . . . . . . 115.48
May 1987 . . . . . . . . . . . . . . . . 116.70
May 1988 . . . . . . . . . . . . . . . . 118.81
May 1989 . . . . . . . . . . . . . . . . 122.70
May 1990 . . . . . . . . . . . . . . . . 127.21
May 1991 . . . . . . . . . . . . . . . . 130.48
May 1992 . . . . . . . . . . . . . . . . 130.42
May 1993 . . . . . . . . . . . . . . . . 128.28
May 1994 . . . . . . . . . . . . . . . . 125.84
May 1995 . . . . . . . . . . . . . . . . 125.77
May 1996 . . . . . . . . . . . . . . . . 126.42
May 1997 . . . . . . . . . . . . . . . .
</TABLE>
The amounts shown are based on the investment performance of the Money Market
Subaccount, the Money Market Portfolio, and its predecessors. All amounts
reflect the provisions of the Contracts described in this Prospectus, including
annuity tables based on the standard assumed investment rate of 3 1/2% per
annum. The amounts shown do not reflect the deduction for any applicable premium
tax. See text preceding these Tables.
45
<PAGE>
LARGE CAP GROWTH SUBACCOUNT
TABLE I--ACCUMULATION PERIOD--ILLUSTRATIVE ACCUMULATED VALUES WHICH WOULD HAVE
RESULTED IF A $10,000 NET PURCHASE PAYMENT HAD BEEN ISSUED NOVEMBER 24, 1987.
<TABLE>
<CAPTION>
Accumulated Value
on December 31
Contract Year Commencing of the same year
------------------------ -------------------
<S> <C>
November 1987 . . . . . . . . . . . . . . . . 10,238.54
November 1988 . . . . . . . . . . . . . . . . 11,607.93
November 1989 . . . . . . . . . . . . . . . . 14,827.84
November 1990 . . . . . . . . . . . . . . . . 15,619.39
November 1991 . . . . . . . . . . . . . . . . 19,303.85
November 1992 . . . . . . . . . . . . . . . . 20,907.31
November 1993 . . . . . . . . . . . . . . . . 23,441.12
November 1994 . . . . . . . . . . . . . . . . 22,866.63
November 1995 . . . . . . . . . . . . . . . . 29,653.72
November 1996 . . . . . . . . . . . . . . . . 34,549.23
November 1997 . . . . . . . . . . . . . . . . 44,570.82
</TABLE>
TABLE II--ANNUITY PERIOD--ILLUSTRATIVE MONTHLY VARIABLE ANNUITY PAYMENTS WHICH
AN ANNUITANT WOULD HAVE RECEIVED ASSUMING A FIRST ANNUITY PAYMENT OF $100 IN
NOVEMBER 1987.
<TABLE>
<CAPTION>
Payment
Month For Month
----- -----------
<S> <C>
November 1987 . . . . . . . . . . . . . . 100.00
November 1988 . . . . . . . . . . . . . . 109.48
November 1989 . . . . . . . . . . . . . . 134.93
November 1990 . . . . . . . . . . . . . . 135.32
November 1991 . . . . . . . . . . . . . . 139.55
November 1992 . . . . . . . . . . . . . . 168.06
November 1993 . . . . . . . . . . . . . . 188.31
November 1994 . . . . . . . . . . . . . . 181.52
November 1995 . . . . . . . . . . . . . . 216.87
November 1996 . . . . . . . . . . . . . . 251.08
November 1997 . . . . . . . . . . . . . .
</TABLE>
The amounts shown are based on the investment performance of the Large Cap
Growth Subaccount and the Large Cap Growth Portfolio. All amounts reflect the
provisions of the Contracts described in this Prospectus, including annuity
tables based on the standard assumed investment rate of 3 1/2% per annum. The
amounts shown do not reflect the deduction for any applicable premium tax. See
text preceding the Tables.
46
<PAGE>
MANAGED SUBACCOUNT
TABLE I--ACCUMULATION PERIOD--ILLUSTRATIVE ACCUMULATED VALUES WHICH WOULD HAVE
RESULTED IF A $10,000 NET PURCHASE PAYMENT HAD BEEN ISSUED NOVEMBER 9, 1987.
<TABLE>
<CAPTION>
Accumulated Value
on December 31
Contract Year Commencing of the same year
------------------------ -------------------
<S> <C>
November 1987 . . . . . . . . . . . . . . . . 10,225.28
November 1988 . . . . . . . . . . . . . . . . 11,269.70
November 1989 . . . . . . . . . . . . . . . . 13,250.77
November 1990 . . . . . . . . . . . . . . . . 13,586.44
November 1991 . . . . . . . . . . . . . . . . 16,326.50
November 1992 . . . . . . . . . . . . . . . . 17,324.51
November 1993 . . . . . . . . . . . . . . . . 19,048.41
November 1994 . . . . . . . . . . . . . . . . 18,346.75
November 1995 . . . . . . . . . . . . . . . . 22,970.49
November 1996 . . . . . . . . . . . . . . . . 25,053.66
November 1997 . . . . . . . . . . . . . . . . 29,305.10
</TABLE>
TABLE II--ANNUITY PERIOD--ILLUSTRATIVE MONTHLY VARIABLE ANNUITY PAYMENTS WHICH
AN ANNUITANT WOULD HAVE RECEIVED ASSUMING A FIRST ANNUITY PAYMENT OF $100 IN
NOVEMBER 1987.
<TABLE>
<CAPTION>
Payment
Month For Month
----- -----------
<S> <C>
November 1987 . . . . . . . . . . . . . . 100.00
November 1988 . . . . . . . . . . . . . . 109.76
November 1989 . . . . . . . . . . . . . . 121.28
November 1990 . . . . . . . . . . . . . . 114.32
November 1991 . . . . . . . . . . . . . . 135.43
November 1992 . . . . . . . . . . . . . . 141.31
November 1993 . . . . . . . . . . . . . . 155.23
November 1994 . . . . . . . . . . . . . . 145.38
November 1995 . . . . . . . . . . . . . . 167.42
November 1996 . . . . . . . . . . . . . . 179.28
November 1997 . . . . . . . . . . . . . .
</TABLE>
The amounts shown are based on the investment performance of the Managed
Subaccount and the Managed Portfolio. All amounts reflect the provisions of the
Contracts described in this Prospectus, including annuity tables based on the
standard assumed investment rate of 3 1/2% per annum. The amounts shown do not
reflect the deduction for any applicable premium tax. See text preceding the
Tables.
47
<PAGE>
REAL ESTATE EQUITY SUBACCOUNT
TABLE I--ACCUMULATION PERIOD--ILLUSTRATIVE ACCUMULATED VALUES WHICH WOULD HAVE
RESULTED IF A $10,000 NET PURCHASE PAYMENT HAD BEEN ISSUED FEBRUARY 14, 1989.
<TABLE>
<CAPTION>
Accumulated Value
on December 31
Contract Year Commencing of the same year
------------------------ -------------------
<S> <C>
February 1989 . . . . . . . . . . . . . . . . 10,366.26
February 1990 . . . . . . . . . . . . . . . . 8,020.62
February 1991 . . . . . . . . . . . . . . . . 10,549.34
February 1992 . . . . . . . . . . . . . . . . 12,056.82
February 1993 . . . . . . . . . . . . . . . . 13,932.73
February 1994 . . . . . . . . . . . . . . . . 14,118.57
February 1995 . . . . . . . . . . . . . . . . 15,620.42
February 1996 . . . . . . . . . . . . . . . . 20,476.46
February 1997 . . . . . . . . . . . . . . . . 23,644.83
</TABLE>
TABLE II--ANNUITY PERIOD--ILLUSTRATIVE MONTHLY VARIABLE ANNUITY PAYMENTS WHICH
AN ANNUITANT WOULD HAVE RECEIVED ASSUMING A FIRST ANNUITY PAYMENT OF $100 IN
FEBRUARY 1989.
<TABLE>
<CAPTION>
Payment
Month For Month
----- -----------
<S> <C>
February 1989 . . . . . . . . . . . . . . . . . . 100.00
February 1990 . . . . . . . . . . . . . . . . . . 95.81
February 1991 . . . . . . . . . . . . . . . . . . 85.30
February 1992 . . . . . . . . . . . . . . . . . . 99.50
February 1993 . . . . . . . . . . . . . . . . . . 114.97
February 1994 . . . . . . . . . . . . . . . . . . 118.20
February 1995 . . . . . . . . . . . . . . . . . . 121.81
February 1996 . . . . . . . . . . . . . . . . . . 123.86
February 1997 . . . . . . . . . . . . . . . . . . 156.85
February 1998 . . . . . . . . . . . . . . . . . . 168.70
</TABLE>
The amounts shown are based on the investment performance of the Real Estate
Equity Subaccount and the Real Estate Equity Portfolio. All amounts reflect the
provisions of the Contracts described in this Prospectus, including annuity
tables based on the standard assumed investment rate of 3 1/2% per annum. The
amounts shown do not reflect the deduction for any applicable premium tax. See
text preceding the Tables.
48
<PAGE>
INTERNATIONAL EQUITY INDEX SUBACCOUNT
TABLE I--ACCUMULATION PERIOD--ILLUSTRATIVE ACCUMULATED VALUES WHICH WOULD HAVE
RESULTED IF A $10,000 NET PURCHASE PAYMENT HAD BEEN ISSUED FEBRUARY 10, 1989.
<TABLE>
<CAPTION>
Accumulated Value
on December 31
Contract Year Commencing of the same year
------------------------ -------------------
<S> <C>
February 1989 . . . . . . . . . . . . . . . . 11,061.43
February 1990 . . . . . . . . . . . . . . . . 10,032.34
February 1991 . . . . . . . . . . . . . . . . 12,193.48
February 1992 . . . . . . . . . . . . . . . . 11,814.41
February 1993 . . . . . . . . . . . . . . . . 15,374.36
February 1994 . . . . . . . . . . . . . . . . 14,220.57
February 1995 . . . . . . . . . . . . . . . . 15,131.86
February 1996 . . . . . . . . . . . . . . . . 16,276.41
February 1997 . . . . . . . . . . . . . . . . 15,229.50
</TABLE>
TABLE II--ANNUITY PERIOD--ILLUSTRATIVE MONTHLY VARIABLE ANNUITY PAYMENTS WHICH
AN ANNUITANT WOULD HAVE RECEIVED ASSUMING A FIRST ANNUITY PAYMENT OF $100 IN
FEBRUARY 1989.
<TABLE>
<CAPTION>
Payment
Month For Month
----- -----------
<S> <C>
February 1989 . . . . . . . . . . . . . . 100.00
February 1990 . . . . . . . . . . . . . . 96.68
February 1991 . . . . . . . . . . . . . . 89.72
February 1992 . . . . . . . . . . . . . . 103.52
February 1993 . . . . . . . . . . . . . . 97.94
February 1994 . . . . . . . . . . . . . . 123.18
February 1995 . . . . . . . . . . . . . . 110.84
February 1996 . . . . . . . . . . . . . . 114.00
February 1997 . . . . . . . . . . . . . . 114.61
February 1998 . . . . . . . . . . . . . .
</TABLE>
The amounts shown are based on the investment performance of the International
Equity Index Subaccount and the International Equity Index Portfolio. All
amounts reflect the provisions of the Contracts described in this Prospectus,
including annuity tables based on the standard assumed investment rate of 3 1/2%
per annum. The amounts shown do not reflect the deduction for any applicable
premium tax. See text preceding the Tables.
49
<PAGE>
[LOGO OF JOHN HANCOCK
APPEARS HERE]
JOHN HANCOCK
MUTUAL LIFE INSURANCE COMPANY
ANNUITY TRANSFERLINE
AUTHORIZATION FORM
- --------------------------------------------------------------------------------
INSTRUCTIONS: Please complete and sign where indicated. If your Contract will
be jointly owned, each Owner must sign. An acknowledgement letter will be
sent as soon as your Contract is issued.
THIS COMPLETED FORM MUST BE SUBMITTED WITH THE APPLICATION.
- -------------------------------------------------------------------------------
( ) Yes! I want TRANSFERLINE, John Hancock's telephone transfer program that
permits fast and toll-free transfers of funds within my Contract, as
conditions dictate.
As the applicant for a Contract funded by John Hancock Variable Series Trust I
(the "Fund"), I hereby authorize John Hancock, on behalf of the Fund, to act
upon my telephone instructions to:
(1) reallocate my then current value held in any one or more subaccounts,
(2) to change the allocation of future purchase payments to the subaccounts,
and
(3) change the allocation of my subaccount elections as they are applied
under the Dollar-Cost Averaging option (if available on my Contract).
I understand that John Hancock employs the following procedures reasonably
designed to confirm that the instructions received by telephone are genuine:
requiring disclosure of personal identification; tape recording calls; and
providing the Owner with a confirmation of the transfer. As long as John Hancock
follows such procedures, I will not hold John Hancock or the Fund (or any of
their successors) liable for any loss, expense, or cost resulting from any
unauthorized or fraudulent telephone instructions.
I further understand that this authorization is limited by the conditions and
procedures for telephone account transfers and investment option changes set
forth in the prospectus describing my Contract.
I further understand that this authorization will continue in force unless and
until the earlier of (a) written revocation received by John Hancock at its
Servicing Office or (b) John Hancock discontinues this service.
Signature(s) of Prospective
Contract Owner(s)
Date:______________________________ /s/ ____________________________
Date:______________________________ /s/ ____________________________
Questions call: 800-REAL LIFE (800-732-5543)
Mail to: John Hancock Servicing Office
P.O. Box 111
Boston, MA 02117
50
<PAGE>
JOHN HANCOCK MUTUAL LIFE INSURANCE COMPANY
INDIVIDUAL COMBINATION VARIABLE/FIXED
ANNUITY CONTRACTS
JOHN HANCOCK VARIABLE ANNUITY ACCOUNT V
STATEMENT OF ADDITIONAL INFORMATION
----------------
This statement of additional information is not a prospectus. It is intended
that this statement of additional information be read in conjunction with the
prospectus of John Hancock Variable Annuity Account V, dated May 1, 1998. A
copy of the prospectus may be obtained from the John Hancock Servicing Office,
P.O. Box 111, Boston Massachusetts, 02117, telephone number (800) REAL LIFE
(800-732-5543), fax number 617-886-3048.
This statement of additional information is dated May 1, 1998.
<PAGE>
JOHN HANCOCK VARIABLE ANNUITY ACCOUNT V
CROSS REFERENCE SHEET
----------------
<TABLE>
<CAPTION>
SECTION IN STATEMENT OF
FORM N-4 ITEM NO. ADDITIONAL INFORMATION
----------------- ----------------------- ---
<C> <C> <S> <C>
15. Cover Page............................ Cover Page
16. Table of Contents..................... Table of Contents
17. General Information and History....... Business History
Distribution Agreement and
18. Services.............................. Other Services
19. Purchase of Securities Being Offered.. Not Applicable (relevant
information in prospectus)
Distribution Agreement and
20. Underwriters.......................... Other Services
21. Calculation of Yield Quotations of Calculation of Performance
Money Market Subaccounts............. Data
Calculation of Annuity
22. Annuity Payments...................... Payments
23. Financial Statements.................. Financial Statements
</TABLE>
<PAGE>
TABLE OF CONTENTS
----------------
<TABLE>
<CAPTION>
CROSS REFERENCE TO
PAGE PAGE IN PROSPECTUS
---- ------------------
<S> <C> <C>
Business History........................................ 1 12-13
Distribution Agreement and Other Services............... 1 16, 20, 36
Distribution Agreement................................ 1 36
Investment Advisory Agreement......................... 1 16
Custodian Agreement................................... 2 --
Independent Auditors.................................. 2 36
Calculation of Performance Data......................... 3 34
Calculation of Annuity Payments......................... 5 24-25
Financial Statements.................................... 9 36
</TABLE>
<PAGE>
BUSINESS HISTORY
John Hancock Variable Annuity Account V (the "Account") is a separate
account of John Hancock Mutual Life Insurance Company ("John Hancock"),
established under the laws of the Commonwealth of Massachusetts. The Account
is organized as a unit investment trust and registered with the Securities and
Exchange Commission under the Investment Company Act of 1940 (the "Act") and
the Securities Act of 1933. The Account has twenty-three separate subaccounts
Managed, Growth & Income, Equity Index, Large Cap Value, Large Cap Growth, Mid
Cap Value, Mid Cap Growth, Diversified Mid Cap Growth (formerly, Special
Opportunities), Real Estate Equity, Small/Mid Cap CORE, Small Cap Value, Small
Cap Growth, Global Equity, International Balanced, International Equity Index
(formerly, International Equities), International Opportunities, Emerging
Markets Equity, Short-Term Bond (formerly, Short-Term U.S. Government), Bond
Index, Sovereign Bond, Strategic Bond, High Yield Bond, and Money Market
through which John Hancock's individual combination fixed/variable annuity
contracts are funded, at the discretion of the individual contract owner (the
"Owner"). The assets of each subaccount are, in turn, invested in a
corresponding Portfolio of John Hancock Variable Series Trust I (the "Fund"),
a registered open-end diversified management investment company advised by
John Hancock.
