<PAGE>
File Nos. 33-82648 and 811-8696
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
[_]
PRE-EFFECTIVE AMENDMENT NO. [_]
POST-EFFECTIVE AMENDMENT NO. 6 [X]
AND/OR
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
AMENDMENT NO. 10 [X]
(CHECK APPROPRIATE BOX OR BOXES.)
JOHN HANCOCK VARIABLE ANNUITY ACCOUNT I
(EXACT NAME OF REGISTRANT)
JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY
(NAME OF DEPOSITOR)
JOHN HANCOCK PLACE, BOSTON, MA 02117
(ADDRESS OF DEPOSITOR'S PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
DEPOSITOR'S TELEPHONE NUMBER, INCLUDING AREA CODE: (617) 572-5060
RONALD J. BOCAGE, ESQUIRE
JOHN HANCOCK 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, 1999 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>
JOHN HANCOCK VARIABLE ANNUITY ACCOUNT I
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 JHVLICO, John Hancock, The Account and the
and Portfolio Companies..... 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 The Contracts; The Accumulation Period;
Values...................... 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 Table of Contents of Statement of
Information................. Additional Information
</TABLE>
<PAGE>
PROSPECTUS DATED MAY 3, 1999
INDEPENDENCE PREFERRED VARIABLE ANNUITY
- ---------------------------------------------------------------------------
an individual deferred combination fixed and variable annuity contract
issued by
JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY
("JHVLICO")
JOHN HANCOCK ANNUITY SERVICING OFFICE
- ------------------------------------------------
EXPRESS DELIVERY U.S. MAIL
- ----------------
529 Main Street (X-4) P.O. Box 111
Charlestown, MA 02129 Boston, MA 02117
Phone: 1-800-732-5543
Fax: 1-800-886-3048
- ------------------------------------------------
The contract enables you to earn (1) a fixed rate of interest that we declare
under our fixed investment option and (2) an investment-based return in the
following variable investment options:
<TABLE>
<CAPTION>
VARIABLE INVESTMENT OPTION MANAGED BY
-------------------------- ----------
- -----------------------------------------------------------------------------------
<S> <C>
Managed . . . . . . . . . . . . . Independence Investment Associates, Inc.
Growth & Income . . . . . . . . . Independence Investment Associates, Inc.
Equity Index . . . . . . . . . . State Street Global Advisors
Large Cap Value . . . . . . . . . T. Rowe Price Associates, Inc.
Large Cap Growth . . . . . . . . Independence Investment Associates, Inc.
Mid Cap Value . . . . . . . . . . Neuberger Berman, LLC
Mid Cap Growth . . . . . . . . . Janus Capital Corporation
Real Estate Equity . . . . . . . Independence Investment Associates, Inc.
Small/Mid Cap Growth. . . . . . . Wellington Management Company, LLP
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, Inc.
International Balanced . . . . . Brinson Partners, Inc.
International Equity Index . . . . Independence 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, LLP
Sovereign Bond . . . . . . . . . John Hancock Advisers, Inc.
Global Bond . . . . . . . . . . . J.P. Morgan Investment Management, Inc.
High Yield Bond . . . . . . . . . Wellington Management Company, LLP
Money Market . . . . . . . . . . John Hancock Mutual Life Insurance Company
- -----------------------------------------------------------------------------------
</TABLE>
We may offer additional variable investment options in the future.
<PAGE>
For each variable investment option you select, we invest your money in the
corresponding "Fund" of the John Hancock Variable Series Trust I (the "Trust").
The Trust is a so-called "series" type mutual fund registered with the
Securities and Exchange Commission ("SEC"). Each of the Trust's "Funds" is a
separately managed investment portfolio that has its own investment objective
and strategies. Attached at the end of this prospectus is a prospectus for the
Trust that contains detailed information about each Fund. Be sure to read the
prospectus for the Trust before selecting any variable investment option.
For amounts you don't wish to invest in a variable investment option, you can
allocate to the fixed investment option. We invest the assets allocated to the
fixed investment option in our general account and they earn interest at a fixed
rate, declared by us, subject to a 3% minimum. Neither our general account nor
any interests in our general account are registered with the SEC or subject to
the Federal securities laws.
We refer to the variable investment options and the fixed investment option
together as "investment options."
The fixed investment option is not available in Washington or Oregon.
************************************************************************
The SEC has not approved or disapproved the contracts, or determined if this
prospectus is accurate or complete. Any representation to the contrary is a
criminal offense.
Contracts are not deposits or obligations of, or insured, endorsed, or
guaranteed by the U.S. Government, any bank, the Federal Deposit Insurance
Corporation, the Federal Reserve Board, or any other agency, entity or person,
other than JHVLICO. They involve investment risks including the possible loss
of principal.
The contracts are not available in all states. This prospectus does not
constitute an offer to sell, or a solicitation of an offer to buy, securities in
any state to any person to whom it is unlawful to make or solicit an offer in
that state.
2
<PAGE>
GUIDE TO THIS PROSPECTUS
This prospectus contains information that you should know before you buy a
contract or exercise any of your rights under the contract. We have arranged
the prospectus in the following way:
. The first section contains an "INDEX OF KEY WORDS."
. Behind the index is the "FEE TABLE." This section highlights the
various fees and expenses you will pay directly or indirectly, if you
purchase a contract.
. The next section is called "BASIC INFORMATION." It contains basic
information about the contract presented in a question and answer
format. You should read the Basic Information before reading any
other section of the prospectus.
. Behind the Basic Information is "ADDITIONAL INFORMATION." This
section gives more details about the contract. It generally does not
repeat information contained in the Basic Information.
. "CONDENSED FINANCIAL INFORMATION" follows the "Additional
Information." This gives some basic information about the size and
past performance of the variable investment options.
The Trust's prospectus is attached at the end of this prospectus. You should
save these prospectuses for future reference.
IMPORTANT NOTICES
This is the prospectus - it is not the contract. The prospectus simplifies
many contract provisions to better communicate the contract's essential
features. Your rights and obligations under the contract will be determined by
the language of the contract itself. On request, we will provide the form of
contract for you to review. In any event, when you receive your contract, we
suggest you read it promptly.
We've also filed with the SEC a "Statement of Additional Information," dated
May 1, 1999. This Statement contains detailed information not included in the
prospectus. Although a separate document from this prospectus, the Statement
of Additional Information has the same legal effect as if it were a part of
this prospectus. We will provide you with a free copy of the Statement upon
your request. To give you an idea what's in the Statement, we have included a
copy of the Statement's table of contents on page __.
- --------------------------------------------------------------------------------
3
<PAGE>
INDEX OF KEY WORDS
We define or explain each of the following key words used in this prospectus
on the pages shown below:
KEY WORD PAGE
Accumulation units...................................27
Annuitant............................................10
Annuity payments.....................................34
Annuity period.......................................13
Contract year........................................11
Date of issue........................................11
Date of maturity.....................................10
Free withdrawal amount...............................16
Funds................................................2
Fixed investment option..............................cover
Investment options...................................14
Premium payments.....................................10
Surrender value......................................18
Surrender............................................16
Variable investment options..........................cover
Withdrawal charge....................................16
Withdrawal...........................................16
4
<PAGE>
FEE TABLE
The following fee table shows the various fees and expenses that you will pay,
either directly or indirectly, if you purchase a contract. The table does not
include charges for premium taxes (which may vary by state).
OWNER TRANSACTION EXPENSES AND ANNUAL CONTRACT FEE
.Maximum Withdrawal Charge (as % of amount withdrawn) 8%
.Annual Contract Fee (applies only to contracts of less than $10,000) $30
ANNUAL CONTRACT EXPENSES (AS A % OF THE AVERAGE TOTAL VALUE OF THE CONTRACT)
<TABLE>
<S> <C>
Mortality and Expense Risk Charge 1.15%
- ----------------------------------------------------------------------------------------
Administrative Services Charge 0.35%
- ----------------------------------------------------------------------------------------
Total Annual Contract Charge 1.50%
- ----------------------------------------------------------------------------------------
</TABLE>
These annual contract expenses don't apply to amounts held in the fixed
investment option.
ANNUAL FUND EXPENSES (BASED ON % OF AVERAGE NET ASSETS)
Each Fund pays an investment management fee and other operating expenses.
These fees and expenses reduce the investment return of the Fund, and therefore,
indirectly reduce the return you will earn on any amounts you allocate to the
variable investment options that corresponds to that Fund. The figures in the
following chart are expressed as percentages of each Fund's average daily net
assets for 1998 (rounded to two decimal places). The percentages reflect the
investment management fees that were payable in 1998 and the 1998 other
operating expenses that would have been allocated to the Funds under the
allocation rules currently in effect:
<TABLE>
<CAPTION>
OTHER FUND TOTAL FUND OTHER FUND EXPENSES
FUND NAME MANAGEMENT FEES EXPENSES* EXPENSES AFTER REIMBURSEMENT
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Managed 0.32% 0.05% 0.37% 0.05%
- -------------------------------------------------------------------------------------------------------
Growth & Income 0.25% 0.05% 0.30% 0.05%
- -------------------------------------------------------------------------------------------------------
Equity Index 0.14% 0.08% 0.22% 0.08%
- -------------------------------------------------------------------------------------------------------
Large Cap Value 0.74% 0.07% 0.81% 0.07%
- -------------------------------------------------------------------------------------------------------
Large Cap Growth 0.37% 0.05% 0.42% 0.05%
- -------------------------------------------------------------------------------------------------------
Mid Cap Value 0.80% 0.05% 0.85% 0.05%
- -------------------------------------------------------------------------------------------------------
Mid Cap Growth 0.85% 0.08% 0.93% 0.08%
- -------------------------------------------------------------------------------------------------------
Real Estate Equity 0.60% 0.05% 0.65% 0.05%
- -------------------------------------------------------------------------------------------------------
Small/Mid Cap Growth** 0.75% 0.05% 0.80% 0.05%
- -------------------------------------------------------------------------------------------------------
Small/Mid Cap CORE 0.80% 0.10% 0.90% 0.23%
- -------------------------------------------------------------------------------------------------------
Small Cap Value 0.80% 0.07% 0.87% 0.07%
- -------------------------------------------------------------------------------------------------------
Small Cap Growth 0.75% 0.08% 0.83% 0.08%
- -------------------------------------------------------------------------------------------------------
Global Equity 0.90% 0.10% 1.00% 0.50%
- -------------------------------------------------------------------------------------------------------
International Balanced 0.85% 0.10% 0.95% 0.64%
- -------------------------------------------------------------------------------------------------------
International Equity Index 0.17% 0.10% 0.27% 0.23%
- -------------------------------------------------------------------------------------------------------
International Opportunities 0.87% 0.10% 0.97% 0.32%
- -------------------------------------------------------------------------------------------------------
Emerging Markets Equity 1.30% 0.10% 1.40% 0.68%
- -------------------------------------------------------------------------------------------------------
Short-Term Bond 0.30% 0.05% 0.35% 0.05%
- -------------------------------------------------------------------------------------------------------
Bond Index 0.15% 0.05% 0.20% 0.05%
- -------------------------------------------------------------------------------------------------------
Sovereign Bond 0.25% 0.05% 0.30% 0.05%
- -------------------------------------------------------------------------------------------------------
Global Bond** 0.69% 0.06% 0.75% 0.06%
- -------------------------------------------------------------------------------------------------------
High Yield Bond 0.65% 0.07% 0.72% 0.07%
- -------------------------------------------------------------------------------------------------------
Money Market 0.25% 0.05% 0.30% 0.05%
- -------------------------------------------------------------------------------------------------------
</TABLE>
5
<PAGE>
* John Hancock Mutual Life Insurance Company ("John Hancock") reimburses a
Fund when the Fund's other operating expenses exceed 0.10% of the Fund's
average daily net assets.
** Small/Mid Cap Growth was formerly "Diversified Mid Cap Growth" and Global
Bond was formerly "Strategic Bond."
EXAMPLES***
If you "surrender" (turn in) your contract at the end of the applicable time
period, you would pay the following current expenses, directly or indirectly, on
a $1,000 investment allocated to one of the variable investment options,
assuming a 5% annual return on assets:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- -----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Managed $ 91 $131 $164 $221
- -----------------------------------------------------------------------------
Growth & Income $ 90 $128 $160 $212
- -----------------------------------------------------------------------------
Equity Index $ 91 $130 $163 $219
- -----------------------------------------------------------------------------
Large Cap Value $ 97 $148 $193 $279
- -----------------------------------------------------------------------------
Large Cap Growth $ 92 $132 $167 $226
- -----------------------------------------------------------------------------
Mid Cap Value $ 97 $149 $195 $283
- -----------------------------------------------------------------------------
Mid Cap Growth $ 99 $153 $202 $296
- -----------------------------------------------------------------------------
Real Estate Equity $ 95 $141 $181 $255
- -----------------------------------------------------------------------------
Small/Mid Cap Growth $ 97 $147 $191 $276
- -----------------------------------------------------------------------------
Small/Mid Cap CORE $ 98 $152 $199 $291
- -----------------------------------------------------------------------------
Small Cap Value $ 98 $152 $199 $291
- -----------------------------------------------------------------------------
Small Cap Growth $ 98 $150 $197 $287
- -----------------------------------------------------------------------------
Global Equity $ 99 $155 $204 $301
- -----------------------------------------------------------------------------
International Balanced $ 99 $153 $202 $296
- -----------------------------------------------------------------------------
International Equity Index $ 93 $137 $175 $242
- -----------------------------------------------------------------------------
International Opportunities $ 99 $155 $204 $301
- -----------------------------------------------------------------------------
Emerging Markets Equity $103 $167 $224 $339
- -----------------------------------------------------------------------------
Short-Term Bond $ 93 $136 $173 $239
- -----------------------------------------------------------------------------
Bond Index $ 92 $132 $166 $225
- -----------------------------------------------------------------------------
Sovereign Bond $ 90 $129 $161 $214
- -----------------------------------------------------------------------------
Global Bond $ 97 $149 $194 $282
- -----------------------------------------------------------------------------
High Yield Bond $ 97 $147 $192 $277
- -----------------------------------------------------------------------------
Money Market $ 91 $129 $162 $216
- -----------------------------------------------------------------------------
</TABLE>
6
<PAGE>
If you commence receiving payments under one of our annuity payment options at
the end of the applicable time period, or if you do not surrender your contact,
you would pay the following current expenses, directly or indirectly, on a
$1,000 investment allocated to one of the variable investment options, assuming
5% annual return on assets.
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- --------------------------------------------------------------------
<S> <C> <C> <C> <C>
Managed $19 $59 $102 $221
- --------------------------------------------------------------------
Growth & Income $18 $57 $ 97 $212
- --------------------------------------------------------------------
Equity Index $19 $59 $101 $219
- --------------------------------------------------------------------
Large Cap Value $25 $76 $131 $279
- --------------------------------------------------------------------
Large Cap Growth $20 $61 $105 $226
- --------------------------------------------------------------------
Mid Cap Value $25 $78 $133 $283
- --------------------------------------------------------------------
Mid Cap Growth $27 $82 $140 $296
- --------------------------------------------------------------------
Real Estate Equity $23 $69 $119 $255
- --------------------------------------------------------------------
Small/Mid Cap Growth $25 $75 $129 $276
- --------------------------------------------------------------------
Small/Mid Cap CORE $26 $80 $137 $291
- --------------------------------------------------------------------
Small Cap Value $26 $80 $137 $291
- --------------------------------------------------------------------
Small Cap Growth $26 $79 $135 $287
- --------------------------------------------------------------------
Global Equity $27 $83 $142 $301
- --------------------------------------------------------------------
International Balanced $27 $82 $140 $296
- --------------------------------------------------------------------
International Equity Index $21 $65 $112 $242
- --------------------------------------------------------------------
International Opportunities $27 $83 $142 $301
- --------------------------------------------------------------------
Emerging Markets Equity $31 $95 $162 $339
- --------------------------------------------------------------------
Short-Term Bond $21 $65 $111 $239
- --------------------------------------------------------------------
Bond Index $20 $61 $104 $225
- --------------------------------------------------------------------
Sovereign Bond $18 $57 $ 99 $214
- --------------------------------------------------------------------
Global Bond $25 $77 $132 $282
- --------------------------------------------------------------------
High Yield Bond $25 $76 $130 $277
- --------------------------------------------------------------------
Money Market $19 $58 $100 $216
- --------------------------------------------------------------------
</TABLE>
*** These examples do not include any applicable premium taxes. The examples
should not be considered representations of past or future expenses; actual
charges may be greater or less than those shown above. The examples assume
fund expenses at rates set forth above for 1998, after reimbursements. The
annual contract fee has been included as an annual percentage of assets.
7
<PAGE>
BASIC INFORMATION
This "Basic Information" section provides answers to commonly asked questions
about the contract. Here are the page numbers where the questions and answers
appear:
<TABLE>
<CAPTION>
QUESTION PAGES TO SEE
-------- ------------
<S> <C>
What is the contract?. . . . . . . . . . . . . . . .
Who owns the contract?. . . . . . . . . . . . . . .
Is the owner also the annuitant?. . . . . . . . . .
How can I invest money in a contract?. . . . . . . .
How will the value of my investment in the contract change over time?
What annuity benefits does the contract provide?. .
What are the tax consequences of owning a contract?.
Can I change my contract's investment options?. . .
What fees and charges will be deducted from my contract?
How can I withdraw money from my contract?. . . . .
What happens if the annuitant dies before my contract's date of maturity?
Can I return my contract?. . . . . . . . . . . . . .
</TABLE>
8
<PAGE>
WHAT IS THE CONTRACT?
The contract is a "deferred payment variable annuity contract." An annuity
contract provides a person (known as the "annuitant" or "payee") with a series
of periodic payments. Because this contract is also a deferred payment contract,
the annuity payments will begin on a future date, called the contract's "date of
maturity." Under a variable annuity contract, the amount you have invested can
increase or decrease in value daily based upon the value of the variable
investment options chosen.
WHO OWNS THE CONTRACT?
That's up to you. Unless the contract provides otherwise, the owner of the
contract is the person who can exercise the rights under the contract, such as
the right to choose the investment options or the right to surrender the
contract. In many cases, the person buying the contract will be the owner.
However, you are free to name another person or entity (such as a trust) as
owner. In writing this prospectus, we've assumed that you, the reader, are the
person or persons entitled to exercise the rights and obligations under
discussion.
IS THE OWNER ALSO THE ANNUITANT?
Again, that's up to you. The annuitant is the person upon whose death the
contract's death benefit becomes payable. Also, the annuitant receives payments
from us under any annuity option that commences during the annuitant's lifetime.
In many cases, the same person is both the annuitant and the owner of a
contract. However, you are free to name another person as annuitant.
HOW CAN I INVEST MONEY IN A CONTRACT?
PREMIUM PAYMENTS
We call the investments you make in your contract "premiums" or "premium
payments." In general, you need at least a $5,000 initial premium payment to
purchase a contract. However, you need only $1,000 for an individual retirement
account or a qualified plan. If you choose to contribute more money into your
contract, each subsequent premium payment must also be at least $50.
APPLYING FOR A CONTRACT
An authorized representative of John Hancock through whom you purchase your
contract will assist you in (1) completing an application for a contract and (2)
transmitting it, along with your initial premium payment, to the John Hancock
Annuity Servicing Office.
Once we receive your initial premium payment and all necessary information, we
will issue your contract and invest your initial premium payment within two
business days. If the information is not in good order, we will contact you to
get the necessary information. If for
9
<PAGE>
some reason, we are unable to complete this process within 5 business days, we
will either send back your money or get your permission to keep it until we get
all of the necessary information.
We measure the years and anniversaries of your contract from its date of
issue. We use the term "contract year" to refer to each period of time between
anniversaries of your contract's date of issue.
LIMITS ON PREMIUM PAYMENTS
You can make premium payments of up to $500,000 in any one contract year
($100,000 into the fixed investment option, after the initial premium payment
which can be as much as $500,000). The total of all new premium payments and
transfers that you allocate to any one variable investment option in any one
contract year may not exceed $1,000,000. While the annuitant is alive and the
contract is in force, you can make premium payments at any time before the
annuitant's 85th birthday.
We will not issue a contract if the proposed annuitant is age 85 or older. We
may waive any of these limits, however.
WAYS TO MAKE PREMIUM PAYMENTS
Premium payments made by check or money order must be:
. drawn on a U.S. bank,
. drawn in U.S. dollars, and
. made payable to "John Hancock."
Premium payments after the initial premium payment should be sent to the John
Hancock Annuity Servicing Office at one of the addresses shown on page 1 of this
prospectus. We will accept your initial premium payment by exchange from another
insurance company. You can find information about other methods of premium
payment by contacting your JHVLICO representative or by contacting the John
Hancock Annuity Servicing Office.
Once we have issued your contract and it becomes effective, we credit you with
any additional premiums you pay as of the day we receive them at the John
Hancock Annuity Servicing Office.
HOW WILL THE VALUE OF MY INVESTMENT IN THE CONTRACT CHANGE OVER TIME?
Prior to a contract's date of maturity, the amount you've invested in any
VARIABLE INVESTMENT OPTION will increase or decrease based upon the investment
experience of the corresponding Fund. Except for certain charges we deduct,
your investment experience will be the same as if you had invested in the Fund
directly and reinvested all Fund dividends and distributions in additional
shares.
10
<PAGE>
Like a regular mutual fund, each Fund deducts investment management fees and
other operating expenses. These expenses are shown in the fee table on page __.
However, unlike a mutual fund, we will also deduct charges relating to the
annuity guarantees and other features provided by the contract. These charges
reduce your investment performance and the amount we have credited to your
contract in any variable investment option. We describe these charges under
"What charges will be deducted from my contract?" beginning on page __.
Each premium payment you allocate to the fixed investment option will earn
interest (calculated on a compounded basis) at our declared rate in effect at
the time of the deposit into the fixed investment option. From time to time, we
declare new rates, subject to a 3% minimum. For purposes of crediting interest,
transfers from a variable investment option will be treated as a premium
payment.
Under current practice, we credit interest to amounts allocated to the fixed
investment option based on the size of the initial premium payment, We credit a
higher rate for initial premium payments of $10,000 or more. The rate of
interest credited on each amount varies based upon when that amount was
allocated to the fixed investment option.
At any time before the date of maturity, the "TOTAL VALUE OF YOUR CONTRACT"
equals
. the total amount you invested,
. minus all charges we deduct,
. minus all withdrawals you have made,
. plus or minus each variable investment option's positive or negative
investment return that we credit daily to any of your contract's
value daily while it is in that option, and
. plus the interest we credit to any of your contract's value while it
is in the fixed investment option.
WHAT ANNUITY BENEFITS DOES A CONTRACT PROVIDE?
If your contract is still in effect on its date of maturity, it enters what is
called the "annuity period". During the annuity period, we make a series of
fixed or variable payments to you as provided under one of our several annuity
options. The form in which we will make the annuity payments, and the
proportion of such payments that will be on a fixed basis and on a variable
basis, depend on the elections that you have in effect on the date of maturity.
Therefore you should exercise care in selecting your date of maturity and your
choices that are in effect on that date.
You should carefully review the discussion under "The annuity period,"
beginning on page __, for information about all of these choices you can make.
11
<PAGE>
WHAT ARE THE TAX CONSEQUENCES OF OWNING A CONTRACT?
In most cases, no income tax will have to be paid on amounts you earn under a
contract until these earnings are paid out. All or part of the following
distributions from a contract may constitute a taxable payout of earnings:
. partial withdrawal
. full withdrawal ("surrender")
. payment of death benefit proceeds as a single sum upon your death or
the annuitant's death
. periodic payments under one of our annuity payment options
How much you will be taxed on distribution is based upon complex tax rules and
depends on matters such as
. the type of the distribution
. when the distribution is made
. the nature of any tax-qualified retirement plan for which the
contract is being used
. the circumstances under which the payments are made
If your contract is issued in connection with a tax-qualified retirement plan,
all or part of your premium payments may be tax-deductible.
Special 10% tax penalties apply in many cases to the taxable portion of any
distributions from a contract before you reach age 59 1/2. Also, most
tax-qualified plans require that distributions from a contract commence and/or
be completed by a certain period of time. This effectively limits the period of
time during which you can continue to derive tax deferral benefits from any
tax-deductible premiums you paid or on any earnings under the contract.
CAN I CHANGE MY CONTRACT'S INVESTMENT OPTIONS?
ALLOCATION OF PREMIUM PAYMENTS
When you apply for your contract, you specify the investment options in which
your premium payments will be allocated. You may change this investment
allocation for future premium payments at any time. Any change in allocation
will be effective as of receipt of your request at the John Hancock Annuity
Servicing Office.
12
<PAGE>
At any one time, you may invest in up to 10 of the 24 investment options.
Currently, you may use a maximum of 18 investment options over the life of your
contract. For purposes of this limit, each contribution or transfer of assets
into an investment option that you are not then using counts as one "use" of an
investment option, even if you had used that option at an earlier time.
TRANSFERRING YOUR ASSETS
Up to 12 times during each year of your contract, you may transfer, free of
charge, all or part of the assets held in one investment option to any other
investment option. We reserve the right to assess a charge of up to $25 for
transfer beyond the first 12 transfers per year. Transfers under our
dollar-cost averaging program count toward the 12 free transfers you are allowed
each year.
A number of restrictions apply to transfers in general. You may NOT
. transfer assets within 30 days prior to the contract's date of
maturity,
. transfer more than $1,000,000 in a contract year from any one
variable investment option, without our prior approval,
. make any transfer that would cause you to exceed the above-mentioned
maximum of 18 investment options, or
. make any transfer during the annuity period that would result in more
than 4 investment options being used at once.
In addition, certain restrictions apply specifically to transfers involving
the fixed investment option. You may NOT
. transfer assets to or from the fixed investment option during the
annuity period,
. transfer or deposit (exclusive of the initial premium payment) more
than $100,000 into the fixed investment option during a contract
year,
. make any transfers into the fixed investment option within six months
of a transfer out of the fixed investment option,
. transfer out of the fixed investment option more than once during a
contract year and only on or within 30 days after the anniversary of
your contract's issuance ("contract anniversary"),
. transfer or deposit money into the fixed investment option after the
10th contract year, or
13
<PAGE>
. transfer out of the fixed investment option more than the greater of
$500 or 20% of your assets in the fixed investment option in any one
contract year.
PROCEDURE FOR TRANSFERRING YOUR ASSETS
You may request a transfer in writing or, if you have authorized telephone
transfers, by telephone or fax. All transfer requests should be directed to the
John Hancock Annuity Servicing Office at the one of the locations shown on page
1. Your request should include
. your name,
. daytime telephone number,
. contract number,
. the names of the investment options being transferred to and from
each, and
. the amount of each transfer.
The request becomes effective on the day we receive your request, in proper
form, at the John Hancock Annuity Servicing Office.
TELEPHONE TRANSFERS
Once you have completed a written authorization, you may request a transfer by
telephone or by fax. If the fax request option becomes unavailable, another
means of telecommunication will be substituted.
If you authorize telephone transactions, you will be liable for any loss,
expense or cost arising out of any unauthorized or fraudulent telephone
instructions which we reasonably believe to be genuine, unless such loss,
expense or cost is the result of our mistake or negligence. We employ procedures
which provide safeguards against the execution of unauthorized transactions, and
which are reasonably designed to confirm that instructions received by telephone
are genuine. These procedures include requiring personal identification, tape
recording calls, and providing written confirmation to the owner. If we do not
employ reasonable procedures to confirm that instructions communicated by
telephone are genuine, we may be liable for any loss due to unauthorized or
fraudulent instructions.
WHAT FEES AND CHARGES WILL BE DEDUCTED FROM MY CONTRACT?
MORTALITY AND EXPENSE RISK CHARGE
We deduct a daily charge that compensates us primarily for mortality and
expense risks that we assume under the contracts. On an annual basis, this
charge equals 1.15% of the value of the assets you have allocated to the
variable investment options. (This charge does not apply to assets you have in
our fixed investment option.)
14
<PAGE>
In return for mortality risk charge, we assume the risk that annuitants as a
class will live longer than expected, requiring us to a pay greater number of
annuity payments. In return for the expense risk charge, we assume the risk
that our expenses relating to the contracts may be higher than we expected when
we set the level of the contracts' other fees and charges, or that our revenues
from such other sources will be less.
ADMINISTRATIVE SERVICES CHARGE
We deduct a daily charge for administrative and clerical services that the
contracts require us to provide. On an annual basis, this charge equals 0.35%
of the value of the assets you have allocated to the variable investment
options.
ANNUAL CONTRACT FEE
Prior to the date of maturity of your contract, we will deduct $30 each year
from your contract if it has a total value of less than $10,000. We deduct this
annual contract fee at the beginning of each contract year after the first. We
also deduct it if you surrender your contract. We take the deduction
proportionally from each investment option you are then using. However, we
will not deduct any portion of the annual contract fee from the fixed investment
option if such deduction would result in an accumulation of amounts allocated to
the fixed investment option at less than the guaranteed minimum rate of 3%. In
such case, we will deduct that portion of the contract fee proportionately from
the other investment options you are using. We reserve the right to increase
the annual contract fee to $50.