DISTRIBUTION AGREEMENT AND OTHER SERVICES
DISTRIBUTION AGREEMENT
Pursuant to a Distribution Agreement, dated May 1, 1997, John Hancock
Distributors, Inc. ("Distributors"), a registered broker-dealer, acts as
"principal underwriter" for the Account. Distributors is a member of the
National Association of Securities Dealers, Inc., and a member of the
Securities Investors Protection Corporation. Distributors' major
responsibility as underwriter is to perform all sales and marketing functions
relating to the Contracts. The offering of the Account's interests is
continuous, but Distributors is not obligated to sell any particular amount of
the Account's interests.
INVESTMENT ADVISORY AGREEMENT
The Fund, in which the Contracts are invested, has contracted with John
Hancock for investment advisory services. Pursuant to four Investment
Management Agreements (two dated as of April 12, 1988, one dated April 15,
1994, and one dated March 14, 1996) as amended, John Hancock, a registered
investment adviser under the Investment Advisers Act of 1940, advises the Fund
in connection with policy decisions; provides administration of day-to-day
operations; provides personnel, office space, equipment, and supplies for the
Fund; maintains records required by the Act; values assets and liabilities of
the Fund; computes income, net asset value, and yield of each Portfolio; and
supervises activities of the sub-investment managers referred to below.
John Hancock has day-to-day responsibility for making investment decisions
and placing investment orders for the Money Market Portfolio. However, with
respect to the other Portfolios, John Hancock has contracted with the
following registered investment advisors to perform these and certain other
recordkeeping functions as sub-investment manager pursuant to sub-investment
agreements dated as indicated:
<TABLE>
<C> <S> <C>
Growth & Income Independence Investment Associates, Inc. 4/15/88
Sovereign Bond John Hancock Advisers, Inc. 5/01/95
Large Cap Growth Independence Investment Associates, Inc. 4/15/88
Managed Independence Investment Associates, Inc. 4/15/88
Real Estate Equity Independence Investment Associates, Inc. 4/15/94
Independence International Associates,
International Equity Index Inc. 5/1/98
Diversified Mid Cap Growth John Hancock Advisers Inc. 9/23/94
Short-Term Bond Independence Investment Associates, Inc. 4/15/94
Equity Index Independence Investment Associates, Inc. 3/29/96
Large Cap Value T. Rowe Price Associates, Inc. 3/18/97
</TABLE>
1
<PAGE>
<TABLE>
<C> <S> <C>
Mid Cap Growth Janus Capital Corporation 3/29/96
Mid Cap Value Neuberger & Berman L.P. 5/02/96
Small Cap Growth John Hancock Advisers, Inc. 3/29/96
Small Cap Value INVESCO Management & Research 3/22/96
Strategic Bond J.P. Morgan Investment Management, Inc. 3/29/96
International Opportunities T. Rowe Price Associates, Inc. 3/29/96
Rowe Price-Fleming International, Inc. 3/29/96
International Balanced Brinson Partners, Inc. 3/29/96
Small/Mid Cap CORE Goldman Sachs Asset Management 5/1/98
(a division of Goldman, Sachs & Co.)
High Yield Bond Wellington Management Company, LLP 4/20/98
Bond Index Mellon Bond Associates, LLP 4/20/98
Global Equity Scudder Kemper Investments, Inc. 4/24/98
Emerging Markets Equity Montgomery Asset Management, LLC 5/1/98
</TABLE>
John Hancock pays the sub-investment management fees pursuant to the
Agreements and, therefore, the sub-investment management arrangements result
in no additional charge or expense to the Fund or to contractholders. A more
complete description of the Fund's management and the investment advisory fees
is included under "Management of the Fund" in the Fund's Prospectus and under
"Investment Advisory and Other Services" in the Fund's Statement of Additional
Information.
CUSTODIAN AGREEMENT
The Fund's custodian with respect to all the Portfolios is State Street Bank
and Trust, 225 Franklin Street, Boston, Massachusetts, pursuant to a Custodian
Agreement dated January 30, 1995, and amended March 18, 1996, January 28,
1997, May 1, 1997, June 18, 1997, and April 14, 1998. The custodians' duties
include safeguarding and controlling the Fund's cash investments, handling the
receipt and delivery of securities, and collecting interest and dividends on
the Fund's investments.
INDEPENDENT AUDITORS
Ernst & Young LLP, 200 Clarendon Street, Boston, Massachusetts, has been
selected as the independent auditors of the Account. The firm is responsible
for auditing the financial statements of the Account and JHMLICO.
2
<PAGE>
CALCULATION OF PERFORMANCE DATA
The Account will show the average annual total return for each Subaccount,
according to the following formula prescribed by the Securities and Exchange
Commission:
P(1 + T)n = ERV
where: P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value of a hypothetical $1,000 payment,
made at the beginning of a period (or fractional portion
thereof)
Average annual total return is the annual compounded rate of return that
would have produced the cash redemption value under a Contract had the
subaccount been invested in a specified Portfolio of the Fund (or its
predecessor) over the stated period and had the performance remained constant
throughout. The calculation assumes a single $1,000 payment made at the
beginning of the period and full redemption at the end of the period. It
reflects adjustments for all Fund and Contract level charges except premium
taxes, if any.
On that basis, the following tables show the average annual total return for
each Subaccount for the periods ended December 31, 1997:
FOR CONTRACTS ISSUED WITH ANNUAL EXPENSES OF 1.50%
<TABLE>
<CAPTION>
AVERAGE ANNUALIZED
YEAR --------------------- DATE**
TO 5 OF
SUBACCOUNT*** DATE 1 YEAR YEAR* 10 YEAR* INCEPTION
------------- ------ ------ ----- -------- ---------
<S> <C> <C> <C> <C> <C>
Managed.................................. 9.8% 9.8% 10.4% 11.0% 11/09/87
Growth & Income.......................... 20.8% 20.8% 16.4% 15.7% 04/03/72
Equity Index............................. 23.8% 23.8% 22.7% NA 04/30/96
Large Cap Value.......................... 19.6% 19.6% 20.0% NA 04/30/96
Large Cap Growth......................... 22.0% 22.0% 15.8% 15.8% 11/24/87
Mid Cap Value............................ 23.2% 23.2% 23.8% NA 04/30/96
Mid Cap Growth........................... 7.8% 7.8% 5.7% NA 04/30/96
Diversified Mid Cap Growth............... -5.3% -5.3% 17.1% NA 09/23/94
Real Estate Equity....................... 8.3% 8.3% 13.8% 10.1% 02/01/89
Small Cap Value.......................... 16.7% 16.7% 16.0% NA 04/30/96
Small Cap Growth......................... 5.4% 5.4% 2.2% NA 04/30/96
International Balanced................... -6.2% -6.2% -0.2% NA 04/30/96
International Equity Index............... -13.8% -13.8% 4.3% 4.8% 02/01/89
International Opportunities.............. -6.9% -6.9% -0.7% NA 04/30/96
Short Term Bond.......................... -2.4% -2.4% 3.0% NA 09/23/94
Sovereign Bond........................... 1.2% 1.2% 5.7% 7.6% 06/02/80
Strategic Bond........................... 0.2% 0.2% 3.7% NA 04/30/96
Money Market............................. -3.4% -3.4% 2.2% 4.2% 05/13/82
</TABLE>
3
<PAGE>
FOR CONTRACTS ISSUED WITH ANNUAL EXPENSES OF 1.40%
<TABLE>
<CAPTION>
YEAR AVERAGE ANNUALIZED DATE**
TO ----------------------- OF
SUBACCOUNT*** DATE 1 YEAR 5 YEAR* 10 YEAR* INCEPTION
------------- ------ ------ ------- -------- ---------
<S> <C> <C> <C> <C> <C>
Managed................................ 11.7% 11.7% 10.9% 11.2% 11/09/87
Growth & Income........................ 22.7% 22.7% 16.9% 15.9% 04/03/72
Equity Index........................... 25.7% 25.7% 23.8% NA 04/30/96
Large Cap Value........................ 21.5% 21.5% 21.1% NA 04/30/96
Large Cap Growth....................... 23.8% 23.8% 16.2% 15.9% 11/24/87
Mid Cap Value.......................... 25.1% 25.1% 24.8% NA 04/30/96
Mid Cap Growth......................... 9.7% 9.7% 6.8% NA 04/30/96
Diversified Mid Cap Growth............. -3.4% -3.4% 17.8% NA 09/23/94
Real Estate Equity..................... 10.2% 10.2% 14.3% 10.2% 02/01/89
Small Cap Value........................ 18.6% 18.6% 17.0% NA 04/30/96
Small Cap Growth....................... 7.3% 7.3% 3.3% NA 04/30/96
International Balanced................. -4.2% -4.2% 0.9% NA 04/30/96
International Equity Index............. -11.8% -11.8% 5.0% 4.9% 02/01/89
International Opportunities............ -4.9% -4.9% 0.5% NA 04/30/96
Short Term Bond........................ -0.5% -0.5% 3.9% NA 09/23/94
Sovereign Bond......................... 3.2% 3.2% 6.3% 7.7% 06/02/80
Strategic Bond......................... 2.1% 2.1% 4.9% NA 04/30/96
Money Market........................... -1.4% -1.4% 2.9% 4.3% 05/13/82
</TABLE>
- --------
* or since inception of the applicable Portfolio or its predecessors.
** of the Portfolio or its predecessor.
*** Absent expense reimbursements from John Hancock to certain Portfolios for
some periods, total return figures for the related subaccounts would have
been lower.
The Account will show current yield and effective yield figures for the
Money Market Subaccount. The current yield of the Money Market Subaccount for
a seven-day period (the "base period") will be computed by determining the
"net change in value" (calculated as set forth below) of a hypothetical
account having a balance of one share at the beginning of the period, dividing
the net change in account value by the value of the account at the beginning
of the base period to obtain the base period return, and multiplying the base
period return by 365/7 with the resulting yield figure carried to the nearest
hundredth of one percent. Net changes in value of a hypothetical account will
include net investment income of the account (accrued daily dividends as
declared by the Money Market Portfolio, less daily expense charges of the
Account) for the period, but will not include realized gains or losses or
unrealized appreciation or depreciation on the underlying fund shares.
Mortality and expense risk and administrative charges are reflected, but
Withdrawal Charge and any charge for premium taxes are not.
The effective yield reflects the effects of compounding and represents an
annualization of the current return with all dividends reinvested. The formula
for effective yield, as prescribed by the SEC, is:
Effective yield ^ [(Base period return + 1) /3//6//5///7/] - 1
On Contracts issued with annual expenses of 1.50%, for the 7-day period
ending December 31, 1997, the Money Market Subaccount's current yield was
3.97% and its effective yield was 4.05%. On Contracts issued with annual
expenses of 1.40%, for the same period, its current yield was 4.07% and its
effective yield was 4.16%.
4
<PAGE>
The Account will calculate current yield for each of the other Subaccounts
according to the following formula prescribed by the SEC:
Yield = 2 [ ([(a - b)/cd] + 1)/6/ - 1]
where: a = dividends and interest earned during the period
b = expenses accrued for the period (net of reimbursements)
c = the average daily number of shares outstanding during the
period that were entitled to received dividends
d = the maximum offering price per share on the last day of the
period.
According to this formula, yield is determined by dividing the net
investment income per Accumulation Share earned during the period (minus the
deduction for mortality and expense risk charge, contract fee, administrative
services charge) by the Accumulation Share Value on the last day of the period
and annualizing the resulting figure. The calculation is based on specified
30-day periods identified in the advertisement. No sales loads are assumed.
CALCULATION OF ANNUITY PAYMENTS
The variable monthly annuity payment to an Annuitant under a Contract is
equal to the sum of the products of the number of each subaccount's "Annuity
Units" credited to the Contract multiplied by the applicable "Annuity Unit
Value," as these terms are defined under "Special Terms" and "Variable Account
Valuation Procedures," respectively, in the Account's prospectus. The number
of each subaccount's Annuity Units credited to the Contract is multiplied by
the applicable Annuity Unit Value as of ten calendar days prior to the date
the payment is due. The value of the Annuity Units varies from day to day,
depending on the investment performance of the subaccount, the deductions made
against the subaccount, and the assumed investment rate used in computing
Annuity Unit Values. Thus, the variable monthly annuity payments vary in
amount from month to month.
The amount of the initial variable monthly payment is determined on the
assumption that the actual net investment rate of each subaccount used in
calculating the Net Investment Factor (as described under "Variable Account
Valuation Procedures--Net Investment Factor" in the Account's prospectus) will
be equal on an annual basis to the assumed investment rate. If the actual net
investment rate between the dates for determining two monthly annuity payments
is greater than the assumed investment rate, the latter monthly payment will
be larger in amount than the former. On the other hand, if the actual net
investment rate between the dates for determining two monthly annuity payments
is less than the assumed investment rate, the latter monthly payment will be
smaller in amount than the former.
The mortality tables used as a basis for the annuity purchase rates are the
1983a Mortality Tables, with projections of mortality improvements and with
certain age adjustments based on the Contract Year of annuitization. The
mortality table used in a Contract purchased in connection with certain
employer-related plans and used in all Contracts issued in Montana and
Massachusetts will be the Female Annuity Table of the 1983a Mortality Tables.
The impact of this change will be lower benefits (5% to 15%) from a male's
viewpoint than would otherwise be the case.
An illustration of the method of calculation of variable monthly annuity
payments and the number of Annuity Units under deferred Contracts is shown in
the outline that follows.
5
<PAGE>
I. FOR CONTRACTS ISSUED WITH ANNUAL EXPENSES OF 1.50%
A. GENERAL FORMULAE TO DETERMINE ACCUMULATION SHARE VALUES AND ANNUITY UNIT
VALUES
Net Investment Rate =
Subaccount Charges (0.004110%
per Day of the Value of the
Investment Capital Capital Taxes Subaccount at the Beginning
Income + Gains - Losses - (if any) - of the Valuation Period)
- -------------------------------------------------------------------------------
Value of the Subaccount at the Beginning of the Valuation Period
Net Investment
Factor = 1.00000000 + Net Investment Rate
Accumulation Accumulation Share Value on Net Investment
Share Value = Preceding Valuation Date X Factor
Annuity Unit Net Factor to Neutralize
Annuity Unit Value on Preceding Investment the Assumed
Value = Valuation Date X Factor X Investment Rate
B. HYPOTHETICAL EXAMPLE ILLUSTRATING THE CALCULATION OF ACCUMULATION SHARE
VALUES AND ANNUITY UNIT VALUES
Assume at the beginning of the Valuation Period being considered, the value
of the Subaccount was $4,000,000. Investment income during the Valuation
Period totaled $2000 while capital gains were $3000 and capital losses were
$1000. No taxes accrued. Charges against the beginning value of the Subaccount
amount to $164.40 assuming a one day Valuation Period. The $164.40 was
computed by multiplying the beginning Subaccount value of $4,000,000 by the
factor 0.00004110. By substituting in the first formula above, the net
investment rate is equal to $3835.60 ($2000 + $3000 - $1000 - $164.40) divided
by $4,000,000 or 0.0009589. The Net Investment Factor would then be 1.0009589.
Assume further that each Accumulation Share had a value of $11.250000 on the
previous Valuation Date, and the value of an Annuity Unit on such date was
$1.0850000. Based upon the experience of the Subaccount during the Valuation
Period, the value of an Accumulation Share at the end of the Valuation Period
would be $11.260788 ($11.250000 X 1.0009589). The value of an Annuity Unit at
the end of the Valuation Period would be $1.085938
($1.0850000 X 1.0009589 X .99990575). The final figure, .99990575, neutralizes
the effect of a 3 1/2% assumed investment rate so that the Annuity Unit
recognizes only the actual investment experience.
6
<PAGE>
C. GENERAL FORMULAE TO DETERMINE AMOUNT OF MONTHLY VARIABLE ANNUITY PAYMENTS
AND NUMBER OF ANNUITY UNITS FOR DEFERRED CONTRACTS
Amount of the First Variable Annuity Payment =
Number of First Monthly
Accumulation Accumulation Share Value Annuity
Shares Applied X 10 Days Before Maturity Date X Payment Factor
- --------------------------------------------------------------------------------
$1,000
Number of
Annuity Units = Amount of First Variable Annuity Payment
-----------------------------------------------------
Annuity Unit Value 10 Days Before Maturity Date
Amount of
Subsequent Annuity Unit Value
Variable Annuity 10 Days Before
Payment = Number of Annuity Units X Payment Date
D. HYPOTHETICAL EXAMPLE ILLUSTRATING THE CALCULATION OF THE AMOUNT OF MONTHLY
VARIABLE ANNUITY PAYMENT FOR DEFERRED CONTRACTS
Assume that 10 days before the date of maturity a Contract has credited to
it 4000.000 Accumulation Shares each having a value of $12.000000. The
appropriate annuity purchase rate in the Contract for an assumed investment
rate of 3 1/2% is $5.47 per $1000 of proceeds for the Annuity Option elected.
The Annuitant's first monthly payment would then be $262.56.
4000.000 X $12.000000 X 5.47
----------------------------------------------
$1000
If the value of an Annuity Unit 10 days before the date of maturity was
$1.4000000, the number of Annuity Units represented by the first and
subsequent payments would be $187.543 ($262.56/$1.4000000). If the Annuity
Unit Value 10 days before the due date of the second monthly payment was
$1.405000, the amount of the second payment would be $263.50 (187,543 X
$1.405000).
7
<PAGE>
II. ON CONTRACTS ISSUED WITH ANNUAL EXPENSES OF 1.40%
A. GENERAL FORMULAE TO DETERMINE ACCUMULATION SHARE VALUES AND ANNUITY UNIT
VALUES
Net Investment Rate =
Subaccount Charges (0.003836%
per Day of the Value of the
Investment Capital Capital Taxes Subaccount at the Beginning
Income + Gains - Losses - (if any) - of the Valuation Period)
- -------------------------------------------------------------------------------
Value of the Subaccount at the Beginning of the Valuation Period
Net Investment
Factor = 1.00000000 + Net Investment Rate
Accumulation Accumulation Share Value on Net Investment
Share Value = Preceding Valuation Date X Factor
Annuity Unit Net Factor to Neutralize
Annuity Unit Value on Preceding Investment the Assumed
Value = Valuation Date X Factor X Investment Rate
B. HYPOTHETICAL EXAMPLE ILLUSTRATING THE CALCULATION OF ACCUMULATION SHARE
VALUES AND ANNUITY UNIT VALUES
Assume at the beginning of the Valuation Period being considered, the value
of the Subaccount was $4,000,000. Investment income during the Valuation
Period totaled $2000 while capital gains were $3000 and capital losses were
$1000. No taxes accrued. Charges against the beginning value of the Subaccount
amount to $153.44 assuming a one day Valuation Period. The $153.44 was
computed by multiplying the beginning Subaccount value of $4,000,000 by the
factor 0.00003836. By substituting in the first formula above, the net
investment rate is equal to $3,846.56 ($2000 + $3000 - $1000 - $153.44)
divided by $4,000,000 or 0.0009616. The Net Investment Factor would then be
1.0009616.
Assume further that each Accumulation Share had a value of $11.250000 on the
previous Valuation Date, and the value of an Annuity Unit on such date was
$1.0850000. Based upon the experience of the Subaccount during the Valuation
Period, the value of an Accumulation Share at the end of the Valuation Period
would be $11.260818 ($11.250000 X 1.0009616). The value of an Annuity Unit at
the end of the Valuation Period would be $1.085941
($1.0850000 X 1.0009616 X .99990575). The final figure, .99990575, neutralizes
the effect of a 3 1/2% assumed investment rate so that the Annuity Unit
recognizes only the actual investment experience.
8
<PAGE>
C. GENERAL FORMULAE TO DETERMINE AMOUNT OF MONTHLY VARIABLE ANNUITY PAYMENTS
AND NUMBER OF ANNUITY UNITS FOR DEFERRED CONTRACTS
Amount of the First Variable Annuity Payment =
Number of First Monthly
Accumulation Accumulation Share Value Annuity
Shares Applied X 10 Days Before Maturity Date X Payment Factor
- --------------------------------------------------------------------------------
$1,000
Number of
Annuity Units = Amount of First Variable Annuity Payment
-----------------------------------------------------
Annuity Unit Value 10 Days Before Maturity Date
Amount of
Subsequent Annuity Unit Value
Variable Annuity 10 Days Before
Payment = Number of Annuity Units X Payment Date
D. HYPOTHETICAL EXAMPLE ILLUSTRATING THE CALCULATION OF THE AMOUNT OF MONTHLY
VARIABLE ANNUITY PAYMENT FOR DEFERRED CONTRACTS
Assume that 10 days before the date of maturity a Contract has credited to
it 4000.000 Accumulation Shares each having a value of $12.000000. Assume also
that the Contract was issued to a male age 65 who elected a life annuity with
10 years guaranteed. The appropriate annuity purchase rate in the Contract for
an assumed investment rate of 3 1/2% is $5.47 per $1000 of proceeds for the
Annuity Option elected. The Annuitant's first monthly payment would then be
$262.56.
4000.000 X $12.000000 X 5.47
----------------------------------------------
$1000
If the value of an Annuity Unit 10 days before the date of maturity was
$1.4000000, the number of Annuity Units represented by the first and
subsequent payments would be $187.543 ($262.56/$1.4000000). If the Annuity
Unit Value 10 days before the due date of the second monthly payment was
$1.405000, the amount of the second payment would be $263.50 (187,543 X
$1.405000).
FINANCIAL STATEMENTS
(Included on next page)
9
<PAGE>
JOHN HANCOCK VARIABLE ANNUITY ACCOUNT V
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1997
<TABLE>
<CAPTION>
LARGE CAP SOVEREIGN INTERNATIONAL SMALL CAP INTERNATIONAL MID CAP LARGE CAP MONEY MID CAP
GROWTH BOND EQUITIES GROWTH BALANCED GROWTH VALUE MARKET VALUE
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
----------- ----------- ------------- ---------- ------------- ---------- ----------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Investment in
shares of
portfolios of
John Hancock
Variable Series
Trust I, at
value.......... $65,788,738 $66,024,173 $11,085,621 $6,206,065 $1,155,758 $6,433,256 $10,257,343 $23,746,136 $8,606,864
Receivable from
John Hancock
Variable Series
Trust I........ 31,923 308,331 8,934 5,561 1,053 7,302 10,094 20,571 116,868
----------- ----------- ----------- ---------- ---------- ---------- ----------- ----------- ----------
Total assets.... 65,820,661 66,332,504 11,094,555 6,211,626 1,156,811 6,440,558 10,267,437 23,766,707 8,723,732
LIABILITIES
Payable to John
Hancock Mutual
Life Insurance
Company........ 29,412 305,918 8,510 5,321 1,006 7,043 9,679 19,663 116,532
Assets charges
payable........ 2,511 2,413 424 240 47 259 415 908 336
----------- ----------- ----------- ---------- ---------- ---------- ----------- ----------- ----------
Total
liabilities.... 31,923 308,331 8,934 5,561 1,053 7,302 10,094 20,571 116,868
----------- ----------- ----------- ---------- ---------- ---------- ----------- ----------- ----------
Net assets...... $65,788,738 $66,024,173 $11,085,621 $6,206,065 $1,155,758 $6,433,256 $10,257,343 $23,746,136 $8,606,864
=========== =========== =========== ========== ========== ========== =========== =========== ==========
</TABLE>
See accompanying notes.
10
<PAGE>
JOHN HANCOCK VARIABLE ANNUITY ACCOUNT V
STATEMENT OF ASSETS AND LIABILITIES--(CONTINUED)
DECEMBER 31, 1997
<TABLE>
<CAPTION>
SHORT-TERM
SPECIAL REAL ESTATE GROWTH & U.S. SMALL CAP INTERNATIONAL EQUITY STRATEGIC
OPPORTUNITIES EQUITY INCOME MANAGED GOVERNMENT VALUE OPPORTUNITIES INDEX BOND
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
------------- ----------- ------------ ------------ ---------- ---------- ------------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Investment in
shares of
portfolios of
John Hancock
Variable Series
Trust I, at
value........... $34,602,378 $16,189,095 $223,347,854 $402,307,547 $8,550,693 $5,117,560 $3,011,974 $11,497,159 $3,216,511
Receivable from
John Hancock
Variable Series
Trust I......... 5,911 22,604 467,110 659,530 3,454 3,177 2,748 226,476 3,216
----------- ----------- ------------ ------------ ---------- ---------- ---------- ----------- ----------
Total assets.... 34,608,289 16,211,699 223,814,964 402,967,077 8,554,147 5,120,737 3,014,722 11,723,635 3,219,727
LIABILITIES
Payable to John
Hancock Mutual
Life Insurance
Company......... 4,529 21,994 458,773 644,919 3,107 2,975 2,627 226,022 3,086
Assets charges
payable......... 1,392 610 8,337 14,611 347 202 121 454 130
----------- ----------- ------------ ------------ ---------- ---------- ---------- ----------- ----------
Total
liabilities..... 5,911 22,604 467,110 659,530 3,454 3,177 2,748 226,476 3,216
----------- ----------- ------------ ------------ ---------- ---------- ---------- ----------- ----------
Net assets...... $34,602,378 $16,189,095 $223,347,854 $402,307,547 $8,550,693 $5,117,560 $3,011,974 $11,497,159 $3,216,511
=========== =========== ============ ============ ========== ========== ========== =========== ==========
</TABLE>
See accompanying notes.
11
<PAGE>
JOHN HANCOCK VARIABLE ANNUITY ACCOUNT V
STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
LARGE CAP SOVEREIGN INTERNATIONAL SMALL CAP INTERNATIONAL MID CAP LARGE CAP MONEY MID CAP
GROWTH BOND EQUITIES GROWTH BALANCED GROWTH VALUE MARKET VALUE
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
----------- ---------- ------------- ---------- ------------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Investment
income:
Distributions
received from
the portfolios
of John Hancock
Variable Series
Trust I......... $ 5,927,247 $5,037,977 $ 559,426 $ 2,426 $58,774 $ -- $ 421,570 $1,388,851 $619,647
Expenses:
Mortality and
expense risks... 780,298 853,543 170,997 63,733 15,049 67,090 98,166 365,555 59,393
----------- ---------- ----------- -------- ------- -------- ---------- ---------- --------
Net investment
income (loss).... 5,146,949 4,184,434 388,429 (61,307) 43,725 (67,090) 323,404 1,023,296 560,254
Net realized and
unrealized gain
(loss) on
investments:
Net realized
gain............ 1,291,499 514,719 158,616 43,117 14,962 32,384 154,133 -- 90,441
Net unrealized
appreciation
(depreciation)
during the year. 7,278,480 679,637 (1,372,343) 503,431 (51,498) 818,415 1,088,057 -- 187,079
----------- ---------- ----------- -------- ------- -------- ---------- ---------- --------
Net realized and
unrealized gain
(loss) on
investments...... 8,569,979 1,194,356 (1,213,727) 546,548 (36,536) 850,799 1,242,190 -- 277,520
----------- ---------- ----------- -------- ------- -------- ---------- ---------- --------
Net increase
(decrease) in net
assets resulting
from operations.. $13,716,928 $5,378,790 $ (825,298) $485,241 $ 7,189 $783,709 $1,565,594 $1,023,296 $837,774
=========== ========== =========== ======== ======= ======== ========== ========== ========
</TABLE>
See accompanying notes.
12
<PAGE>
JOHN HANCOCK VARIABLE ANNUITY ACCOUNT V
STATEMENT OF OPERATIONS--(CONTINUED)
YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
SHORT-TERM
SPECIAL REAL ESTATE GROWTH & U.S. SMALL CAP INTERNATIONAL EQUITY STRATEGIC
OPPORTUNITIES EQUITY INCOME MANAGED GOVERNMENT VALUE OPPORTUNITIES INDEX BOND
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
------------- ----------- ----------- ----------- ---------- ---------- ------------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Investment
income:
Distributions
received from
the portfolios
of John Hancock
Variable Series
Trust I......... $ 3,449,753 $1,113,560 $28,241,006 $38,599,474 $467,602 $393,924 $ 44,913 $ 310,970 $201,126
Expenses:
Mortality and
expense risks... 494,302 188,061 2,636,904 5,081,678 118,020 38,904 36,594 87,977 33,955
----------- ---------- ----------- ----------- -------- -------- --------- ---------- --------
Net investment
income........... 2,955,451 925,499 25,604,102 33,517,796 349,582 355,020 8,319 222,993 167,171
Net realized and
unrealized gain
(loss) on
investments:
Net realized
gain (loss)..... 1,126,199 487,843 2,376,560 6,175,265 (23,864) 42,977 65,558 288,759 4,783
Net unrealized
appreciation
(depreciation)
during the year. (3,364,862) 700,267 18,872,400 21,200,526 51,606 120,277 (112,748) 812,331 10,914
----------- ---------- ----------- ----------- -------- -------- --------- ---------- --------
Net realized and
unrealized gain
(loss) on
investments...... (2,238,663) 1,188,110 21,248,960 27,375,791 27,742 163,254 (47,190) 1,101,090 15,697
----------- ---------- ----------- ----------- -------- -------- --------- ---------- --------
Net increase
(decrease) in net
assets resulting
from operations.. $ 716,788 $2,113,609 $46,853,062 $60,893,587 $377,324 $518,274 $ (38,871) $1,324,083 $182,868
=========== ========== =========== =========== ======== ======== ========= ========== ========
</TABLE>
See accompanying notes.
13
<PAGE>
JOHN HANCOCK VARIABLE ANNUITY ACCOUNT V
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE YEARS AND PERIODS ENDED DECEMBER 31,
<TABLE>
<CAPTION>
LARGE CAP SOVEREIGN INTERNATIONAL SMALL CAP
GROWTH BOND EQUITIES GROWTH
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
------------------------ ------------------------- ------------------------ -----------------------
1997 1996 1997 1996 1997 1996 1997 1996*
----------- ----------- ------------ ----------- ----------- ----------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Increase (decrease)
in net assets:
From operations:
Net investment
income (loss)...... $ 5,146,949 $ 5,868,430 $ 4,184,434 $ 3,870,459 $ 388,429 $ (6,828) $ (61,307) $ (11,170)
Net realized gain
(loss)............. 1,291,499 478,115 514,719 234,092 158,616 147,281 43,117 (11,683)
Net unrealized
appreciation
(depreciation)
during the period.. 7,278,480 (830,544) 679,637 (2,384,658) (1,372,343) 647,349 503,431 (74,502)
----------- ----------- ------------ ----------- ----------- ----------- ----------- ----------
Net increase
(decrease) in net
assets resulting
from operations..... 13,716,928 5,516,090 5,378,790 1,719,893 (825,298) 787,802 485,241 (97,355)
From contractowner
transactions:
Net premiums from
contractowners..... 16,139,943 14,966,199 9,129,234 11,650,762 2,857,788 4,741,455 4,274,222 3,174,587
Net benefits to
contractowners..... (7,139,613) (4,906,509) (12,119,596) (9,980,999) (3,074,937) (2,300,437) (1,206,158) (424,472)
----------- ----------- ------------ ----------- ----------- ----------- ----------- ----------
Net increase
(decrease) in net
assets from
contractowner
transactions........ 9,000,330 10,059,690 (2,990,362) 1,669,763 (217,149) 2,441,018 3,068,064 2,750,115
----------- ----------- ------------ ----------- ----------- ----------- ----------- ----------
Net increase
(decrease) in net
assets.............. 22,717,258 15,575,691 2,388,428 3,389,656 (1,042,447) 3,228,820 3,553,305 2,652,760
Net assets at
beginning of period. 43,071,480 27,495,789 63,635,745 60,246,089 12,128,068 8,899,248 2,652,760 --
----------- ----------- ------------ ----------- ----------- ----------- ----------- ----------
Net assets at end of
period.............. $65,788,738 $43,071,480 $ 66,024,173 $63,635,745 $11,085,621 $12,128,068 $ 6,206,065 $2,652,760
=========== =========== ============ =========== =========== =========== =========== ==========
</TABLE>
- -----
* From May 1, 1996 (commencement of operations).
See accompanying notes.
14
<PAGE>
JOHN HANCOCK VARIABLE ANNUITY ACCOUNT V
STATEMENTS OF CHANGES IN NET ASSETS--(CONTINUED)
FOR THE YEARS AND PERIODS ENDED DECEMBER 31,
<TABLE>
<CAPTION>
INTERNATIONAL
BALANCED MID CAP GROWTH LARGE CAP VALUE MONEY MARKET
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
-------------------- ----------------------- ----------------------- --------------------------
1997 1996* 1997 1996* 1997 1996* 1997 1996
---------- -------- ----------- ---------- ----------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Increase in net
assets:
From operations:
Net investment
income.......... $ 43,725 $ 5,963 $ (67,090) $ (4,676) $ 323,404 $ 48,502 $ 1,023,296 $ 842,792
Net realized
gain............ 14,962 195 32,384 (24) 154,133 4,527 -- --
Net unrealized
appreciation
(depreciation)
during the
period.......... (51,498) 16,955 818,415 35,740 1,088,057 117,692 -- --
---------- -------- ----------- ---------- ----------- ---------- ------------ ------------
Net increase in
net assets
resulting from
operations....... 7,189 23,113 783,709 31,040 1,565,594 170,721 1,023,296 842,792
From
contractowner
transactions:
Net premiums
from
contractowners.. 709,717 602,530 3,495,070 3,454,735 6,570,928 3,117,307 28,918,004 29,572,298
Net benefits to
contractowners.. (182,703) (4,388) (1,177,188) (154,110) (1,102,978) (64,229) (32,942,480) (22,022,250)
---------- -------- ----------- ---------- ----------- ---------- ------------ ------------
Net increase
(decrease) in net
assets from
contractowner
transactions..... 527,014 598,142 2,317,882 3,300,625 5,467,950 3,053,078 (4,024,476) 7,550,048
---------- -------- ----------- ---------- ----------- ---------- ------------ ------------
Net increase
(decrease) in net
period........... 534,203 621,255 3,101,591 3,331,665 7,033,544 3,223,799 (3,001,180) 8,392,840
Net assets at
beginning of
period........... 621,255 -- 3,331,665 -- 3,223,799 -- 26,747,316 18,354,476
---------- -------- ----------- ---------- ----------- ---------- ------------ ------------
Net assets at end
of period........ $1,155,758 $621,255 $ 6,433,256 $3,331,665 $10,257,343 $3,223,799 $ 23,746,136 $ 26,747,316
========== ======== =========== ========== =========== ========== ============ ============
<CAPTION>
MID CAP VALUE
SUBACCOUNT
-----------------------
1997 1996*
----------- -----------
<S> <C> <C>
Increase in net
assets:
From operations:
Net investment
income.......... $ 560,254 $ 24,420
Net realized
gain............ 90,441 1,638
Net unrealized
appreciation
(depreciation)
during the
period.......... 187,079 93,767
----------- -----------
Net increase in
net assets
resulting from
operations....... 837,774 119,825
From
contractowner
transactions:
Net premiums
from
contractowners.. 6,966,453 1,364,695
Net benefits to
contractowners.. (619,978) (61,905)
----------- -----------
Net increase
(decrease) in net
assets from
contractowner
transactions..... 6,346,475 1,302,790
----------- -----------
Net increase
(decrease) in net
period........... 7,184,249 1,422,615
Net assets at
beginning of
period........... 1,422,615 --
----------- -----------
Net assets at end
of period........ $8,606,864 $1,422,615
=========== ===========
</TABLE>
- -----
* From May 1, 1996 (commencement of operations).