PREMIUM TAXES
We make deductions for any applicable premium or similar taxes based on the
amount of a premium payment. Currently, certain states assess a tax of up to 5%
of each premium payment.
In most cases, we deduct a charge in the amount of the tax from the total
value of the contract only at the time of annuitization, death, surrender, or
withdrawal. We reserve the right, however, to deduct the charge from each
premium payment at the time it is made. We compute the amount of the charge by
multiplying the applicable premium tax percentage times the amount you are
withdrawing, surrendering, annuitizing or applying to a death benefit.
WITHDRAWAL CHARGE
If you withdraw some money from your contract prior to the date of maturity
("partial withdrawal") or if you surrender (turn in) your contract, in its
entirety, for cash prior to the date of maturity ("total withdrawal" or
"surrender"), we may assess a withdrawal charge. We use this charge to help
defray expenses relating to the sales of the contracts, including commissions
paid and other distribution costs.
Here's how we determine the charge: In any contract year, you may withdraw up
----------------------------------
to 10% of the total value of your contract (computed as of the beginning of the
contract year) without the assessment of any withdrawal charge. We refer to
this amount as the "free withdrawal
15
<PAGE>
amount." However, if the amount you withdraw or surrender totals more than the
free withdrawal amount during the contract year, we will assess a withdrawal
charge on any amount of the excess that we attribute to premium payments you
made within seven years of the date of the withdrawal or surrender.
The withdrawal charge percentage depends upon the number of years that have
elapsed from the date you paid the premium to the date of its withdrawal, as
follows:
<TABLE>
<CAPTION>
YEARS FROM DATE OF PREMIUM PAYMENT TO
DATE OF SURRENDER OR WITHDRAWAL WITHDRAWAL CHARGE*
- ------------------------------------- ------------------
- ------------------------------------------------------------
<S> <C>
7 or more . . . . . . . . . . . . . 0%
- ------------------------------------------------------------
5 but less than 7 . . . . . . . . . 6%
- ------------------------------------------------------------
3 but less than 5 . . . . . . . . . 7%
- ------------------------------------------------------------
less than 3 . . . . . . . . . . . . 8%
- ------------------------------------------------------------
</TABLE>
* AS A PERCENTAGE OF THE AMOUNT OF SUCH PREMIUM THAT WE CONSIDER TO HAVE
BEEN WITHDRAWN (INCLUDING THE WITHDRAWAL CHARGE), AS EXPLAINED IN THE TEXT
IMMEDIATELY BELOW.
Solely for purposes of determining the amount of the withdrawal charge, we
assume that each withdrawal (together with any associated withdrawal charge) is
a withdrawal first from the earliest premium payment, and then from the next
earliest premium payment, and so forth until all payments have been exhausted.
Once a premium payment has been considered to have been "withdrawn" under these
procedures, that premium payment will not enter into any future withdrawal
charge calculations. For this purpose, we also consider any amounts that we
deduct for the annual contract charge to have been withdrawals of premium
payments (which means that no withdrawal charge will ever be paid on those
amounts).
The amount of any withdrawal that exceeds any remaining premium payments that
have not already been considered as withdrawn will not be subject to any
withdrawal charge. This means that no withdrawal charge will apply to any
favorable investment experience that you have earned.
Here's how we deduct the withdrawal charge: We deduct the withdrawal charge
------------------------------------------
proportionally from each investment option being reduced by the surrender or
withdrawal. For example, if 60% of the withdrawal amount comes from the Growth
& Income option and 40% from the Money Market option, then we will deduct 60% of
the withdrawal charge from the Growth & Income option and 40% from the Money
Market option. If any such option has insufficient remaining value to cover the
charge, we will deduct any shortfall from all of your other investment options,
pro-rata based on the value in each. If your contract as a whole has
insufficient surrender value to pay the entire charge, we will pay you no more
than the surrender value.
You will find examples of how we compute the withdrawal charge in Appendix A
to this prospectus.
16
<PAGE>
When withdrawal charges don't apply: We don't assess a withdrawal charge in
-----------------------------------
the following situations:
. on amounts applied to an annuity option at the contract's date of
maturity or to pay a death benefit;
. on amounts withdrawn to satisfy the minimum distribution requirements
for tax qualified plans. (Amounts above the minimum distribution
requirements are subject to any applicable withdrawal charge,
however.)
In addition, under our exchange offer program, certain pension plans may be
eligible to exchange their contracts, without charge, for shares of certain
mutual funds distributed by John Hancock Funds, Inc. Under the terms of the
exchange offer, any remaining withdrawal charge applicable to any contract
exchanged would be waived at the time of the exchange transaction. You can
participate in the exchange offer only if your contract was purchased on behalf
either
. a pension plan qualified under Section 401(k) of the Internal Revenue
Code of 1986 or
. a targeted benefit pension plan where plan assets are not allocated
specifically as being for the account of individual plan
participants.
The exchange offer was expected to remain open until March 1, 1999, but could
be extended for particular offerees under special circumstances. Such
extensions have occurred and may continue to occur for an indefinite period of
time.
HOW CAN I WITHDRAW MONEY FROM MY CONTRACT?
SURRENDERS AND PARTIAL WITHDRAWALS
Prior to your contract's date of maturity, if the annuitant is living, you
may:
. surrender your contract for a cash payment of its "surrender value,"
or
. make a partial withdrawal of the surrender value.
The "surrender value" of a contract is the total value of a contract, MINUS
the annual contract fee and any applicable premium tax and withdrawal charges.
We will determine the amount surrendered or withdrawn as of the date we receive
your request at the John Hancock Annuity Servicing Office.
Certain surrenders and withdrawals may result in taxable income to you or
other tax consequences as described under "Tax information," beginning on page
__. Among other things, if you make a full surrender or partial withdrawal from
your contract before you reach age 59 1/2, an additional federal penalty of 10%
generally applies to any taxable portion of the withdrawal.
17
<PAGE>
We will deduct any partial withdrawal proportionally from each of your
investment options based on the value in each, unless you direct otherwise.
Without our prior approval, you may not make a partial withdrawal
. for an amount less than $100, or
. if the remaining total value of your contract would be less than
$1,000.
If your "free withdrawal value" at any time is less than $100, you must
withdraw that amount in full, in a single sum, before you make any other partial
withdrawals. A partial withdrawal is not a loan and cannot be repaid. We
reserve the right to terminate your contract if the value of your contract
becomes zero.
You generally may not make any surrenders or partial withdrawals once we begin
making payments under an annuity option.
SYSTEMATIC WITHDRAWAL PLAN
Our optional systematic withdrawal plan enables you to preauthorize periodic
withdrawals. If you elect this plan, we will withdraw a dollar amount from your
contract on a monthly, quarterly, semiannual, or annual basis, based upon your
instructions. We will deduct the requested amount from each applicable
investment option in the ratio that the value of each bears to the total value
of your contract. Each systematic withdrawal is subject to any withdrawal
charge that would apply to an otherwise comparable non-systematic withdrawal.
See "How will the value of my contract change over time?" beginning on page __,
and "What fees and charges will be deducted from my contract?" beginning on page
__. The same tax consequences also generally will apply.
The following conditions apply to systematic withdrawal plans:
. you may elect the plan only if the total value of your contract
equals $25,000 or more.
. in any one contract year, you may not withdraw more than 10% of the
total value of your contract at the beginning of the contract year.
. the amount of each systematic withdrawal must equal at least $100.
. if the amount of each withdrawal drops below $100 or the total value
of your contract becomes less that $5,000, we will suspend the plan
and notify you.
. you may cancel the plan at any time.
. we reserve the right to modify the terms or conditions of the plan at
any time without prior notice.
18
<PAGE>
. you cannot elect this plan if you are participating in the
dollar-cost averaging program.
DOLLAR-COST AVERAGING PROGRAM
You may elect, at no cost, to automatically transfer assets from any variable
investment option to one or more other variable investment options on a monthly,
quarterly, semiannual, or annual basis. The following conditions apply to the
dollar-cost averaging program:
. you may elect the program only if the total value of your contract
equals $20,000 or more.
. the amount of each transfer must equal at least $250.
. you may change your dollar-cost averaging instructions at any time in
writing or, if you have authorized telephone transfers, by telephone.
. you may discontinue the program at any time.
. the program continues until the earlier of (1) 12, 24, or 36 months
(whichever you elect) or (2) full liquidation of the variable
investment option from which we are taking the transfers.
. automatic transfers to or from the fixed investment option are not
permitted.
. we reserve the right to terminate the program at any time.
. you cannot elect the dollar-cost averaging program if you are
participating in the systematic withdrawal plan.
WHAT HAPPENS IF THE ANNUITANT DIES BEFORE MY CONTRACT'S DATE OF MATURITY?
GUARANTEED MINIMUM DEATH BENEFIT
If the annuitant dies before your contract's date of maturity, we will pay a
death benefit, that is the greatest of:
(1) the total value of your contract, or
(2) the total amount of premium payments made, minus any partial
withdrawals and related withdrawal charges, or
(3) in states where permitted by law, the highest total value of your
contract as of any third interval anniversary of your contract to date
(preceding the anniversary nearest the annuitant's 81st birthday), PLUS
any premium
19
<PAGE>
payments you have made since that anniversary, MINUS any withdrawals
you have taken (and any related withdrawal charges) since that
anniversary.
We calculate the amounts in clauses (1) and (2) as of the day we receive, at
the John Hancock Annuity Servicing Office:
. proof of the annuitant's death, and
. any required instructions as to method of settlement.
We calculate the amount in clause (3) as follows: On the third anniversary of
your contract (and every third anniversary thereafter until the anniversary
closest to the annuitant's 81st birthday), we compute the total value of your
contract adjusting for premium payments and partial withdrawals since that
anniversary. We compare that amount to amounts in clauses (1) and (2). The
greatest of these three amounts forms a minimum which may increase on subsequent
third interval anniversaries with favorable investment performance and
additional premium payments but will never decrease unless partial withdrawals
are taken.
Unless you have elected an optional method of settlement, we will pay the
death benefit in a single sum to the beneficiary you chose prior to the
annuitant's death. If you have not elected an optional method of settlement,
the beneficiary may do so. However, if the death benefit is less than $5,000,
we will pay it in a lump sum, regardless of any election. You can find more
information about optional methods of settlement under "Annuity options,"
beginning on page __.
CAN I RETURN MY CONTRACT?
In most cases, you may return your contract for any reason within 10 days
after you receive it. If you do, we will pay you the total value of your
contract, plus the amount of premium taxes that we have deducted. However,
there are some exceptions to this general rule:
. if you return a contract issued in Hawaii, Idaho, Missouri, Nebraska,
North Carolina, Oklahoma, Oregon, South Carolina, Washington, West
Virginia, or Utah, you will receive the gross premiums you paid.
. if you return a contract that is an individual retirement annuity
("IRA"), you will receive the gross premiums you paid.
. if your contract was issued in California after your 60/th/ birthday,
you may return the contract within 30 days and receive the gross
premiums you paid.
. if your contract was issued in North Dakota, you may return it within
20 days and receive the gross premiums you paid.
20
<PAGE>
ADDITIONAL INFORMATION
This section of the prospectus provides additional information that is not
contained in the Basic Information section on pages __ through ___.
CONTENTS OF THIS SECTION PAGES TO SEE
Description of JHVLICO . . . . . . . . . . . . . .
Who should purchase a contract . . . . . . . . . .
How we support the variable investment options . .
The accumulation period. . . . . . . . . . . . . .
Payment of death benefits. . . . . . . . . . . . .
The annuity period . . . . . . . . . . . . . . . .
Variable investment option valuation procedures. .
Distribution requirements following death of owner
Miscellaneous provisions . . . . . . . . . . . . .
Tax information. . . . . . . . . . . . . . . . . .
Performance information. . . . . . . . . . . . . .
Reports. . . . . . . . . . . . . . . . . . . . . .
Voting privileges. . . . . . . . . . . . . . . . .
Certain changes. . . . . . . . . . . . . . . . . .
Distribution of contracts. . . . . . . . . . . . .
Impact of the Year 2000 issue. . . . . . . . . . .
Registration statement . . . . . . . . . . . . . .
Experts and financial statements . . . . . . . . .
Appendix A - Examples of withdrawal charge calculation
Appendix B - Contract loans under Section 403(b) ("TSA loans")
Appendix C - Illustrative values and annuity payment tables
21
<PAGE>
DESCRIPTION OF JHVLICO
We are JHVLICO, a stock life insurance company organized, in 1979, under the
laws of the Commonwealth of Massachusetts. We have authority to transact
business in all states, except New York. We are a wholly-owned subsidiary of
John Hancock Mutual Life Insurance Company ("John Hancock"), a mutual life
insurance company organized in Massachusetts in 1862. Both companies are
headquartered in Boston, Massachusetts.
A major financial services provider, John Hancock had more that $67.1 billion
of assets as of December 31, 1998. As JHVLICO's parent, John Hancock will from
time to time make capital contributions to JHVLICO to enable it to meet its
reserve requirements and expenses in connections with its business and to ensure
that it maintains a positive net worth.
WHO SHOULD PURCHASE A CONTRACT?
We designed these contracts for individuals doing their own retirement
planning, including purchases under plans and trusts that do not qualify for
special tax treatment under the Internal Revenue Code of 1986 (the "Code"). We
also designed the contracts for purchase under:
. pension and profit-sharing plans qualified under Section 401(c) of
the Code, known as H.R. 10 Plans;
. pension or profit-sharing plans qualified under sections 401(a) or
403(a) of the Code, known as "corporate plans";
. plans qualified under Section 401(k) of the Code;
. annuity purchase plans adopted under Section 403(b) of the Code by
public school systems and certain other tax-exempt organizations;
and
. individual retirement annuity ("IRA") plans satisfying the
requirements of Section 408 of the Code.
. deferred compensation plans maintained by a state or political
subdivision or tax exempt organization under Section 457 of the Code
When a contract forms part of a tax-qualified plan it becomes subject to
special tax law requirements, as well as the terms of the plan documents
themselves, if any. Also, in some cases, certain requirements under "ERISA"
(the Employee Retirement Income Security Act of 1974) may apply. Requirements
from any of these sources may, in effect, take precedence over (and in that
sense modify) the rights and privileges that an owner otherwise would have under
a contract. Some such requirements may also apply to certain retirement plans
that are not tax-qualified.
We may include certain requirements from the above sources in endorsements or
riders to the affected contracts. In other cases, we do not. In no event,
however, do we undertake to assure a contract's compliance with all plan, tax
law, and ERISA requirements applicable to a tax-qualified or non tax-qualified
retirement plan. Therefore, if you use or plan to use a contract in connection
with such a plan, you must consult with competent legal and tax advisers to
ensure that you know of (and comply with) all such requirements that apply in
your circumstances.
To accommodate "employer-related" plans, we provide "unisex" purchase rates.
That means the annuity purchase rates are the same for males and females. Any
questions you have as to whether you are participating in an "employer-related"
plan should be directed to your employer. Any question
22
<PAGE>
you or your employer have about unisex rates may be directed to the John Hancock
Annuity Servicing Office.
HOW WE SUPPORT THE VARIABLE INVESTMENT OPTIONS
We hold the Fund shares that support our variable investment options in John
Hancock Variable Annuity Account I (the "Account"), a separate account
established by JHVLICO under Massachusetts law. The Account is registered as a
unit investment trust under the Investment Company Act of 1940 ("1940 Act").
The Account's assets, including the Trust's shares, belong to JHVLICO. Each
contract provides that amounts we hold in the Account pursuant to the policies
cannot be reached by any other persons who may have claims against us.
All of JHVLICO's general assets also support JHVLICO's obligations under the
contracts, as well as all of its other obligations and liabilities. These
general assets consist of all JHVLICO's assets that are not held in the Account
(or in another separate account) under variable annuity or variable life
insurance contracts that give their owners a preferred claim on those assets.
THE ACCUMULATION PERIOD
YOUR VALUE IN OUR VARIABLE INVESTMENT OPTIONS
Each premium payment or transfer that you allocate to a variable investment
option purchases "accumulation units" of that variable investment option.
Similarly, each withdrawal or transfer that you take from a variable investment
option (as well as certain charges that may be allocated to that option) result
in a cancellation of such accumulation units.
VALUATION OF ACCUMULATION UNITS
To determine the number of accumulation units that a specific transaction will
purchase or cancel, we use the following formula:
dollar amount of transaction
DIVIDED BY
value of one accumulation unit for the applicable
variable investment option at the time of such
transaction
- -------------------------------------------------
The value of each accumulation unit will change daily depending upon the
investment performance of the Fund that corresponds to that variable investment
option and certain charges we deduct from such investment option. (See below
under "Variable investment option valuation procedures.")
Therefore, at any time prior to the date of maturity, the total value of your
contract in a variable investment option can be computed according to the
following formula:
number of accumulation units in the variable
investment options
TIMES
value of one accumulation unit for the
applicable variable investment option that
time
- ---------------------------------------------
YOUR VALUE IN THE FIXED INVESTMENT OPTION
On any date, the total value of your contract in the fixed investment option
equals:
. the amount of premium payments or transferred amounts allocated to
the fixed investment option, MINUS
. the amount of any withdrawals or transfers paid out of the fixed
investment option, PLUS
. interest compounded daily on any amounts in the fixed investment
option at the effective annual rate of interest we have declared,
MINUS
23
<PAGE>
. the amount of any charges and fees deducted from fixed investment
option.
THE ANNUITY PERIOD
DATE OF MATURITY
Your contract specifies the date of maturity, when payments from one of our
annuity options are scheduled to begin. You initially choose a date of maturity
when you complete your application for a contract. Unless we otherwise permit,
the date of maturity must be
. at least 6 months after the date the first premium payment is applied
to your contract and
. no later than the maximum age specified in your contract (normally
age 85).
Subject always to these requirements, you may subsequently select an earlier
date of maturity. The John Hancock Annuity Servicing Office must receive your
new selection at least 31 days prior to the new date of maturity, however.
Also, if you are selecting or changing your date of maturity for a contract
issued under a tax qualified plan, special limits apply. (See "Contracts
purchased for a tax-qualified plan," beginning on page __.)
CHOOSING FIXED OR VARIABLE ANNUITY PAYMENTS
During the annuity period, the total value of your contract must be allocated
to no more than four investment options. During the annuity period, we offer
annuity payments on a fixed basis as one investment option, and annuity
payments on a variable basis for EACH variable investment option.
We will generally apply (1) amounts allocated to the fixed investment option
as of the date of maturity to provide annuity payments on a fixed basis and (2)
amounts allocated to variable investment options to provide annuity payments on
a variable basis. If you are using more than four investment options on the
date of maturity, we will divide your contract's value among the four investment
options with the largest values, pro-rata based on the amount of the total value
of your contract that you have in each.
Once annuity payments commence, you may not make transfers from fixed to
variable or from variable to fixed.
SELECTING AN ANNUITY OPTION
Each contract provides, at the time of its issuance, for annuity payments to
commence on the date of maturity pursuant to Option A: "life annuity with 10
years guaranteed" (discussed under "Annuity options" on page __ below).
Prior to the date of maturity, you may select a different annuity option.
However, if the total value of your contract on the date of maturity is not at
least $5,000, Option A: "life annuity with 10 years guaranteed" will apply,
regardless of any other election that you have made. You may not change the
form of annuity option once payments commence.
If the initial monthly payment under an annuity option would be less than $50,
we may make a single sum payment equal to the total surrender value of your
contract on the date the initial payment would be payable. Such single payment
would replace all other benefits. Alternatively, if you agree, we will make
payments at quarterly, semi-annual, or annual intervals in place of monthly
payments.
Subject to that $50 minimum limitation, your beneficiary may elect an annuity
option if
. you have not made an election prior to the annuitant's death;
. the beneficiary is entitled to payment of a death benefit of at least
$5,000 in a single sum; and
24
<PAGE>
. the beneficiary notifies us of the election prior to the date the
proceeds become payable.
You may also elect to have the surrender value of your contract applied to an
annuity option at the time of full surrender if your contract has been
outstanding for at least 6 months. If the total value of your contract, at
death or surrender, is less than $5,000, no annuity option will be available.
VARIABLE MONTHLY ANNUITY PAYMENTS
We determine the amount of the first variable monthly payment under any
variable investment option by using the applicable annuity purchase rate for the
annuity option under which the payment will be made. The contract sets forth
these annuity purchase rates. In most cases they vary by the age and gender of
the annuitant or other payee.
The amount of each subsequent variable annuity payment under that variable
investment option depends upon the investment performance of that variable
investment option. Here's how it works:
. we calculate the actual net investment return of the variable
investment option (after deducting all charges) during the period
between the dates for determining the current and immediately
previous monthly payments.
. if that actual net investment return exceeds the "assumed investment
rate" (explained below), the current monthly payment will be larger
than the previous one.
. if the actual net investment return is less than the assumed
investment rate, the current monthly payment will be smaller than the
previous one.
ASSUMED INVESTMENT RATE
-----------------------
The assumed investment rate for any variable portion of your annuity payments
will be 3 1/2 % per year, except as follows.
You may elect an assumed investment rate of 5% or 6%, provided such a rate is
available in your state. If you elect a higher assumed investment rate, your
initial variable annuity payment will also be higher. Eventually, however, the
monthly variable annuity payments may be smaller than if you had elected a lower
assumed investment rate.
FIXED MONTHLY ANNUITY PAYMENTS
The dollar amount of each fixed monthly annuity payment is specified during
the entire period of annuity payments, according to the provisions of the
annuity option selected. To determine such dollar amount we first, in
accordance with the procedures described above, calculate the amount to be
applied to the fixed annuity option as of the date of maturity. We then
subtract any applicable premium tax charge and divide the difference by $1,000.
We then multiply the result by the greater of
. the applicable fixed annuity purchase rate shown in the appropriate
table in the contract; or
. the rate we currently offer at the time of annuitization. (This
current rate may be based on the sex of the annuitant, unless
prohibited by law.)
ANNUITY OPTIONS
Here are some of the annuity options that are available, subject to the terms
and conditions described above. We reserve the right to make available optional
methods of payment in addition to those annuity options listed here and in your
contract.
25
<PAGE>
OPTION A: LIFE ANNUITY WITH PAYMENTS FOR A GUARANTEED PERIOD - We will make
monthly payments for a guaranteed period of 5, 10, or 20 years, as selected by
you or your beneficiary, and after such period for as long as the payee lives.
If the payee dies prior to the end of such guaranteed period, we will continue
payments for the remainder of the guarantee period to a contingent payee,
subject to the terms of any supplemental agreement issued.
Federal income tax requirements currently applicable to contracts used with
H.R. 10 plans and individual retirement annuities provide that the period of
years guaranteed under Option A cannot be any greater than the joint life
expectancies of the payee and his or her designated beneficiary.
OPTION B: LIFE ANNUITY WITHOUT FURTHER PAYMENT ON DEATH OF PAYEE - We will
make monthly payments to the payee as long as he or she lives. We guarantee no
minimum number of payments.
VARIABLE INVESTMENT OPTION VALUATION PROCEDURES
We compute the net investment return and accumulation unit values for each
variable investment option as of the end of each business day. A business day
is any date on which the New York Stock Exchange is open for regular trading.
Each business day ends at the close of regular trading for the day on that
exchange. Usually this is 4:00 p.m., Eastern time. On any date other than a
business day, the accumulation unit value or annuity unit value will be the same
as the value at the close of the next following business day.
DISTRIBUTION REQUIREMENTS FOLLOWING DEATH OF OWNER
If you did not purchase your contract under a tax qualified plan (as that term
is used below), the Code requires that the following distribution provisions
apply if you die. We summarize these provisions in the box below. In most
cases, these provisions do not cause a problem if you are also the annuitant
under your policy. If you have designated someone other than yourself as the
annuitant, however, your heirs will have less discretion than you would have had
in determining when and how the contract's value would be paid out.
IF YOU DIE BEFORE ANNUITY PAYMENTS HAVE BEGUN:
. if the contract's designated beneficiary is your
surviving spouse, your spouse may continue the contract
in force as the owner.
. if the beneficiary is not your surviving spouse OR if
the beneficiary is your surviving spouse but chooses not
to continue the contract, the entire interest (as
discussed below) in the contract on the date of your
death must be:
(1) paid out in full within five years of your death or
(2) applied in full towards the purchase of a life annuity
on the beneficiary with payments commencing within one
year of your death
If you are the annuitant, as well as the owner, the entire
interest in the contract on the date of your death equals the death
benefit that then becomes payable. If you are the owner but not
the annuitant, the entire interest equals
. the surrender value if paid out in full within five
years of your death, or
. the total value of your contract applied in full towards
the purchase of a life annuity on the beneficiary with
payments commencing within one year of your death.
IF YOU DIE ON OR AFTER ANNUITY PAYMENTS HAVE BEGUN
. any remaining amount that we owe must be paid out at
least as rapidly as under the method of making annuity
payments that is then in use.
- -------------------------------------------------------------------
26
<PAGE>
Notice of the death of an owner or annuitant should be furnished promptly to
the John Hancock Annuity Servicing Office.
The Code imposes very similar distribution requirements on contracts used to
fund tax-qualified plans. We provide the required provisions for tax qualified
plans in separate disclosures and endorsements.
MISCELLANEOUS PROVISIONS
ASSIGNMENT; CHANGE OF OWNER OR BENEFICIARY
To qualify for favorable tax treatment, certain contracts can't be sold;
assigned; discounted; or pledged as collateral for a loan, as security for
the performance of an obligation, or for any other purpose, unless the owner is
a trustee under section 401(a) of the Internal Revenue Code.
Subject to these limits, while the annuitant is alive, you may designate
someone else as the owner by written notice to the John Hancock Annuity
Servicing Office. The contract designates the person you choose as beneficiary.
You may change the beneficiary by written notice no later than receipt of due
proof of the death of the annuitant. Changes of owner or beneficiary will take
effect whether or not you or the annuitant is then alive. However, these
changes are subject to:
. the rights of any assignees of record,
. the any action taken prior to receipt of the notice, and
. certain other conditions.
An assignment, pledge, or other transfer may be a taxable event. See "Tax
information" below. Therefore, you should consult a competent tax adviser
before taking any such action.
TAX INFORMATION
OUR INCOME TAXES
We are taxed as a life insurance company under the Internal Revenue Code (the
"Code"). The Account is taxed as part of our operations and is not taxed
separately.
The contracts permit us to deduct a charge for any taxes we incur that are
attributable to the operation or existence of the contracts or the Account.
Currently, we do not anticipate making a charge such taxes. If the level of
the current taxes increases, however, or is expected to increase in the future,
we reserve the right to make a charge in the future.
CONTRACTS NOT PURCHASED TO FUND A TAX- QUALIFIED PLAN
UNDISTRIBUTED GAINS
-------------------
We believe the contracts will be considered annuity contracts under Section 72
of the Code. This means that, ordinarily, you pay no federal income tax on any
gains in your contract until we actually distribute assets to you.
However, a contract owned other than by a natural person does not generally
qualify as an annuity for tax purposes. Any increase in value therefore would
constitute ordinary taxable income to such an owner in the year earned.
ANNUITY PAYMENTS
----------------
When we make payments under a contract in the form of an annuity, each payment
will result in taxable ordinary income to the payee, to the extent
27
<PAGE>
that each such payment exceeds an allocable portion of your "investment in the
contract" (as defined in the Code). In general, your "investment in the
contract" equals the aggregate amount of premium payments you have made over the
life of the contract, reduced by any amounts previously distributed from the
contract that were not subject to tax.
The Code prescribes the allocable portion of each such annuity payment to be
excluded from income according to one formula if the payments are variable and a
somewhat different formula if the payments are fixed. In each case, speaking
generally, the formula seeks to allocate an appropriate amount of the investment
in the contract to each payment. After the entire "investment in the contract"
has been distributed, any remaining payment is fully taxable.
SURRENDERS AND WITHDRAWALS BEFORE DATE OF MATURITY
--------------------------------------------------
When we make a single sum payment from a contract, you have ordinary taxable
income, to the extent the payment exceeds your "investment in the contract"
(discussed above). Such a single sum payment can occur, for example, if you
surrender your contract or if no annuity payment option is selected for a death
benefit payment.
When you take a partial withdrawal from a contract, including a payment under
a systematic withdrawal plan, all or part of the payment may constitute taxable
ordinary income to you. The taxable portion generally equals the amount, if
any, by which the payment exceeds your then investment in the contract. If you
assign or pledge any part your contract's value, the value so pledged or
assigned is taxed the same way as if it were a partial withdrawal.
For purposes of determining the amount of taxable income resulting from a
single sum payment or a partial withdrawal, all annuity contracts issued by
JHVLICO or its affiliates to the owner within the same calendar year will be
treated as if they were a single contract.