See accompanying notes.
15
<PAGE>
JOHN HANCOCK VARIABLE ANNUITY ACCOUNT V
STATEMENTS OF CHANGES IN NET ASSETS--(CONTINUED)
FOR THE YEARS AND PERIODS ENDED DECEMBER 31,
<TABLE>
<CAPTION>
REAL ESTATE
SPECIAL OPPORTUNITIES EQUITY GROWTH & INCOME MANAGED
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
------------------------ ------------------------ -------------------------- --------------------------
1997 1996 1997 1996 1997 1996 1997 1996
----------- ----------- ----------- ----------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Increase in net
assets:
From operations:
Net investment
income............. $ 2,955,451 $ 948,617 $ 925,499 $ 405,154 $ 25,604,102 $ 17,816,863 $ 33,517,796 $ 40,660,526
Net realized gain.. 1,126,199 479,654 487,843 95,726 2,376,560 552,624 6,175,265 2,338,033
Net unrealized
appreciation
(depreciation)
during the period.. (3,364,862) 3,216,931 700,267 1,901,728 18,872,400 4,394,652 21,200,526 (11,935,373)
----------- ----------- ----------- ----------- ------------ ------------ ------------ ------------
Net increase in net
assets resulting
from operations..... 716,788 4,645,202 2,113,609 2,402,608 46,853,062 22,764,139 60,893,587 31,063,186
From contractowner
transactions:
Net premiums from
contractowners..... 10,052,617 24,012,130 6,692,536 3,401,275 41,759,743 42,535,469 35,209,787 62,824,890
Net benefits to
contractowners..... (8,369,858) (4,389,166) (3,491,935) (1,998,364) (23,467,946) (14,497,027) (60,922,245) (41,931,579)
----------- ----------- ----------- ----------- ------------ ------------ ------------ ------------
Net increase
(decrease) in net
assets from
contractowner
transactions........ 1,682,759 19,622,964 3,200,601 1,402,911 18,291,797 28,038,442 (25,712,458) 20,893,311
Net increase
(decrease) in net
period.............. 2,399,547 24,268,166 5,314,210 3,805,519 65,144,859 50,802,581 35,181,129 51,956,497
Net assets at
beginning of period. 32,202,831 7,934,665 10,874,885 7,069,366 158,202,995 107,400,414 367,126,418 315,169,921
----------- ----------- ----------- ----------- ------------ ------------ ------------ ------------
Net assets at end of
period.............. $34,602,378 $32,202,831 $16,189,095 $10,874,885 $223,347,854 $158,202,995 $402,307,547 $367,126,418
=========== =========== =========== =========== ============ ============ ============ ============
</TABLE>
- -----
* From May 1, 1996 (commencement of operations).
See accompanying notes.
16
<PAGE>
JOHN HANCOCK VARIABLE ANNUITY ACCOUNT V
STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED)
FOR THE YEARS AND PERIODS ENDED DECEMBER 31,
<TABLE>
<CAPTION>
SHORT-TERM SMALL CAP INTERNATIONAL
U.S. GOVERNMENT VALUE OPPORTUNITIES EQUITY INDEX
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
------------------------ ---------------------- ---------------------- -----------------------
1997 1996 1997 1996* 1997 1996* 1997 1996*
----------- ----------- ---------- ---------- ---------- ---------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Increase
(decrease) in net
assets:
From operations:
Net investment
income (loss)... $ 349,582 $ 246,011 $ 355,020 $ 21,391 $ 8,319 $ (2,156) $ 222,993 $ 31,170
Net realized
gain (loss)..... (23,864) (7,429) 42,977 1,223 65,558 2,121 288,759 7,516
Net unrealized
appreciation
(depreciation)
during the
period.......... 51,606 (66,125) 120,277 46,285 (112,748) 72,186 812,331 90,134
----------- ----------- ---------- ---------- ---------- ---------- ----------- ----------
Net increase
(decrease) in net
assets resulting
from operations.. 377,324 172,457 518,274 68,899 (38,871) 72,151 1,324,083 128,820
From
contractowner
transactions:
Net premiums
from
contractowners.. 2,277,100 6,095,377 3,931,113 1,026,699 1,958,041 1,716,141 10,201,049 1,730,492
Net benefits to
contractowners.. (1,911,203) (1,653,919) (369,139) (58,286) (585,790) (109,698) (1,684,296) (202,989)
----------- ----------- ---------- ---------- ---------- ---------- ----------- ----------
Net increase
(decrease) in net
assets from
contractowner
transactions..... 365,897 4,441,458 3,561,974 968,413 1,372,251 1,606,443 8,516,753 1,527,503
----------- ----------- ---------- ---------- ---------- ---------- ----------- ----------
Net increase in
net assets....... 743,221 4,613,915 4,080,248 1,037,312 1,333,380 1,678,594 9,840,836 1,656,323
Net assets at
beginning of
period........... 7,807,472 3,193,557 1,037,312 -- 1,678,594 -- 1,656,323 --
----------- ----------- ---------- ---------- ---------- ---------- ----------- ----------
Net assets at end
of period........ $ 8,550,693 $ 7,807,472 $5,117,560 $1,037,312 $3,011,974 $1,678,594 $11,497,159 $1,656,323
=========== =========== ========== ========== ========== ========== =========== ==========
<CAPTION>
STRATEGIC BOND
SUBACCOUNT
-----------------------
1997 1996*
----------- -----------
<S> <C> <C>
Increase
(decrease) in net
assets:
From operations:
Net investment
income (loss)... $ 167,171 $ 32,257
Net realized
gain (loss)..... 4,783 1,486
Net unrealized
appreciation
(depreciation)
during the
period.......... 10,914 (4,798)
----------- -----------
Net increase
(decrease) in net
assets resulting
from operations.. 182,868 28,945
From
contractowner
transactions:
Net premiums
from
contractowners.. 2,115,324 1,371,974
Net benefits to
contractowners.. (310,465) (172,135)
----------- -----------
Net increase
(decrease) in net
assets from
contractowner
transactions..... 1,804,859 1,199,839
----------- -----------
Net increase in
net assets....... 1,987,727 1,228,784
Net assets at
beginning of
period........... 1,228,784 --
----------- -----------
Net assets at end
of period........ $3,216,511 $1,228,784
=========== ===========
</TABLE>
- -----
* From May 1, 1996 (commencement of operations).
See accompanying notes.
17
<PAGE>
JOHN HANCOCK VARIABLE ANNUITY ACCOUNT V
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
1. ORGANIZATION
John Hancock Variable Annuity Account V (the Account) is a separate
investment account of John Hancock Mutual Life Insurance Company (JHMLICO or
John Hancock). The Account was formed to fund variable annuity contracts
(Contracts) issued by JHMLICO. The Account is operated as a unit investment
trust registered under the Investment Company Act of 1940, as amended, and
currently consists of eighteen subaccounts. The assets of each subaccount are
invested exclusively in shares of a corresponding Portfolio of John Hancock
Variable Series Trust I (the Fund). New subaccounts may be added as new
Portfolios are added to the Fund or as other investment options are developed
and made available to contractowners. The eighteen Portfolios of the Fund
which are currently available are the Large Cap Growth, Sovereign Bond,
International Equities, Small Cap Growth, International Balanced, Mid Cap
Growth, Large Cap Value, Money Market, Mid Cap Value, Special Opportunities,
Real Estate Equity, Growth & Income, Managed, Short-Term U.S. Government,
Small Cap Value, International Opportunities, Equity Index and Strategic Bond
Portfolios. Each Portfolio has a different investment objective.
The assets of the Account are the property of JHMLICO. The portion of the
Account's assets applicable to the Contracts may not be charged with
liabilities arising out of any other business JHMLICO may conduct.
2. SIGNIFICANT ACCOUNTING POLICIES
Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets, and liabilities and
disclosure of contingent assets and liabilities, at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Valuation of Investments
Investment in shares of the Fund are valued at the reported net asset values
of the respective Portfolios. Investment transactions are recorded on the
trade date. Dividend income is recognized on the ex-dividend date. Realized
gains and losses on sales of Fund shares are determined on the basis of
identified cost.
Federal Income Taxes
The operations of the Account are included in the federal income tax return
of JHMLICO, which is taxed as a life insurance company under the Internal
Revenue Code. JHMLICO has the right to charge the Account any federal income
taxes, or provision for federal income taxes, attributable to the operations
of the Account or to the Contracts funded in the Account. Currently, John
Hancock does not make a charge for income or other taxes. JHMLICO retains the
right to charge the Account for any federal income taxes arising from changes
in the tax law. Charges for state and local taxes, if any, attributable to the
Account may also be made.
Expenses
JHMLICO assumes mortality and expense risks of the Contracts and provides
administrative services to the Account for which asset charges are deducted at
an annual rate of 1.25% of net assets of the Account.
JHMLICO makes certain other deductions from contractowner payments for
premium taxes and sales and withdrawal charges, which are accounted for as a
reduction of net assets resulting from contractowner transactions.
18
<PAGE>
JOHN HANCOCK VARIABLE ANNUITY ACCOUNT V
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
3. DETAILS OF INVESTMENTS
The details of the shares owned and cost and value of investments in the
Portfolios of the Fund at December 31, 1997 were as follows:
<TABLE>
<CAPTION>
SHARES
SUBACCOUNT OWNED COST VALUE
---------- ---------- ------------ ------------
<S> <C> <C> <C>
Large Cap Growth..................... 3,160,049 $ 55,956,292 $ 65,788,738
Sovereign Bond....................... 6,636,276 64,259,276 66,024,173
International Equities............... 729,325 11,631,291 11,085,621
Small Cap Growth..................... 547,083 5,777,136 6,206,065
International Balanced............... 114,316 1,190,300 1,155,758
Mid Cap Growth....................... 539,452 5,579,111 6,433,256
Large Cap Value...................... 755,904 9,051,594 10,257,343
Money Market......................... 2,374,614 23,746,136 23,746,136
Mid Cap Value........................ 620,713 8,326,018 8,606,864
Special Opportunities................ 2,249,081 34,241,407 34,602,378
Real Estate Equity................... 1,017,511 13,523,769 16,189,095
Growth & Income...................... 13,450,228 186,278,473 223,347,854
Managed.............................. 28,036,563 353,315,585 402,307,547
Short-Term U.S. Government........... 848,000 8,546,762 8,550,693
Small Cap Value...................... 412,663 4,950,998 5,117,560
International Opportunities.......... 283,422 3,052,536 3,011,974
Equity Index......................... 808,908 10,594,694 11,497,159
Strategic Bond....................... 314,030 3,210,395 3,216,511
</TABLE>
Purchases, including reinvestment of dividend distributions, and proceeds
from sales of shares in the Portfolios of the Fund during 1997, were as
follows:
<TABLE>
<CAPTION>
SUBACCOUNT PURCHASES SALES
---------- ----------- -----------
<S> <C> <C>
Large Cap Growth.................................. $17,283,294 $ 1,844,517
Sovereign Bond.................................... 8,272,605 6,518,779
International Equities............................ 2,676,172 2,338,952
Small Cap Growth.................................. 4,289,901 1,240,027
International Balanced............................ 788,559 202,559
Mid Cap Growth.................................... 3,583,911 1,300,724
Large Cap Value................................... 6,610,747 665,260
Money Market...................................... 17,847,906 22,098,987
Mid Cap Value..................................... 7,286,377 289,207
Special Opportunities............................. 9,805,940 4,038,536
Real Estate Equity................................ 6,626,841 2,012,899
Growth & Income................................... 50,901,126 4,628,668
Managed........................................... 45,180,734 31,200,131
Short-Term U.S. Government........................ 2,389,973 1,698,357
Small Cap Value................................... 4,134,293 174,321
International Opportunities....................... 2,193,608 747,254
Equity Index...................................... 9,949,784 921,279
Strategic Bond.................................... 2,251,348 274,535
</TABLE>
19
<PAGE>
JOHN HANCOCK VARIABLE ANNUITY ACCOUNT V
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
4. NET ASSETS
Accumulation shares attributable to net assets of contractowners and
accumulation share values for each subaccount at December 31, 1997 were as
follows:
<TABLE>
<CAPTION>
ACCOMMODATOR INDEPENDENCE
------------------------- -------------------------
ACCUMULATION ACCUMULATION ACCUMULATION ACCUMULATION
SUBACCOUNT SHARES SHARE VALUES SHARES SHARE VALUES
---------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Large Cap Growth........... 568,010 $45.711 2,074,430 $19.198
Sovereign Bond............. 1,987,067 21.707 1,765,587 12.969
International Equities..... 295,725 15.572 580,528 11.168
Small Cap Growth........... 116,968 11.135 442,227 11.089
International Balanced..... 14,927 10.728 93,191 10.684
Mid Cap Growth............. 39,707 11.734 510,743 11.687
Large Cap Value............ 49,212 14.341 668,796 14.282
Money Market............... 628,977 15.661 1,238,762 11.217
Mid Cap Value.............. 87,481 15.049 486,455 14.987
Special Opportunities...... 239,625 17.521 1,747,007 17.403
Real Estate Equity......... 338,164 24.175 466,871 17.165
Growth & Income............ 2,585,296 45.699 5,327,037 19.746
Managed.................... 9,068,834 30.058 8,216,039 15.788
Short-Term U.S. Government. 52,176 11.742 685,486 11.665
Small Cap Value............ 69,972 13.577 308,239 13.521
International Opportuni-
ties...................... 50,931 10.655 232,719 10.611
Equity Index............... 91,506 14.856 685,246 14.794
Strategic Bond............. 25,885 11.397 257,401 11.350
</TABLE>
5. TRANSACTIONS WITH AFFILIATES
John Hancock acts as the distributor, principal underwriter and investment
advisor for the Fund. Certain officers of the Account are officers and
directors of JHMLICO or the Fund.
6. IMPACT OF YEAR 2000 (UNAUDITED)
The John Hancock Variable Annuity Account V, along with John Hancock Mutual
Life Insurance Company, its ultimate parent (together, John Hancock), have
developed a plan to modify or replace significant portions of the Account's
computer information and automated technologies so that its systems will
function property with respect to the dates in the year 2000 and thereafter.
The Account presently believes that with modifications to existing systems and
conversions to new technologies, the year 2000 will not pose significant
operational problems for its computer systems. However, if certain
modifications and conversions are not made, or not completed timely, the year
2000 issue could have an adverse impact on the operations of the Account.
John Hancock, as early as 1994, had begun assessing, modifying and
converting the software related to its significant systems and has initiated
formal communications with its significant business partners and customers to
determine the extent to which John Hancock's interface systems are vulnerable
to those third parties' failure to remediate their own year 2000 issues. While
John Hancock is developing alternative third-party processing arrangements as
it deems appropriate, there is no guarantee that the systems of other
companies on which the Account's systems rely will be converted timely or will
not have an adverse effect on the Account's systems.
The Account expects the project to be substantially complete by early 1999.
This completion target was derived utilizing numerous assumptions of future
events, including availability of certain resources and other factors.
However, there can be no guarantee that this completion target will be
achieved.
20
<PAGE>
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
Contractowners
John Hancock Variable Annuity Account V of John Hancock Mutual Life Insurance
Company
We have audited the accompanying statement of assets and liabilities of John
Hancock Variable Annuity Account V (the Account) (comprising, respectively,
the Large Cap Growth, Sovereign Bond, International Equities, Small Cap
Growth, International Balanced, Mid Cap Growth, Large Cap Value, Money Market,
Mid Cap Value, Special Opportunities, Real Estate Equity, Growth & Income,
Managed, Short-Term U.S. Government, Small Cap Value, International
Opportunities, Equity Index and Strategic Bond Subaccounts) as of December 31,
1997, and the related statement of operations for the year then ended, and the
statements of changes in net assets for each of the periods indicated therein.
These financial statements are the responsibility of the Account's management.
Our responsibility is to express an opinion on these financial statements
based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of each of the respective
subaccounts constituting John Hancock Variable Annuity Account V at December
31, 1997, the results of their operations for the year then ended and the
changes in their net assets for each of the periods indicated, in conformity
with generally accepted accounting principles.
Boston, Massachussets ERNST & YOUNG LLP
February 6, 1998
21
<PAGE>
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
To the Directors and Policyholders
John Hancock Mutual Life Insurance Company
We have audited the accompanying statutory-basis statements of financial
position of John Hancock Mutual Life Insurance Company as of December 31, 1997
and 1996, and the related statutory-basis statements of operations and changes
in policyholders' contingency reserves and cash flows for the years then
ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
As described in Note 1 to the financial statements, the Company presents its
financial statements in conformity with accounting practices prescribed or
permitted by the Commonwealth of Massachusetts Division of Insurance, which
practices differ from generally accepted accounting principles. The variances
between such practices and generally accepted accounting principles also are
described in Note 1. The effects on the financial statements of these
variances are not reasonably determinable but are presumed to be material.
In our opinion, because of the effects of the matter described in the
preceding paragraph, the financial statements referred to above do not present
fairly, in conformity with generally accepted accounting principles, the
financial position of John Hancock Mutual Life Insurance Company at December
31, 1997 and 1996, or the results of its operations or its cash flows for the
year ended December 31, 1997.
Also, in our opinion, the financial statements referred to above present
fairly, in all material respects, the consolidated financial position of John
Hancock Mutual Life Insurance Company at December 31, 1997 and 1996, and the
results of its operations and its cash flows for the years then ended in
conformity with accounting practices prescribed or permitted by the
Commonwealth of Massachusetts Division of Insurance.
ERNST & YOUNG LLP
Boston, Massachussets
February 18, 1998
22
<PAGE>
JOHN HANCOCK MUTUAL LIFE INSURANCE COMPANY
STATUTORY-BASIS STATEMENTS OF FINANCIAL POSITION
<TABLE>
<CAPTION>
December 31
-------------------
1997 1996
--------- ---------
(In millions)
<S> <C> <C>
ASSETS
Bonds--Note 6............................................... $22,986.0 $22,467.0
Stocks:
Preferred................................................. 640.6 416.2
Common.................................................... 256.9 249.8
Investments in affiliates................................. 1,442.0 1,268.9
--------- ---------
2,339.5 1,934.9
Mortgage loans on real estate--Note 6....................... 7,851.2 7,964.0
Real estate:
Company occupied.......................................... 375.1 372.1
Investment properties..................................... 1,893.4 2,042.3
--------- ---------
2,268.5 2,414.4
Policy loans................................................ 1,577.3 1,589.3
Cash items:
Cash in banks and offices................................. 176.0 348.4
Temporary cash investments................................ 548.8 1,068.3
--------- ---------
724.8 1,416.7
Premiums due and deferred................................... 222.3 278.4
Investment income due and accrued........................... 505.8 547.8
Other general account assets................................ 948.6 1,009.9
Assets held in separate accounts............................ 16,021.7 13,969.1
--------- ---------
TOTAL ASSETS................................................ $55,445.7 $53,591.5
========= =========
Obligations and Policyholders' Contingency Reserves
OBLIGATIONS
Policy reserves........................................... $19,206.6 $18,544.0
Policyholders' and beneficiaries' funds................... 13,985.1 14,679.3
Dividends payable to policyholders........................ 399.7 395.5
Policy benefits in process of payment..................... 115.5 236.3
Other policy obligations.................................. 214.8 210.5
Asset valuation reserve--Note 1........................... 1,165.7 1,064.8
Federal income and other accrued taxes--Note 1............ 96.9 125.1
Other general account obligations......................... 1,084.5 1,521.7
Obligations related to separate accounts.................. 16,019.1 13,958.2
--------- ---------
TOTAL OBLIGATIONS........................................... 52,287.9 50,735.4
Policyholders' Contingency Reserves
Surplus notes--Note 2..................................... 450.0 450.0
Special contingency reserve for group insurance........... 151.8 194.8
General contingency reserve............................... 2,556.0 2,211.3
--------- ---------
TOTAL POLICYHOLDERS' CONTINGENCY RESERVES................... 3,157.8 2,856.1
--------- ---------
TOTAL OBLIGATIONS AND POLICYHOLDERS' CONTINGENCY RESERVES... $55,445.7 $53,591.5
========= =========
</TABLE>
The accompanying notes are an integral part of the statutory-basis financial
statements.
23
<PAGE>
JOHN HANCOCK MUTUAL LIFE INSURANCE COMPANY
STATUTORY-BASIS STATEMENTS OF OPERATIONS AND CHANGES IN POLICYHOLDERS'
CONTINGENCY RESERVES
<TABLE>
<CAPTION>
Year ended December 31
------------------------
1997 1996
----------- -----------
(In millions)
<S> <C> <C>
Income
Premiums, annuity considerations and pension fund
contributions..................................... $ 7,371.6 $ 8,003.1
Net investment income--Note 4...................... 2,856.1 2,803.1
Other, net......................................... 119.0 68.6
----------- -----------
10,346.7 10,874.8
Benefits and Expenses
Payments to policyholders and beneficiaries:
Death benefits................................... 737.4 886.8
Accident and health benefits..................... 121.4 300.9
Annuity benefits................................. 1,668.2 1,539.4
Surrender benefits and annuity fund withdrawals.. 6,293.1 5,565.4
Matured endowments............................... 21.0 20.6
----------- -----------
8,841.1 8,313.1
Additions to reserves to provide for future
payments to policyholders and beneficiaries....... (186.7) 880.5
Expenses of providing service to policyholders and
obtaining new insurance:
Field sales compensation and expenses............ 278.3 275.0
Home office and general expenses................. 479.7 514.8
Payroll, state premium and miscellaneous taxes..... 49.9 70.9
----------- -----------
9,462.3 10,054.3
GAIN FROM OPERATIONS BEFORE DIVIDENDS TO
POLICYHOLDERS, FEDERAL INCOME TAXES AND NET
REALIZED CAPITAL LOSSES....................... 884.4 820.5
Dividends to policyholders........................... 398.2 399.4
Federal income taxes--Note 1......................... 18.9 107.1
----------- -----------
417.1 506.5
----------- -----------
GAIN FROM OPERATIONS BEFORE NET REALIZED
CAPITAL LOSSES................................ 467.3 314.0
Net realized capital losses--Note 5.................. (89.8) (43.6)
----------- -----------
NET INCOME..................................... 377.5 270.4
Other increases (decreases) in policyholders'
contingency reserves:
Net unrealized capital gains and other
adjustments--Note 5............................... $ 58.6 $ 191.7
Valuation reserve changes--Note 1.................. 1.4 (27.5)
Prior years' federal income taxes.................. (35.6) (28.9)
Other reserves and adjustments, net................ (100.2) (83.1)
----------- -----------
NET INCREASE IN POLICYHOLDERS' CONTINGENCY
RESERVES...................................... 301.7 322.6
Policyholders' contingency reserves at beginning of
year................................................ 2,856.1 2,533.5
----------- -----------
POLICYHOLDERS' CONTINGENCY RESERVES AT END OF YEAR... $ 3,157.8 $ 2,856.1
=========== ===========
</TABLE>
The accompanying notes are an integral part of the statutory-basis financial
statements.
24
<PAGE>
JOHN HANCOCK MUTUAL LIFE INSURANCE COMPANY
STATUTORY-BASIS STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year ended December 31
------------------------
1997 1996
----------- -----------
(In millions)
<S> <C> <C>
Cash Flows From Operating Activities:
Insurance premiums, annuity considerations and de-
posits............................................ $ 7,518.8 $ 8,120.4
Net investment income.............................. 2,988.7 2,965.5
Benefits to policyholders and beneficiaries........ (9,030.3) (8,476.6)
Dividends paid to policyholders.................... (394.0) (382.6)
Insurance expenses and taxes....................... (815.3) (884.1)
Net transfers from separate accounts............... 896.8 198.2
Other, net......................................... (798.3) (602.7)
----------- -----------
NET CASH PROVIDED FROM OPERATIONS................ 366.4 938.1
----------- -----------
Cash Flows Used In Investing Activities:
Bond purchases..................................... (18,003.6) (7,590.7)
Bond sales......................................... 13,541.1 2,812.4
Bond maturities and scheduled redemptions.......... 2,927.6 2,241.0
Bond prepayments................................... 1,096.3 1,223.2
Stock purchases.................................... (1,125.7) (391.2)
Proceeds from stock sales.......................... 921.7 573.2
Real estate purchases.............................. (243.0) (447.7)
Real estate sales.................................. 444.5 382.1
Other invested assets purchases.................... (171.1) (214.7)
Proceeds from the sale of other invested assets.... 109.3 183.6
Mortgage loans issued.............................. (1,165.8) (1,582.7)
Mortgage loan repayments........................... 1,176.9 2,247.3
Other, net......................................... (333.8) 205.3
----------- -----------
NET CASH USED IN INVESTING ACTIVITIES............ (825.6) (358.9)
----------- -----------
Cash Flows From Financing Activities:
Net (decrease) increase in short-term note payable. (16.4) 90.0
Issuance of REMIC notes payable.................... 0.0 292.0
Repayment of REMIC notes payable................... (216.3) (85.2)
----------- -----------
NET CASH (USED IN) PROVIDED FROM FINANCING ACTIV-
ITIES........................................... (232.7) 296.8
----------- -----------
(DECREASE) INCREASE IN CASH AND TEMPORARY CASH
INVESTMENTS......................................... (691.9) 876.0
Cash and temporary cash investments at beginning of
year................................................ 1,416.7 540.7
----------- -----------
CASH AND TEMPORARY CASH INVESTMENTS AT END OF YEAR... $ 724.8 $ 1,416.7
=========== ===========
</TABLE>
The accompanying notes are an integral part of the statutory-basis financial
statements.
25
<PAGE>
JOHN HANCOCK MUTUAL LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS
NOTE 1--NATURE OF OPERATIONS AND SIGNIFICANT ACCOUNTING PRACTICES
John Hancock Mutual Life Insurance Company (the Company) provides a broad
range of financial services and insurance products. The Company's insurance
operations focus principally in three segments: the Retail Sector, which
encompasses the Company's individual life, annuity, and long-term care
operations; Group Pension, which offers single premium annuity and guaranteed
investment contracts through both the general and separate accounts; and
Business Insurance, its group life, health, and long-term care operations
including administrative services provided to group customers. In addition,
through its subsidiaries and affiliates, the Company also offers a wide range
of investment management and advisory services and other related products
including life insurance products for the Canadian market, sponsorship and
distribution of mutual funds, real estate financing and management, and
various other financial services. Investments in these subsidiaries and other
affiliates are recorded on the statutory equity method.
On February 28, 1997, the Company sold its group accident and health business
and related group life business to UNICARE Life & Health Insurance Company
(UNICARE), a wholly-owned subsidiary of WellPoint Health Networks Inc. The
Company retained its group long-term care operations. Assets equal to
liabilities of approximately $562.4 million at February 28, 1997, subject to
the completion of a closing audit, were transferred to UNICARE in connection
with the sale. The corresponding amount of assets and liabilities at December
31, 1996 was $559.4 million. The gain from operations in both periods was not
significant. The insurance business sold was transferred to UNICARE through a
100% coinsurance agreement. The Company remains liable to its policyholders to
the extent that UNICARE does not meet its contractual obligations under the
coinsurance agreement. As a result, the Company has secured a $397 million
letter of credit facility with a group of banks led by Morgan Guaranty Trust
Company of New York. The banks have agreed to issue a letter of credit to the
Company pursuant to which the Company may draw up to $397 million for any
claims not satisfied by UNICARE under the coinsurance agreement after the
Company has incurred the first $113 million of losses from such claims. The
amount available pursuant to the letter of credit agreement and any letter of
credit issued thereunder will be automatically reduced on a scheduled basis
consistent with the anticipated runoff of liabilities related to the business
reinsured under the coinsurance agreement. The letter of credit agreement and
any letter of credit issued thereunder are scheduled to expire on March 1,
2002.
The Company is domiciled in the Commonwealth of Massachusetts and licensed in
all fifty of the United States, the District of Columbia, Puerto Rico, Guam,
the US Virgin Islands, and Canada. The Company distributes its individual
products in North America primarily through a career agency system. The career
agency system is composed of company-owned, unionized branch offices and
independent general agencies. The Company also distributes its individual
products through several alternative distribution channels, including banks,
brokers/dealers and direct marketing efforts.
The Company markets pension and other investment-related products primarily to
sponsors of retirement and savings plans covering employees of private sector
companies, and plans covering public employees and collective bargaining
unions and non-profit organizations. Products are marketed and sold through a
combination of group pension field employee representatives, as well as
marketing personnel and investment professionals employed by the Company.
The Company distributes its group benefit products through group
representatives, who are John Hancock employees or through intermediaries, in
key markets nationwide.
The preparation of financial statements requires management to make estimates
and assumptions that affect amounts reported in the financial statements and
accompanying notes. Such estimates and assumptions could change in the future
as more information becomes known, which could impact the amounts reported and
disclosed herein.
26
<PAGE>
JOHN HANCOCK MUTUAL LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS--(CONTINUED)
Basis of Presentation: The financial statements have been prepared using
accounting practices prescribed or permitted by the Commonwealth of
Massachusetts Division of Insurance and in conformity with the practices of
the National Association of Insurance Commissioners (NAIC), which practices
differ from generally accepted accounting principles (GAAP).
The significant differences from GAAP include: (1) policy acquisition costs
are charged to expense as incurred rather than deferred and amortized over the
related premium-paying period; (2) policy reserves are based on statutory
mortality, morbidity, and interest requirements without consideration of
withdrawals and Company experience; (3) certain assets designated as
"nonadmitted assets" are excluded from the balance sheet by direct charges to
surplus; (4) reinsurance recoverables are netted against reserves and claim
liabilities rather than reflected as an asset; (5) bonds held as available for
sale are recorded at amortized cost or market value as determined by the NAIC
rather than at fair value; (6) an Asset Valuation Reserve and Interest
Maintenance Reserve as prescribed by the NAIC are not calculated under GAAP.
Under GAAP, realized capital gains and losses are reported in the income
statement on a pretax basis as incurred and investment valuation allowances
are provided when there has been a decline in value deemed other than
temporary; (7) investments in affiliates are carried at their net equity value
with changes in value being recorded directly to policyholders' contingency
reserves rather than consolidated in the financial statements; (8) no
provision is made for the deferred income tax effects of temporary differences
between book and tax basis reporting; (9) certain items, including
modifications to required policy reserves resulting from changes in actuarial
assumptions or increased benefits, are recorded directly to policyholders'
contingency reserves rather than being reflected in income; and (10) surplus
notes are reported as surplus rather than as liabilities. The effects of the
foregoing variances from GAAP have not been determined, but are presumed to be
material.
The significant accounting practices of the Company are as follows:
Pending Statutory Standards: The NAIC currently is in the process of
recodifying statutory accounting practices, the result of which is expected to
constitute the only source of prescribed statutory accounting practices.
Accordingly, that project, which is expected to be approved by the NAIC in
1998 will likely change, to some extent, prescribed statutory accounting
practices, and may result in changes to the accounting practices that the
Company uses to prepare its statutory-basis financial statements. The impact
of any such changes on the Company's statutory surplus is not expected to be
material.
Revenues and Expenses: Premium revenues are recognized over the premium-paying
period of the policies whereas expenses, including the acquisition costs of
new business, are charged to operations as incurred and policyholder dividends
are provided as paid or accrued.
Cash and Temporary Cash Investments: Cash includes currency on hand and demand
deposits with financial institutions. Temporary cash investments are short-
term, highly-liquid investments both readily convertible to known amounts of
cash and so near maturity that there is insignificant risk of changes in value
because of changes in interest rates.
Valuation of Assets: General account investments are carried at amounts
determined on the following bases:
Bond and stock values are carried as prescribed by the NAIC; bonds
generally at amortized amounts or cost, preferred stocks generally at cost
and common stocks at fair value. The discount or premium on bonds is
amortized using the interest method.
Investments in affiliates are included on the statutory equity method.
Loan-backed bonds and structured securities are valued at amortized cost
using the interest method including anticipated prepayments. Prepayment
assumptions are obtained from broker dealer surveys or internal estimates
and are based on the current interest rate and economic environment. The
retrospective
27
<PAGE>
JOHN HANCOCK MUTUAL LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS--(CONTINUED)
adjustment method is used to value all such securities except for interest-
only securities, which are valued using the prospective method.
The net interest effect of interest rate and currency rate swap
transactions is recorded as an adjustment of interest income as incurred.