PENALTY FOR PREMATURE WITHDRAWALS
---------------------------------
The taxable portion of any withdrawal or single sum payment may also trigger
an additional 10% penalty tax. The penalty tax does not apply to payments made
to you after age 59 1/2, or on account of your death or disability. Nor will it
apply to withdrawals in substantially equal periodic payments over the life of
the payee (or over the joint lives of the payee and the payee's beneficiary).
DIVERSIFICATION REQUIREMENTS
Each of the Funds of the Trust intends to qualify as a regulated investment
company under Subchapter M of the Code and meet the investment diversification
tests of Section 817(h) of the Code and the underlying regulations. Failure to
do so could result in current taxation to you on gains in your contract for the
year in which such failure occurred and thereafter.
The Treasury Department or the Internal Revenue Service may, at some future
time, issue a ruling or regulation presenting situations in which it will deem
contract owners to exercise "investor control" over the Fund shares that are
attributable to their contracts. The Treasury Department has said informally
that this could limit the number or frequency of transfers among variable
investment options. This could cause you to be taxed as if you were the direct
owner of your allocable portion of Fund shares. We reserve the right to amend
the contracts or the choice of investment options to avoid, if possible, current
taxation to the owners.
CONTRACTS PURCHASED FOR A TAX QUALIFIED PLAN
We have no responsibility for determining whether a particular retirement plan
satisfies the applicable requirements of the Code or whether a particular
employee is eligible for inclusion under a plan.
WITHHOLDING ON ROLLOVER DISTRIBUTIONS
-------------------------------------
28
<PAGE>
The tax law requires us to withhold 20% from certain distributions from tax
qualified plans. We do not have to make the withholding, however, if you
rollover your entire distribution to another plan and you request us to pay it
directly to the successor plan. Otherwise, the 20% mandatory withholding will
reduce the amount you can rollover to the new plan, unless you add funds to the
rollover from other sources. Consult a qualified tax adviser before making such
a distribution.
CONTRACTS PURCHASED AS INDIVIDUAL RETIREMENT ANNUITIES (IRAS)
-------------------------------------------------------------
An individual retirement annuity (as defined in Section 408 of the Code)
generally permits an eligible purchaser to take a federal income tax deduction
of up to $2,000 per year for contributions to the IRA. (You can never, however,
deduct more than 100% of your compensation includable in your gross income for
the year.) You may also purchase an IRA contract for the benefit of your spouse
(regardless of whether your spouse has a paying job). You can generally deduct
up to $2,000 for each of you and your spouse (or, if less, your combined
compensation).
If you or your spouse is an active participant in an employer-sponsored
retirement plan, you may make deductible premium payment only if your adjusted
gross incomes do not exceed certain amounts. You can still contribute the full
$2000 for each of you and your spouse, however, even though they are not
deductible. Nor can you take a deduction for premium payments made in or after
the taxable year in which you attain age 70 1/2 or for a "rollover contribution"
as defined in the Code.
If you have made any non-deductible contributions to an IRA contract, all or
part of any withdrawal or surrender proceeds, single sum death benefit or any
annuity payment, may be excluded from your taxable income when you receive the
proceeds. In general, all other amounts paid out from an IRA contract (in the
form of an annuity, a single sum, or partial withdrawal), are taxable to the
payee as ordinary income. As in the case of a contract not purchased under a
tax-qualified plan, you may incur additional adverse tax consequences, if you
make a surrender or withdrawal before you reach age 59 1/2 (unless certain
exceptions apply similar to those described above for such non-qualified
contracts).
The tax law requires that annuity payments under an IRA contract begin no
later than April 1 of the year following the year in which the owner attains age
70 1/2.
CONTRACTS PURCHASED UNDER SIMPLE RETIREMENT ACCOUNTS (SIMPLE IRAS)
------------------------------------------------------------------
In general, a small business employer may establish a SIMPLE IRA retirement
plan, if the employer employed less than 100 employees on any day during the
preceding calendar year. As an employee of such small business employer, you
may make premium payments to the SIMPLE IRA. You may specify the percentage of
compensation that you will contribute to the SIMPLE IRA, provided the amount of
contribution does not exceed $6,000 a year. Your employer must elect to make a
matching contribution of up to 3% of your compensation or an non-elective
contribution equal to 2% of your compensation.
CONTRACTS PURCHASED UNDER CERTAIN NON-DEDUCTIBLE IRAS (ROTH IRAS)
-----------------------------------------------------------------
In general, you may make purchase payments of up to $2,000 each year for a new
type of non-deductible IRA contract, known as a ROTH IRA. Any contributions made
during the year for any other IRA you have will reduce the amount you otherwise
could contribution to a ROTH IRA. Also, the $2,000 maximum for a ROTH IRA
phases out for single taxpayers with adjusted gross incomes between $95,000 and
$110,000, for married taxpayers filing jointly with adjusted gross incomes
between $150,000 and $160,000, and for a married taxpayer filing separately with
adjusted gross income between $0 and $15,000.
29
<PAGE>
If you hold your ROTH IRA for at least five years the payee will not owe any
federal income taxes or early withdrawal penalties on amounts paid out from the
contract
. after you reach age 591/2,
. on your death or disability, or
. to one of the following qualified first-time home purchasers, subject
to a $10,000 lifetime maximum: you or your spouse, child,
grandchild, or ancestor.
The Code treats payments you receive from a ROTH IRA that do not qualify for
the above tax free treatment as a return of the contributions you made first.
However, any amount of such non-qualifying payments or distributions that
exceed the amount of your contributions is taxable to you as ordinary income and
possibly subject to the 10% penalty tax.
You may make a tax-free rollover contribution from a non-ROTH IRA, unless
. you have adjusted gross income over $100,000 or
. you are a married taxpayer filing a separate return.
The $2,000 ROTH IRA contribution limit does not apply to tax-free rollover
contributions.
You must, however, pay tax on any portion of the non-ROTH IRA being rolled
over that represents income on a previously deductible IRA contribution. No
similar limitations apply to rollovers from one ROTH IRA to another ROTH IRA.
CONTRACTS PURCHASED UNDER SECTION 403(B) PLANS (TSA)
----------------------------------------------------
Under these tax-sheltered annuity ("TSA") arrangements, public school systems
and certain tax-exempt organizations can make premium payments into contracts
owned by their employees that are not taxable currently to the employee.
The amount of such non-taxable contributions each year
. is limited by a maximum (called the "exclusion allowance") that is
computed in accordance with a formula prescribed under the Code;
. may not, together with all other deferrals the employee elects under
other tax-qualified plans, exceed $10,000; and
. is subject to certain other limits (described in Section 415 of the
Code).
When we make annuity payments from the contract, such payments are taxed to
the employee 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 we make payments from a TSA contract on surrender of the contract,
partial withdrawal, death of the annuitant, or commencement of an annuity
option, the payee ordinarily must treat the entire payment as ordinary taxable
income.
Moreover, the Code prohibits distributions from a TSA contract before the
employee reaches age 59 1/2, except
. on the employee's separation from service, death, or disability,
. with respect to distributions of assets held under a TSA contract as
of December 31, 1988,
30
<PAGE>
. transfers and exchanges to other products that qualify under Section
403(b).
CONTRACT LOANS UNDER SECTION 403(B) QUALIFIED CONTRACTS
-------------------------------------------------------
Prior to the date of maturity of your contract, you may request a loan from
the total value of your contract. If the loan meets the amount and prepayment
requirements described in detail in Appendix B, we will not report the loan to
the Internal Revenue Service as a taxable distribution. To apply for a loan,
you must use our required loan forms. Forms are available through our the John
Hancock Annuity Servicing Office. At the time the loan is issued, we will
provide you with a detailed loan agreement containing all the requirements of
the loan.
Contract loans are subject to many conditions and requirements of the Code and
ERISA and the terms of any retirement plan in connection with which your
contract was acquired. For example, serious tax consequences may result, if
you don't make your loan payments when due or if we find it otherwise necessary
to exercise our right to use all or part of the value of your contract to repay
a contract loan. Because the tax and ERISA laws can be very confusing, you
should always consult a qualified adviser before taking any action with respect
to contract loans.
CONTRACTS PURCHASED FOR "CORPORATE" PLANS
-----------------------------------------
In general, an employer may deduct from its taxable income premium payments it
makes under
. a qualified pension or profit-sharing plan described in Section
401(a) of the Code or
. a qualified annuity plan described in Section 403(a) of the Code.
Nor do the employees participating in the plan have to pay tax on such
contributions when made.
Annuity payments (or other payments, such as upon withdrawal, death or
surrender) generally constitute taxable income to the payee; and the payee must
pay income tax on the amount by which a payment exceeds its allocable share of
the employee's "investment in the contract" (as defined in the Code), if any.
In general, an employee's "investment in the contract" equals the aggregate
amount of premium payments made by the employee.
The non-taxable portion of each annuity payment is determined, under the Code,
according to one formula if the payments are variable and a somewhat different
formula if the payments are fixed. In each case, speaking generally, the
formula seeks to allocate an appropriate amount of the investment in the
contract to each payment.
Certain special five-year income tax averaging provisions are available for
total distributions made in 1999, but not after that. Other favorable
procedures may also be available to taxpayers who had attained age 50 prior to
January 1, 1986.
IRS required minimum distributions to the employee must begin no later than
April 1 of the year following the year in which the employee reaches age 70 1/2
or, if later, retires.
CONTRACTS PURCHASED FOR H.R. 10 (SELF-EMPLOYED) PLANS
-----------------------------------------------------
Self-employed persons, including partnerships, purchase contracts for tax
qualified pension and profit-sharing plans that they establish for themselves
and for their employees. The Code limits the maximum amount of premium payments
that the self-employed person may deduct for federal income tax purposes each
year. With respect to variable annuity contracts issued on the life of
self-employed persons under such plans, the maximum generally is the lesser of
31
<PAGE>
. $30,000, or
. 25% of "earned income" (as defined in the Code).
Self-employed persons must also make premium payments for their employees (who
have met certain eligibility requirements) at least at the same rate as they do
for themselves.
Tax qualified plans may permit self-employed persons and their employees to
make additional premium payments themselves (which are not deductible) of up to
10% of earned income or compensation.
When we make annuity payments under an H.R. 10 contract, the payee must pay
federal income taxes under the same rules that apply to such payments under
corporate plans (discussed above).
The tax treatment of annuity payments is also the same as under corporate
plans (discussed above); as, in most respects, is the tax treatment of single
sum payments.
The same rules discussed above that determine n for corporate plans (a) when
annuity payments must commence and (b) the 10% penalty tax on certain early
distributions also apply to H.R. 10 plans.
CONTRACTS PURCHASED UNDER GOVERNMENT DEFERRED COMPENSATION PLANS
-----------------------------------------------------------------
You can exclude a portion of your compensation from gross income if you
participate in a deferred compensation plan maintained by
. a state,
. a political subdivision of a state,
. an agency or intrumentality or a state or political subdivision of a
state, or
. a tax-exempt organization.
As a "participant" in such a deferred compensation plan, any amounts you
exclude (and any income on such amounts) will be includible in gross income only
for the taxable year in which such amounts are paid or otherwise made available
to the annuitant or other payee.
In general, the maximum amount of compensation you can deferred under such
tax-favored plans equals the lesser of
. $7,500 or
. 33 1/3% of your "includible income" (as defined in the Code).
The deferred compensation plan must satisfy several conditions, including the
following:
. the plan must not permit distributions prior to your separation from
service (except in the case of an unforeseen emergency), and
. all compensation deferred under the plan shall remain solely the
employer's property and may be subject to the claims of its
creditors.
If we make a payment under your contract in the form of an annuity, or in a
single sum such as on surrender or withdrawal, the payment is taxed as ordinary
income.
CONTRACTS PURCHASED FOR "TOP-HEAVY" PLANS
-----------------------------------------
Certain corporate and H.R. 10 plans may fall within Section 416 of the Code's
definition of "top-heavy plans." This can happen if the plan holds a
significant amount of its assets for the benefit of "key employees" (as defined
in the Code). You should consider whether your plan meets the definition. If
so, you should take care to consider the special limitations applicable to
top-heavy plans and the
32
<PAGE>
potentially adverse tax consequences to key employees.
TAX-FREE ROLLOVERS
------------------
The discussion above covers certain fully or partially tax-free "rollovers"
from a regular IRA to a ROTH IRA. You may also make a tax-free rollover from
. a regular IRA to another regular IRA,
. any tax-qualified plan to a regular IRA,
. any tax-qualified plan to another tax-qualified plan of the same type
(i.e. TSA to TSA, corporate plan to corporate plan, etc.)
We do not have to withhold tax if you roll over your entire distribution and
you request us to pay it directly to the successor plan. Otherwise, 20%
mandatory withholding will apply and reduce the amount you can roll over to the
new plan, unless you add funds to the rollover from other sources. Consult a
qualified tax adviser before taking such a distribution.
SEE YOUR OWN TAX ADVISER
------------------------
The above description of Federal income tax consequences to owners of and
payees under contracts, and of the different kinds of tax qualified plans which
may be funded by the contracts, is only a brief summary and is not intended as
tax advice. It does not include a discussion of Federal estate and gift tax or
state tax consequences. The rules under the Code governing tax qualified plans
are extremely complex and often difficult to understand. Changes to the tax
laws may be enforced retroactively. Anything less than full compliance with the
applicable rules, all of which are subject to change from time to time, can have
adverse tax consequences. The taxation of an Annuitant or other payee has
become so complex and confusing that great care must be taken to avoid pitfalls.
For further information, you should consult a qualified tax adviser.
PERFORMANCE INFORMATION
We may advertise total return information about investments made in the
variable investment options. We refer to this information as "Account level"
performance. In our Account level advertisements, we usually calculate total
return for 1, 5, and 10 year periods or since the beginning of the applicable
variable investment option. Total return at the Account level is the percentage
change between
. the value of a hypothetical investment in a variable investment
option at the beginning of the relevant period, and
. the value at the end of such period.
At Account level, total return reflects adjustments for
. the mortality and expense risk charges,
. the administrative charge,
. the annual contract fee, and
. any withdrawal charge payable if the owner surrenders his contract at
the end of the relevant period.
Total return at the Account level does not, however, reflect any premium tax
charges. Total return at the Account level will be lower than that at the Trust
level where comparable charges are not deducted.
We may also advertise total return in a non-standard format in conjunction
with the standard format described above. The non-standard format is
33
<PAGE>
the same as the standard format, except that it will not reflect any withdrawal
charge.
We may advertise "current yield" and "effective yield" for investments in the
Money Market investment option. CURRENT YIELD refers to the income earned on
your investment in the Money Market investment option over a 7-day period an
then annualized. In other words, the income earned in the period is assumed to
be earned every 7 days over a 52-week period and stated as a percentage of the
investment.
EFFECTIVE YIELD is calculated in a similar manner but, when annualized, the
income earned by your investment is assumed to be reinvested and thus compounded
over the 52-week period. Effective yield will be slightly higher than current
yield because of this compounding effect of reinvestment.
We also advertise current yield for investments in the other variable
investment options. For investments in these options, we calculate current
yield by the following formula:
the annualization of the income earned by a
investment in the variable investment option
during a recent 30-day period
DIVIDED BY
the maximum offering price per unit of the
variable investment option at the end of such
30-day period
- ----------------------------------------------
In all cases, current yield and effective yield reflect all the recurring
charges at the Account level, but will not reflect any premium tax or any
withdrawal charge.
REPORTS
At least semi-annually, we will send you (1) a report showing the number and
value of the accumulation units in your contract and (2) the financial
statements of the Trust.
VOTING PRIVILEGES
At meetings of the Trust's shareholders, we will generally vote all the shares
of each Fund that we hold in the Account in accordance with instructions we
receive from the owners of contracts that participate in the corresponding
variable investment option.
CERTAIN CHANGES
We reserve the right, subject to applicable law, including any required
shareholder approval,
. to transfer assets that we determine to be your assets from the
Account to another separate account or investment option by
withdrawing the same percentage of each investment in the Account
with proper adjustments to avoid odd lots and fractions,
. to add or delete variable investment options,
. to change the underlying investment vehicles,
. to operate the Account in any form permitted by law, and
. to terminate the Account's registration under the 1940 Act, if such
registration should no longer be legally required.
Unless otherwise required under applicable laws and regulations, notice to or
approval of owners will not be necessary for us to make such changes.
DISTRIBUTION OF CONTRACTS
Signator Investors, Inc. ("Signator"), formerly John Hancock Distributors,
Inc., acts as principal distributor of the contracts sold through this
prospectus. Signator is registered as a broker-dealer under the Securities
Exchange Act of 1934 and a
34
<PAGE>
member of the National Association of Securities Dealers, Inc. Its address is
John Hancock Place, Boston, Massachusetts 02117. Signator is a subsidiary of
John Hancock.
You can purchase a contract either through Signators registered representative
or through other broker-dealers whose representatives are authorized by
applicable law to sell annuity products. We do not expect the compensation to
such broker-dealers to exceed 3.0% of premium payments. Signator compensates
its registered representatives for sales of the contracts on a commission and
fee service basis. We, in turn, reimburse Signator for direct and indirect
expenses actually incurred in connection with the marketing and sales of these
contracts. We offer these contracts on a continuous basis, but neither JHVLICO
is obligated to sell any particular amount of contracts.
IMPACT OF THE YEAR 2000 ISSUE
The advent of the Year 2000 presents us with a technological challenge:
making our systems function properly with respect to dates in the year 2000 and
after. In responds to that challenge, we have developed and are executing a
plan to modify or replace significant portions of our computer informations
systems and automated technologies. The plan involves coordination and testing
with business partners in an effort to minimize the possibility that external
factors will adversely impact our systems. We believe that, with modifications
to existing systems and conversions to new technologies, the Year 2000 will not
pose significant operational problems for our computer systems. However, if
certain modifications and conversions are not made, or are not completed on
time, the Year 2000 issue could have an adverse impact on our operations.
We have substantially completed the process of remediating our systems and
expect the compliance testing component of the project to be completed by June,
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. For more information about the impact of the Year 2000
issue, refer to Note 12 to the Notes to the Financial Statements of John Hancock
Variable Life Insurance Company included in the Statement of Additional
Information to this prospectus.
REGISTRATION STATEMENT
This prospectus omits certain information contained in the registration
statement that we filed with the SEC. You can get more details from the SEC
upon payment of prescribed fees or through the SEC's internet web site
(www.sec.gov).
Among other things, the registration statement contains a "Statement of
Additional Information" that we will send you without charge upon request. The
Table of Contents of the Statement of Additional Information lists the following
subjects that it covers:
<TABLE>
<CAPTION>
page of SAI
<S> <C>
VARIATIONS IN CHARGES. . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
DISTRIBUTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
CALCULATION OF PERFORMANCE DATA. . . . . . . . . . . . . . . . . . . . . . . 2
OTHER PERFORMANCE INFORMATION. . . . . . . . . . . . . . . . . . . . . . . . 4
CALCULATION OF ANNUITY PAYMENTS. . . . . . . . . . . . . . . . . . . . . . . 4
ADDITIONAL INFORMATION ABOUT DETERMINING
UNIT VALUES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
PURCHASES AND REDEMPTIONS OF FUND SHARES . . . . . . . . . . . . . . . . . . 7
THE ACCOUNT. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
DELAY OF CERTAIN PAYMENTS. . . . . . . . . . . . . . . . . . . . . . . . . . 8
LIABILITY FOR TELEPHONE TRANSFERS. . . . . . . . . . . . . . . . . . . . . . 8
VOTING PRIVILEGES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
JHVLICO FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . . . . . . . . . 10
SEPARATE ACCOUNT FINANCIAL STATEMENTS. . . . . . . . . . . . . . . . . . . . 23
</TABLE>
35
<PAGE>
EXPERTS
Ernst & Young LLP, independent auditors, have audited the financial statements
of John Hancock Variable Life Insurance Company and the Separate Account that
appear in the Statement of Additional Information, which also is a part of the
registration statement that contains this prospectus. Those financial statements
are included in the registration statement in reliance upon Ernst & Young's
report given upon the firm's authority as experts in accounting and auditing.
36
<PAGE>
CONDENSED FINANCIAL INFORMATION JOHN HANCOCK VARIABLE ANNUITY ACCOUNT I
The following table provides selected data for each accumulation share
throughout the period as follows:
<TABLE>
<CAPTION>
Period from
Year-End Year-End Year-End January 26, 1995
December 31, December 31, December 31, to December 31,
1997 1997 1996 1995
------------- ------------- ------------ ------------------
<S> <C> <C> <C> <C>
GROWTH & INCOME
Accumulation share value:
Beginning of period. . . . . $ 19.75 $15.44 $13.24 $10.00
End of period. . . . . . . . $ 25.34 $19.75 $15.44 $13.24
Number of Accumulation Shares
outstanding at end of period. 16,623,489 13,724,964 7,102,432 2,066,823
SOVEREIGN BOND
Accumulation share value:
Beginning of period. . . . . $ 12.97 $11.96 $11.66 $10.00
End of period. . . . . . . . $ 13.83 $12.97 $11.96 $11.66
Number of Accumulation Shares
outstanding at end of period. 7,060,247 4,981,289 2,750,678 727,898
MONEY MARKET
Accumulation share value:
Beginning of period. . . . . $ 11.22 $10.80 $10.41 $10.00
End of period. . . . . . . . $ 11.65 $11.22 $10.80 $10.41
Number of Accumulation Shares
outstanding at end of period. 4,529,599 4,567,952 3,168,756 1,077,898
LARGE CAP GROWTH
Accumulation share value:
Beginning of period. . . . . $ 19.20 $14.88 $12.77 $10.00
End of period. . . . . . . . $ 26.39 $19.20 $14.88 $12.77
Number of Accumulation Shares
outstanding at end of period. 5,998,713 1,771,232 2,911,076 867,756
MANAGED
Accumulation share value:
Beginning of period. . . . . $ 15.79 $13.50 $12.37 $10.00
End of period. . . . . . . . $ 18.73 $15.79 $13.50 $12.37
Number of Accumulation Shares
outstanding at end of period. 23,584,757 20,146,894 12,509,325 3,542,190
REAL ESTATE EQUITY
Accumulation share value:
Beginning of period. . . . . $ 17.16 $14.86 $11.34 $10.00
End of period. . . . . . . . $ 14.08 $17.16 $14.86 $11.34
Number of Accumulation Shares
outstanding at end of period. 1,376,429 1,444,160 528,458 141,749
INTERNATIONAL EQUITY INDEX
Accumulation share value:
Beginning of period. . . . . $ 11.17 $11.94 $11.10 $10.00
End of period. . . . . . . . $ 13.29 $11.17 $11.94 $11.10
Number of Accumulation Shares
outstanding at end of period. 1,463,435 1,394,138 947,816 277,248
SHORT-TERM BOND
Accumulation share value:
Beginning of period. . . . . $ 11.66 $11.13 $10.90 $10.00
End of period. . . . . . . . $ 12.16 $11.66 $11.13 $10.90
Number of Accumulation Shares
outstanding at end of period. 1,965,016 1,591,452 1,112,035 373,171
SMALL/MID CAP GROWTH
Accumulation share value:
Beginning of period. . . . . $ 17.40 $17.07 $13.29 $10.00
End of period. . . . . . . . $ 18.11 $17.40 $17.07 $13.29
Number of Accumulation Shares
outstanding at end of period. 3,371,066 3,799,693 3,137,620 620,479
</TABLE>
<TABLE>
<CAPTION>
Period from
Year-Ended Year-End May 1, 1996
December 31, December 31, to December 31,
1998 1997 1996
------------ ------------- -----------------
<S> <C> <C> <C>
EQUITY INDEX
Accumulation Share Value
Beginning of period . . . . $14.79 $11.31 $10.00
End of Period . . . . . . . $18.72 $14.79 $11.31
Number of Accumulation Shares
outstanding at end of period 3,637,757 2,453,427 450,914
LARGE CAP VALUE
Accumulation Share Value
Beginning of period . . . . $14.28 $11.28 $10.00
End of Period . . . . . . . $15.37 $14.28 $11.28
Number of Accumulation Shares
outstanding at end of period 2,416,480
MID CAP GROWTH
Accumulation Share Value
Beginning of period . . . . $11.69 $10.17 $10.00
End of Period . . . . . . . $16.02 $11.69 $10.17
Number of Accumulation Shares
outstanding at end of period 2,121,920 1,542,797 640,918
MID CAP VALUE
Accumulation Share Value
Beginning of period . . . . $14.99 $11.50 $10.00
End of period . . . . . . . $13.10 $14.99 $11.50
Number of Accumulation Shares
outstanding at end of period 2,147,209 486,455 1,263,857
SMALL CAP GROWTH
Accumulation Share Value
Beginning of period . . . . $11.09 $ 9.85 $10.00
End of period . . . . . . . $12.51 $11.09 $ 9.85
Number of Accumulation Shares
outstanding at end of period
SMALL CAP VALUE
Accumulation Share Value
Beginning of period . . . . $13.52 $10.92 $10.00
End of period . . . . . . . $12.53 $13.52 $10.92
Number of Accumulation Shares
outstanding at end of period
GLOBAL BOND
Accumulation Share Value
Beginning of period . . . . $11.35 $10.56 $10.00
End of period . . . . . . . $12.20 $11.35 $10.56
Number of Accumulation Shares
outstanding at end of period
INTERNATIONAL OPPORTUNITIES
Accumulation Share Value
Beginning of period . . . . $10.61 $10.56 $10.00
End of period . . . . . . . $12.12 $10.61 $10.56
Number of Accumulation Shares
outstanding at end of period
INTERNATIONAL BALANCED
Accumulation Share Value
Beginning of period . . . . $10.68 $10.57 $10.00
End of period . . . . . . . $12.42 $10.68 $10.57
Number of Accumulation Shares
outstanding at end of period
</TABLE>
37
<PAGE>
38
<PAGE>
<TABLE>
<CAPTION>
PERIOD FROM
MAY 1, 1998 TO
DECEMBER 31, 1998
-----------------
<S> <C>
SMALL/MID CAP CORE
Accumulation share value:
Beginning of period. . . . . . . . . . . $10.00
End of period. . . . . . . . . . . . . .
Accumulation share value . . . . . . . . .
GLOBAL EQUITY
Accumulation share value:
Beginning of period. . . . . . . . . . . $10.00
End of period. . . . . . . . . . . . . .
Accumulation share value:
EMERGING MARKETS EQUITY
Accumulation share value:
Beginning of period. . . . . . . . . . . $10.00
End of period. . . . . . . . . . . . . .
Accumulation share value . . . . . . . . .
BOND INDEX
Accumulation share value:
Beginning of period. . . . . . . . . . . $10.00
End of period. . . . . . . . . . . . . .
Accumulation share value
HIGH YIELD BOND
Accumulation share value:
Beginning of period. . . . . . . . . . . $10.00
End of period. . . . . . . . . . . . . .
Accumulation share value . . . . . . . . .
</TABLE>
39
<PAGE>
APPENDIX A - EXAMPLE OF WITHDRAWAL CHARGE CALCULATION
ASSUME THE FOLLOWING FACTS:
On January 1, 1996, you make a $5000 initial premium payment and we issue you
a contract.
On January 1, 1997, you make a $1000 premium payment
On January 1, 1998, you make a $1000 premium payment.
On January 1, 1999, the total value of your contract is $9000 because of good
investment earnings.
Now assume you make a partial withdrawal of $6000 (no tax withholding) on
January 2, 1999. In this case, assuming no prior withdrawals, we would
deduct a CDSL of $399.89. We withdraw a total of $5600.11 from your
contract.
$6000.00 -- withdrawal request payable to you
+ 399.89 -- withdrawal charge payable to us
-----------
$5600.11 -- total amount withdrawn from your contract
HERE IS HOW WE DETERMINE THE WITHDRAWAL CHARGE:
1.We FIRSt reduce your $5,000 INITIAL PREMIUM DEPOSIT by the three annual $30
contract fees we assessed on January 1, 1997, 1998, and 1999. We withdraw
the remaining $4910 from your contract.
$5000
-30 -- 1997 contract fee payable to us
-30 -- 1998 contract fee payable to us
-30 -- 1999 contract fee payable to us
-------
$4910 -- amount of your initial premium payment we would consider to be
withdrawn.
Under the free withdrawal provision, we deduct 10% of the total value of your
contract at the beginning of the contract year, or $900 (.10 x $9000). We
pay the $900 to you as part of your withdrawal request, and we assess a
withdrawal charge on the remaining balance of $4010. Because you made the
initial premium payment 3 years ago, the withdrawal charge percentage is 7%.
We deduct the resulting $280.70 from your contract to cover the withdrawal
charge on your initial premium payment. We pay the remainder of $3729.30 to
you as a part of your withdrawal request.