The initial cost of interest rate cap and floor agreements is amortized to
net investment income over the life of the related agreement. Gains and
losses on financial futures contracts used as hedges against interest rate
fluctuations are deferred and recognized in income over the period being
hedged.
Mortgage loans are carried at outstanding principal balance or amortized
cost.
Investment and company-occupied real estate is carried at depreciated cost,
less encumbrances. Depreciation on investment and company-occupied real
estate is recorded on a straight-line basis. Accumulated depreciation
amounted to $470.5 million and $393.5 million at December 31, 1997 and
1996, respectively.
Real estate acquired in satisfaction of debt and held for sale, which is
classified with investment properties, is carried at the lower of cost or
fair value as of the date of foreclosure.
Policy loans are carried at outstanding principal balance, not in excess of
policy cash surrender value.
Other invested assets, which are classified with other general account
assets, include real estate and energy joint ventures and limited
partnerships and generally are valued based on the Company's equity in the
underlying net assets.
Asset Valuation and Interest Maintenance Reserves: The Asset Valuation Reserve
(AVR) is computed in accordance with the prescribed NAIC formula and
represents a provision for possible fluctuations in the value of bonds, equity
securities, mortgage loans, real estate and other invested assets. The Company
makes additional contributions to the AVR in excess of the required amounts to
account for potential losses and risks in the investment portfolio when the
Company believes such provisions are prudent. Changes to the AVR are charged
or credited directly to policyholders' contingency reserves.
The Company also records the NAIC prescribed Interest Maintenance Reserve
(IMR) that represents that portion of the after tax net accumulated
unamortized realized capital gains and losses on sales of fixed income
securities, principally bonds and mortgage loans, attributable to changes in
the general level of interest rates. Such gains and losses are deferred and
amortized into income over the remaining expected lives of the investments
sold. At December 31, 1997, the IMR, net of 1997 amortization of $25.2
million, amounted to $165.6 million which is included in other policy
obligations. The corresponding 1996 amounts were $18.9 million and $121.7
million, respectively.
Property and Equipment: Data processing equipment, which amounted to $30.0
million in 1997 and $41.6 million in 1996 and is included in other general
account assets, is reported at depreciated cost, with depreciation recorded on
a straight-line basis. Nonadmitted furniture and equipment also is depreciated
on a straight-line basis. The useful lives of these assets range from three to
twenty years. Depreciation expense was $21.8 million in 1997 and $31.0 million
in 1996.
Separate Accounts: Separate account assets and liabilities reported in the
accompanying statements of financial position represent funds that are
separately administered, principally for annuity contracts and variable life
insurance policies, and for which the contractholder, rather than the Company,
generally bears the investment risk. Separate account obligations are intended
to be satisfied from separate account assets and not from assets of the
general account. Separate accounts generally are reported at fair value. The
operations of the separate accounts are not included in the statement of
operations; however, income earned on amounts initially invested by the
Company in the formation of new separate accounts is included in other income.
28
<PAGE>
JOHN HANCOCK MUTUAL LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS--(CONTINUED)
Fair Value Disclosure of Financial Instruments: Statement of Financial
Accounting Standards (SFAS) No. 107, "Disclosure about Fair Value of Financial
Instruments," requires disclosure of fair value information about certain
financial instruments, whether or not recognized in the statement of financial
position, for which it is practicable to estimate the value. In situations
where quoted market prices are not available, fair values are based on
estimates using present value or other valuation techniques. SFAS No. 107
excludes certain financial instruments and all nonfinancial instruments from
its disclosure requirements. Therefore, the aggregate fair value amounts
presented do not represent the underlying value of the Company. See Note 15.
The methods and assumptions utilized by the Company in estimating its fair
value disclosures for financial instruments are as follows:
The carrying amounts reported in the statement of financial position for
cash and temporary cash investments approximate their fair values.
Fair values for public bonds are obtained from an independent pricing
service. Fair values for private placement securities and publicly traded
bonds not provided by the independent pricing service are estimated by the
Company by discounting expected future cash flows using current market
rates applicable to the yield, credit quality and maturity of the
investments.
The fair values for common and preferred stocks, other than subsidiary
investments which are carried at equity values, are based on quoted market
prices.
The fair value for mortgage loans is estimated using discounted cash flow
analyses using interest rates adjusted to reflect the credit
characteristics of the underlying loans. Mortgage loans with similar
characteristics and credit risks are aggregated into qualitative categories
for purposes of the fair value calculations.
The carrying amounts in the statement of financial position for policy
loans approximates their fair value.
The fair value of interest rate swaps and currency rate swaps is estimated
using a discounted cash flow method adjusted for the difference between the
rate of the existing swap and the current swap market rate. Discounted cash
flows in foreign currencies are converted to U.S. dollars using current
exchange rates.
The fair value for outstanding commitments to purchase long-term bonds and
issue real estate mortgages is estimated using a discounted cash flow
method incorporating adjustments for the difference in the level of
interest rates between the dates the commitments were made and December 31,
1997. The fair value for commitments to purchase real estate approximates
the amount of the initial commitment.
Fair values for the Company's guaranteed investment contracts are estimated
using discounted cash flow calculations, based on interest rates currently
being offered for similar contracts with maturities consistent with those
remaining for the contracts being valued. The fair value for fixed-rate
deferred annuities is the cash surrender value, which represents the
account value less applicable surrender charges. Fair values for immediate
annuities without life contingencies and supplementary contracts without
life contingencies are estimated based on discounted cash flow calculations
using current market rates.
Capital Gains and Losses: Realized capital gains and losses are determined
using the specific identification basis. Realized capital gains and losses,
net of taxes and amounts transferred to the IMR, are included in net income.
Unrealized gains and losses, which consist of market value and book value
adjustments, are shown as adjustments to policyholders' contingency reserves.
Foreign Exchange Gains and Losses: Foreign exchange gains and losses are
reflected as direct credits or charges to policyholders' contingency reserves
through unrealized capital gains and losses.
Policy Reserves: Life, annuity, and accident and health benefit reserves are
developed by actuarial methods and are determined based on published tables
using statutorily specified interest rates and valuation methods that
29
<PAGE>
JOHN HANCOCK MUTUAL LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS--(CONTINUED)
will provide, in the aggregate, reserves that are greater than or equal to the
minimum or guaranteed policy cash values or the amounts required by the
Commonwealth of Massachusetts Division of Insurance. Reserves for traditional
individual life insurance policies are maintained using the 1941, 1958 and
1980 Commissioner's Standard Ordinary and American Experience Mortality
Tables, with assumed interest rates ranging from 2 1/2% to 6%, and using
principally the net level premium method for policies issued prior to 1978 and
a modified preliminary term method for policies issued in 1979 and later.
Annuity and supplementary contracts with life contingency reserves are based
principally on modifications of the 1937 Standard Annuity Table, the Group
Annuity Mortality Tables for 1951, 1971 and 1983, the 1971 Individual Annuity
Mortality Table and the a-1983 Individual Annuity Mortality Table, with
interest rates generally ranging from 2% to 8 3/4%.
Reserves for deposit administration funds and immediate participation
guarantee funds are based on accepted actuarial methods at various interest
rates. Accident and health policy reserves generally are calculated using
either the two-year preliminary term or the net level premium method based on
various morbidity tables.
The statement value and fair value for investment-type insurance contracts are
as follows:
<TABLE>
<CAPTION>
December 31, 1997 December 31, 1996
------------------- -------------------
Statement Fair Statement Fair
Value Value Value Value
--------- --------- --------- ---------
(In millions)
<S> <C> <C> <C> <C>
Guaranteed investment contracts........ $11,499.4 $11,516.8 $11,921.6 $11,943.2
Fixed-rate deferred and immediate
annuities............................. 4,289.1 4,290.4 3,909.3 3,886.1
Supplementary contracts without life
contingencies......................... 40.9 42.1 45.6 46.0
--------- --------- --------- ---------
$15,829.4 $15,849.3 $15,876.5 $15,875.3
========= ========= ========= =========
</TABLE>
Federal Income Taxes: Federal income taxes are reported in the financial
statements based on amounts determined to be payable as a result of operations
within the current accounting period. The operations of the Company and its
subsidiaries and affiliates are combined in filing a consolidated federal
income tax return for the group. The federal income taxes of the Company are
determined on a separate return basis with certain adjustments.
Income before taxes differs from taxable income principally due to tax-exempt
investment income, dividends-received tax deductions, the limitation placed on
the tax deductibility of mutual companies' policyholder dividends, accelerated
depreciation, differences in policy and contract liabilities for tax return
and financial statement purposes, capitalization of policy acquisition
expenses for tax purposes and other adjustments prescribed by the Internal
Revenue Code.
When determining its consolidated federal income tax expense, the Company uses
a number of estimated amounts that may change when the actual tax return is
completed. In addition, the Company must also use an estimated differential
earnings rate (DER) to compute the equity tax portion of its federal income
tax expense. Because the DER is set by the Internal Revenue Service after
completion of the financial statements, a true-up adjustment (i.e., effect of
the difference between the estimated and final DER) is necessary.
Amounts for disputed tax issues relating to prior years are charged or
credited directly to policyholders' contingency reserves.
Certain subsidiaries acquired by the Company have potential tax loss
carryforwards of $14.3 million expiring in 1998. These amounts may be used in
the consolidated tax return, but only to offset future taxable income related
to those subsidiaries. The Company made federal tax payments of $146.4 million
in 1997 and $309.9 million in 1996.
30
<PAGE>
JOHN HANCOCK MUTUAL LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS--(CONTINUED)
Adjustments to Policy Reserves and Policyholders' and Beneficiaries'
Funds: From time to time, the Company finds it appropriate to modify certain
required policy reserves because of changes in actuarial assumptions or
increased benefits. Reserve modifications resulting from such determinations
are recorded directly to policyholders' contingency reserves. During 1997, the
Company refined certain actuarial assumptions inherent in the calculation of
reserves related to guaranteed investment contracts and AIDS claims under
individual insurance policies resulting in a net $1.4 million increase in
policyholders' contingency reserves at December 31, 1997. Similar refinements
to the actuarial assumptions inherent in the calculation of reserves related
to guaranteed investment contracts were made in 1996 resulting in a $27.5
million decrease in policyholders' contingency reserves at December 31, 1996.
Reinsurance: Premiums, commissions, expense reimbursements, benefits and
reserves related to reinsured business are accounted for on bases consistent
with those used in accounting for the original policies issued and the terms
of the reinsurance contracts. Premiums ceded to other companies have been
reported as a reduction of premium income. Amounts applicable to reinsurance
ceded for future policy benefits, unearned premium reserves and claim
liabilities have been reported as reductions of these items.
Guaranty Fund Assessments: Guaranty fund assessments are accrued when the
Company receives notice that an amount is payable to a guaranty fund.
NOTE 2--SURPLUS NOTES
On February 25, 1994, the Company issued $450 million of surplus notes that
bear interest at 7 3/8% and are scheduled to mature on February 15, 2024. The
issuance of the surplus notes was approved by the Commonwealth of
Massachusetts Division of Insurance and any payment of interest on and
principal of the notes may be made only with the prior approval of the
Commissioner of the Commonwealth of Massachusetts Division of Insurance.
Surplus notes are reported as part of policyholders' contingency reserves
rather than liabilities. Interest of $33.2 million was paid on the notes
during each of 1997 and 1996.
NOTE 3--BORROWED MONEY
At December 31, 1997, the Company had a $500 million syndicated line of
credit. There are 26 banks who are part of the syndicate which is under the
leadership of Morgan Guaranty Trust Company of New York. The banks will
commit, when requested, to loan funds at prevailing interest rates as
determined in accordance with the line of credit agreement, which terminates
on June 30, 2001. The agreement does not contain a material adverse change
clause. Under the terms of the agreement, the Company is required to maintain
certain minimum levels of net worth and comply with certain other covenants.
As of December 31, 1997, these covenants were met; however, no amounts had
been borrowed under this agreement.
In 1995, the Company issued $213.1 million of debt through a Real Estate
Mortgage Investment Conduit (REMIC). As collateral to the debt, the Company
pledged $1,065.8 million of commercial mortgages to the REMIC Trust. In
addition, the Company has guaranteed the timely payment of principal and
interest on the debt. The debt was issued in two notes of equal amounts. The
interest rates on the class A1 and A2 notes are calculated on a floating
basis, based on the monthly LIBOR rates plus 22 and 27 basis points,
respectively. The LIBOR rates were 5.72% and 5.50%, respectively, at December
31, 1997 and 1996. The class A1 notes were fully repaid on March 25, 1997 and
the class A2 notes have a last scheduled payment date of June 25, 1998. The
outstanding balances of the notes totaled $42.6 million and $127.9 million at
December 31, 1997 and 1996, respectively, and are included in other general
account obligations.
In 1996, the Company issued $292.0 million of additional debt through a REMIC
(REMIC II). As collateral to the debt, the Company pledged $1,455.4 million of
commercial mortgages to the REMIC II Trust. The debt was
31
<PAGE>
JOHN HANCOCK MUTUAL LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS--(CONTINUED)
issued in two notes. The interest rates on the class A1 and A2 notes are
calculated on a floating basis, based on the monthly LIBOR rate plus 5 and 19
basis points, respectively. The class A1 notes were fully repaid on December
26, 1997 and the class A2 notes have a last scheduled payment date of July 26,
1999. The outstanding balances of the notes totaled $161.0 million and $292.0
million at December 31, 1997 and 1996, respectively, and are included in other
general account obligations.
On December 31, 1997, the Company had outstanding a short-term note of $75.0
million payable to an affiliate at a variable rate of interest. The note,
which is included in other general account obligations, was repaid on January
5, 1998.
Interest paid on borrowed money was $19.3 million and $10.4 million during
1997 and 1996, respectively.
NOTE 4--NET INVESTMENT INCOME
Investment income has been reduced by the following amounts:
<TABLE>
<CAPTION>
1997 1996
------ ------
(In millions)
<S> <C> <C>
Investment expenses.............................................. $339.6 $333.8
Interest expense................................................. 57.9 48.1
Depreciation on real estate and other invested assets............ 76.6 73.3
Real estate and other investment taxes........................... 61.5 65.2
------ ------
$535.6 $520.4
====== ======
</TABLE>
NOTE 5--NET CAPITAL GAINS (LOSSES) AND OTHER ADJUSTMENTS
Net realized capital losses consist of the following items:
<TABLE>
<CAPTION>
1997 1996
------ ------
(In millions)
<S> <C> <C>
Net gains from asset sales and foreclosures.................... $ 63.4 $ 81.2
Capital gains tax.............................................. (84.1) (53.7)
Net capital gains transferred to the IMR....................... (69.1) (71.1)
------ ------
Net Realized Capital Losses.................................. $(89.8) $(43.6)
====== ======
</TABLE>
Net unrealized capital gains and other adjustments consist of the following
items:
<TABLE>
<CAPTION>
1997 1996
------- ------
(In millions)
<S> <C> <C>
Net gains from changes in security values and book value
adjustments................................................... $ 159.5 $242.2
Increase in asset valuation reserve............................ (100.9) (50.5)
------- ------
Net Unrealized Capital Gains and Other Adjustments........... $ 58.6 $191.7
======= ======
</TABLE>
32
<PAGE>
JOHN HANCOCK MUTUAL LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS--(CONTINUED)
NOTE 6--INVESTMENTS
The statement value and fair value of bonds are shown below:
<TABLE>
<CAPTION>
Gross Gross
Statement Unrealized Unrealized
Value Gains Losses Fair Value
--------- ---------- ---------- ----------
(In millions)
Year ended December 31, 1997
----------------------------
<S> <C> <C> <C> <C>
U.S. Treasury securities and
obligations of U.S. government
corporations and agencies.......... $ 258.9 $ 9.3 $ 0.0 $ 268.2
Obligations of states and political
subdivisions....................... 149.6 16.3 0.0 165.9
Debt securities issued by foreign
governments........................ 259.7 53.2 0.1 312.8
Corporate securities................ 17,336.1 1,485.9 113.4 18,708.6
Mortgage-backed securities.......... 4,981.7 115.9 28.3 5,069.3
--------- -------- ------ ---------
Total bonds....................... $22,986.0 $1,680.6 $141.8 $24,524.8
========= ======== ====== =========
<CAPTION>
Year ended December 31, 1996
----------------------------
<S> <C> <C> <C> <C>
U.S. Treasury securities and
obligations of U.S. government
corporations and agencies.......... $ 430.2 $ 8.8 $ 4.2 $ 434.8
Obligations of states and political
subdivisions....................... 175.2 8.8 3.9 180.1
Debt securities issued by foreign
governments........................ 203.5 30.1 0.0 233.6
Corporate securities................ 16,902.1 1,083.2 112.6 17,872.7
Mortgage-backed securities.......... 4,756.0 116.3 54.5 4,817.8
--------- -------- ------ ---------
Total bonds....................... $22,467.0 $1,247.2 $175.2 $23,539.0
========= ======== ====== =========
</TABLE>
The statement value and fair value of bonds at December 31, 1997, by
contractual maturity, are shown below. Maturities will differ from contractual
maturities because eligible borrowers may exercise their right to call or
prepay obligations with or without call or prepayment penalties.
<TABLE>
<CAPTION>
Statement Fair
Value Value
--------- ---------
(In millions)
<S> <C> <C>
Due in one year or less............................... $ 1,386.4 $ 1,426.6
Due after one year through five years................. 5,809.6 6,079.2
Due after five years through ten years................ 5,465.5 5,867.1
Due after ten years................................... 5,342.8 6,082.6
--------- ---------
18,004.3 19,455.5
Mortgage-backed securities............................ 4,981.7 5,069.3
--------- ---------
$22,986.0 $24,524.8
========= =========
</TABLE>
Gross gains of $61.5 million in 1997 and $43.8 million in 1996 and gross
losses of $86.6 million in 1997 and $27.6 million in 1996 were realized from
the sale of bonds.
At December 31, 1997, bonds with an admitted asset value of $19.2 million were
on deposit with state insurance departments to satisfy regulatory
requirements.
The cost of common stocks was $148.0 million and $136.1 million at December
31, 1997 and 1996, respectively. At December 31, 1997, gross unrealized
appreciation on common stocks totaled $139.3 million, and gross
33
<PAGE>
JOHN HANCOCK MUTUAL LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS--(CONTINUED)
unrealized depreciation totaled $30.4 million. The fair value of preferred
stock totaled $695.8 million at December 31, 1997 and $451.0 million at
December 31, 1996.
The Company participates in a security lending program for the purpose of
enhancing income on securities held. At December 31, 1997 and 1996, $217.0
million and $540.5 million, respectively, of the Company's bonds and stocks
were on loan to various brokers/dealers, but were fully collateralized by cash
and U.S. government securities in an account held in trust for the Company.
Such assets reflect the extent of the Company's involvement in securities
lending, not the Company's risk of loss.
Mortgage loans with outstanding principal balances of $71.7 million, bonds
with amortized cost of $98.9 million and real estate with depreciated cost of
$18.0 million were nonincome producing for the twelve months ended December
31, 1997.
Restructured commercial mortgage loans aggregated $314.3 million and $385.8
million as of December 31, 1997 and 1996, respectively. The expected gross
interest income that would have been recorded had the loans been current in
accordance with the original loan agreements and the actual interest income
recorded were as follows:
<TABLE>
<CAPTION>
Year ended December 31
-----------------------
1997 1996
----------- -----------
(In millions)
<S> <C> <C>
Expected........................................... $ 33.8 $ 46.3
Actual............................................. 24.9 29.1
</TABLE>
Generally, the terms of the restructured mortgage loans call for the Company
to receive some form or combination of an equity participation in the
underlying collateral, excess cash flows or an effective yield at the maturity
of the loans sufficient to meet the original terms of the loans.
At December 31, 1997, the mortgage loan portfolio was diversified by
geographic region and specific collateral property type as displayed below.
The Company controls credit risk through credit approvals, limits and
monitoring procedures.
<TABLE>
<CAPTION>
Property
Type Statement Value
-------- ---------------
(In millions)
<S> <C>
Apartments.............. $1,677.7
Hotels.................. 186.7
Industrial.............. 858.1
Office buildings........ 1,748.7
Retail.................. 1,609.4
1-4 Family.............. 6.0
Agricultural............ 1,426.5
Other................... 338.1
--------
$7,851.2
========
</TABLE>
<TABLE>
<CAPTION>
Geographic
Concentration Statement Value
------------- ---------------
(In millions)
<S> <C>
East North Central...... $ 891.5
East South Central...... 163.4
Middle Atlantic......... 1,410.2
Mountain................ 362.2
New England............. 836.9
Pacific................. 1,770.6
South Atlantic.......... 1,475.4
West North Central...... 260.1
West South Central...... 613.1
Other................... 67.8
--------
$7,851.2
========
</TABLE>
At December 31, 1997, the fair values of the commercial and agricultural
mortgage loan portfolios were $6.7 billion and $1.5 billion, respectively. The
corresponding amounts as of December 31, 1996 were approximately $6.6 billion
and $1.8 billion, respectively.
34
<PAGE>
JOHN HANCOCK MUTUAL LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS--(CONTINUED)
The maximum and minimum lending rates for mortgage loans during 1997 were
18.0% and 7.66% for agricultural loans, 10.0% and 7.19% for other properties,
and 7.27% and 7.25% for purchase money mortgages. Generally, the percentage of
any loan to the value of security at the time of the loan, exclusive of
insured, guaranteed or purchase money mortgages, is 75%. For city mortgages,
fire insurance is carried on all commercial and residential properties at
least equal to the excess of the loan over the maximum loan which would be
permitted by law on the land without the building, except as permitted by
regulations of the Federal Housing Commission on loans fully insured under the
provisions of the National Housing Act. For agricultural mortgage loans, fire
insurance is not normally required on land based loans except in those
instances where a building is critical to the farming operation. Fire
insurance is required on all agri-business facilities in an aggregate amount
equal to the loan balance.
NOTE 7--REINSURANCE
Premiums, benefits and reserves associated with reinsurance assumed in 1997
were $787.1 million, $386.6 million, and $7.5 million, respectively. The
corresponding amounts in 1996 were $742.0 million, $317.8 million, and $14.2
million, respectively.
The Company cedes business to reinsurers to share risks under life, health and
annuity contracts for the purpose of reducing exposure to large losses.
Premiums, benefits and reserves ceded to reinsurers in 1997 were $801.8
million, $767.9 million and $594.9 million, respectively. The corresponding
amounts in 1996 were $304.0 million, $217.0 million and $251.2 million,
respectively.
Premiums, benefits, and reserves ceded related to the business sold in 1997,
included in the amounts above, were $487.4 million, $503.3 million, and $247.9
million, respectively, at December 31, 1997.
Amounts recoverable on paid claims and funds withheld from reinsurers were as
follows:
<TABLE>
<CAPTION>
Year ended December 31
-----------------------
1997 1996
----------- -----------
(In millions)
<S> <C> <C>
Reinsurance recoverables.......................... $ 12.5 $ 26.5
Funds withheld from reinsurers.................... 35.1 23.4
</TABLE>
The Company has a coinsurance agreement with another insurer to cede 100% of
its individual disability business. Reserves ceded under this agreement,
included in the amount shown above, were $236.3 million at December 31, 1997
and $226.4 million at December 31, 1996.
John Hancock Variable Life Insurance Company (Variable Life, a wholly-owned
affiliate) has a modified coinsurance agreement with the Company to reinsure
50% of Variable Life's 1994 through 1997 issues of flexible premium variable
life insurance and scheduled premium variable life insurance policies. In
connection with this agreement, the Company transferred $22.0 million and
$24.5 million of cash for tax, commission, and expense allowances to Variable
Life, which decreased the Company's net gain from operations by $10.1 million
and $15.7 million in 1997 and 1996, respectively.
Variable Life has a modified coinsurance agreement with the Company to
reinsure 50% of Variable Life's 1995 through 1997 issues of certain retail
annuity contracts (Independence Preferred and Declaration). In connection with
this agreement, the Company received $1.1 million in 1997 and transferred
$35.0 million in 1996 of cash for surrender benefits, tax, reserve increase,
commission, expense allowances and premium. This agreement decreased the
Company's net gain from operations by $9.8 million and $15.1 million in 1997
and 1996, respectively.
35
<PAGE>
JOHN HANCOCK MUTUAL LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS--(CONTINUED)
Effective January 1, 1997, Variable Life entered into a stop-loss agreement
with the Company to reinsure mortality claims in excess of 110% of expected
mortality claims in 1997 for all policies that are not reinsured under any
other indemnity agreement. In connection with the agreement, the Company
transferred $2.4 million of cash for mortality claims to Variable Life, which
decreased the Company's net gain from operations by $1.3 million in 1997.
Reinsurance ceded contracts do not relieve the Company from its obligations to
policyholders. The Company remains liable to its policyholders for the portion
reinsured to the extent that any reinsurer does not meet its obligations for
reinsurance ceded to it under the reinsurance agreements. Failure of the
reinsurers to honor their obligations could result in losses to the Company;
consequently, estimates are established for amounts deemed or estimated to be
uncollectible. To minimize its exposure to significant losses from reinsurance
insolvencies, the Company evaluates the financial condition of its reinsurers
and monitors concentration of credit risk arising from similar characteristics
of the insurer.
Neither the Company, nor any of its related parties, control, either directly
or indirectly, any external reinsurers with which the Company conducts
business. No policies issued by the Company have been reinsured with a foreign
company which is controlled, either directly or indirectly, by a party not
primarily engaged in the business of insurance.
The Company has not entered into any reinsurance agreements in which the
reinsurer may unilaterally cancel any reinsurance for reasons other than
nonpayment of premiums or other similar credits. The Company does not have any
reinsurance agreements in effect in which the amount of losses paid or accrued
through December 31, 1997 would result in a payment to the reinsurer of
amounts which, in the aggregate and allowing for offset of mutual credits from
other reinsurance agreements with the same reinsurer, exceed the total direct
premiums collected under the reinsured policies.
NOTE 8--BENEFIT PLANS
The Company provides retirement benefits to substantially all employees and
general agency personnel. These benefits are provided through both defined
benefit and defined contribution pension plans. Pension benefits under the
defined benefit plans are based on years of service and average compensation
generally during the five years prior to retirement. Benefits related to the
Company's defined benefit pension plans paid to employees and retirees covered
by annuity contracts issued by the Company amounted to $89.7 million in 1997
and $84.4 million in 1996. The Company's funding policy for qualified defined
benefit plans is to contribute annually an amount in excess of the minimum
annual contribution required under the Employee Retirement Income Security Act
(ERISA). This amount is limited by the maximum amount that can be deducted for
federal income tax purposes. The funding policy for nonqualified defined
benefit plans is to contribute the amount of the benefit payments made during
the year. Plan assets consist principally of listed equity securities,
corporate obligations and U.S. government securities.
Defined contribution plans include The Investment Incentive Plan (TIP) and the
Savings and Investment Plan (SIP). Employees are eligible to participate in
TIP after one year of service and may contribute up to the lesser of 15% of
their salary or $9,500 annually to the plan. The Company matches the first 2%
of pre-tax contributions and makes an additional annual profit sharing
contribution for employees who have completed at least two years of service.
Through SIP, marketing representatives, sales managers and agency managers are
eligible to contribute up to the lesser of 13% of their salary or $9,500. The
Company matches the first 3% of pretax contributions for marketing
representatives and the first 2% of pretax contributions for sales managers
and agency managers. The Company makes an annual profit sharing contribution
of up to 1% for sales managers and agency managers who have completed at least
two years of service.
36
<PAGE>
JOHN HANCOCK MUTUAL LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS--(CONTINUED)
The Company provides additional compensation to employees based on achievement
of annual and long-term corporate financial objectives.
Pension (benefit) expense is summarized as follows:
<TABLE>
<CAPTION>
Year ended December 31
------------------------
1997 1996
----------- -----------
(In millions)
<S> <C> <C>
Defined benefit plans:
Service cost--benefits earned during the
period....................................... $ 30.7 $ 32.4
Interest cost on the projected benefit
obligation................................... 109.3 107.4
Actual return on plan assets.................. (177.7) (225.1)
Net amortization and deferral................. 23.7 85.0
----------- -----------
(14.0) (0.3)
Defined contribution plans...................... 6.2 21.4
----------- -----------
Total pension (benefit) expense................. $ (7.8) $ 21.1
=========== ===========
</TABLE>
Assumptions used in accounting for the defined benefit pension plans were as
follows:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Discount rate.................................................. 7.00% 7.25%
Weighted rate of increase in compensation levels............... 4.80% 4.80%
Expected long-term rate of return on assets.................... 8.50% 8.50%
</TABLE>
The following table sets forth the funded status and actuarially determined
amounts related to the Company's defined benefit pension plans:
<TABLE>
<CAPTION>
Year ended December 31
------------------------
1997 1996
----------- -----------
(In millions)
<S> <C> <C>
Actuarial present value of benefit obligations:
Vested benefit obligation..................... $ (1,462.2) $ (1,344.8)
=========== ===========
Accumulated benefit obligation................ $ (1,507.6) $ (1,387.7)
=========== ===========
Projected benefit obligation.................... $ (1,704.0) $ (1,582.4)
Plan assets fair value.......................... 1,877.7 1,787.6
----------- -----------
Excess of plan assets over projected benefit
obligation..................................... 173.7 205.2
Unrecognized net gain........................... (101.7) (176.1)
Prior service cost not yet recognized in net
periodic pension cost.......................... 29.6 42.8
Unrecognized net asset, net of amortization..... (93.2) (95.9)
----------- -----------
Net pension asset (liability)................... $ 8.4 $ (24.0)
=========== ===========
</TABLE>
Since 1988, the Massachusetts Division of Insurance has provided the Company
with approval to recognize the pension plan prepaid expense, if any, in
accordance with the requirements of SFAS No. 87, "Employers' Accounting for
Pensions." The Company furnishes the Division of Insurance with an actuarial
certification of the prepaid expense computation on an annual basis.
NOTE 9--OTHER POSTRETIREMENT BENEFIT PLANS
In addition to the Company's defined benefit pension plans, the Company has
employee welfare plans for medical, dental, and life insurance covering most
of its retired employees and general agency personnel.
37
<PAGE>
JOHN HANCOCK MUTUAL LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS--(CONTINUED)
Substantially all employees may become eligible for these benefits if they
reach retirement age while employed by the Company. The postretirement health
care and dental coverages are contributory based on service for post January
1, 1992 non-union retirees. A small portion of pre-January 1, 1992 non-union
retirees also contribute. The applicable contributions are based on service.
In 1993, the Company changed its method of accounting for the costs of its
retiree benefit plans to the accrual method and elected to amortize its
transition liability for retirees and fully eligible or vested employees over
twenty years.
Since 1993, the Company funded a portion of the postretirement obligation. The
Company's policy is to fund postretirement benefits for non-union employees to
the maximum amount that can be deducted for federal income tax purposes and to
fund the benefits for union employees, which are fully tax qualified, at
sufficient amounts so that the total accrued liability related to
postretirement benefits is zero. As of December 31, 1997, plan assets related
to non-union employees were comprised of an irrevocable health insurance
contract to provide future health benefits to retirees while plan assets
related to union employees were comprised of approximately 70% equity
securities and 30% fixed income investments.
The following table shows the plans' combined funding status for vested
benefits reconciled with the amounts recognized in the Company's statements of
financial position.
<TABLE>
<CAPTION>
December 31
-------------------------------------
1997 1996
------------------ ------------------
Medical Medical
And Life and Life
Dental Insurance Dental Insurance
Plans Plans Plans Plans
------- --------- ------- ---------
(In millions)
<S> <C> <C> <C> <C>
Accumulated postretirement benefit
obligation:
Retirees............................... $(228.8) $ (95.7) $(234.2) $(100.6)
Fully eligible active plan
participants.......................... (38.7) (17.9) (46.4) (19.4)
------- ------- ------- -------
(267.5) (113.6) (280.6) (120.0)
Plan assets at fair value................ 172.7 0.0 132.4 0.0
------- ------- ------- -------
Accumulated postretirement benefit
obligation in excess of plan assets..... (94.8) (113.6) (148.2) (120.0)
Unrecognized prior service cost.......... 14.9 4.8 16.7 5.3
Unrecognized prior net gain.............. (122.8) (4.2) (93.0) 4.0
Unrecognized transition obligation....... 240.7 75.0 256.8 78.4
------- ------- ------- -------
Accrued postretirement benefit cost...... $ 38.0 $ (38.0) $ 32.3 $ (32.3)
======= ======= ======= =======
</TABLE>
Net postretirement benefits costs for the years ended December 31, 1997 and
1996 were $40.8 million and $47.4 million, respectively, and include the
expected cost of such benefits for newly eligible or vested employees,
interest cost, and amortization of the transition liability.
38
<PAGE>
JOHN HANCOCK MUTUAL LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS--(CONTINUED)
Net periodic postretirement benefits cost included the following components:
<TABLE>
<CAPTION>
December 31
-------------------------------------
1997 1996
------------------ ------------------
Medical Medical
And Life and Life
Dental Insurance Dental Insurance
Plans Plans Plans Plans
------- --------- ------- ---------
(In millions)
<S> <C> <C> <C> <C>
Eligibility cost...................... $ 6.9 $ 1.6 $ 7.1 $ 1.8
Interest cost......................... 17.8 7.6 19.8 8.3
Actual return on plan assets.......... (31.0) 0.0 (15.9) 0.0
Net amortization and deferral......... 32.8 5.1 20.9 5.4
------ ----- ------ -----
Net periodic postretirement benefit
cost................................. $ 26.5 $14.3 $ 31.9 $15.5
====== ===== ====== =====
</TABLE>
The discount rate used in determining the accumulated postretirement benefit
obligation at December 31, 1997 was 7.0% (7.25% for 1996). The expected long-
term rates of return on plan assets were 8.5% and 7.0% at December 31, 1997
and 1996, respectively. The annual assumed rate of increase in the health care
cost trend rate for the medical coverages is 5.75% for 1998 (8.0% was assumed
for 1997) and is assumed to decrease gradually to 5.00% in 2001 and remain at
that level thereafter. The health care cost trend rate assumption has a
significant effect on the amounts reported. For example, increasing the
assumed health care cost trend rates by one percentage point in each year
would increase the accumulated post retirement benefit obligation for the
medical coverages as of December 31, 1997 by $26.2 million and the aggregate
of the eligibility and interest cost components of net periodic postretirement
benefit cost by $3.0 million for 1997 and $2.9 million for 1996.