$ 4910
-900 -- free withdrawal amount (payable to you)
-------
$ 4010
x .07
-------
$280.70 -- withdrawal charge on initial premium payment (payable to us)
40
<PAGE>
$ 4010.00
-280.70
---------
3729.30 -- part of withdrawal request payable to you
2.We NEXT deem the entire amount of your 1997 PREMIUM PAYMENT to be withdrawn
and we assess a withdrawal charge on that $1000 amount. Because you made
this premium payment 2 years ago, the withdrawal charge percentage is 8%.
We deduct the resulting $80 from your contract to cover the withdrawal
charge on your 1997 premium payment. We pay the remainder of $920 to you as
a part of your withdrawal request.
$ 1000
x .08
-----
$80 -- withdrawal charge on 1997 premium payment (payable to us)
$ 1000
- 80
----
$920 -- part of withdrawal request payable to you
3.We NEXT determine what additional amount we need to withdraw to provide you
with the total $6000 you requested, after the deduction of the withdrawal
charge on that additional amount. We have already allocated $900 from the
free withdrawal amount, $3729.30 from your initial premium payment, and $920
from your 1998 PREMIUM PAYMENT. Therefore, $450.70 is needed to reach
$6000.
$ 6000.00 -- total withdrawal amount requested
-900.00 -- free withdrawal amount
-3729.30 -- payment deemed from initial premium payment
-920.00 -- payment deemed from 1997 premium payment
--------
$ 450.70 -- additional payment to you needed to reach $6000
We know that the withdrawal charge percentage for this remaining amount is 8%,
because you are already deemed to have withdrawn all premiums you paid prior
to 1998. We use the following formula to determine how much more we need to
withdraw:
Remainder due to you = Withdrawal needed - [applicable withdrawal
charge percentage times withdrawal needed]
$450.70 = x - [.08x]
$450.70 = .92x
$450.7
------
0.92 = x
$489.89 = x
$489.89 -- deemed withdrawn from 1998 premium payment
-$450.70 -- part of withdrawal request payable to you
--------
$39.19 -- withdrawal charge on 1998 premium deemed withdrawn (payable
to us)
41
<PAGE>
$ 280.70 -- withdrawal charge on the INITIAL PREMIUM PAYMENT
$ 80.00 -- withdrawal charge on the 1997 PREMIUM PAYMENT
$ 39.19 -- withdrawal charge on the 1998 PREMIUM PAYMENT
--------
$ 399.89 -- Total withdrawal charge
42
<PAGE>
APPENDIX B - CONTRACT LOANS UNDER SECTION 403 (B) ("TSA LOANS")
Any loan under this section will be secured by a security interest in your
contract. The loan amount must be at least $2,500 and may not, on the date of
the loan (defined below), exceed the lesser of
. 50% of the total value of your contract,
. $50,000 or
. the sum of 100% of the total value of your contract invested in the
variable investment options and 20% of the total value of your
contract invested in the fixed investment option.
We will deduct that portion of the loan amount up to 20% of the total value of
your contract on the date of the loan proportionately from each investment
option you are then using. We will decoct any amount in excess of 20% of the
total value of your contract on the date of the loan proportionately from each
VARIABLE investment option you are then using.
On the date of the loan, we will transfer the total loan amount to the loan
collateral account. This account is held in JHVLICO's general investment
account and accrues interest at an effective rate equal to 1% less than the loan
interest rate described below. We transfer the interest accrued on the loan
collateral account back to the investment options on each contract anniversary
in the same proportion as your investment options are then allocated.
The DATE OF THE LOAN will be the business date on which we receive at the John
Hancock Annuity Servicing Office all the necessary documentation assigning your
contract as the security for the loan. If such receipt occurs on a date on
which we do not value shares, then the date of the loan will be the next
business day following such receipt on which we do value shares.
We determine the LOAN INTEREST RATE for this contract annually. We make such
determination in the calendar month immediately preceding the calendar month in
which your contract anniversary occurs. We apply the loan interest rate to any
loan made during the calendar year following the date we determine the loan
interest rate. Except as otherwise required by applicable state law, we will
not set a rate in excess of the greater of
. 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 we determine the loan interest rate, or
. 5%.
43
<PAGE>
If Moody's Investors Service no longer publishes this average, JHVLICO 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,
. we may increase the previous rate if the increase would be at least
1/2 %, and
. we may reduce the previous rate if the decrease would be at least 1/2
%.
We will notify you of the applicable loan interest rate at the time you make
the loan. The loan interest rate for any given loan will be fixed for the
entire loan period. Accrued interest on the loan will be added 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. Prior to the first installment date, we will
provide you with the repayment due dates and installment amounts in a repayment
schedule. The principal portion of each loan repayment will be transferred back
to the investment options in the same proportion as your investment options are
then allocated.
Prepayment of the entire loan is permitted. In addition, loan prepayments in
excess of regularly scheduled prepayments 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 you fail to make a scheduled loan repayment 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 the total
value of your contract contains (1) salary reduction contributions made on or
before December 31, 1988 and (2) earnings credited on such contributions on or
before such date at the time of default (together referred to as "pre-1988 "
with regard to the default. We will withdraw from the total value of your
contract 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). To the extent that the amount in default exceeds
the amount of pre-1988 contributions, we will make no actual foreclosure on the
loan security
. until the earliest of your attaining age 59 1/2, separation from
service, death, or becoming disabled (as defined in Section 72(m)(7)
of the Code, and
. unless, prior to the occurrence of such event, the excess is deemed a
distribution reportable you.
If you surrender your contract while there is an outstanding loan balance or,
if the annuitant dies while there is an outstanding loan balance, we will
determine an amount (positive or negative) by subtracting the outstanding loan
balance from the loan collateral account as of the date of surrender or death.
If such amount is positive, we will add it to the surrender value or death
benefit, as applicable. If the amount is negative, we will subtract it from the
surrender value or death benefit, as applicable. If, at any time, the surrender
value exceeds the loan
44
<PAGE>
collateral account, your loan will be subject to certain excessive loan balance
provisions set forth in your loan agreement.
Because the Federal tax laws governing contract loans are very complex and
confusing, you should consult a qualified tax adviser before applying for a
contract loan.
45
<PAGE>
APPENDIX C - ILLUSTRATIVE CONTRACT VALUE AND ANNUITY PAYMENT TABLES
The following tables present illustrative periodic contract values and annuity
payments that would have resulted under a contract described in this prospectus
had such values and payments been based exclusively upon the investment
experience of the nine specified variable investment options, assuming
investment by each of those investment options in the corresponding Fund of the
Trust and its predecessors during the periods shown. We have not illustrated the
other investment options because of the limited time that they have been
available. The contracts described in this prospectus were first offered in
1995.
For the years ended December 31, 1986 (and prior thereto), we have calculated
the values based upon the actual investment results of the three corresponding
variable life insurance managed separate accounts which were the predecessors to
the Growth & Income, Sovereign Bond, and Money Market Portfolios, as if the Fund
had been in existence prior to March 28, 1986, the date of its reorganization.
In the tables, we assume
. the owner made a single purchase payment of $10,000, net of any
deductions from purchase payments,
. charges have been assessed at annual rate of 1.50% for mortality and
expense risks and administrative services, and
. actual investment management fees and other fund expenses for the
periods illustrated have also been assessed.
Absent expense reimbursements by JHVLICO to certain of the Funds for some
periods, the values illustrated would have been lower.
WHAT THE TABLES ILLUSTRATE
Subject to the foregoing, each Table I presents, at yearly intervals, the
illustrative periodic contract values for each variable investment option which
would have resulted under a contract, if the owner had made a net single
purchase payment of $10,000. The contract values are based upon the investment
performance of the corresponding Fund.
Subject to the foregoing, each Table II indicates, at annual intervals,
illustrative monthly variable annuity payments for each variable investment
option which would have been received by an annuitant or other payee, assuming
that an initial annuity payment of $100 was received in the month and year
indicated. The form of annuity illustrated is a life annuity with payments
guaranteed for 10 years.
The results shown should not be considered a representation of the future. A
program of the type illustrated in the tables does not assure a profit or
protect against depreciation in declining markets.
46
<PAGE>
GROWTH & INCOME
TABLE I--ACCUMULATION PERIOD--ILLUSTRATIVE CONTRACT VALUES WHICH WOULD HAVE
RESULTED IF A $10,000 NET PURCHASE PAYMENT CONTRACT HAD BEEN ISSUED JANUARY 2,
1975
<TABLE>
<CAPTION>
CONTRACT VALUE
ON DECEMBER 31
Contract Year Commencing OF THE SAME YEAR
------------------------ ----------------------
<S> <C>
January 1975 . . . . . . . . . . . . . . . . 12,755.81
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
January 1998. . . . . . . . . . . . . . . . . 267,829.80
</TABLE>
47
<PAGE>
TABLE II--ANNUITY PERIOD--ILLUSTRATIVE MONTHLY VARIABLE ANNUITY PAYMENTS AN
ANNUITANT WOULD HAVE RECEIVED ASSUMING A FIRST ANNUITY PAYMENT OF $100 IN
JANUARY 1975.
<TABLE>
<CAPTION>
PAYMENT
Month For Month
----- -----------
<S> <C>
January 1975 . . . . . . . . . . . . . . . . . . 100.00
January 1976 . . . . . . . . . . . . . . . . . . 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. . . . . . . . . . . . . . . . . . . 943.07
January 1999. . . . . . . . . . . . . . . . . . . 1,209.33
</TABLE>
The amounts shown are based on the investment performance of the Growth &
Income Fund, and its predecessors. All amounts reflect the provisions of the
contracts described in this prospectus, including annuity tables based on the
standard assumed investment rate of3 1/2% per annum. The amounts shown do not
reflect the deduction for any applicable premium tax. See text preceding these
tables.
48
<PAGE>
SOVEREIGN BOND
TABLE I--ACCUMULATION PERIOD--ILLUSTRATIVE CONTRACT VALUES WHICH WOULD HAVE
RESULTED IF A $10,000 NET PURCHASE PAYMENT CONTRACT HAD BEEN ISSUED JUNE 2, 1980
<TABLE>
<CAPTION>
Contract Value
ON DECEMBER 31
Contract year Commencing of the same year
------------------------ ------------------
<S> <C>
June 1980 . . . . . . . . . . . . . . . . . . 10,223.96
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
June 1998 . . . . . . . . . . . . . . . . . . 47,386.22
</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 . . . . . . . . . . . . . . . . . . . 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 . . . . . . . . . . . . . . . . . . .
June 1998. . . . . . . . . . . . . . . . . . . . 245.17
</TABLE>
The amounts shown are based on the investment performance of the Sovereign
Bond Fund, and its predecessors. All amounts reflect the provisions of the
contracts described in this prospectus, including annuity tables based on the
standard assumed investment rate of3 1/2% per annum. The amounts shown do not
reflect the deduction for any applicable premium tax. See text preceding these
tables.
49
<PAGE>
MONEY MARKET
TABLE I--ACCUMULATION PERIOD--ILLUSTRATIVE CONTRACT VALUES WHICH WOULD HAVE
RESULTED IF A $10,000 NET PURCHASE PAYMENT CONTRACT HAD BEEN ISSUED MAY 13, 1982
<TABLE>
<CAPTION>
Contract Value
on December 31
Contract Year Commencing of the same year
------------------------ ------------------
<S> <C>
May 1982 . . . . . . . . . . . . . . . . . . 10,447.10
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
May 1998. . . . . . . . . . . . . . . . . . .
</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 . . . . . . . . . . . . . . . . . . . . 103.24
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 . . . . . . . . . . . . . . . . . . . .
May 1998 . . . . . . . . . . . . . . . . . . . . 127.29
</TABLE>
The amounts shown are based on the investment performance of the Money Market
Fund, and its predecessors. All amounts reflect the provisions of the contracts
described in this prospectus, including annuity tables based on the standard
assumed investment rate of3 1/2% per annum. The amounts shown do not reflect the
deduction for any applicable premium tax. See text preceding these tables.
50
<PAGE>
LARGE CAP GROWTH
TABLE I--ACCUMULATION PERIOD--ILLUSTRATIVE CONTRACT VALUES WHICH WOULD HAVE
RESULTED IF A $10,000 NET PURCHASE PAYMENT HAD BEEN ISSUED NOVEMBER 24, 1987
<TABLE>
<CAPTION>
Contract Value
ON DECEMBER 31
Contract Year Commencing of the same year
------------------------ ------------------
<S> <C>
November 1987 . . . . . . . . . . . . . . . . 10,238.54
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
November 1998 . . . . . . . . . . . . . . . . 61,256.68
</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 . . . . . . . . . . . . . . . . . 109.48
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 . . . . . . . . . . . . . . . . . 307.21
November 1998 . . . . . . . . . . . . . . . . . 368.82
</TABLE>
The amounts shown are based on the investment performance of the Large Cap
Growth Fund. All amounts reflect the provisions of the contracts described in
this prospectus, including annuity tables based on the standard assumed
investment rate of3 1/2% per annum. The amounts shown do not reflect the
deduction for any applicable premium tax. See text preceding the tables.
51
<PAGE>
MANAGED
TABLE I--ACCUMULATION PERIOD--ILLUSTRATIVE CONTRACT VALUES WHICH WOULD HAVE
RESULTED IF A $10,000 NET PURCHASE PAYMENT HAD BEEN ISSUED NOVEMBER 9, 1987
<TABLE>
<CAPTION>
Contract Value
ON DECEMBER 31
Contract Year Commencing of the same year
------------------------ --------------------
<S> <C>
November 1987 . . . . . . . . . . . . . . . . 10,225.28
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
November 1998 . . . . . . . . . . . . . . . . 34,763.44
</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 . . . . . . . . . . . . . . . . . 109.76
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 . . . . . . . . . . . . . . . . .
November 1998 . . . . . . . . . . . . . . . . .
</TABLE>
The amounts shown are based on the investment performance of the Managed Fund.
All amounts reflect the provisions of the contracts described in this
prospectus, including annuity 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.
52
<PAGE>
REAL ESTATE EQUITY
TABLE I--ACCUMULATION PERIOD--ILLUSTRATIVE CONTRACT VALUES WHICH WOULD HAVE
RESULTED IF A $10,000 NET PURCHASE PAYMENT HAD BEEN ISSUED FEBRUARY 14, 1989
<TABLE>
<CAPTION>
Contract Value
on December 31
Contract Year Commencing OF THE SAME YEAR
------------------------ ------------------
<S> <C>
February 1989 . . . . . . . . . . . . . . . . 10,366.26
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
February 1998 . . . . . . . . . . . . . . . .
</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 . . . . . . . . . . . . . . . . 95.81
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
February 1999. . . . . . . . . . . . . . . . .
</TABLE>
The amounts shown are based on the investment performance of the Real Estate
Equity Fund. All amounts reflect the provisions of the contracts described in
this prospectus, including annuity tables based on the standard assumed
investment rate of3 1/2% per annum. The amounts shown do not reflect the
deduction for any applicable premium tax. See text preceding the tables.
53
<PAGE>
INTERNATIONAL EQUITY INDEX
TABLE I--ACCUMULATION PERIOD--ILLUSTRATIVE CONTRACT VALUES WHICH WOULD HAVE
RESULTED IF A $10,000 NET PURCHASE PAYMENT HAD BEEN ISSUED FEBRUARY 10, 1989
<TABLE>
<CAPTION>
Contract Value
ON DECEMBER 31
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
February 1998. . . . . . . . . . . . . . . .
</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 . . . . . . . . . . . . . . . . . 96.68
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 . . . . . . . . . . . . . . . . .
February 1999 . . . . . . . . . . . . . . . . .
</TABLE>
The amounts shown are based on the investment performance of the International
Equity Index Fund. All amounts reflect the provisions of the contracts described
in this prospectus, including annuity tables based on the standard assumed
investment rate of3 1/2% per annum. The amounts shown do not reflect the
deduction for any applicable premium tax. See text preceding the tables.
54
<PAGE>
SHORT-TERM BOND (FORMERLY SHORT-TERM U.S. GOVERNMENT)
TABLE I--ACCUMULATION PERIOD--ILLUSTRATIVE CONTRACT VALUES WHICH WOULD HAVE
RESULTED IF A $10,000 NET PURCHASE PAYMENT HAD BEEN ISSUED SEPTEMBER 23, 1994
<TABLE>
<CAPTION>
CONTRACT VALUE
ON DECEMBER 31
Contract Year Commencing OF THE SAME YEAR
------------------------ ------------------
<S> <C>
September 1994 . . . . . . . . . . . . . . . 9,910.36
September 1995 . . . . . . . . . . . . . . . 10,885.60
September 1996 . . . . . . . . . . . . . . . 11,110.41
September 1997 . . . . . . . . . . . . . . . 11,646.79
September 1998 . . . . . . . . . . . . . . . 12,140.74
</TABLE>
TABLE II--ANNUITY PERIOD--ILLUSTRATIVE MONTHLY VARIABLE ANNUITY PAYMENTS AN
ANNUITANT WOULD HAVE RECEIVED ASSUMING A FIRST ANNUITY PAYMENT OF $100 IN
SEPTEMBER 1994
<TABLE>
<CAPTION>
Payment
Month FOR MONTH
----- -----------
<S> <C>
September 1994. . . . . . . . . . . . . . . . . 100.00
September 1995. . . . . . . . . . . . . . . . . 102.81
September 1996. . . . . . . . . . . . . . . . . 99.22
September 1997. . . . . . . . . . . . . . . . . 104.74
September 1998. . . . . . . . . . . . . . . . . 104.85
</TABLE>
The amounts shown are based on the investment performance of the Short-Term
Bond Fund. All amounts reflect the provisions of the contracts described in this
prospectus, including annuity tables based on the standard assumed investment
rate of3 1/2% per annum. The amounts shown do not reflect the deduction for any
applicable premium tax. See text preceding the tables.
55
<PAGE>
SMALL/MID CAP GROWTH (FORMERLY, DIVERSIFIED MID CAP GROWTH)
TABLE I--ACCUMULATION PERIOD--ILLUSTRATIVE CONTRACT VALUES WHICH WOULD HAVE
RESULTED IF A $10,000 NET PURCHASE PAYMENT HAD BEEN ISSUED SEPTEMBER 23, 1994
<TABLE>
<CAPTION>
Contract Value
ON DECEMBER 31
Contract Year Commencing of the same year
------------------------ ------------------
<S> <C>
September 1994 . . . . . . . . . . . . . . . 9,909.25
September 1995 . . . . . . . . . . . . . . .
September 1996 . . . . . . . . . . . . . . .
September 1997 . . . . . . . . . . . . . . .
September 1998 . . . . . . . . . . . . . . .
</TABLE>
TABLE II--ANNUITY PERIOD--ILLUSTRATIVE MONTHLY VARIABLE ANNUITY PAYMENTS AN
ANNUITANT WOULD HAVE RECEIVED ASSUMING A FIRST ANNUITY PAYMENT OF $100 IN
SEPTEMBER 1994
<TABLE>
<CAPTION>
Payment
Month FOR MONTH
----- --------------
<S> <C>
September 1994. . . . . . . . . . . . . . . . . 100.00
September 1995. . . . . . . . . . . . . . . . .
September 1996. . . . . . . . . . . . . . . . . 98.37
September 1997. . . . . . . . . . . . . . . . . 103.83
September 1998. . . . . . . . . . . . . . . . . 104.36
</TABLE>
The amounts shown are based on the investment performance of the Small/Mid Cap
Growth Fund. All amounts reflect the provisions of the contracts described in
this prospectus, including annuity tables based on the standard assumed
investment rate of3 1/2% per annum. The amounts shown do not reflect the
deduction for any applicable premium tax. See text preceding the tables.
56
<PAGE>
LOGO
JOHN HANCOCK
LOGO
JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY
ANNUITY TRANSFERLINE
AUTHORIZATION FORM
INSTRUCTIONS: Please complete and sign where indicated. If your contract will
be jointly owned, each owner must sign. An acknowledgment letter will be sent
as soon as your contract is issued.
THIS COMPLETED FORM MUST BE SUBMITTED WITH THE APPLICATION.
- -------------------------------------------------------------------------------
( ) Yes! I want TRANSFERLINE, JHVLICO'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 JHVLICO, on behalf of the Fund, to act upon my
telephone instructions to:
(1) reallocate my then current value held in any one or more investment
options, and
(2) to change the allocation of future purchase payments to the investment
options.
I understand that JHVLICO 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 JHVLICO follows such
procedures, I will not hold JHVLICO 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 JHVLICO at its Annuity
Servicing Office or (b) JHVLICO discontinues this service.
Signature(s) of Prospective
Contract Owner(s)
Date: /s/ _________________________________
Date: /s/ _________________________________
Questions call: 1-800-732-5543
Mail to: John Hancock Annuity Servicing Office
529 Main Street (X-4)
Boston, MA 02129
57
<PAGE>
PROSPECTUS DATED MAY 3, 1999
INDEPENDENCE 2000 VARIABLE ANNUITY
- --------------------------------------------------------------------------------
an individual deferred combination fixed and variable annuity contract
issued by
JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY
("JHVLICO")
JOHN HANCOCK ANNUITY SERVICING OFFICE
- ------------------------------------------------
EXPRESS DELIVERY U.S. MAIL
- ----------------
529 Main Street (X-4) P.O. Box 111
Charlestown, MA 02129 Boston, MA 02117
Phone: 1-800-732-5543
Fax: 1-800-886-3048
- ------------------------------------------------
The contract enables you to earn (1) a fixed rate of interest that we declare
under our fixed investment option and (2) an investment-based return in the
following variable investment options:
<TABLE>
<CAPTION>
VARIABLE INVESTMENT OPTION MANAGED BY
-------------------------- ----------
- -----------------------------------------------------------------------------------
<S> <C>
Managed . . . . . . . . . . . . . Independence Investment Associates, Inc.
Growth & Income . . . . . . . . . Independence Investment Associates, Inc.
Equity Index . . . . . . . . . . State Street Global Advisors
Large Cap Value . . . . . . . . . T. Rowe Price Associates, Inc.
Large Cap Growth . . . . . . . . Independence Investment Associates, Inc.
Mid Cap Value . . . . . . . . . . Neuberger Berman, LLC
Mid Cap Growth . . . . . . . . . Janus Capital Corporation
Real Estate Equity . . . . . . . Independence Investment Associates, Inc.
Small/Mid Cap Growth. . . . . . . Wellington Management Company, LLP
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, Inc.
International Balanced . . . . . Brinson Partners, Inc.
International Equity Index . . . . Independence 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, LLP
Sovereign Bond . . . . . . . . . John Hancock Advisers, Inc.
Global Bond . . . . . . . . . . . J.P. Morgan Investment Management, Inc.
High Yield Bond . . . . . . . . . Wellington Management Company, LLP
Money Market . . . . . . . . . . John Hancock Mutual Life Insurance Company
- -----------------------------------------------------------------------------------
</TABLE>
We may offer additional variable investment options in the future.
<PAGE>
For each variable investment option you select, we invest your money in the
corresponding "Fund" of the John Hancock Variable Series Trust I (the "Trust").
The Trust is a so-called "series" type mutual fund registered with the
Securities and Exchange Commission ("SEC"). Each of the Trust's "Funds" is a
separately managed investment portfolio that has its own investment objective
and strategies. Attached at the end of this prospectus is a prospectus for the
Trust that contains detailed information about each Fund. Be sure to read the
prospectus for the Trust before selecting any variable investment option.
For amounts you don't wish to invest in a variable investment option, you can
allocate to the fixed investment option. We invest the assets allocated to the
fixed investment option in our general account and they earn interest at a fixed
rate, declared by us, subject to a 3% minimum. Neither our general account nor
any interests in our general account are registered with the SEC or subject to
the Federal securities laws.
We refer to the variable investment options and the fixed investment option
together as "investment options."
The fixed investment option is not available in Washington or Oregon.
************************************************************************
The SEC has not approved or disapproved the contracts, or determined if this
prospectus is accurate or complete. Any representation to the contrary is a
criminal offense.
Contracts are not deposits or obligations of, or insured, endorsed, or
guaranteed by the U.S. Government, any bank, the Federal Deposit Insurance
Corporation, the Federal Reserve Board, or any other agency, entity or person,
other than JHVLICO. They involve investment risks including the possible loss
of principal.
This prospectus does not constitute an offer to sell, or a solicitation of an
offer to buy, securities in any state to any person to whom it is unlawful to
make or solicit an offer in that state.
2
<PAGE>
GUIDE TO THIS PROSPECTUS
This prospectus contains information that you should know before you buy a
contract or exercise any of your rights under the contract. We have arranged
the prospectus in the following way:
. The first section contains an "INDEX OF KEY WORDS."
. Behind the index is the "FEE TABLE." This section highlights the
various fees and expenses you will pay directly or indirectly, if you
purchase a contract.
. The next section is called "BASIC INFORMATION." It contains basic
information about the contract presented in a question and answer
format. You should read the Basic Information before reading any
other section of the prospectus.
. Behind the Basic Information is "ADDITIONAL INFORMATION." This
section gives more details about the contract. It generally does not
repeat information contained in the Basic Information.
. "CONDENSED FINANCIAL INFORMATION" follows the "Additional
Information." This gives some basic information about the size and
past performance of the variable investment options.
The Trust's prospectus is attached at the end of this prospectus. You should
save these prospectuses for future reference.
IMPORTANT NOTICES
This is the prospectus - it is not the contract. The prospectus simplifies
many contract provisions to better communicate the contract's essential
features. Your rights and obligations under the contract will be determined by
the language of the contract itself. On request, we will provide the form of
contract for you to review. In any event, when you receive your contract, we
suggest you read it promptly.
We've also filed with the SEC a "Statement of Additional Information," dated
May 1, 1999. This Statement contains detailed information not included in the
prospectus. Although a separate document from this prospectus, the Statement
of Additional Information has the same legal effect as if it were a part of
this prospectus. We will provide you with a free copy of the Statement upon
your request. To give you an idea what's in the Statement, we have included a
copy of the Statement's table of contents on page __.
- -------------------------------------------------------------------------------
3
<PAGE>
INDEX OF KEY WORDS
We define or explain each of the following key words used in this prospectus
on the pages shown below:
<TABLE>
<CAPTION>
KEY WORD PAGE
<S> <C>
Accumulation units...................................27
Annuitant............................................10
Annuity payments.....................................34
Annuity period.......................................13
Contract year........................................11
Date of issue........................................11
Date of maturity.....................................10
Free withdrawal amount...............................16
Funds................................................2
Fixed investment option..............................cover
Investment options...................................14
Premium payments.....................................10
Surrender value......................................18
Surrender............................................16
Variable investment options..........................cover
Withdrawal charge....................................16
Withdrawal...........................................16
</TABLE>
4
<PAGE>
FEE TABLE
The following fee table shows the various fees and expenses that you will pay,
either directly or indirectly, if you purchase a contract. The table does not
include charges for premium taxes (which may vary by state).
OWNER TRANSACTION EXPENSES AND ANNUAL CONTRACT FEE
.Maximum Withdrawal Charge (as % of amount withdrawn) 7%
.Annual Contract Fee (applies only to contracts of less than $10,000) $30
ANNUAL CONTRACT EXPENSES (AS A % OF THE AVERAGE TOTAL VALUE OF THE CONTRACT)
Mortality and Expense Risk Charge 1.10%
- ------------------------------------------------------------------------------
Administrative Services Charge 0.30%
- ------------------------------------------------------------------------------
Total Annual Contract Charge 1.40%
- ------------------------------------------------------------------------------
These annual contract expenses don't apply to amounts held in the fixed
investment option.
ANNUAL FUND EXPENSES (BASED ON % OF AVERAGE NET ASSETS)
Each Fund pays an investment management fee and other operating expenses.
These fees and expenses reduce the investment return of the Fund, and therefore,
indirectly reduce the return you will earn on any amounts you allocate to the
variable investment options that corresponds to that Fund. The figures in the
following chart are expressed as percentages of each Fund's average daily net
assets for 1998 (rounded to two decimal places). The percentages reflect the
investment management fees that were payable in 1998 and the 1998 other
operating expenses that would have been allocated to the Funds under the
allocation rules currently in effect:
<TABLE>
<CAPTION>
OTHER FUND TOTAL FUND OTHER FUND EXPENSES
FUND NAME MANAGEMENT FEES EXPENSES* EXPENSES AFTER REIMBURSEMENT
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Managed 0.32% 0.05% 0.37% 0.05%
- -------------------------------------------------------------------------------------------------------
Growth & Income 0.25% 0.05% 0.30% 0.05%
- -------------------------------------------------------------------------------------------------------
Equity Index 0.14% 0.08% 0.22% 0.08%
- -------------------------------------------------------------------------------------------------------
Large Cap Value 0.74% 0.07% 0.81% 0.07%
- -------------------------------------------------------------------------------------------------------
Large Cap Growth 0.37% 0.05% 0.42% 0.05%
- -------------------------------------------------------------------------------------------------------
Mid Cap Value 0.80% 0.05% 0.85% 0.05%
- -------------------------------------------------------------------------------------------------------
Mid Cap Growth 0.85% 0.08% 0.93% 0.08%
- -------------------------------------------------------------------------------------------------------
Real Estate Equity 0.60% 0.05% 0.65% 0.05%
- -------------------------------------------------------------------------------------------------------
Small/Mid Cap Growth** 0.75% 0.05% 0.80% 0.05%
- -------------------------------------------------------------------------------------------------------
Small/Mid Cap CORE 0.80% 0.10% 0.90% 0.23%
- -------------------------------------------------------------------------------------------------------
Small Cap Value 0.80% 0.07% 0.87% 0.07%
- -------------------------------------------------------------------------------------------------------
Small Cap Growth 0.75% 0.08% 0.83% 0.08%
- -------------------------------------------------------------------------------------------------------
Global Equity 0.90% 0.10% 1.00% 0.50%
- -------------------------------------------------------------------------------------------------------
International Balanced 0.85% 0.10% 0.95% 0.64%
- -------------------------------------------------------------------------------------------------------
International Equity Index 0.17% 0.10% 0.27% 0.23%
- -------------------------------------------------------------------------------------------------------
International Opportunities 0.87% 0.10% 0.97% 0.32%
- -------------------------------------------------------------------------------------------------------
Emerging Markets Equity 1.30% 0.10% 1.40% 0.68%
- -------------------------------------------------------------------------------------------------------
Short-Term Bond 0.30% 0.05% 0.35% 0.05%
- -------------------------------------------------------------------------------------------------------
Bond Index 0.15% 0.05% 0.20% 0.05%
- -------------------------------------------------------------------------------------------------------
Sovereign Bond 0.25% 0.05% 0.30% 0.05%
- -------------------------------------------------------------------------------------------------------
Global Bond** 0.69% 0.06% 0.75% 0.06%
- -------------------------------------------------------------------------------------------------------
High Yield Bond 0.65% 0.07% 0.72% 0.07%
- -------------------------------------------------------------------------------------------------------
Money Market 0.25% 0.05% 0.30% 0.05%
- -------------------------------------------------------------------------------------------------------
</TABLE>
5
<PAGE>
* John Hancock Mutual Life Insurance Company ("John Hancock") reimburses a
Fund when the Fund's other operating expenses exceed 0.10% of the Fund's
average daily net assets.
** Small/Mid Cap Growth was formerly "Diversified Mid Cap Growth" and Global
Bond was formerly "Strategic Bond."
EXAMPLES***
If you "surrender" (turn in) your contract at the end of the applicable time
period, you would pay the following current expenses, directly or indirectly, on
a $1,000 investment allocated to one of the variable investment options,
assuming a 5% annual return on assets:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- ----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Managed $81 $101 $124 $211
- ----------------------------------------------------------------------------
Growth & Income $80 $ 98 $119 $201
- ----------------------------------------------------------------------------
Equity Index $81 $100 $123 $208
- ----------------------------------------------------------------------------
Large Cap Value $87 $118 $152 $269
- ----------------------------------------------------------------------------
Large Cap Growth $82 $103 $126 $216
- ----------------------------------------------------------------------------
Mid Cap Value $87 $119 $154 $273
- ----------------------------------------------------------------------------
Mid Cap Growth $89 $124 $161 $287
- ----------------------------------------------------------------------------
Real Estate Equity $85 $111 $141 $245
- ----------------------------------------------------------------------------
Small/Mid Cap Growth $87 $117 $151 $266
- ----------------------------------------------------------------------------
Small/Mid Cap CORE $88 $122 $159 $282
- ----------------------------------------------------------------------------
Small Cap Value $88 $122 $159 $282
- ----------------------------------------------------------------------------
Small Cap Growth $88 $120 $156 $277
- ----------------------------------------------------------------------------
Global Equity $89 $125 $164 $291
- ----------------------------------------------------------------------------
International Balanced $89 $124 $161 $287
- ----------------------------------------------------------------------------
International Equity Index $83 $107 $134 $232
- ----------------------------------------------------------------------------
International Opportunities $89 $125 $164 $291
- ----------------------------------------------------------------------------
Emerging Markets Equity $93 $137 $183 $330
- ----------------------------------------------------------------------------
Short-Term Bond $83 $106 $132 $229
- ----------------------------------------------------------------------------
Bond Index $82 $102 $126 $215
- ----------------------------------------------------------------------------
$203
Sovereign Bond $80 $ 99 $120
- ----------------------------------------------------------------------------
Global Bond $87 $119 $154 $272
- ----------------------------------------------------------------------------
High Yield Bond $87 $117 $151 $267
- ----------------------------------------------------------------------------
Money Market $81 $ 99 $121 $205
- ----------------------------------------------------------------------------
</TABLE>
6
<PAGE>
If you commence receiving payments under one of our annuity payment options at
the end of the applicable time period, or if you do not surrender your contact,
you would pay the following current expenses, directly or indirectly, on a
$1,000 investment allocated to one of the variable investment options, assuming
5% annual return on assets.
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- --------------------------------------------------------------------
<S> <C> <C> <C> <C>
Managed $18 $56 $ 97 $211
- --------------------------------------------------------------------
Growth & Income $17 $54 $ 92 $201
- --------------------------------------------------------------------
Equity Index $18 $56 $ 96 $208
- --------------------------------------------------------------------
Large Cap Value $24 $73 $126 $269
- --------------------------------------------------------------------
Large Cap Growth $19 $58 $100 $216
- --------------------------------------------------------------------
Mid Cap Value $24 $75 $128 $273
- --------------------------------------------------------------------
Mid Cap Growth $26 $79 $135 $287
- --------------------------------------------------------------------
Real Estate Equity $22 $66 $114 $245
- --------------------------------------------------------------------
Small/Mid Cap Growth $24 $72 $124 $266
- --------------------------------------------------------------------
Small/Mid Cap CORE $25 $77 $132 $282
- --------------------------------------------------------------------
Small Cap Value $25 $77 $132 $282
- --------------------------------------------------------------------
Small Cap Growth $25 $76 $130 $277
- --------------------------------------------------------------------
Global Equity $26 $80 $137 $291
- --------------------------------------------------------------------
International Balanced $26 $79 $135 $287
- --------------------------------------------------------------------
International Equity Index $20 $62 $107 $232
- --------------------------------------------------------------------
International Opportunities $26 $80 $137 $291
- --------------------------------------------------------------------
Emerging Markets Equity $30 $92 $157 $330
- --------------------------------------------------------------------
Short-Term Bond $20 $62 $106 $229
- --------------------------------------------------------------------
Bond Index $19 $58 $ 99 $215
- --------------------------------------------------------------------
Sovereign Bond $17 $54 $ 93 $203
- --------------------------------------------------------------------
Global Bond $24 $74 $127 $272
- --------------------------------------------------------------------
High Yield Bond $24 $73 $125 $267
- --------------------------------------------------------------------
Money Market $18 $55 $ 94 $205
- --------------------------------------------------------------------
</TABLE>
***These examples do not include any applicable premium taxes. The examples
should not be considered representations of past or future expenses;
actual charges may be greater or less than those shown above. The
examples assume fund expenses at rates set forth above for 1998, after
reimbursements. The annual contract fee has been included as an annual
percentage of assets.
7
<PAGE>
BASIC INFORMATION
This "Basic Information" section provides answers to commonly asked questions
about the contract. Here are the page numbers where the questions and answers
appear:
QUESTION PAGES TO SEE
-------- ------------
What is the contract?. . . . . . . . . . . . . . . .
Who owns the contract?. . . . . . . . . . . . . . .
Is the owner also the annuitant?. . . . . . . . . .
How can I invest money in a contract?. . . . . . . .
How will the value of my investment in the contract change over time?
What annuity benefits does the contract provide?. .
What are the tax consequences of owning a contract?.
Can I change my contract's investment options?. . .
What fees and charges will be deducted from my contract?
How can I withdraw money from my contract?. . . . .
What happens if the annuitant dies before my contract's date of maturity?
Can I return my contract?. . . . . . . . . . . . . .
8
<PAGE>
WHAT IS THE CONTRACT?
The contract is a "deferred payment variable annuity contract." An annuity
contract provides a person (known as the "annuitant" or "payee") with a series
of periodic payments. Because this contract is also a deferred payment contract,
the annuity payments will begin on a future date, called the contract's "date of
maturity." Under a variable annuity contract, the amount you have invested can
increase or decrease in value daily based upon the value of the variable
investment options chosen.
WHO OWNS THE CONTRACT?
That's up to you. Unless the contract provides otherwise, the owner of the
contract is the person who can exercise the rights under the contract, such as
the right to choose the investment options or the right to surrender the
contract. In many cases, the person buying the contract will be the owner.
However, you are free to name another person or entity (such as a trust) as
owner. In writing this prospectus, we've assumed that you, the reader, are the
person or persons entitled to exercise the rights and obligations under
discussion.
IS THE OWNER ALSO THE ANNUITANT?
Again, that's up to you. The annuitant is the person upon whose death the
contract's death benefit becomes payable. Also, the annuitant receives payments
from us under any annuity option that commences during the annuitant's lifetime.
In many cases, the same person is both the annuitant and the owner of a
contract. However, you are free to name another person as annuitant.
HOW CAN I INVEST MONEY IN A CONTRACT?
PREMIUM PAYMENTS
We call the investments you make in your contract "premiums" or "premium
payments." In general, you need at least a $5,000 initial premium payment to
purchase a contract. However, you need only $1,000 for an individual retirement
account, $50 for all other qualified plans, or $500 for our Annuity Direct
Deposit Program, a program that allows automatic transfers from your checking
account to your annuity contract. If you choose to contribute more money into
your contract, each subsequent premium payment must also be at least $50.
APPLYING FOR A CONTRACT
An authorized representative of JHVLICO through whom you purchase your
contract will assist you in (1) completing an application for a contract and (2)
transmitting it, along with your initial premium payment, to the John Hancock
Annuity Servicing Office.
Once we receive your initial premium payment and all necessary information, we
will issue your contract and invest your initial premium payment within two
business days. If the information is not in good order, we will contact you to
get the necessary information. If for
9
<PAGE>
some reason, we are unable to complete this process within 5 business days, we
will either send back your money or get your permission to keep it until we get
all of the necessary information.
We measure the years and anniversaries of your contract from its date of
issue. We use the term "contract year" to refer to each period of time between
anniversaries of your contract's date of issue.
LIMITS ON PREMIUM PAYMENTS
You can make premium payments of up to $500,000 in any one contract year
($100,000 into the fixed investment option, after the initial premium payment
which can be as much as $500,000). The total of all new premium payments and
transfers that you allocate to any one variable investment option in any one
contract year may not exceed $1,000,000. While the annuitant is alive and the
contract is in force, you can make premium payments at any time before the
annuitant's 85th birthday.
We will not issue a contract if the proposed annuitant is age 85 or older. We
may waive any of these limits, however.
WAYS TO MAKE PREMIUM PAYMENTS
Premium payments made by check or money order must be:
. drawn on a U.S. bank,
. drawn in U.S. dollars, and
. made payable to "John Hancock."
Premium payments after the initial premium payment should be sent to the John
Hancock Annuity Servicing Office at one of the addresses shown on page 1 of this
prospectus. We will accept your initial premium payment by exchange from another
insurance company. You can find information about other methods of premium
payment by contacting your JHVLICO representative or by contacting the John
Hancock Annuity Servicing Office.
Once we have issued your contract and it becomes effective, we credit you with
any additional premiums you pay as of the day we receive them at the John
Hancock Annuity Servicing Office.
HOW WILL THE VALUE OF MY INVESTMENT IN THE CONTRACT CHANGE OVER TIME?
Prior to a contract's date of maturity, the amount you've invested in any
VARIABLE INVESTMENT OPTION will increase or decrease based upon the investment
experience of the corresponding Fund. Except for certain charges we deduct,
your investment experience will be the same as if you had invested in the Fund
directly and reinvested all Fund dividends and distributions in additional
shares.
10
<PAGE>
Like a regular mutual fund, each Fund deducts investment management fees and
other operating expenses. These expenses are shown in the fee table on page __.
However, unlike a mutual fund, we will also deduct charges relating to the
annuity guarantees and other features provided by the contract. These charges
reduce your investment performance and the amount we have credited to your
contract in any variable investment option. We describe these charges under
"What charges will be deducted from my contract?" beginning on page __.
Each premium payment you allocate to the fixed investment option will earn
interest (calculated on a compounded basis) at our declared rate in effect at
the time of the deposit into the fixed investment option. From time to time, we
declare new rates, subject to a 3% minimum. For purposes of crediting interest,
transfers from a variable investment option will be treated as a premium
payment.
Under current practice, we credit interest to amounts allocated to the fixed
investment portion based on the size of the initial premium payment. We credit
a higher rates for initial premium payments over $10,000 and those over $25,000.
The rate of interest credited on each amount varies based upon when that amount
was allocated to the fixed investment option.
At any time before the date of maturity, the "TOTAL VALUE OF YOUR CONTRACT"
equals
. the total amount you invested,
. minus all charges we deduct,
. minus all withdrawals you have made,
. plus or minus each variable investment option's positive or negative
investment return that we credit daily to any of your contract's
value daily while it is in that option, and
. plus the interest we credit to any of your contract's value while it
is in the fixed investment option.
WHAT ANNUITY BENEFITS DOES A CONTRACT PROVIDE?
If your contract is still in effect on its date of maturity, it enters what is
called the "annuity period". During the annuity period, we make a series of
fixed or variable payments to you as provided under one of our several annuity
options. The form in which we will make the annuity payments, and the
proportion of such payments that will be on a fixed basis and on a variable
basis, depend on the elections that you have in effect on the date of maturity.
Therefore you should exercise care in selecting your date of maturity and your
choices that are in effect on that date.
You should carefully review the discussion under "The annuity period,"
beginning on page __, for information about all of these choices you can make.
11
<PAGE>
WHAT ARE THE TAX CONSEQUENCES OF OWNING A CONTRACT?
In most cases, no income tax will have to be paid on amounts you earn under a
contract until these earnings are paid out. All or part of the following
distributions from a contract may constitute a taxable payout of earnings:
. partial withdrawal
. full withdrawal ("surrender")
. payment of death benefit proceeds as a single sum upon your death or
the annuitant's death
. periodic payments under one of our annuity payment options
How much you will be taxed on distribution is based upon complex tax rules and
depends on matters such as
. the type of the distribution
. when the distribution is made
. the nature of any tax-qualified retirement plan for which the
contract is being used
. the circumstances under which the payments are made
If your contract is issued in connection with a tax-qualified retirement plan,
all or part of your premium payments may be tax-deductible.
Special 10% tax penalties apply in many cases to the taxable portion of any
distributions from a contract before you reach age 59 1/2. Also, most
tax-qualified plans require that distributions from a contract commence and/or
be completed by a certain period of time. This effectively limits the period of
time during which you can continue to derive tax deferral benefits from any
tax-deductible premiums you paid or on any earnings under the contract.
CAN I CHANGE MY CONTRACT'S INVESTMENT OPTIONS?
ALLOCATION OF PREMIUM PAYMENTS
When you apply for your contract, you specify the investment options in which
your premium payments will be allocated. You may change this investment
allocation for future premium payments at any time. Any change in allocation
will be effective as of receipt of your request at the John Hancock Annuity
Servicing Office.
12
<PAGE>
At any one time, you may invest in up to 10 of the 24 investment options.
Currently, you may use a maximum of 18 investment options over the life of your
contract. For purposes of this limit, each contribution or transfer of assets
into an investment option that you are not then using counts as one "use" of an
investment option, even if you had used that option at an earlier time.
TRANSFERRING YOUR ASSETS
Up to 12 times during each year of your contract, you may transfer, free of
charge, all or part of the assets held in one investment option to any other
investment option. We reserve the right to assess a charge of up to $25 for
transfer beyond the first 12 transfers per year. Transfers under our
dollar-cost averaging program count toward the 12 free transfers you are allowed
each year.
A number of restrictions apply to transfers in general. You may NOT
. transfer assets within 30 days prior to the contract's date of
maturity,
. transfer more than $1,000,000 in a contract year from any one
variable investment option, without our prior approval,
. make any transfer that would cause you to exceed the above-mentioned
maximum of 18 investment options, or
. make any transfer during the annuity period that would result in more
than 4 investment options being used at once.
In addition, certain restrictions apply specifically to transfers involving
the fixed investment option. You may NOT
. transfer assets to or from the fixed investment option during the
annuity period,
. transfer or deposit (exclusive of the initial premium payment) more
than $100,000 into the fixed investment option during a contract
year,
. make any transfers into the fixed investment option within six months
of a transfer out of the fixed investment option,
. transfer out of the fixed investment option more than once during the
first contract year,
. after the first contract year, transfer money out of the fixed
investment option UNTIL the later of (1) 180 days after the last
transfer out of the fixed investment option or (2) the beginning of a
new contract year.
13
<PAGE>
. transfer or deposit money into the fixed investment option after the
10th contract year, or
. transfer out of the fixed investment option more than 20% of your
assets in the fixed investment option in any one contract year.
PROCEDURE FOR TRANSFERRING YOUR ASSETS
You may request a transfer in writing or, if you have authorized telephone
transfers, by telephone or fax. All transfer requests should be directed to the
John Hancock Annuity Servicing Office at the one of the locations shown on page
1. Your request should include
. your name,
. daytime telephone number,
. contract number,
. the names of the investment options being transferred to and from
each, and
. the amount of each transfer.
The request becomes effective on the day we receive your request, in proper
form, at the John Hancock Annuity Servicing Office.
TELEPHONE TRANSFERS
Once you have completed a written authorization, you may request a transfer by
telephone or by fax. If the fax request option becomes unavailable, another
means of telecommunication will be substituted.
If you authorize telephone transactions, you will be liable for any loss,
expense or cost arising out of any unauthorized or fraudulent telephone
instructions which we reasonably believe to be genuine, unless such loss,
expense or cost is the result of our mistake or negligence. We employ procedures
which provide safeguards against the execution of unauthorized transactions, and
which are reasonably designed to confirm that instructions received by telephone
are genuine. These procedures include requiring personal identification, tape
recording calls, and providing written confirmation to the owner. If we do not
employ reasonable procedures to confirm that instructions communicated by
telephone are genuine, we may be liable for any loss due to unauthorized or
fraudulent instructions.
WHAT FEES AND CHARGES WILL BE DEDUCTED FROM MY CONTRACT?
MORTALITY AND EXPENSE RISK CHARGE
14
<PAGE>
We deduct a daily charge that compensates us primarily for mortality and
expense risks that we assume under the contracts. On an annual basis, this
charge equals 1.10% of the value of the assets you have allocated to the
variable investment options. (This charge does not apply to assets you have in
the fixed investment option.)
In return for mortality risk charge, we assume the risk that annuitants as a
class will live longer than expected, requiring us to pay a greater number of
annuity payments. In return for the expense risk charge, we assume the risk
that our expenses relating to the contracts may be higher than we expected when
we set the level of the contracts' other fees and charges, or that our revenues
from such other sources will be less.
ADMINISTRATIVE SERVICES CHARGE
We deduct a daily charge for administrative and clerical services that the
contracts require us to provide. On an annual basis, this charge equals 0.30%
of the value of the assets you have allocated to the variable investment
options.
ANNUAL CONTRACT FEE
Prior to the date of maturity of your contract, we will deduct $30 each year
from your contract if it has a total value of less than $10,000. We deduct this
annual contract fee at the beginning of each contract year after the first. We
also deduct it if you surrender your contract. We take the deduction
proportionally from each investment option you are then using. However, we
will not deduct any portion of the annual contract fee from the fixed investment
option if such deduction would result in an accumulation of amounts allocated to
the fixed investment option at less than the guaranteed minimum rate of 3%. In
such case, we will deduct that portion of the contract fee proportionately from
the other investment options you are using. We reserve the right to increase
the annual contract fee to $50.
PREMIUM TAXES
We make deductions for any applicable premium or similar taxes based on the
amount of a premium payment. Currently, certain states assess a tax of up to 5%
of each premium payment.
In most cases, we deduct a charge in the amount of the tax from the total
value of the contract only at the time of annuitization, death, surrender, or
withdrawal. We reserve the right, however, to deduct the charge from each
premium payment at the time it is made. We compute the amount of the charge by
multiplying the applicable premium tax percentage times the amount you are
withdrawing, surrendering, annuitizing or applying to a death benefit.
WITHDRAWAL CHARGE
If you withdraw some money from your contract prior to the date of maturity
("partial withdrawal") or if you surrender (turn in) your contract, in its
entirety, for cash prior to the date of maturity ("total withdrawal" or
"surrender"), we may assess a withdrawal charge. We use
15
<PAGE>
this charge to help defray expenses relating to the sale of the contract,
including commissions paid and other distribution costs.
Here's how we determine the charge: In any contract year, you may withdraw up
----------------------------------
to 10% of the total value of your contract (computed as of the beginning of the
contract year) without the assessment of any withdrawal charge. We refer to
this amount as the "free withdrawal amount." However, if the amount you
withdraw or surrender totals more than the free withdrawal amount during the
contract year, we will assess a withdrawal charge on any amount of the excess
that we attribute to premium payments you made within seven years of the date of
the withdrawal or surrender.
The withdrawal charge percentage depends upon the number of years that have
elapsed from the date you paid the premium to the date of its withdrawal, as
follows:
<TABLE>
<CAPTION>
YEARS FROM DATE OF PREMIUM PAYMENT TO
DATE OF SURRENDER OR WITHDRAWAL 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>
* AS A PERCENTAGE OF THE AMOUNT OF SUCH PREMIUM THAT WE CONSIDER TO HAVE
BEEN WITHDRAWN (INCLUDING THE WITHDRAWAL CHARGE), AS EXPLAINED IN THE TEXT
IMMEDIATELY BELOW.
Solely for purposes of determining the amount of the withdrawal charge, we
assume that each withdrawal (together with any associated withdrawal charge) is
a withdrawal first from the earliest premium payment, and then from the next
earliest premium payment, and so forth until all payments have been exhausted.
Once a premium payment has been considered to have been "withdrawn" under these
procedures, that premium payment will not enter into any future withdrawal
charge calculations. For this purpose, we also consider any amounts that we
deduct for the annual contract charge to have been withdrawals of premium
payments (which means that no withdrawal charge will ever be paid on those
amounts).
The amount of any withdrawal that exceeds any remaining premium payments that
have not already been considered as withdrawn will not be subject to any
withdrawal charge. This means that no withdrawal charge will apply to any
favorable investment experience that you have earned.
Here's how we deduct the withdrawal charge: We deduct the withdrawal charge
------------------------------------------
proportionally from each investment option being reduced by the surrender or
withdrawal. For example, if 60% of the withdrawal amount comes from the Growth
& Income option and 40%
16
<PAGE>
from the Money Market option, then we will deduct 60% of the withdrawal charge
from the Growth & Income option and 40% from the Money Market option. If any
such option has insufficient remaining value to cover the charge, we will deduct
any shortfall from all of your other investment options, pro-rata based on the
value in each. If your contract as a whole has insufficient surrender value to
pay the entire charge, we will pay you no more than the surrender value.
You will find examples of how we compute the withdrawal charge in Appendix A
to this prospectus.
When withdrawal charges don't apply: We don't assess a withdrawal charge in
-----------------------------------
the following situations:
. on amounts applied to an annuity option at the contract's date of
maturity or to pay a death benefit;
. on certain withdrawals if you meet the requirement of the nursing
home rider that waives the withdrawal charge; and
. on amounts withdrawn to satisfy the minimum distribution requirements
for tax-qualified plans. (Amounts above the minimum distribution
requirements are subject to any applicable withdrawal charge,
however.)
In addition, under our exchange offer program, certain pension plans may be
eligible to exchange their contracts, without charge, for shares of certain
mutual funds distributed by John Hancock Funds, Inc. Under the terms of the
exchange offer, any remaining withdrawal charge applicable to any contract
exchanged would be waived at the time of the exchange transaction. You can
participate in the exchange offer only if your contract was purchased on behalf
either
. a pension plan qualified under Section 401(k) of the Internal
Revenue Code of 1986 or
. a targeted benefit pension plan where plan assets are not allocated
specifically as being for the account of individual plan
participants.
The exchange offer was expected to remain open until March 1, 1999, but could
be extended for particular offerees under special circumstances. Such
extensions have occurred and may continue to occur for an indefinite period of
time.
HOW CAN I WITHDRAW MONEY FROM MY CONTRACT?
SURRENDERS AND PARTIAL WITHDRAWALS
Prior to your contract's date of maturity, if the annuitant is living, you
may:
. surrender your contract for a cash payment of its "surrender value,"
or
17
<PAGE>
. make a partial withdrawal of the surrender value.
The "surrender value" of a contract is the total value of a contract, MINUS
the annual contract fee and any applicable premium tax and withdrawal charges.
We will determine the amount surrendered or withdrawn as of the date we receive
your request at the John Hancock Annuity Servicing Office.
Certain surrenders and withdrawals may result in taxable income to you or
other tax consequences as described under "Tax information," beginning on page
__. Among other things, if you make a full surrender or partial withdrawal from
your contract before you reach age 59 1/2, an additional federal penalty of 10%
generally applies to any taxable portion of the withdrawal.
We will deduct any partial withdrawal proportionally from each of your
investment options based on the value in each, unless you direct otherwise.
Without our prior approval, you may not make a partial withdrawal
. for an amount less than $100, or
. if the remaining total value of your contract would be less than
$1,000.
If your "free withdrawal value" at any time is less than $100, you must
withdraw that amount in full, in a single sum, before you make any other partial
withdrawals. A partial withdrawal is not a loan and cannot be repaid. We
reserve the right to terminate your contract if the value of your contract
becomes zero.
You generally may not make any surrenders or partial withdrawals once we begin
making payments under an annuity option.
NURSING HOME WAIVER OF WITHDRAWAL CHARGE
If your state permits, your contract may have a nursing home waiver of
withdrawal charge rider benefit. Under this benefit, we will waive withdrawal
charge on any withdrawals, provided all the following conditions apply:
. you become confined to a nursing home beginning at least 90 days
after we issue your contract and prior to the contract's date of
maturity.
. you remain in the nursing home for at least 90 consecutive days and
receive skilled nursing care.
. we receive your request for a withdrawal and adequate proof of
confinement no later than 90 days after discharge from the facility.
. your confinement is prescribed by a doctor and medically necessary.
18
<PAGE>
This benefit is not available if (1) you are older than 74 years at application
or (2) if you were confined to a nursing home within the past two years.
For a more complete description of the terms and conditions of this benefit,
you should refer directly to your contract.
SYSTEMATIC WITHDRAWAL PLAN
Our optional systematic withdrawal plan enables you to preauthorize periodic
withdrawals. If you elect this plan, we will withdraw a dollar amount from your
contract on a monthly, quarterly, semiannual, or annual basis, based upon your
instructions. We will deduct the requested amount from each applicable
investment option in the ratio that the value of each bears to the total value
of your contract. Each systematic withdrawal is subject to any withdrawal
charge that would apply to an otherwise comparable non-systematic withdrawal.
See "How will the value of my contract change over time?" beginning on page __,
and "What fees and charges will be deducted from my contract?" beginning on page
__. The same tax consequences also generally will apply.
The following conditions apply to systematic withdrawal plans:
. you may elect the plan only if the total value of your contract
equals $25,000 or more.
. the amount of each systematic withdrawal must equal at least $100.
. if the amount of each withdrawal drops below $100 or the total value
of your contract becomes less that $5,000, we will suspend the plan
and notify you.
. you may cancel the plan at any time.
. we reserve the right to modify the terms or conditions of the plan at
any time without prior notice.
. you cannot elect this plan if you are participating in the
dollar-cost averaging program.
DOLLAR-COST AVERAGING PROGRAM
You may elect, at no cost, to automatically transfer assets from any variable
investment option to one or more other variable investment options on a monthly,
quarterly, semiannual, or annual basis. The following conditions apply to the
dollar-cost averaging program:
. you may elect the program only if the total value of your contract
equals $15,000 or more.
. the amount of each transfer must equal at least $250.
19
<PAGE>
. you may change your dollar-cost averaging instructions at any time in
writing or, if you have authorized telephone transfers, by telephone.
. you may discontinue the program at any time.
. the program continues until the earlier of (1) 12, 24, or 36 months
(whichever you elect) or (2) full liquidation of the variable
investment option from which we are taking the transfers.
. automatic transfers to or from the fixed investment option are not
permitted.
. we reserve the right to terminate the program at any time.
. you cannot elect the dollar-cost averaging program if you are
participating in the systematic withdrawal plan.
WHAT HAPPENS IF THE ANNUITANT DIES BEFORE MY CONTRACT'S DATE OF MATURITY?
GUARANTEED MINIMUM DEATH BENEFIT
If the annuitant dies before your contract's date of maturity, we will pay a
death benefit, that is the greatest of:
(1) the total value of your contract, or
(2) the total amount of premium payments made, minus any partial
withdrawals and related withdrawal charges, or
(3) in states where permitted by law, the highest total value of your
contract as of any fifth interval anniversary of your contract to
date (preceding the anniversary nearest the annuitant's 81st
birthday), PLUS any premium payments you have made since that
anniversary, MINUS any withdrawals you have taken (and any related
withdrawal charges) since that anniversary.