Postretirement welfare benefits for non-vested employees are not reflected in
the above expenses or accumulated postretirement benefit obligations. As of
December 31, 1997, the accumulated postretirement benefit obligations for non-
vested employees amounted to $49.5 million for medical and dental plans and
$10.4 million for life insurance plans. The corresponding amounts as of
December 31, 1996 were $69.4 million and $10.7 million, respectively.
NOTE 10--AFFILIATES
The Company has subsidiaries and affiliates in a variety of industries
including domestic and foreign life insurance and domestic property casualty
insurance, real estate, mutual funds, investment brokerage and various other
financial services entities.
Total assets of unconsolidated affiliates amounted to $12.4 billion at
December 31, 1997 and $9.6 billion at December 31, 1996; total liabilities
amounted to $11.1 billion at December 31, 1997 and $8.5 billion at December
31, 1996; and total net income was $184.8 million in 1997 and $193.0 million
in 1996.
During 1996, the Company sold certain of its affiliates including its ongoing
property and casualty business and its broker-dealer operations to realign its
business objectives.
The Company customarily engages in transactions with its unconsolidated
affiliates, including the cession and assumption of certain insurance business
under the terms of established reinsurance agreements. Various services are
performed by the Company for certain affiliates for which the Company is
reimbursed on the basis of cost. Certain affiliates have entered into various
financial arrangements relating to borrowings and capital maintenance under
which agreements the Company would be obligated in the event of nonperformance
by an affiliate (see Note 14).
39
<PAGE>
JOHN HANCOCK MUTUAL LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS--(CONTINUED)
The Company received dividends of $65.9 million and $9.4 million in 1997 and
1996, respectively, from unconsolidated affiliates.
NOTE 11--FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK
The Company utilizes a variety of off-balance sheet financial instruments as
part of its efforts to hedge and manage fluctuations in the market value of
its investment portfolio attributable to changes in general interest rate
levels and to manage duration mismatch of assets and liabilities. Those
instruments include swaps, caps, floors, and future contracts.
The Company enters into interest rate swap contracts for the purpose of
converting the interest rate characteristics (fixed or variable) of certain
investments to match those of related insurance liabilities. Maturities of
current agreements range from 1998 to 2026. These swaps involve, to varying
degrees, interest rate risk in excess of amounts recognized in the statements
of financial position.
The Company enters into interest rate cap and floor contracts to manage
exposure on underlying security values due to a rise in interest rates.
Maturities of current agreements range through 2007.
The Company also uses financial futures contracts to hedge risks associated
with interest rate fluctuations on sales of guaranteed investment contracts.
The Company is subject to the risks associated with changes in the value of
the underlying securities; however, such changes in value generally are offset
by opposite changes in the value of the hedged items. The contract or notional
amounts of the contracts represent the extent of the Company's involvement but
not the future cash requirements, as the Company intends to close the open
positions prior to settlement. Net deferred losses on future contracts were
$6.4 million and $0.5 million at December 31, 1997 and 1996, respectively.
The Company enters into currency rate swap agreements to manage exposure to
foreign exchange rate fluctuations. Maturities of current agreements range
through 2009. Should the counterparty fail to meet the terms of the contract,
the Company's market risk is limited to the currency rate differential.
The contract or notional amount of the foregoing financial instruments, which
indicates the Company's involvement and, in certain instances, maximum credit
risk related to those instruments, is as follows:
<TABLE>
<CAPTION>
December 31
-----------------
1997 1996
-------- --------
(In millions)
<S> <C> <C>
Futures contracts to purchase securities.................... $ 154.0 $ 117.6
======== ========
Futures contracts to sell securities........................ $ 414.2 $ 136.4
======== ========
Notional amount of interest rate swaps, interest rate
swaptions, currency rate swaps, interest rate caps and
interest rate floors to:
Receive variable rates.................................... $5,043.7 $3,822.8
======== ========
Receive fixed rates....................................... $2,596.7 $2,912.5
======== ========
</TABLE>
The Company's exposure to credit risk is the risk of loss from a counterparty
failing to perform according to the terms of the contract. The Company
continually monitors its positions and the credit ratings of the
counterparties to these financial instruments. To limit exposure associated
with counterparty nonperformance on interest rate and currency agreements, the
Company enters into master netting agreements with its counterparties. The
40
<PAGE>
JOHN HANCOCK MUTUAL LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS--(CONTINUED)
Company believes the risk of incurring losses due to nonperformance by its
counterparties is remote and that such losses, if any, would not be material.
Based on market rates in effect at December 31, 1997, the Company's interest
rate swaps, currency rate swaps, interest rate caps, and interest rate floors
represented (assets) liabilities to the Company with fair values of $58.3
million, $9.7 million, $(0.6) million and $(0.4) million, respectively. The
corresponding amounts as of December 31, 1996 were $16.4 million, $41.1
million, $(0.6) million and $(0.1) million, respectively. The fair values of
the swap agreements are not recognized in the financial statements.
NOTE 12--LEASES
The Company leases office space and furniture and equipment under various
operating leases including furniture and equipment leased under a series of
sales-leaseback agreements with a nonaffiliated organization. Rental expense
for all operating leases totaled $27.4 million in 1997 and $32.1 million in
1996. Future minimum rental commitments under noncancellable operating leases
for office space and furniture and equipment are as follows:
<TABLE>
<CAPTION>
December 31, 1996
-----------------
(In millions)
<S> <C>
1998..................................................... $19.5
1999..................................................... 17.0
2000..................................................... 14.5
2001..................................................... 11.5
2002..................................................... 8.1
Thereafter............................................... 12.2
-----
Total minimum payments................................... $82.8
=====
</TABLE>
NOTE 13--POLICY RESERVES, POLICYHOLDERS' AND BENEFICIARIES' FUNDS AND
OBLIGATIONS RELATED TO SEPARATE ACCOUNTS
The Company's annuity reserves and deposit fund liabilities and related
separate account liabilities that are subject to discretionary withdrawal
(with adjustment), subject to discretionary withdrawal (without adjustment),
and not subject to discretionary withdrawal provisions are summarized as
follows:
<TABLE>
<CAPTION>
December 31, 1997 Percent
----------------- -------
(In millions)
<S> <C> <C>
Subject to discretionary withdrawal (with adjust-
ment):
With market value adjustment....................... $ 3,881.6 10.5%
At book value less surrender charge................ 2,881.4 7.8
--------- -----
Total with adjustment.............................. 6,763.0 18.3
Subject to discretionary withdrawal (without ad-
justment) at book value........................... 3,574.2 9.6
Subject to discretionary withdrawal--separate ac-
counts............................................ 13,455.3 36.3
Not subject to discretionary withdrawal:
General account.................................... 11,996.1 32.4
Separate accounts.................................. 1,274.1 3.4
--------- -----
Total annuity reserves, deposit fund liabilities and
separate accounts--before reinsurance............... 37,062.7 100.0%
=====
Less reinsurance ceded............................... 0.0
---------
Net annuity reserves, deposit fund liabilities and
separate accounts................................... $37,062.7
=========
</TABLE>
41
<PAGE>
JOHN HANCOCK MUTUAL LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS--(CONTINUED)
Any liquidation costs associated with the $13.5 billion of separate accounts
subject to discretionary withdrawal are sustained by the separate account
contractholders and not by the general account.
NOTE 14--COMMITMENTS AND CONTINGENCIES
The Company has extended commitments to purchase long-term bonds, preferred
and common stocks, and real estate and issue real estate mortgages totaling
$693.6 million, $27.6 million, $122.3 million and $467.2 million,
respectively, at December 31, 1997. If funded, loans related to real estate
mortgages would be fully collateralized by related properties. The Company
monitors the credit worthiness of borrowers under long-term bond commitments
and requires collateral as deemed necessary. The estimated fair value of the
commitments described above is $1.3 billion at December 31, 1997. The majority
of these commitments expire in 1998.
The Company has contingent liabilities, pursuant to guarantee agreements
issued in connection with real estate joint ventures, in the amount of $43.3
million.
During 1996, the Company entered into a credit support and collateral pledge
agreement with the Federal National Mortgage Association (FNMA). Under the
agreement, the Company sold $532.8 million of commercial mortgage loans and
acquired an equivalent amount of FNMA securities. The Company completed
similar transactions with FNMA in 1991 for $1.042 billion and in 1993 for
$71.9 million. FNMA is guarantying the full face value of the bonds of the
three transactions to the bondholders. However, the Company has agreed to
absorb the first 12.25% of the principal and interest losses (less buy-backs)
for the pools of loans involved in the three transactions, based on the total
outstanding principal balance of $1.036 billion as of July 1, 1996, but is not
required to commit collateral to support this loss contingency. At December
31, 1997, the aggregate outstanding principal balance of all the remaining
pools of loans from 1991, 1993, and 1996 is $672.0 million.
Historically, the Company has experienced losses of less than one percent on
its multi-family mortgage portfolio. Mortgage loan buy-backs required by the
FNMA in 1997 and 1996 amounted to $4.1 million and $3.4 million, respectively.
During 1996, the Company entered into a credit support and collateral pledge
agreement with the Federal Home Loan Mortgage Corporation (FHLMC). Under the
agreement, the Company sold $535.3 million of multi-family loans and acquired
an equivalent amount of FHLMC securities. FHLMC is guarantying the full face
value of the bonds to the bondholders. However, the Company has agreed to
absorb the first 10.5% of original principal and interest losses (less buy-
backs) for the pool of loans involved but is not required to commit collateral
to support this loss contingency. Historically, the Company has experienced
total losses of less than one percent on its multi-family loan portfolio. At
December 31, 1997, the aggregate outstanding principal balance of the pools of
loans was $500.8 million. There were no mortgage loans buy-backs in 1997 and
1996.
The Company has a support agreement with Variable Life under which the Company
agrees to continue directly or indirectly to own all of Variable Life's common
stock and maintain Variable Life's net worth at not less than $1 million.
The Company has a support agreement with John Hancock Capital Corporation
(JHCC), a non-consolidated wholly-owned subsidiary, under which the Company
agrees to continue directly or indirectly to own all of JHCC's common stock
and maintain JHCC's net worth at not less than $1 million. JHCC's outstanding
borrowings as of December 31, 1997 were $351.1 million for short-term
borrowings and $163.2 million for notes payable.
The Company is subject to insurance guaranty fund laws in the states in which
it does business. These laws assess insurance companies amounts to be used to
pay benefits to policyholders and claimants of insolvent
42
<PAGE>
JOHN HANCOCK MUTUAL LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS--(CONTINUED)
insurance companies. Many states allow these assessments to be credited
against future premium taxes. The Company believes such assessments in excess
of amounts accrued will not materially affect its financial position.
In the normal course of its business operations, the Company is involved with
litigation from time to time with claimants, beneficiaries and others, and a
number of litigation matters were pending as of December 31, 1997. It is the
opinion of management, after consultation with counsel, that the ultimate
liability with respect to these claims, if any, will not materially affect the
financial position or results of operations of the Company.
During 1997, the Company entered into a court approved settlement relating to
a class action lawsuit involving certain individual life insurance policies
sold from 1979 through 1996. In entering into the settlement, the Company
specifically denied any wrongdoing. The Company has established a litigation
reserve in connection with the settlement to provide for relief to class
members and for legal and administrative costs associated with the settlement.
The reserve has been charged, net of the related tax effect, directly to
policyholders' contingency reserves of the Company. Given the uncertainties
associated with estimating the reserve, it is possible that the final cost of
the settlement could be different from the amounts presently provided for by
the Company. However, the Company does not believe that the ultimate
resolution of the settlement will have a material adverse effect on the
Company's financial position.
NOTE 15--FAIR VALUE OF FINANCIAL INSTRUMENTS
The following table presents the carrying amounts and fair values of the
Company's financial instruments:
<TABLE>
<CAPTION>
Year ended December 31
----------------------------------------
1997 1996
------------------- -------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
--------- --------- --------- ---------
(In millions)
<S> <C> <C> <C> <C>
Assets
Bonds--Note 6...................... $22,986.0 $24,524.8 $22,467.0 $23,539.0
Preferred stocks--Note 6........... 640.6 695.8 416.2 451.0
Common stocks--Note 6.............. 256.9 256.9 249.8 249.8
Mortgage loans on real estate--Note
6................................. 7,851.2 8,215.9 7,964.0 8,400.2
Policy loans--Note 1............... 1,577.3 1,577.3 1,589.3 1,589.3
Cash and cash equivalents--Note 1.. 724.8 724.8 1,416.7 1,416.7
Liabilities
Guaranteed investment contracts--
Note 1............................ 11,499.4 11,516.8 11,921.6 11,943.2
Fixed rate deferred and immediate
annuities--Note 1................. 4,289.1 4,290.4 3,909.3 3,886.1
Supplementary contracts without
life contingencies--Note 1........ 40.9 42.1 45.6 46.0
Derivatives liabilities relating
to:--Note 11
Interest rate swaps.................. -- 58.3 -- 16.4
Currency rate swaps.................. -- 9.7 -- 41.1
Interest rate caps................... -- (0.6) -- (0.6)
Interest rate floors................. -- (0.4) -- (0.1)
--
Commitments--Note 14................. -- 1,332.3 -- 1,095.7
</TABLE>
The carrying amounts in the table are included in the statutory-basis
statements of financial position. The methods and assumptions utilized by the
Company in estimating its fair value disclosures are described in Note 1.
43
<PAGE>
JOHN HANCOCK MUTUAL LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS--(CONTINUED)
NOTE 16--IMPACT OF YEAR 2000 (UNAUDITED)
The Company has developed a plan to modify or replace significant portions of
its computer information and automated technologies so that its systems will
function properly with respect to the dates in the year 2000 and thereafter.
The Company presently believes that with modifications to existing systems and
conversions to new technologies, the year 2000 will not pose significant
operational problems for its computer systems. However, if certain
modifications and conversions are not made, or are not completed timely, the
year 2000 issue could have an adverse impact on the operations of the Company.
The Company as early as 1994 had begun assessing, modifying and converting the
software related to its significant systems and has initiated formal
communications with its significant business partners and customers to
determine the extent to which the Company's interface systems are vulnerable
to those third parties' failure to remediate their own year 2000 issues. While
the Company is developing alternative third party processing arrangements as
it deems appropriate, there is no guarantee that the systems of other
companies on which the Company's systems rely will be converted timely or will
not have an adverse effect on the Company's systems.
The Company expects the project to be substantially complete by early 1999 and
expects the incremental cost to be between $35 million and $45 million. The
cost of the project and the date on which the Company believes it will
complete the year 2000 modifications are based on management's best estimates,
which were derived utilizing numerous assumptions of future events, including
availability of certain resources and other factors. However, there can be no
guarantee that these estimates will be achieved and actual results may differ
materially from those anticipated.
44
<PAGE>
EXHIBIT 10.A
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the references to our firm under the captions "Experts" in the
Prospectus and "Independent Auditors" in the Statement of Additional Information
in Post-Effective Amendment No. 5 to the Registration Statement (Form N-4, No.
33-82646) of John Hancock Variable Annuity Account V.
We also consent to the inclusion of our reports dated February 6, 1998,
with respect to the financial statements included in the Annual Report of the
John Hancock Variable Annuity Account V, and dated February 18, 1998, with
respect to the financial statements included in the Annual Report of the John
Hancock Mutual Life Insurance Company for the year ended December 31, 1997.
/s/ ERNST & YOUNG LLP
ERNST & YOUNG LLP
Boston, Massachusetts
April 24, 1998
<PAGE>
EXHIBIT 10(B)
[JOHN HANCOCK MUTUAL LIFE INSURANCE COMPANY LETTERHEAD]
April 20, 1998
SECURITIES & EXCHANGE COMMISSION
450 FIFTH STREET, NW
WASHINGTON, DC 20549
RE: John Hancock Variable Annuity Account V
File Nos. 33-82646 and 811-5140
Dear Commissioners:
This opinion is being furnished with respect to the filing of Post-Effective
Amendment No. 5 under the Securities Act of 1933 and Post-Effective Amendment
No. 18 under the Investment Company Act of 1940 of the Form N-4 Registration
Statement of John Hancock Variable Annuity Account V as required by Rule 485
under the 1933 Act.
I have acted as counsel to Registrant for the purpose of preparing this
Post-Effective Amendment which is being filed pursuant to paragraph (b) of Rule
485 and hereby represent to the Commission that in my opinion this
Post-Effective Amendment does not contain disclosures which would render it
ineligible to become effective pursuant to paragraph (b).
I hereby consent to the filing of this opinion with and as a part of this
Post-Effective Amendment to Registrant's Registration Statement with the
Commission.
Very truly yours,
/s/ SANDRA M. DADALT
Sandra M. DaDalt
Counsel