We calculate the amounts in clauses (1) and (2) as of the day we receive, at
the John Hancock Annuity Servicing Office:
. proof of the annuitant's death, and
. any required instructions as to method of settlement.
We calculate the amount in clause (3) as follows: On the fifth anniversary of
your contract (and every fifth anniversary thereafter until the anniversary
closest to the annuitant's 81st birthday), we compute the total value of your
contract adjusting for premium payments and partial withdrawals since that
anniversary. We compare that amount to amounts in clauses (1)
20
<PAGE>
and (2). The greatest of these three amounts forms a minimum which may increase
on subsequent fifth interval anniversaries with favorable investment performance
and additional premium payments but will never decrease unless partial
withdrawals are taken.
Unless you have elected an optional method of settlement, we will pay the
death benefit in a single sum to the beneficiary you chose prior to the
annuitant's death. If you have not elected an optional method of settlement,
the beneficiary may do so. However, if the death benefit is less than $5,000,
we will pay it in a lump sum, regardless of any election. You can find more
information about optional methods of settlement under "Annuity options,"
beginning on page __.
CAN I RETURN MY CONTRACT?
In most cases, you may return your contract for any reason within 10 days
after you receive it. If you do, we will pay you the total value of your
contract, plus the amount of premium taxes that we have deducted. However,
there are some exceptions to this general rule:
. if you return a contract issued in Hawaii, Idaho, Missouri, Nebraska,
North Carolina, Oklahoma, Oregon, South Carolina, Washington, West
Virginia, or Utah, you will receive the gross premiums you paid.
. if you return a contract that is an individual retirement annuity
("IRA"), you will receive the gross premiums you paid.
. if your contract was issued in California after your 60/th/ birthday,
you may return the contract within 30 days and receive the gross
premiums you paid.
. if your contract was issued in North Dakota, you may return it within
20 days and receive the gross premiums you paid.
21
<PAGE>
ADDITIONAL INFORMATION
This section of the prospectus provides additional information that is not
contained in the Basic Information section on pages __ through ___.
CONTENTS OF THIS SECTION PAGES TO SEE
Description of JHVLICO. . . . . . . . . . . . . .
Who should purchase a contract. . . . . . . . . .
How we support the variable investment options. .
The accumulation period. . . . . . . . . . . . . .
Payment of death benefits. . . . . . . . . . . . .
The annuity period. . . . . . . . . . . . . . . .
Variable investment option valuation procedures. .
Distribution requirements following death of owner
Miscellaneous provisions. . . . . . . . . . . . .
Tax information. . . . . . . . . . . . . . . . . .
Performance information. . . . . . . . . . . . . .
Reports. . . . . . . . . . . . . . . . . . . . . .
Voting privileges. . . . . . . . . . . . . . . . .
Certain changes. . . . . . . . . . . . . . . . . .
Distribution of contracts. . . . . . . . . . . . .
Impact of the Year 2000 issue. . . . . . . . . . .
Registration statement. . . . . . . . . . . . . .
Experts. . . . . . . . . . . . . . . . . . . . . .
Appendix A - Examples of withdrawal charge calculation
Appendix B - Contract loans under Section 403(b) ("TSA loans")
Appendix C - Illustrative values and annuity payment tables
22
<PAGE>
DESCRIPTION OF JHVLICO
We are JHVLICO, a stock life insurance company organized, in 1979, under the
laws of the Commonwealth of Massachusetts. We have authority to transact
business in all states, except New York. We are a wholly-owned subsidiary of
John Hancock Mutual Life Insurance Company ("John Hancock"), a mutual life
insurance company organized in Massachusetts in 1862. Both companies are
headquartered in Boston, Massachusetts.
A major financial services provider, John Hancock had more that $67.1 billion
of assets as of December 31, 1998. As JHVLICO's parent, John Hancock will from
time to time make capital contributions to JHVLICO to enable it to meet its
reserve requirements and expenses in connections with its business and to ensure
that it maintains a positive net worth.
WHO SHOULD PURCHASE A CONTRACT?
We designed these contracts for individuals doing their own retirement
planning, including purchases under plans and trusts that do not qualify for
special tax treatment under the Internal Revenue Code of 1986 (the "Code"). We
also designed the contracts for purchase under:
. pension and profit-sharing plans qualified under Section 401(c) of
the Code, known as H.R. 10 Plans;
. pension or profit-sharing plans qualified under sections 401(a) or
403(a) of the Code, known as "corporate plans";
. plans qualified under Section 401(k) of the Code;
. annuity purchase plans adopted under Section 403(b) of the Code by
public school systems and certain other tax-exempt organizations;
and
. individual retirement annuity ("IRA") plans satisfying the
requirements of Section 408 of the Code.
. deferred compensation plans maintained by a state or political
subdivision or tax exempt organization under Section 457 of the Code
When a contract forms part of a tax-qualified plan it becomes subject to
special tax law requirements, as well as the terms of the plan documents
themselves, if any. Also, in some cases, certain requirements under "ERISA"
(the Employee Retirement Income Security Act of 1974) may apply. Requirements
from any of these sources may, in effect, take precedence over (and in that
sense modify) the rights and privileges that an owner otherwise would have under
a contract. Some such requirements may also apply to certain retirement plans
that are not tax-qualified.
We may include certain requirements from the above sources in endorsements or
riders to the affected contracts. In other cases, we do not. In no event,
however, do we undertake to assure a contract's compliance with all plan, tax
law, and ERISA requirements applicable to a tax-qualified or non tax-qualified
retirement plan. Therefore, if you use or plan to use a contract in connection
with such a plan, you must consult with competent legal and tax advisers to
ensure that you know of (and comply with) all such requirements that apply in
your circumstances.
To accommodate "employer-related" plans, we provide "unisex" purchase rates.
That means the annuity purchase rates are the same for males and females. Any
questions you have as to whether you are participating in an "employer-related"
plan should be directed to your employer. Any question
23
<PAGE>
you or your employer have about unisex rates may be directed to the John Hancock
Annuity Servicing Office.
HOW WE SUPPORT THE VARIABLE INVESTMENT OPTIONS
We hold the Fund shares that support our variable investment options in John
Hancock Variable Annuity Account I (the "Account"), a separate account
established by JHVLICO under Massachusetts law. The Account is registered as a
unit investment trust under the Investment Company Act of 1940 ("1940 Act").
The Account's assets, including the Trust's shares, belong to JHVLICO. Each
contract provides that amounts we hold in the Account pursuant to the policies
cannot be reached by any other persons who may have claims against us.
All of JHVLICO's general assets also support JHVLICO's obligations under the
contracts, as well as all of its other obligations and liabilities. These
general assets consist of all JHVLICO's assets that are not held in the Account
(or in another separate account) under variable annuity or variable life
insurance contracts that give their owners a preferred claim on those assets.
THE ACCUMULATION PERIOD
YOUR VALUE IN OUR VARIABLE INVESTMENT OPTIONS
Each premium payment or transfer that you allocate to a variable investment
option purchases "accumulation units" of that variable investment option.
Similarly, each withdrawal or transfer that you take from a variable investment
option (as well as certain charges that may be allocated to that option) result
in a cancellation of such accumulation units.
VALUATION OF ACCUMULATION UNITS
To determine the number of accumulation units that a specific transaction will
purchase or cancel, we use the following formula:
dollar amount of transaction
DIVIDED BY
value of one accumulation unit for the applicable
variable investment option at the time of such
transaction
- -------------------------------------------------
The value of each accumulation unit will change daily depending upon the
investment performance of the Fund that corresponds to that variable investment
option and certain charges we deduct from such investment option. (See below
under "Variable investment option valuation procedures.")
Therefore, at any time prior to the date of maturity, the total value of your
contract in a variable investment option can be computed according to the
following formula:
number of accumulation units in the variable
investment options
TIMES
value of one accumulation unit for the
applicable variable investment option that
time
- ---------------------------------------------
YOUR VALUE IN THE FIXED INVESTMENT OPTION
On any date, the total value of your contract in the fixed investment option
equals:
. the amount of premium payments or transferred amounts allocated to
the fixed investment option, MINUS
. the amount of any withdrawals or transfers paid out of the fixed
investment option, PLUS
. interest compounded daily on any amounts in the fixed investment
option at the effective annual rate of interest we have declared,
MINUS
24
<PAGE>
. the amount of any charges and fees deducted from fixed investment
option.
THE ANNUITY PERIOD
DATE OF MATURITY
Your contract specifies the date of maturity, when payments from one of our
annuity options are scheduled to begin. You initially choose a date of maturity
when you complete your application for a contract. Unless we otherwise permit,
the date of maturity must be
. at least 6 months after the date the first premium payment is applied
to your contract and
. no later than the maximum age specified in your contract (normally
age 95).
Subject always to these requirements, you may subsequently select an earlier
date of maturity. The John Hancock Annuity Servicing Office must receive your
new selection at least 31 days prior to the new date of maturity, however.
Also, if you are selecting or changing your date of maturity for a contract
issued under a tax qualified plan, special limits apply. (See "Contracts
purchased for a tax-qualified plan," beginning on page __.)
CHOOSING FIXED OR VARIABLE ANNUITY PAYMENTS
During the annuity period, the total value of your contract must be allocated
to no more than four investment options. During the annuity period, we offer
annuity payments on a fixed basis as one investment option, and annuity
payments on a variable basis for EACH variable investment option.
We will generally apply (1) amounts allocated to the fixed investment option
as of the date of maturity to provide annuity payments on a fixed basis and (2)
amounts allocated to variable investment options to provide annuity payments on
a variable basis. If you are using more than four investment options on the
date of maturity, we will divide your contract's value among the four investment
options with the largest values, pro-rata based on the amount of the total value
of your contract that you have in each.
Once annuity payments commence, you may not make transfers from fixed to
variable or from variable to fixed.
SELECTING AN ANNUITY OPTION
Each contract provides, at the time of its issuance, for annuity payments to
commence on the date of maturity pursuant to Option A: "life annuity with 10
years guaranteed" (discussed under "Annuity options" on page __ ).
Prior to the date of maturity, you may select a different annuity option.
However, if the total value of your contract on the date of maturity is not at
least $5,000, Option A: "life annuity with 10 years guaranteed" will apply,
regardless of any other election that you have made. You may not change the
form of annuity option once payments commence.
If the initial monthly payment under an annuity option would be less than $50,
we may make a single sum payment equal to the total surrender value of your
contract on the date the initial payment would be payable. Such single payment
would replace all other benefits. Alternatively, if you agree, we will make
payments at quarterly, semi-annual, or annual intervals in place of monthly
payments.
Subject to that $50 minimum limitation, your beneficiary may elect an annuity
option if
. you have not made an election prior to the annuitant's death;
. the beneficiary is entitled to payment of a death benefit of at least
$5,000 in a single sum; and
25
<PAGE>
. the beneficiary notifies us of the election prior to the date the
proceeds become payable.
You may also elect to have the surrender value of your contract applied to an
annuity option at the time of full surrender if your contract has been
outstanding for at least 6 months. If the total value of your contract, at
death or surrender, is less than $5,000, no annuity option will be available.
VARIABLE MONTHLY ANNUITY PAYMENTS
We determine the amount of the first variable monthly payment under any
variable investment option by using the applicable annuity purchase rate for the
annuity option under which the payment will be made. The contract sets forth
these annuity purchase rates. In most cases they vary by the age and gender of
the annuitant or other payee.
The amount of each subsequent variable annuity payment under that variable
investment option depends upon the investment performance of that variable
investment option. Here's how it works:
. we calculate the actual net investment return of the variable
investment option (after deducting all charges) during the period
between the dates for determining the current and immediately
previous monthly payments.
. if that actual net investment return exceeds the "assumed investment
rate" (explained below), the current monthly payment will be larger
than the previous one.
. if the actual net investment return is less than the assumed
investment rate, the current monthly payment will be smaller than the
previous one.
ASSUMED INVESTMENT RATE
-----------------------
The assumed investment rate for any variable portion of your annuity payments
will be 3 1/2 % per year, except as follows.
You may elect an assumed investment rate of 5% or 6%, provided such a rate is
available in your state. If you elect a higher assumed investment rate, your
initial variable annuity payment will also be higher. Eventually, however, the
monthly variable annuity payments may be smaller than if you had elected a lower
assumed investment rate.
FIXED MONTHLY ANNUITY PAYMENTS
The dollar amount of each fixed monthly annuity payment is specified during
the entire period of annuity payments, according to the provisions of the
annuity option selected. To determine such dollar amount we first, in
accordance with the procedures described above, calculate the amount to be
applied to the fixed annuity option as of the date of maturity. We then
subtract any applicable premium tax charge and divide the difference by $1,000.
We then multiply the result by the greater of
. the applicable fixed annuity purchase rate shown in the appropriate
table in the contract; or
. the rate we currently offer at the time of annuitization. (This
current rate may be based on the sex of the annuitant, unless
prohibited by law.)
ANNUITY OPTIONS
Here are some of the annuity options that are available, subject to the terms
and conditions described above. We reserve the right to make available optional
methods of payment in addition to those annuity options listed here and in your
contract.
26
<PAGE>
OPTION A: LIFE ANNUITY WITH PAYMENTS FOR A GUARANTEED PERIOD - We will make
monthly payments for a guaranteed period of 5, 10, or 20 years, as selected by
you or your beneficiary, and after such period for as long as the payee lives.
If the payee dies prior to the end of such guaranteed period, we will continue
payments for the remainder of the guarantee period to a contingent payee,
subject to the terms of any supplemental agreement issued.
Federal income tax requirements currently applicable to contracts used with
H.R. 10 plans and individual retirement annuities provide that the period of
years guaranteed under Option A cannot be any greater than the joint life
expectancies of the payee and his or her designated beneficiary.
OPTION B: LIFE ANNUITY WITHOUT FURTHER PAYMENT ON DEATH OF PAYEE - We will
make monthly payments to the payee as long as he or she lives. We guarantee no
minimum number of payments.
If the payee is more than 85 years old on the date of maturity, the following
two options are not available:
. Option A: "life annuity with 5 years guaranteed" and
. Option B: "life annuity without further payment on the death of
payee."
VARIABLE INVESTMENT OPTION VALUATION PROCEDURES
We compute the net investment return and accumulation unit values for each
variable investment option as of the end of each business day. A business day
is any date on which the New York Stock Exchange is open for regular trading.
Each business day ends at the close of regular trading for the day on that
exchange. Usually this is 4:00 p.m., Eastern time. On any date other than a
business day, the accumulation unit value or annuity unit value will be the same
as the value at the close of the next following business day.
DISTRIBUTION REQUIREMENTS FOLLOWING DEATH OF OWNER
If you did not purchase your contract under a tax qualified plan (as that term
is used below), the Code requires that the following distribution provisions
apply if you die. We summarize these provisions in the box below. In most
cases, these provisions do not cause a problem if you are also the annuitant
under your policy. If you have designated someone other than yourself as the
annuitant, however, your heirs will have less discretion than you would have had
in determining when and how the contract's value would be paid out.
IF YOU DIE BEFORE ANNUITY PAYMENTS HAVE BEGUN:
.if the contract's designated beneficiary is your
surviving spouse, your spouse may continue the contract
in force as the owner.
.if the beneficiary is not your surviving spouse OR if
the beneficiary is your surviving spouse but chooses not
to continue the contract, the entire interest (as
discussed below) in the contract on the date of your
death must be:
(1) paid out in full within five years of your death or
(2) applied in full towards the purchase of a life annuity
on the beneficiary with payments commencing within one
year of your death
If you are the annuitant, as well as the owner, the entire
interest in the contract on the date of your death equals the death
benefit that then becomes payable. If you are the owner but not
the annuitant, the entire interest equals
.the surrender value if paid out in full within five
years of your death, or
.the total value of your contract applied in full towards
the purchase of a life annuity on the beneficiary with
payments commencing within one year of your death.
IF YOU DIE ON OR AFTER ANNUITY PAYMENTS HAVE BEGUN
.any remaining amount that we owe must be paid out at
least as rapidly as under the method of making annuity
payments that is then in use.
- -------------------------------------------------------------------
27
<PAGE>
Notice of the death of an owner or annuitant should be furnished promptly to
the John Hancock Annuity Servicing Office.
The Code imposes very similar distribution requirements on contracts used to
fund tax qualified plans. We provide the required provisions for tax qualified
plans in separate disclosures and endorsements.
MISCELLANEOUS PROVISIONS
ASSIGNMENT; CHANGE OF OWNER OR BENEFICIARY
To qualify for favorable tax treatment, certain contracts can't be sold;
assigned; discounted; or pledged as collateral for a loan, as security for
the performance of an obligation, or for any other purpose, unless the owner is
a trustee under section 401(a) of the Internal Revenue Code.
Subject to these limits, while the annuitant is alive, you may designate
someone else as the owner by written notice to the John Hancock Annuity
Servicing Office. The contract designates the person you choose as beneficiary.
You may change the beneficiary by written notice no later than receipt of due
proof of the death of the annuitant. Changes of owner or beneficiary will take
effect whether or not you or the annuitant is then alive. However, these
changes are subject to:
. the rights of any assignees of record,
. the any action taken prior to receipt of the notice, and
. certain other conditions.
An assignment, pledge, or other transfer may be a taxable event. See "Tax
information" below. Therefore, you should consult a competent tax adviser
before taking any such action.
TAX INFORMATION
OUR INCOME TAXES
We are taxed as a life insurance company under the Internal Revenue Code (the
"Code"). The Account is taxed as part of our operations and is not taxed
separately.
The contracts permit us to deduct a charge for any taxes we incur that are
attributable to the operation or existence of the contracts or the Account.
Currently, we do not anticipate making a charge such taxes. If the level of
the current taxes increases, however, or is expected to increase in the future,
we reserve the right to make a charge in the future.
CONTRACTS NOT PURCHASED TO FUND A TAX QUALIFIED PLAN
UNDISTRIBUTED GAINS
-------------------
We believe the contracts will be considered annuity contracts under Section 72
of the Code. This means that, ordinarily, you pay no federal income tax on any
gains in your contract until we actually distribute assets to you.
However, a contract owned other than by a natural person does not generally
qualify as an
28
<PAGE>
annuity for tax purposes. Any increase in value therefore would constitute
ordinary taxable income to such an owner in the year earned.
ANNUITY PAYMENTS
----------------
When we make payments under a contract in the form of an annuity, each payment
will result in taxable ordinary income to the payee, to the extent that each
such payment exceeds an allocable portion of your "investment in the contract"
(as defined in the Code). In general, your "investment in the contract" equals
the aggregate amount of premium payments you have made over the life of the
contract, reduced by any amounts previously distributed from the contract that
were not subject to tax.
The Code prescribes the allocable portion of each such annuity payment to be
excluded from income according to one formula if the payments are variable and a
somewhat different formula if the payments are fixed. In each case, speaking
generally, the formula seeks to allocate an appropriate amount of the investment
in the contract to each payment. After the entire "investment in the contract"
has been distributed, any remaining payment is fully taxable.
SURRENDERS AND WITHDRAWALS BEFORE DATE OF MATURITY
--------------------------------------------------
When we make a single sum payment from a contract, you have ordinary taxable
income, to the extent the payment exceeds your "investment in the contract"
(discussed above). Such a single sum payment can occur, for example, if you
surrender your contract or if no annuity payment option is selected for a death
benefit payment.
When you take a partial withdrawal from a contract, including a payment under
a systematic withdrawal plan, all or part of the payment may constitute taxable
ordinary income to you. The taxable portion generally equals the amount, if
any, by which the payment exceeds your then investment in the contract. If you
assign or pledge any part your contract's value, the value so pledged or
assigned is taxed the same way as if it were a partial withdrawal.
For purposes of determining the amount of taxable income resulting from a
single sum payment or a partial withdrawal, all annuity contracts issued by
JHVLICO or its affiliates to the owner within the same calendar year will be
treated as if they were a single contract.
PENALTY FOR PREMATURE WITHDRAWALS
---------------------------------
The taxable portion of any withdrawal or single sum payment may also trigger
an additional 10% penalty tax. The penalty tax does not apply to payments made
to you after age 59 1/2, or on account of your death or disability. Nor will it
apply to withdrawals in substantially equal periodic payments over the life of
the payee (or over the joint lives of the payee and the payee's beneficiary).
DIVERSIFICATION REQUIREMENTS
Each of the Funds of the Trust intends to qualify as a regulated investment
company under Subchapter M of the Code and meet the investment diversification
tests of Section 817(h) of the Code and the underlying regulations. Failure to
do so could result in current taxation to you on gains in your contract for the
year in which such failure occurred and thereafter.
The Treasury Department or the Internal Revenue Service may, at some future
time, issue a ruling or regulation presenting situations in which it will deem
contract owners to exercise "investor control" over the Fund shares that are
attributable to their contracts. The Treasury Department has said informally
that this could limit the number or frequency of transfers among variable
investment options. This could cause you to be taxed as if you were the direct
owner of your allocable portion of Fund shares. We reserve the right to amend
the contracts or the choice of investment options to avoid, if possible, current
taxation to the owners.
CONTRACTS PURCHASED FOR A TAX QUALIFIED PLAN
29
<PAGE>
We have no responsibility for determining whether a particular retirement plan
satisfies the applicable requirements of the Code or whether a particular
employee is eligible for inclusion under a plan.
WITHHOLDING ON ROLLOVER DISTRIBUTIONS
-------------------------------------
The tax law requires us to withhold 20% from certain distributions from tax
qualified plans. We do not have to make the withholding, however, if you
rollover your entire distribution to another plan and you request us to pay it
directly to the successor plan. Otherwise, the 20% mandatory withholding will
reduce the amount you can rollover to the new plan, unless you add funds to the
rollover from other sources. Consult a qualified tax adviser before making such
a distribution.
CONTRACTS PURCHASED AS INDIVIDUAL RETIREMENT ANNUITIES (IRAS)
-------------------------------------------------------------
An individual retirement annuity (as defined in Section 408 of the Code)
generally permits an eligible purchaser to take a federal income tax deduction
of up to $2,000 per year for contributions to the IRA. (You can never, however,
deduct more than 100% of your compensation includable in your gross income for
the year.) You may also purchase an IRA contract for the benefit of your spouse
(regardless of whether your spouse has a paying job). You can generally deduct
up to $2,000 for each of you and your spouse (or, if less, your combined
compensation).
If you or your spouse is an active participant in an employer-sponsored
retirement plan, you may make deductible premium payment only if your adjusted
gross incomes do not exceed certain amounts. You can still contribute the full
$2000 for each of you and your spouse, however, even though they are not
deductible. Nor can you take a deduction for premium payments made in or after
the taxable year in which you attain age 70 1/2 or for a "rollover contribution"
as defined in the Code.
If you have made any non-deductible contributions to an IRA contract, all or
part of any withdrawal or surrender proceeds, single sum death benefit or any
annuity payment, may be excluded from your taxable income when you receive the
proceeds. In general, all other amounts paid out from an IRA contract (in the
form of an annuity, a single sum, or partial withdrawal), are taxable to the
payee as ordinary income. As in the case of a contract not purchased under a
tax-qualified plan, you may incur additional adverse tax consequences, if you
make a surrender or withdrawal before you reach age 59 1/2 (unless certain
exceptions apply similar to those described above for such non-qualified
contracts).
The tax law requires that annuity payments under an IRA contract begin no
later than April 1 of the year following the year in which the owner attains age
70 1/2.
CONTRACTS PURCHASED UNDER SIMPLE RETIREMENT ACCOUNTS (SIMPLE IRAS)
------------------------------------------------------------------
In general, a small business employer may establish a SIMPLE IRA retirement
plan, if the employer employed less than 100 employees on any day during the
preceding calendar year. As an employee of such small business employer, you
may make premium payments to the SIMPLE IRA. You may specify the percentage of
compensation that you will contribute to the SIMPLE IRA, provided the amount of
contribution does not exceed $6,000 a year. Your employer must elect to make a
matching contribution of up to 3% of your compensation or an non-elective
contribution equal to 2% of your compensation.
CONTRACTS PURCHASED UNDER CERTAIN NON-DEDUCTIBLE IRAS (ROTH IRAS)
-----------------------------------------------------------------
In general, you may make purchase payments of up to $2,000 each year for a new
type of non-deductible IRA contract, known as a ROTH IRA. Any contributions made
during the year for any other IRA you have will reduce the amount you otherwise
could contribution to a ROTH IRA. Also, the $2,000
30
<PAGE>
maximum for a ROTH IRA phases out for single taxpayers with adjusted gross
incomes between $95,000 and $110,000, for married taxpayers filing jointly with
adjusted gross incomes between $150,000 and $160,000, and for a married taxpayer
filing separately with adjusted gross income between $0 and $15,000.
If you hold your ROTH IRA for at least five years the payee will not owe any
federal income taxes or early withdrawal penalties on amounts paid out from the
contract
. after you reach age 591/2,
. on your death or disability, or
. to one of the following qualified first-time home purchasers, subject
to a $10,000 lifetime maximum: you or your spouse, child,
grandchild, or ancestor.
The Code treats payments you receive from a ROTH IRA that do not qualify for
the above tax free treatment as a return of the contributions you made first.
However, any amount of such non-qualifying payments or distributions that
exceed the amount of your contributions is taxable to you as ordinary income and
possibly subject to the 10% penalty tax.
You may make a tax-free rollover contribution from a non-ROTH IRA, unless
. you have adjusted gross income over $100,000 or
. you are a married taxpayer filing a separate return.
The $2,000 ROTH IRA contribution limit does not apply to tax-free rollover
contributions.
You must, however, pay tax on any portion of the non-ROTH IRA being rolled
over that represents income on a previously deductible IRA contribution. No
similar limitations apply to rollovers from one ROTH IRA to another ROTH IRA.
CONTRACTS PURCHASED UNDER SECTION 403(B) PLANS (TSA)
----------------------------------------------------
Under these tax-sheltered annuity ("TSA") arrangements, public school systems
and certain tax-exempt organizations can make premium payments into contracts
owned by their employees that are not taxable currently to the employee.
The amount of such non-taxable contributions each year
. is limited by a maximum (called the "exclusion allowance") that is
computed in accordance with a formula prescribed under the Code;
. may not, together with all other deferrals the employee elects under
other tax-qualified plans, exceed $10,000; and
. is subject to certain other limits (described in Section 415 of the
Code).
When we make annuity payments from the contract, such payments are taxed to
the employee 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 we make payments from a TSA contract on surrender of the contract,
partial withdrawal, death of the annuitant, or commencement of an annuity
option, the payee ordinarily must treat the entire payment as ordinary taxable
income.
Moreover, the Code prohibits distributions from a TSA contract before the
employee reaches age 59 1/2, except
31
<PAGE>
. on the employee's separation from service, death, or disability,
. with respect to distributions of assets held under a TSA contract as
of December 31, 1988,
. transfers and exchanges to other products that qualify under Section
403(b).
CONTRACT LOANS UNDER SECTION 403(B) QUALIFIED CONTRACTS
-------------------------------------------------------
Prior to the date of maturity of your contract, you may request a loan from
the total value of your contract. If the loan meets the amount and prepayment
requirements described in detail in Appendix B, we will not report the loan to
the Internal Revenue Service as a taxable distribution. To apply for a loan,
you must use our required loan forms. Forms are available through our the John
Hancock Annuity Servicing Office. At the time the loan is issued, we will
provide you with a detailed loan agreement containing all the requirements of
the loan.
Contract loans are subject to many conditions and requirements of the Code and
ERISA and the terms of any retirement plan in connection with which your
contract was acquired. For example, serious tax consequences may result, if
you don't make your loan payments when due or if we find it otherwise necessary
to exercise our right to use all or part of the value of your contract to repay
a contract loan. Because the tax and ERISA laws can be very confusing, you
should always consult a qualified adviser before taking any action with respect
to contract loans.
CONTRACTS PURCHASED FOR "CORPORATE" PLANS
-----------------------------------------
In general, an employer may deduct from its taxable income premium payments it
makes under
. a qualified pension or profit-sharing plan described in Section
401(a) of the Code or
. a qualified annuity plan described in Section 403(a) of the Code.
Nor do the employees participating in the plan have to pay tax on such
contributions when made.
Annuity payments (or other payments, such as upon withdrawal, death or
surrender) generally constitute taxable income to the payee; and the payee must
pay income tax on the amount by which a payment exceeds its allocable share of
the employee's "investment in the contract" (as defined in the Code), if any.
In general, an employee's "investment in the contract" equals the aggregate
amount of premium payments made by the employee.
The non-taxable portion of each annuity payment is determined, under the Code,
according to one formula if the payments are variable and a somewhat different
formula if the payments are fixed. In each case, speaking generally, the
formula seeks to allocate an appropriate amount of the investment in the
contract to each payment.
Certain special five-year income tax averaging provisions are available for
total distributions made in 1999, but not after that. Other favorable
procedures may also be available to taxpayers who had attained age 50 prior to
January 1, 1986.
IRS required minimum distributions to the employee must begin no later than
April 1 of the year following the year in which the employee reaches age 70 1/2
or, if later, retires.
CONTRACTS PURCHASED FOR H.R. 10 (SELF-EMPLOYED) PLANS
-----------------------------------------------------
Self-employed persons, including partnerships, purchase contracts for tax
qualified pension and profit-sharing plans that they establish for themselves
and for their employees. The Code limits the maximum amount of premium payments
that the
32
<PAGE>
self-employed person may deduct for federal income tax purposes each year. With
respect to variable annuity contracts issued on the life of self-employed
persons under such plans, the maximum generally is the lesser of
. $30,000, or
. 25% of "earned income" (as defined in the Code).
Self-employed persons must also make premium payments for their employees (who
have met certain eligibility requirements) at least at the same rate as they do
for themselves.
Tax qualified plans may permit self-employed persons and their employees to
make additional premium payments themselves (which are not deductible) of up to
10% of earned income or compensation.
When we make annuity payments under an H.R. 10 contract, the payee must pay
federal income taxes under the same rules that apply to such payments under
corporate plans (discussed above).
The tax treatment of annuity payments is also the same as under corporate
plans (discussed above); as, in most respects, is the tax treatment of single
sum payments.
The same rules discussed above that determine n for corporate plans (a) when
annuity payments must commence and (b) the 10% penalty tax on certain early
distributions also apply to H.R. 10 plans.
CONTRACTS PURCHASED UNDER GOVERNMENT DEFERRED COMPENSATION PLANS
-----------------------------------------------------------------
You can exclude a portion of your compensation from gross income if you
participate in a deferred compensation plan maintained by
. a state,
. a political subdivision of a state,
. an agency or intrumentality or a state or political subdivision of a
state, or
. a tax-exempt organization.
As a "participant" in such a deferred compensation plan, any amounts you
exclude (and any income on such amounts) will be includible in gross income only
for the taxable year in which such amounts are paid or otherwise made available
to the annuitant or other payee.
In general, the maximum amount of compensation you can deferred under such
tax-favored plans equals the lesser of
. $7,500 or
. 33 1/3 % of your "includible income" (as defined in the Code).
The deferred compensation plan must satisfy several conditions, including the
following:
. the plan must not permit distributions prior to your separation from
service (except in the case of an unforeseen emergency), and
. all compensation deferred under the plan shall remain solely the
employer's property and may be subject to the claims of its
creditors.
If we make a payment under your contract in the form of an annuity, or in a
single sum such as on surrender or withdrawal, the payment is taxed as ordinary
income.
CONTRACTS PURCHASED FOR "TOP-HEAVY" PLANS
-----------------------------------------
Certain corporate and H.R. 10 plans may fall within Section 416 of the Code's
definition of "top-heavy plans." This can happen if the plan holds a
significant amount of its assets for the benefit of "key
33
<PAGE>
employees" (as defined in the Code). You should consider whether your plan
meets the definition. If so, you should take care to consider the special
limitations applicable to top-heavy plans and the potentially adverse tax
consequences to key employees.
TAX-FREE ROLLOVERS
------------------
The discussion above covers certain fully or partially tax-free "rollovers"
from a regular IRA to a ROTH IRA. You may also make a tax-free rollover from
. a regular IRA to another regular IRA,
. any tax-qualified plan to a regular IRA,
. any tax-qualified plan to another tax-qualified plan of the same type
(i.e. TSA to TSA, corporate plan to corporate plan, etc.)
We do not have to withhold tax if you roll over your entire distribution and
you request us to pay it directly to the successor plan. Otherwise, 20%
mandatory withholding will apply and reduce the amount you can roll over to the
new plan, unless you add funds to the rollover from other sources. Consult a
qualified tax adviser before taking such a distribution.
SEE YOUR OWN TAX ADVISER
------------------------
The above description of Federal income tax consequences to owners of and
payees under contracts, and of the different kinds of tax qualified plans which
may be funded by the contracts, is only a brief summary and is not intended as
tax advice. It does not include a discussion of Federal estate and gift tax or
state tax consequences. The rules under the Code governing tax qualified plans
are extremely complex and often difficult to understand. Changes to the tax
laws may be enforced retroactively. Anything less than full compliance with the
applicable rules, all of which are subject to change from time to time, can have
adverse tax consequences. The taxation of an Annuitant or other payee has
become so complex and confusing that great care must be taken to avoid pitfalls.
For further information, you should consult a qualified tax adviser.
PERFORMANCE INFORMATION
We may advertise total return information about investments made in the
variable investment options. We refer to this information as "Account level"
performance. In our Account level advertisements, we usually calculate total
return for 1, 5, and 10 year periods or since the beginning of the applicable
variable investment option. Total return at the Account level is the percentage
change between
. the value of a hypothetical investment in a variable investment
option at the beginning of the relevant period, and
. the value at the end of such period.
At Account level, total return reflects adjustments for
. the mortality and expense risk charges,
. the administrative charge,
. the annual contract fee, and
. any withdrawal charges payable if the owner surrenders his contract
at the end of the relevant period.
Total return at the Account level does not, however, reflect any premium tax
charges. Total return at the Account level will be lower than that at the Trust
level where comparable charges are not deducted.
34
<PAGE>
We may also advertise total return in a non-standard format in conjunction
with the standard format described above. The non-standard format is the same
as the standard format except that it will not reflect any withdrawal charge.
We may advertise "current yield" and "effective yield" for investments in the
Money Market investment option. CURRENT YIELD refers to the income earned on
your investment in the Money Market investment option over a 7-day period an
then annualized. In other words, the income earned in the period is assumed to
be earned every 7 days over a 52-week period and stated as a percentage of the
investment.
EFFECTIVE YIELD is calculated in a similar manner but, when annualized, the
income earned by your investment is assumed to be reinvested and thus compounded
over the 52-week period. Effective yield will be slightly higher than current
yield because of this compounding effect of reinvestment.
We also advertise current yield for investments in the other variable
investment options. For investments in these options, we calculate current
yield by the following formula:
the annualization of the income earned by a
investment in the variable investment option
during a recent 30-day period
DIVIDED BY
the maximum offering price per unit of the
variable investment option at the end of such
30-day period
- ----------------------------------------------
In all cases, current yield and effective yield reflect all the recurring
charges at the Account level, but will not reflect any premium tax, or any
withdrawal charge.
REPORTS
At least semi-annually, we will send you (1) a report showing the number and
value of the accumulation units in your contract and (2) the financial
statements of the Trust.
VOTING PRIVILEGES
At meetings of the Trust's shareholders, we will generally vote all the shares
of each Fund that we hold in the Account in accordance with instructions we
receive from the owners of contracts that participate in the corresponding
variable investment option.
CERTAIN CHANGES
We reserve the right, subject to applicable law, including any required
shareholder approval,
. to transfer assets that we determine to be your assets from the
Account to another separate account or investment option by
withdrawing the same percentage of each investment in the Account
with proper adjustments to avoid odd lots and fractions,
. to add or delete variable investment options,
. to change the underlying investment vehicles,
. to operate the Account in any form permitted by law, and
. to terminate the Account's registration under the 1940 Act, if such
registration should no longer be legally required.
Unless otherwise required under applicable laws and regulations, notice to or
approval of owners will not be necessary for us to make such changes.
DISTRIBUTION OF CONTRACTS
35
<PAGE>
Signator Investors, Inc. ("Signator"), formerly John Hancock Distributors,
Inc., acts as principal distributor of the contracts sold through this
prospectus. Signator is registered as a broker-dealer under the Securities
Exchange Act of 1934 and a member of the National Association of Securities
Dealers, Inc. Its address is John Hancock Place, Boston, Massachusetts 02117.
Signator is a subsidiary of John Hancock.
You can purchase a contract either through Signators registered representative
or through other broker-dealers whose representatives are authorized by
applicable law to sell annuity products. We do not expect the compensation to
such broker-dealers to exceed 3.0% of premium payments. Signator compensates
its registered representatives for sales of the contracts on a commission and
fee service basis. We, in turn, reimburse Signator for direct and indirect
expenses actually incurred in connection with the marketing and sales of these
contracts. We offer these contracts on a continuous basis, but neither JHVLICO
is obligated to sell any particular amount of contracts.
IMPACT OF THE YEAR 2000 ISSUE
The advent of the Year 2000 presents us with a technological challenge:
making our systems function properly with respect to dates in the year 2000 and
after. In response to that challenge, we have developed and are executing a
plan to modify or replace significant portions of our computer informations
systems and automated technologies. The plan involves coordination and testing
with business partners in an effort to minimize the possibility that external
factors will adversely impact our systems. We believe that, with modifications
to existing systems and conversions to new technologies, the Year 2000 will not
pose significant operational problems for our computer systems. However, if
certain modifications and conversions are not made, or are not completed on
time, the Year 2000 issue could have an adverse impact on our operations.
We have substantially completed the process of remediating our systems and
expect the compliance testing component of the project to be completed by June,
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. For more information about the impact of the Year 2000
issue, refer to Note 12 to the Notes to the Financial Statements of John Hancock
Variable Life Insurance Company included in the Statement of Additional
Information to this prospectus.
REGISTRATION STATEMENT
This prospectus omits certain information contained in the registration
statement that we filed with the SEC. You can get more details from the SEC
upon payment of prescribed fees or through the SEC's internet web site
(www.sec.gov).
Among other things, the registration statement contains a "Statement of
Additional Information" that we will send you without charge upon request. The
Table of Contents of the Statement of Additional Information lists the following
subjects that it covers:
<TABLE>
page of SAI
<CAPTION>
<S> <C>
VARIATIONS IN CHARGES.............................. 2
DISTRIBUTION....................................... 2
CALCULATION OF PERFORMANCE DATA.................... 2
OTHER PERFORMANCE INFORMATION...................... 4
CALCULATION OF ANNUITY PAYMENTS.................... 4
ADDITIONAL INFORMATION ABOUT DETERMINING
UNIT VALUES....................................... 6
PURCHASES AND REDEMPTIONS OF FUND SHARES.......... 7
THE ACCOUNT........................................ 7
DELAY OF CERTAIN PAYMENTS.......................... 8
LIABILITY FOR TELEPHONE TRANSFERS.................. 8
VOTING PRIVILEGES.................................. 8
JHVLICO FINANCIAL STATEMENTS....................... 10
SEPARATE ACCOUNT FINANCIAL STATEMENTS.............. 23
</TABLE>
36
<PAGE>
EXPERTS
Ernst & Young LLP, independent auditors, have audited the financial statements
of John Hancock Variable Life Insurance Company and the Separate Account that
appear in the Statement of Additional Information, which also is a part of the
registration statement that contains this prospectus. Those financial statements
are included in the registration statement in reliance upon Ernst & Young's
report given upon the firm's authority as experts in accounting and auditing.
37
<PAGE>
CONDENSED FINANCIAL INFORMATION JOHN HANCOCK VARIABLE ANNUITY ACCOUNT I
The following table provides selected data for each accumulation share
throughout the period as follows:
<TABLE>
<CAPTION>
PERIOD FROM
MAY 1, 1998 TO
DECEMBER 31,
1998
----------------
<S> <C>
MANAGED
Accumulation share value:
Beginning of period . . . . . . . . . . . . . . . . . . $21.88
End of period . . . . . . . . . . . . . . . . . . . . .
Number of Accumulation Shares outstanding at end of period
GROWTH & INCOME
Accumulation share value:
Beginning of period . . . . . . . . . . . . . . . . . . $28.81
End of period . . . . . . . . . . . . . . . . . . . . .
Number of Accumulation Shares outstanding at end of period
EQUITY INDEX
Accumulation share value:
Beginning of period . . . . . . . . . . . . . . . . . . $14.82
End of period . . . . . . . . . . . . . . . . . . . . .
Number of Accumulation Shares outstanding at end of period
LARGE CAP VALUE
Accumulation share value:
Beginning of period . . . . . . . . . . . . . . . . . . $14.31
End of period . . . . . . . . . . . . . . . . . . . . .
Number of Accumulation Shares outstanding at end of period
LARGE CAP GROWTH
Accumulation share value:
Beginning of period . . . . . . . . . . . . . . . . . . $29.00
End of period . . . . . . . . . . . . . . . . . . . . .
Number of Accumulation Shares outstanding at end of period
MID CAP VALUE
Accumulation share value:
Beginning of period . . . . . . . . . . . . . . . . . . $15.41
End of period . . . . . . . . . . . . . . . . . . . . .
Number of Accumulation Shares outstanding at end of period
MID CAP GROWTH
Accumulation share value:
Beginning of period . . . . . . . . . . . . . . . . . . $11.71
End of period . . . . . . . . . . . . . . . . . . . . .
Number of Accumulation Shares outstanding at end of period
REAL ESTATE EQUITY
Accumulation share value:
Beginning of period . . . . . . . . . . . . . . . . . . $25.16
End of period . . . . . . . . . . . . . . . . . . . . .
Number of Accumulation Shares outstanding at end of period
SMALL/MID CAP GROWTH
Accumulation share value:
Beginning of period . . . . . . . . . . . . . . . . . . $17.43
End of period . . . . . . . . . . . . . . . . . . . . .
Number of Accumulation Shares outstanding at end of period
SMALL/MID CAP CORE
Accumulation share value:
Beginning of period . . . . . . . . . . . . . . . . . . $10.00
End of period . . . . . . . . . . . . . . . . . . . . .
Number of Accumulation Shares outstanding at end of period
SMALL CAP VALUE
Accumulation share value:
Beginning of period . . . . . . . . . . . . . . . . . . $13.54
End of period . . . . . . . . . . . . . . . . . . . . .
Number of Accumulation Shares outstanding at end of period
SMALL CAP GROWTH
Accumulation share value:
Beginning of period . . . . . . . . . . . . . . . . . . $11.11
End of period . . . . . . . . . . . . . . . . . . . . .
Number of Accumulation Shares outstanding at end of period
GLOBAL EQUITY
Accumulation share value:
Beginning of period . . . . . . . . . . . . . . . . . . $10.00
End of period . . . . . . . . . . . . . . . . . . . . .
Number of Accumulation Shares outstanding at end of period
INTERNATIONAL BALANCED
Accumulation share value:
Beginning of period . . . . . . . . . . . . . . . . . . $10.70
End of period . . . . . . . . . . . . . . . . . . . . .
Number of Accumulation Shares outstanding at end of period
INTERNATIONAL EQUITY INDEX
Accumulation share value:
Beginning of period . . . . . . . . . . . . . . . . . . $13.49
End of period . . . . . . . . . . . . . . . . . . . . .
Number of Accumulation Shares outstanding at end of period
INTERNATIONAL OPPORTUNITIES
Accumulation share value:
Beginning of period . . . . . . . . . . . . . . . . . . $10.63
End of period . . . . . . . . . . . . . . . . . . . . .
Number of Accumulation Shares outstanding at end of period
EMERGING MARKETS EQUITY
Accumulation share value:
Beginning of period . . . . . . . . . . . . . . . . . . $10.00
End of period . . . . . . . . . . . . . . . . . . . . .
Number of Accumulation Shares outstanding at end of period
SHORT-TERM BOND
Accumulation share value:
Beginning of period . . . . . . . . . . . . . . . . . . $11.68
End of period . . . . . . . . . . . . . . . . . . . . .
Number of Accumulation Shares outstanding at end of period
BOND INDEX
Accumulation share value:
Beginning of period . . . . . . . . . . . . . . . . . . $10.00
End of period . . . . . . . . . . . . . . . . . . . . .
Number of Accumulation Shares outstanding at end of period
SOVEREIGN BOND
Accumulation share value:
Beginning of period . . . . . . . . . . . . . . . . . . $17.50
End of period . . . . . . . . . . . . . . . . . . . . .
Number of Accumulation Shares outstanding at end of period
GLOBAL BOND
Accumulation share value:
Beginning of period . . . . . . . . . . . . . . . . . . $11.37
End of period . . . . . . . . . . . . . . . . . . . . .
Number of Accumulation Shares outstanding at end of period
HIGH YIELD BOND
Accumulation share value:
Beginning of period . . . . . . . . . . . . . . . . . . $10.00
End of period . . . . . . . . . . . . . . . . . . . . .
Number of Accumulation Shares outstanding at end of period
MONEY MARKET
Accumulation share value:
Beginning of period . . . . . . . . . . . . . . . . . . $12.91
End of period . . . . . . . . . . . . . . . . . . . . .
Number of Accumulation Shares outstanding at end of period
</TABLE>
38
<PAGE>
39
<PAGE>
40
<PAGE>
APPENDIX A - EXAMPLE OF WITHDRAWAL CHARGE CALCULATION
ASSUME THE FOLLOWING FACTS:
On January 1, 1996, you make a $5000 initial premium payment and we issue you
a contract.
On January 1, 1997, you make a $1000 premium payment
On January 1, 1998, you make a $1000 premium payment.
On January 1, 1999, the total value of your contract is $9000 because of good
investment earnings.
Now assume you make a partial withdrawal of $6000 (no tax withholding) on
January 2, 1999. In this case, assuming no prior withdrawals, we would
deduct a CDSL of $229.57. We withdraw a total of $6229.57 from your
contract.
$6000.00 -- withdrawal request payable to you
+ 229.57 -- withdrawal charge payable to us
-----------
$6229.57 -- total amount withdrawn from your contract
HERE IS HOW WE DETERMINE THE WITHDRAWAL CHARGE:
1. We FIRSt reduce your $5,000 INITIAL PREMIUM PAYMENT by the three annual $30
contract fees we assessed on January 1, 1997, 1998, and 1999. We withdraw
the remaining $4910 from your contract.
$5000
-30 -- 1997 contract fee payable to us
-30 -- 1998 contract fee payable to us
-30 -- 1999 contract fee payable to us
- -------
$4910 -- amount of your initial premium payment we would consider to be
withdrawn.
Under the free withdrawal provision, we deduct 10% of the total value of your
contract at the beginning of the contract year, or $900 (.10 x $9000). We
pay the $900 to you as part of your withdrawal request, and we assess a
withdrawal charge on the remaining balance of $4010. Because you made the
initial premium payment 3 years ago, the withdrawal charge percentage is 4%.
We deduct the resulting $160.40 from your contract to cover the withdrawal
charge on your initial premium payment. We pay the remainder of $3849.60 to
you as a part of your withdrawal request.
$4910
-900 -- free withdrawal amount (payable to you)
- -------
$4010
x .04
- -------
$160.40 -- withdrawal charge on initial premium payment (payable to us)
41
<PAGE>
$4010.00
-160.40
---------
3849.60 -- part of withdrawal request payable to you
2. We NEXT deem the entire amount of your 1997 PREMIUM PAYMENT to be withdrawn
and we assess a withdrawal charge on that $1000 amount. Because you made
this premium payment 2 years ago, the withdrawal charge percentage is 5%.
We deduct the resulting $50 from your contract to cover the withdrawal
charge on your 1997 premium payment. We pay the remainder of $950 to you as
a part of your withdrawal request.
$1000
x .05
-----
$50 -- withdrawal charge on 1997 premium payment (payable to us)
$1000
- 50
----
$950 -- part of withdrawal request payable to you
3. We NEXT determine what additional amount we need to withdraw to provide you
with the total $6000 you requested, after the deduction of the withdrawal
charge on that additional amount. We have already allocated $900 from the
free withdrawal amount, $3849.60 from your initial premium payment, and $950
from your 1998 PREMIUM PAYMENT. Therefore, $300.40 is needed to reach
$6000.
$6000.00 -- total withdrawal amount requested
-900.00 -- free withdrawal amount
-3849.60 -- payment deemed from initial premium payment
-950.00 -- payment deemed from 1997 premium payment
-------
$300.40 -- additional payment to you needed to reach $6000
We know that the withdrawal charge percentage for this remaining amount is 6%,
because you are already deemed to have withdrawn all premiums you paid prior
to 1998. We use the following formula to determine how much more we need to
withdraw:
Remainder due to you = Withdrawal needed - [applicable withdrawal
charge percentage times withdrawal needed]
$300.40 = x - [.06x]
$300.40 = .94x
$300.4
------
0.94 = x
$319.57 = x
$319.57 -- deemed withdrawn from 1998 premium payment
- -$300.40 -- part of withdrawal request payable to you
- --------
$19.17 -- withdrawal charge on 1998 premium deemed withdrawn (payable
to us)
42
<PAGE>
$160.40 -- withdrawal charge on the INITIAL PREMIUM PAYMENT
$ 50.00 -- withdrawal charge on the 1997 PREMIUM PAYMENT
$ 19.17 -- withdrawal charge on the 1998 PREMIUM PAYMENT
--------
$229.27 -- Total withdrawal charge
43
<PAGE>
APPENDIX B - CONTRACT LOANS UNDER SECTION 403 (B) ("TSA LOANS")
Any loan under this section will be secured by a security interest in your
contract. The loan amount must be at least $2,500 and may not, on the date of
the loan (defined below), exceed the lesser of
. 50% of the total value of your contract,
. $50,000 or
. the sum of 100% of the total value of your contract invested in the
variable investment options and 20% of the total value of your
contract invested in the fixed investment option.
We will deduct that portion of the loan amount up to 20% of the total value of
your contract on the date of the loan proportionately from each investment
option you are then using. We will deduct any amount in excess of 20% of the
total value of your contract on the date of the loan proportionately from each
VARIABLE investment option you are then using.
On the date of the loan, we will transfer the total loan amount to the loan
collateral account. This account is held in JHVLICO's general investment
account and accrues interest at an effective rate equal to 1% less than the loan
interest rate described below. We transfer the interest accrued on the loan
collateral account back to the investment options on each contract anniversary
in the same proportion as your investment options are then allocated.
The DATE OF THE LOAN will be the business date on which we receive at the John
Hancock Annuity Servicing Office all the necessary documentation assigning your
contract as the security for the loan. If such receipt occurs on a date on
which we do not value shares, then the date of the loan will be the next
business day following such receipt on which we do value shares.
We determine the LOAN INTEREST RATE for this contract annually. We make such
determination in the calendar month immediately preceding the calendar month in
which your contract anniversary occurs. We apply the loan interest rate to any
loan made during the calendar year following the date we determine the loan
interest rate. Except as otherwise required by applicable state law, we will
not set a rate in excess of the greater of
. 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 we determine the loan interest rate, or
. 5%.
44
<PAGE>
If Moody's Investors Service no longer publishes this average, JHVLICO 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,
. we may increase the previous rate if the increase would be at least
1/2 %, and
. we may reduce the previous rate if the decrease would be at least 1/2
%.
We will notify you of the applicable loan interest rate at the time you make
the loan. The loan interest rate for any given loan will be fixed for the
entire loan period. Accrued interest on the loan will be added 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. Prior to the first installment date, we will
provide you with the repayment due dates and installment amounts in a repayment
schedule. The principal portion of each loan repayment will be transferred back
to the investment options in the same proportion as your investment options are
then allocated.
Prepayment of the entire loan is permitted. In addition, loan prepayments in
excess of regularly scheduled prepayments 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 you fail to make a scheduled loan repayment 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 the total
value of your contract contains (1) salary reduction contributions made on or
before December 31, 1988 and (2) earnings credited on such contributions on or
before such date at the time of default (together referred to as "pre-1988 "
with regard to the default. We will withdraw from the total value of your
contract 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). To the extent that the amount in default exceeds
the amount of pre-1988 contributions, we will make no actual foreclosure on the
loan security
. until the earliest of your attaining age 59 1/2, separation from
service, death, or becoming disabled (as defined in Section 72(m)(7)
of the Code, and
. unless, prior to the occurrence of such event, the excess is deemed a
distribution reportable you.
If you surrender your contract while there is an outstanding loan balance or,
if the annuitant dies while there is an outstanding loan balance, we will
determine an amount (positive or negative) by subtracting the outstanding loan
balance from the loan collateral account as of the date of surrender or death.
If such amount is positive, we will add it to the surrender value or death
benefit, as applicable. If the amount is negative, we will subtract it from the
surrender value or death benefit, as applicable. If, at any time, the surrender
value exceeds the loan
45
<PAGE>
collateral account, your loan will be subject to certain excessive loan balance
provisions set forth in your loan agreement.
Because the Federal tax laws governing contract loans are very complex and
confusing, you should consult a qualified tax adviser before applying for a
contract loan.
46
<PAGE>
APPENDIX C - ILLUSTRATIVE CONTRACT VALUE AND ANNUITY PAYMENT TABLES
The following tables present illustrative periodic contract values and annuity
payments that would have resulted under a contract described in this prospectus
had such values and payments been based exclusively upon the investment
experience of the nine specified variable investment options, assuming
investment by each of those investment options in the corresponding Fund of the
Trust and its predecessors during the periods shown. We have not illustrated the
other investment options because of the limited time that they have been
available. The contracts described in this prospectus were first offered in
1998.
For the years ended December 31, 1986 (and prior thereto), we have calculated
the values based upon the actual investment results of the three corresponding
variable life insurance managed separate accounts which were the predecessors to
the Growth & Income, Sovereign Bond, and Money Market Portfolios, as if the Fund
had been in existence prior to March 28, 1986, the date of its reorganization.
In the tables, we assume
. the owner made a single purchase payment of $10,000, net of any
deductions from purchase payments,
. charges have been assessed at annual rate of 1.40% for mortality and
expense risks and administrative services, and
. actual investment management fees and other fund expenses for the
periods illustrated have also been assessed.
Absent expense reimbursements by John Hancock to certain of the Funds for some
periods, the values illustrated would have been lower.
WHAT THE TABLES ILLUSTRATE
Subject to the foregoing, each Table I presents, at yearly intervals, the
illustrative periodic contract values for each variable investment option which
would have resulted under a contract, if the owner had made a net single
purchase payment of $10,000. The contract values are based upon the investment
performance of the corresponding Fund.
Subject to the foregoing, each Table II indicates, at annual intervals,
illustrative monthly variable annuity payments for each variable investment
option which would have been received by an annuitant or other payee, assuming
that an initial annuity payment of $100 was received in the month and year
indicated. The form of annuity illustrated is a life annuity with payments
guaranteed for 10 years.
The results shown should not be considered a representation of the future. A
program of the type illustrated in the tables does not assure a profit or
protect against depreciation in declining markets.
47
<PAGE>
GROWTH & INCOME
TABLE I--ACCUMULATION PERIOD--ILLUSTRATIVE CONTRACT VALUES WHICH WOULD HAVE
RESULTED IF A $10,000 NET PURCHASE PAYMENT CONTRACT HAD BEEN ISSUED JANUARY 2,
1975
<TABLE>
<CAPTION>
CONTRACT VALUE
ON DECEMBER 31
Contract Year Commencing OF THE SAME YEAR
------------------------ ------------------
<S> <C>
January 1975 . . . . . . . . . . . . . . . . $ 12,768.53
January 1976 . . . . . . . . . . . . . . . . 14,847.74
January 1977 . . . . . . . . . . . . . . . . 13,070.47
January 1978 . . . . . . . . . . . . . . . . 13,674.30
January 1979 . . . . . . . . . . . . . . . . 15,670.05
January 1980 . . . . . . . . . . . . . . . . 20,154.18
January 1981 . . . . . . . . . . . . . . . . 20,054.68
January 1982 . . . . . . . . . . . . . . . . 25,323.38
January 1983 . . . . . . . . . . . . . . . . 30,428.51
January 1984 . . . . . . . . . . . . . . . . 31,429.08
January 1985 . . . . . . . . . . . . . . . . 41,769.30
January 1986 . . . . . . . . . . . . . . . . 47,665.34
January 1987 . . . . . . . . . . . . . . . . 48,842.45
January 1988 . . . . . . . . . . . . . . . . 56,368.07
January 1989 . . . . . . . . . . . . . . . . 71,995.40
January 1990 . . . . . . . . . . . . . . . . 72,809.18
January 1991 . . . . . . . . . . . . . . . . 90,446.27
January 1992 . . . . . . . . . . . . . . . . 97,127.06
January 1993 . . . . . . . . . . . . . . . . 108,553.53
January 1994 . . . . . . . . . . . . . . . . 106,452.30
January 1995 . . . . . . . . . . . . . . . . 140,886.25
January 1996 . . . . . . . . . . . . . . . . 166,849.35
January 1997 . . . . . . . . . . . . . . . . 213,632.01
January 1998. . . . . . . . . . . . . . . . . 274,384.22
</TABLE>
48
<PAGE>
TABLE II--ANNUITY PERIOD--ILLUSTRATIVE MONTHLY VARIABLE ANNUITY PAYMENTS AN
ANNUITANT WOULD HAVE RECEIVED ASSUMING A FIRST ANNUITY PAYMENT OF $100 IN
JANUARY 1975.
<TABLE>
<CAPTION>
PAYMENT
Month For Month
----- -----------
<S> <C>
January 1975 . . . . . . . . . . . . . . . . . . $ 100.00
January 1976 . . . . . . . . . . . . . . . . . . 126.05
January 1977 . . . . . . . . . . . . . . . . . . 139.99
January 1978 . . . . . . . . . . . . . . . . . . 121.58
January 1979 . . . . . . . . . . . . . . . . . . 123.59
January 1980 . . . . . . . . . . . . . . . . . . 136.47
January 1981 . . . . . . . . . . . . . . . . . . 168.49
January 1982 . . . . . . . . . . . . . . . . . . 163.12
January 1983 . . . . . . . . . . . . . . . . . . 198.05
January 1984 . . . . . . . . . . . . . . . . . . 227.32
January 1985 . . . . . . . . . . . . . . . . . . 228.10
January 1986 . . . . . . . . . . . . . . . . . . 294.22
January 1987 . . . . . . . . . . . . . . . . . . 331.86
January 1988 . . . . . . . . . . . . . . . . . . 330.06
January 1989 . . . . . . . . . . . . . . . . . . 363.60
January 1990 . . . . . . . . . . . . . . . . . . 429.63
January 1991 . . . . . . . . . . . . . . . . . . 432.97
January 1992 . . . . . . . . . . . . . . . . . . 496.00
January 1993 . . . . . . . . . . . . . . . . . . 543.10
January 1994 . . . . . . . . . . . . . . . . . . 585.08
January 1995 . . . . . . . . . . . . . . . . . . 556.35
January 1996 . . . . . . . . . . . . . . . . . . 706.64
January 1997 . . . . . . . . . . . . . . . . . . 813.93
January 1998. . . . . . . . . . . . . . . . . . . 965.18
January 1999. . . . . . . . . . . . . . . . . . . 1,238.92
</TABLE>
The amounts shown are based on the investment performance of the Growth &
Income Fund, and its predecessors. All amounts reflect the provisions of the
contracts described in this prospectus, including annuity tables based on the
standard assumed investment rate of3 1/2% per annum. The amounts shown do not
reflect the deduction for any applicable premium tax. See text preceding these
tables.
49
<PAGE>
SOVEREIGN BOND
TABLE I--ACCUMULATION PERIOD--ILLUSTRATIVE CONTRACT VALUES WHICH WOULD HAVE
RESULTED IF A $10,000 NET PURCHASE PAYMENT CONTRACT HAD BEEN ISSUED JUNE 2, 1980
<TABLE>
<CAPTION>
Contract Value
ON DECEMBER 31
Contract year Commencing of the same year
------------------------ ------------------
<S> <C>
June 1980 . . . . . . . . . . . . . . . . . . $10,229.93
June 1981 . . . . . . . . . . . . . . . . . . 10,496.01
June 1982 . . . . . . . . . . . . . . . . . . 13,331.26
June 1983 . . . . . . . . . . . . . . . . . . 13,948.51
June 1984 . . . . . . . . . . . . . . . . . . 15,749.99
June 1985 . . . . . . . . . . . . . . . . . . 18,880.47
June 1986 . . . . . . . . . . . . . . . . . . 21,134.54
June 1987 . . . . . . . . . . . . . . . . . . 21,393.33
June 1988 . . . . . . . . . . . . . . . . . . 22,818.87
June 1989 . . . . . . . . . . . . . . . . . . 25,363.52
June 1990 . . . . . . . . . . . . . . . . . . 26,898.56
June 1991 . . . . . . . . . . . . . . . . . . 30,947.25
June 1992 . . . . . . . . . . . . . . . . . . 32,856.05
June 1993 . . . . . . . . . . . . . . . . . . 35,891.25
June 1994 . . . . . . . . . . . . . . . . . . 34,484.11
June 1995 . . . . . . . . . . . . . . . . . . 40,650.17
June 1996 . . . . . . . . . . . . . . . . . . 41,731.05
June 1997 . . . . . . . . . . . . . . . . . . 45,310.84
June 1998 . . . . . . . . . . . . . . . . . . 48,359.84
</TABLE>
TABLE II--ANNUITY PERIOD--ILLUSTRATIVE MONTHLY VARIABLE ANNUITY PAYMENTS AN
ANNUITANT WOULD HAVE RECEIVED ASSUMING A FIRST ANNUITY PAYMENT OF $100 IN JUNE
1980.
<TABLE>
<CAPTION>
PAYMENT
Month For Month
----- -----------
<S> <C>
June 1980 . . . . . . . . . . . . . . . . . . . $100.00
June 1981 . . . . . . . . . . . . . . . . . . . 96.02
June 1982 . . . . . . . . . . . . . . . . . . . 104.33
June 1983 . . . . . . . . . . . . . . . . . . . 124.70
June 1984 . . . . . . . . . . . . . . . . . . . 119.06
June 1985 . . . . . . . . . . . . . . . . . . . 142.91
June 1986 . . . . . . . . . . . . . . . . . . . 161.39
June 1987 . . . . . . . . . . . . . . . . . . . 161.44
June 1988 . . . . . . . . . . . . . . . . . . . 166.85
June 1989 . . . . . . . . . . . . . . . . . . . 175.39
June 1990 . . . . . . . . . . . . . . . . . . . 179.74
June 1991 . . . . . . . . . . . . . . . . . . . 192.24
June 1992 . . . . . . . . . . . . . . . . . . . 205.19
June 1993 . . . . . . . . . . . . . . . . . . . 219.34
June 1994 . . . . . . . . . . . . . . . . . . . 212.72
June 1995 . . . . . . . . . . . . . . . . . . . 224.64
June 1996 . . . . . . . . . . . . . . . . . . . 228.63
June 1997 . . . . . . . . . . . . . . . . . . . 235.28
June 1998. . . . . . . . . . . . . . . . . . . . 249.73
</TABLE>
The amounts shown are based on the investment performance of the Sovereign
Bond Fund, and its predecessors. All amounts reflect the provisions of the
contracts described in this prospectus, including annuity tables based on the
standard assumed investment rate of3 1/2% per annum. The amounts shown do not
reflect the deduction for any applicable premium tax. See text preceding these
tables.
50
<PAGE>
MONEY MARKET
TABLE I--ACCUMULATION PERIOD--ILLUSTRATIVE CONTRACT VALUES WHICH WOULD HAVE
RESULTED IF A $10,000 NET PURCHASE PAYMENT CONTRACT HAD BEEN ISSUED MAY 13, 1982
<TABLE>
<CAPTION>
Contract Value
on December 31
Contract Year Commencing of the same year
------------------------ ------------------
<S> <C>
May 1982 . . . . . . . . . . . . . . . . . . $10,454.08
May 1983 . . . . . . . . . . . . . . . . . . 11,209.15
May 1984 . . . . . . . . . . . . . . . . . . 12,215.99
May 1985 . . . . . . . . . . . . . . . . . . 13,028.02
May 1986 . . . . . . . . . . . . . . . . . . 13,707.73
May 1987 . . . . . . . . . . . . . . . . . . 14,422.37
May 1988 . . . . . . . . . . . . . . . . . . 15,314.17
May 1989 . . . . . . . . . . . . . . . . . . 16,504.28
May 1990 . . . . . . . . . . . . . . . . . . 17,639.99
May 1991 . . . . . . . . . . . . . . . . . . 18,435.21
May 1992 . . . . . . . . . . . . . . . . . . 18,841.95
May 1993 . . . . . . . . . . . . . . . . . . 19,150.05
May 1994 . . . . . . . . . . . . . . . . . . 19,657.28
May 1995 . . . . . . . . . . . . . . . . . . 20,506.13
May 1996 . . . . . . . . . . . . . . . . . . 21,299.24
May 1997 . . . . . . . . . . . . . . . . . . 22,149.45
May 1998. . . . . . . . . . . . . . . . . . . 23,030.24
</TABLE>
TABLE II--ANNUITY PERIOD--ILLUSTRATIVE MONTHLY VARIABLE ANNUITY PAYMENTS AN
ANNUITANT WOULD HAVE RECEIVED ASSUMING A FIRST ANNUITY PAYMENT OF $100 IN MAY
1982.
<TABLE>
<CAPTION>
Payment
Month For Month
----- -----------
<S> <C>
May 1982 . . . . . . . . . . . . . . . . . . . . $100.00
May 1983 . . . . . . . . . . . . . . . . . . . . 103.34
May 1984 . . . . . . . . . . . . . . . . . . . . 107.59
May 1985 . . . . . . . . . . . . . . . . . . . . 112.85
May 1986 . . . . . . . . . . . . . . . . . . . . 115.94
May 1987 . . . . . . . . . . . . . . . . . . . . 117.28
May 1988 . . . . . . . . . . . . . . . . . . . . 119.52
May 1989 . . . . . . . . . . . . . . . . . . . . 123.57
May 1990 . . . . . . . . . . . . . . . . . . . . 128.27
May 1991 . . . . . . . . . . . . . . . . . . . . 131.70
May 1992 . . . . . . . . . . . . . . . . . . . . 131.78
May 1993 . . . . . . . . . . . . . . . . . . . . 129.76
May 1994 . . . . . . . . . . . . . . . . . . . . 127.42
May 1995 . . . . . . . . . . . . . . . . . . . . 127.48
May 1996 . . . . . . . . . . . . . . . . . . . . 128.26
May 1997 . . . . . . . . . . . . . . . . . . . . 128.72
May 1998 . . . . . . . . . . . . . . . . . . . . 129.41
</TABLE>
The amounts shown are based on the investment performance of the Money Market
Fund, and its predecessors. All amounts reflect the provisions of the contracts
described in this prospectus, including annuity tables based on the standard
assumed investment rate of3 1/2% per annum. The amounts shown do not reflect the
deduction for any applicable premium tax. See text preceding these tables.
51
<PAGE>
LARGE CAP GROWTH
TABLE I--ACCUMULATION PERIOD--ILLUSTRATIVE CONTRACT VALUES WHICH WOULD HAVE
RESULTED IF A $10,000 NET PURCHASE PAYMENT HAD BEEN ISSUED NOVEMBER 24, 1987
<TABLE>
<CAPTION>
Contract Value
ON DECEMBER 31
Contract Year Commencing of the same year
------------------------ ------------------
<S> <C>
November 1987 . . . . . . . . . . . . . . . . $10,239.60
November 1988 . . . . . . . . . . . . . . . . 11,531.81
November 1989 . . . . . . . . . . . . . . . . 15,108.39
November 1990 . . . . . . . . . . . . . . . . 15,668.24
November 1991 . . . . . . . . . . . . . . . . 19,383.96
November 1992 . . . . . . . . . . . . . . . . 21,015.39
November 1993 . . . . . . . . . . . . . . . . 23,586.33
November 1994 . . . . . . . . . . . . . . . . 23,031.38
November 1995 . . . . . . . . . . . . . . . . 29,897.25
November 1996 . . . . . . . . . . . . . . . . 34,867.83
November 1997 . . . . . . . . . . . . . . . . 45,026.80
November 1998 . . . . . . . . . . . . . . . . 61,945.17
</TABLE>
TABLE II--ANNUITY PERIOD--ILLUSTRATIVE MONTHLY VARIABLE ANNUITY PAYMENTS AN
ANNUITANT WOULD HAVE RECEIVED ASSUMING A FIRST ANNUITY PAYMENT OF $100 IN
NOVEMBER 1987.
<TABLE>
<CAPTION>
Payment
Month FOR MONTH
----- -----------
<S> <C>
November 1987 . . . . . . . . . . . . . . . . . $100.00
November 1988 . . . . . . . . . . . . . . . . . 109.59
November 1989 . . . . . . . . . . . . . . . . . 135.20
November 1990 . . . . . . . . . . . . . . . . . 135.73
November 1991 . . . . . . . . . . . . . . . . . 164.04
November 1992 . . . . . . . . . . . . . . . . . 168.91
November 1993 . . . . . . . . . . . . . . . . . 189.46
November 1994 . . . . . . . . . . . . . . . . . 182.81
November 1995 . . . . . . . . . . . . . . . . . 218.63
November 1996 . . . . . . . . . . . . . . . . . 253.37
November 1997 . . . . . . . . . . . . . . . . . 310.32
November 1998 . . . . . . . . . . . . . . . . . 372.93
</TABLE>
The amounts shown are based on the investment performance of the Large Cap
Growth Fund. All amounts reflect the provisions of the contracts described in
this prospectus, including annuity tables based on the standard assumed
investment rate of3 1/2% per annum. The amounts shown do not reflect the
deduction for any applicable premium tax. See text preceding the tables.
52
<PAGE>
MANAGED
TABLE I--ACCUMULATION PERIOD--ILLUSTRATIVE CONTRACT VALUES WHICH WOULD HAVE
RESULTED IF A $10,000 NET PURCHASE PAYMENT HAD BEEN ISSUED NOVEMBER 9, 1987
<TABLE>
<CAPTION>
Contract Value
ON DECEMBER 31
Contract Year Commencing of the same year
------------------------ ------------------
<S> <C>
November 1987 . . . . . . . . . . . . . . . . $10,226.76
November 1988 . . . . . . . . . . . . . . . . 11,240.26
November 1989 . . . . . . . . . . . . . . . . 13,380.15
November 1990 . . . . . . . . . . . . . . . . 13,629.51
November 1991 . . . . . . . . . . . . . . . . 16,394.96
November 1992 . . . . . . . . . . . . . . . . 17,414.83
November 1993 . . . . . . . . . . . . . . . . 19,167.24
November 1994 . . . . . . . . . . . . . . . . 18,479.74
November 1995 . . . . . . . . . . . . . . . . 23,160.13
November 1996 . . . . . . . . . . . . . . . . 25,285.76
November 1997 . . . . . . . . . . . . . . . . 29,606.13
November 1998 . . . . . . . . . . . . . . . . 35,155.66
</TABLE>
TABLE II--ANNUITY PERIOD--ILLUSTRATIVE MONTHLY VARIABLE ANNUITY PAYMENTS AN
ANNUITANT WOULD HAVE RECEIVED ASSUMING A FIRST ANNUITY PAYMENT OF $100 IN
NOVEMBER 1987.
<TABLE>
<CAPTION>
PAYMENT
Month FOR MONTH
----- -----------
<S> <C>
November 1987 . . . . . . . . . . . . . . . . . $100.00
November 1988 . . . . . . . . . . . . . . . . . 109.87
November 1989 . . . . . . . . . . . . . . . . . 121.52
November 1990 . . . . . . . . . . . . . . . . . 114.66
November 1991 . . . . . . . . . . . . . . . . . 136.05
November 1992 . . . . . . . . . . . . . . . . . 142.02
November 1993 . . . . . . . . . . . . . . . . . 156.17
November 1994 . . . . . . . . . . . . . . . . . 146.42
November 1995 . . . . . . . . . . . . . . . . . 168.78
November 1996 . . . . . . . . . . . . . . . . . 180.91
November 1997 . . . . . . . . . . . . . . . . . 201.84
November 1998 . . . . . . . . . . . . . . . . . 202.83
</TABLE>
The amounts shown are based on the investment performance of the Managed Fund.
All amounts reflect the provisions of the contracts described in this
prospectus, including annuity 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.
53
<PAGE>
REAL ESTATE EQUITY
TABLE I--ACCUMULATION PERIOD--ILLUSTRATIVE CONTRACT VALUES WHICH WOULD HAVE
RESULTED IF A $10,000 NET PURCHASE PAYMENT HAD BEEN ISSUED FEBRUARY 14, 1989
<TABLE>
<CAPTION>
Contract Value
on December 31
Contract Year Commencing OF THE SAME YEAR
------------------------ ------------------
<S> <C>
February 1989 . . . . . . . . . . . . . . . . $10,442.26
February 1990 . . . . . . . . . . . . . . . . 8,035.55
February 1991 . . . . . . . . . . . . . . . . 10,579.75
February 1992 . . . . . . . . . . . . . . . . 12,103.83
February 1993 . . . . . . . . . . . . . . . . 14,001.34
February 1994 . . . . . . . . . . . . . . . . 14,202.33
February 1995 . . . . . . . . . . . . . . . . 15,728.80
February 1996 . . . . . . . . . . . . . . . . 20,639.15
February 1997 . . . . . . . . . . . . . . . . 23,856.53
February 1998 . . . . . . . . . . . . . . . . 19,594.40
</TABLE>
TABLE II--ANNUITY PERIOD--ILLUSTRATIVE MONTHLY VARIABLE ANNUITY PAYMENTS AN
ANNUITANT WOULD HAVE RECEIVED ASSUMING A FIRST ANNUITY PAYMENT OF $100 IN
FEBRUARY 1989.
<TABLE>
<CAPTION>
Payment
Month For Month
----- -----------
<S> <C>
February 1989 . . . . . . . . . . . . . . . . $100.00
February 1990 . . . . . . . . . . . . . . . . 95.91
February 1991 . . . . . . . . . . . . . . . . 85.47
February 1992 . . . . . . . . . . . . . . . . 99.80
February 1993 . . . . . . . . . . . . . . . . 115.44
February 1994 . . . . . . . . . . . . . . . . 118.80
February 1995 . . . . . . . . . . . . . . . . 112.48
February 1996 . . . . . . . . . . . . . . . . 124.74
February 1997 . . . . . . . . . . . . . . . . 158.12
February 1998 . . . . . . . . . . . . . . . . 170.24
February 1999. . . . . . . . . . . . . . . . . 135.88
</TABLE>
The amounts shown are based on the investment performance of the Real Estate
Equity Fund. All amounts reflect the provisions of the contracts described in
this prospectus, including annuity tables based on the standard assumed
investment rate of3 1/2% per annum. The amounts shown do not reflect the
deduction for any applicable premium tax. See text preceding the tables.
54
<PAGE>
INTERNATIONAL EQUITY INDEX
TABLE I--ACCUMULATION PERIOD--ILLUSTRATIVE CONTRACT VALUES WHICH WOULD HAVE
RESULTED IF A $10,000 NET PURCHASE PAYMENT HAD BEEN ISSUED FEBRUARY 10, 1989
<TABLE>
<CAPTION>
Contract Value
ON DECEMBER 31
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
February 1998. . . . . . . . . . . . . . . . 18,308.15
</TABLE>
TABLE II--ANNUITY PERIOD--ILLUSTRATIVE MONTHLY VARIABLE ANNUITY PAYMENTS AN
ANNUITANT WOULD HAVE RECEIVED ASSUMING A FIRST ANNUITY PAYMENT OF $100 IN
FEBRUARY 1989.
<TABLE>
<CAPTION>
Payment
Month FOR MONTH
----- -----------
<S> <C>
February 1989 . . . . . . . . . . . . . . . . . $100.00
February 1990 . . . . . . . . . . . . . . . . . 96.77
February 1991 . . . . . . . . . . . . . . . . . 89.90
February 1992 . . . . . . . . . . . . . . . . . 103.84
February 1993 . . . . . . . . . . . . . . . . . 98.31
February 1994 . . . . . . . . . . . . . . . . . 123.78
February 1995 . . . . . . . . . . . . . . . . . 103.66
February 1996 . . . . . . . . . . . . . . . . . 114.78
February 1997 . . . . . . . . . . . . . . . . . 115.51
February 1998 . . . . . . . . . . . . . . . . . 108.73
February 1999 . . . . . . . . . . . . . . . . . 123.17
</TABLE>
The amounts shown are based on the investment performance of the International
Equity Index Fund. All amounts reflect the provisions of the contracts described
in this prospectus, including annuity tables based on the standard assumed
investment rate of3 1/2% per annum. The amounts shown do not reflect the
deduction for any applicable premium tax. See text preceding the tables.
55
<PAGE>
SHORT-TERM BOND (FORMERLY SHORT-TERM U.S. GOVERNMENT)
TABLE I--ACCUMULATION PERIOD--ILLUSTRATIVE CONTRACT VALUES WHICH WOULD HAVE
RESULTED IF A $10,000 NET PURCHASE PAYMENT HAD BEEN ISSUED SEPTEMBER 23, 1994
<TABLE>
<CAPTION>
Contract Value
ON DECEMBER 31
Contract Year Commencing of the same year
------------------------ ------------------
<S> <C>
September 1994 . . . . . . . . . . . . . . . $ 9,913.05
September 1995 . . . . . . . . . . . . . . . 10,899.50
September 1996 . . . . . . . . . . . . . . . 11,135.67
September 1997 . . . . . . . . . . . . . . . 11,684.94
September 1998 . . . . . . . . . . . . . . . 12,192.69
</TABLE>
TABLE II--ANNUITY PERIOD--ILLUSTRATIVE MONTHLY VARIABLE ANNUITY PAYMENTS AN
ANNUITANT WOULD HAVE RECEIVED ASSUMING A FIRST ANNUITY PAYMENT OF $100 IN
SEPTEMBER 1994
<TABLE>
<CAPTION>
Payment
Month FOR MONTH
----- -----------
<S> <C>
September 1994. . . . . . . . . . . . . . . . . $100.00
September 1995. . . . . . . . . . . . . . . . . 103.15
September 1996. . . . . . . . . . . . . . . . . 100.48
September 1997. . . . . . . . . . . . . . . . . 103.72
September 1998. . . . . . . . . . . . . . . . . 106.28
</TABLE>
The amounts shown are based on the investment performance of the Short-Term
Bond Fund. All amounts reflect the provisions of the contracts described in this
prospectus, including annuity tables based on the standard assumed investment
rate of3 1/2% per annum. The amounts shown do not reflect the deduction for any
applicable premium tax. See text preceding the tables.
56
<PAGE>
SMALL/MID CAP GROWTH (FORMERLY DIVERSIFIED MID CAP GROWTH)
TABLE I--ACCUMULATION PERIOD--ILLUSTRATIVE CONTRACT VALUES WHICH WOULD HAVE
RESULTED IF A $10,000 NET PURCHASE PAYMENT HAD BEEN ISSUED SEPTEMBER 23, 1994
<TABLE>
<CAPTION>
Contract Value
ON DECEMBER 31
Contract Year Commencing of the same year
------------------------ ------------------
<S> <C>
September 1994 . . . . . . . . . . . . . . . $ 9,911.94
September 1995 . . . . . . . . . . . . . . . 13,289.37
September 1996 . . . . . . . . . . . . . . . 17,080.43
September 1997 . . . . . . . . . . . . . . . 17,434.93
September 1998 . . . . . . . . . . . . . . . 18,156.83
</TABLE>
TABLE II--ANNUITY PERIOD--ILLUSTRATIVE MONTHLY VARIABLE ANNUITY PAYMENTS AN
ANNUITANT WOULD HAVE RECEIVED ASSUMING A FIRST ANNUITY PAYMENT OF $100 IN
SEPTEMBER 1994
<TABLE>
<CAPTION>
Payment
Month FOR MONTH
----- -----------
<S> <C>
September 1994. . . . . . . . . . . . . . . . . $100.00
September 1995. . . . . . . . . . . . . . . . . 124.17
September 1996. . . . . . . . . . . . . . . . . 99.60
September 1997. . . . . . . . . . . . . . . . . 105.24
September 1998. . . . . . . . . . . . . . . . . 105.77
</TABLE>
The amounts shown are based on the investment performance of the Small/Mid Cap
Growth Fund. All amounts reflect the provisions of the contracts described in
this prospectus, including annuity tables based on the standard assumed
investment rate of3 1/2% per annum. The amounts shown do not reflect the
deduction for any applicable premium tax. See text preceding the tables.
57
<PAGE>
LOGO
JOHN HANCOCK
LOGO
JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY
ANNUITY TRANSFERLINE
AUTHORIZATION FORM
INSTRUCTIONS: Please complete and sign where indicated. If your contract will
be jointly owned, each owner must sign. An acknowledgment letter will be sent
as soon as your contract is issued.
THIS COMPLETED FORM MUST BE SUBMITTED WITH THE APPLICATION.
- -------------------------------------------------------------------------------
( ) Yes! I want TRANSFERLINE, JHVLICO'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 investment
options, and
(2) to change the allocation of future purchase payments to the investment
options.
I understand that JHVLICO 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 JHVLICO follows such
procedures, I will not hold JHVLICO 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 JHVLICO at its Annuity
Servicing Office or (b) JHVLICO discontinues this service.
Signature(s) of Prospective
Contract Owner(s)
Date: /s/ _______________________________
Date: /s/ _______________________________
Questions call: 1-800-732-5543
Mail to: John Hancock Annuity Servicing Office
529 Main Street (X-4)
Boston, MA 02129
58
<PAGE>
JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY
DEFERRED COMBINATION FIXED AND VARIABLE ANNUITY CONTRACTS
JOHN HANCOCK VARIABLE ANNUITY ACCOUNT I
STATEMENT OF ADDITIONAL INFORMATION
__________________
This statement of additional information ("SAI"), dated May 3, 1999 is not a
prospectus. It is intended that this SAI be read in conjunction with the
prospectus of John Hancock Variable Annuity Account I (the "Account") dated May
3, 1999, for the contracts being offered. Terms used in this SAI that are not
otherwise defined herein have the same meanings given to them in the prospectus,
unless the context requires otherwise. A copy of the prospectus may be obtained
from the John Hancock Annuity Servicing Office, 529 Main Street (X-4),
Charlestown, Massachusetts 02129, telephone number 1-800-732-5543.
TABLE OF CONTENTS
_________________
<TABLE>
<CAPTION>
PAGE OF SAI
-----------
<S> <C>
Variations in Charges.................. 2
Distribution........................... 2
Calculation of Performance Data........ 2
Other Performance Information.......... 4
Calculation of Annuity Payments........ 4
Additional Information About Determining Unit Values 6
Purchases and Redemptions of Fund Shares 7
The Account............................ 8
Delay of Certain Payments.............. 8
Liability for Telephone Transfers...... 8
Voting Privileges...................... 8
JHVLICO Financial Statements........... 10
Separate Account Financial Statements.. 23
</TABLE>
Acct I (Ind Pref) 5/99
<PAGE>
VARIATIONS IN CHARGES
In the future, we may allow a reduction in or the elimination of the
withdrawal charge, the charge for mortality and expense risks, the
administrative services charge,or the annual contract fee. The affected
contracts would involve sales to groups or classes of individuals in a manner
resulting in a reduction in the expenses associated with the sale of such
contracts and the benefits offered, or the costs associated with administering
or maintaining the contracts.
The entitlement to such a reduction in or elimination of charges and fees
will be determined by John Hancock based upon factors such as the following:
(1) the size of the initial premium payment, (2) the size of the group or
class, (3) the total amount of premium payments expected to be received from the
group or class and the manner in which premium payments are remitted, (4) the
nature of the group or class for which the contracts are being purchased and the
persistency expected from that group or class as well as the mortality risks
associated with that group or class, (5) the purpose for which the contracts are
being purchased and whether that purpose makes it likely that costs and expenses
will be reduced, or (6) the level of commissions paid to selling broker-dealers
or certain financial institutions with respect to contracts within the same
group or class.
We will make any reduction in charges or fees according to our rules in
effect at the time an application for a contract is approved. We reserve the
right to change these rules from time to time. Any variation in charges or fees
will reflect differences in costs and services, will apply uniformly to all
prospective contract purchasers in the group or class, and will not be unfairly
discriminatory to the interests of any owner.
DISTRIBUTION
The distribution of the contracts through Signator Investors, Inc.
("Signator") is continuous. Pursuant to a marketing and distribution agreement
between John Hancock and Signator, the amounts we paid and Signator retained
under that agreement for such services were as follows:
<TABLE>
<CAPTION>
YEAR AMOUNT PAID TO SIGNATOR AMOUNT RETAINED BY SIGNATOR
---- ----------------------- ---------------------------
<S> <C> <C>
1998
1997
1996
</TABLE>
CALCULATION OF PERFORMANCE DATA
The Account may, from time to time, include in advertisements, sales
literature and reports to owners or prospective investors information relating
to the performance of its variable investment options. The performance
information that may be presented is not an estimate or a guarantee of future
investment performance, and does not represent the actual experience of amounts
invested by a particular owner. Set out below is a description of the methods
used in calculating the performance information for the variable investment
options.
The Account will calculate the average annual total return for each
variable investment option (other than the Money Market option), according to
the following formula prescribed by the SEC:
P x ( 1 + T ) n = ERV
<TABLE>
<CAPTION>
<S> <C>
where P = a hypothetical initial premium payment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value of a hypothetical
$1,000 premium payment, made at the beginning of
such period (or fractional portion thereof)
</TABLE>
2
<PAGE>
Average annual total return is the annual compounded rate of return for a
variable investment option that would have produced the ending redeemable value
over the stated period if the performance remained constant throughout. The
calculation assumes a single $1,000 premium payment made into the variable
investment option at the beginning of the period and full redemption at the end
of the period. It reflects adjustments for all Trust and contract level charges
except any premium tax charge or charges for optional rider benefits described
in the prospectus. The annual contract fee has been included as an annual
percentage of assets.
On the basis, the following table shows the average total return for each
variable investment option for the periods ended December 31, 1998:
<TABLE>
<CAPTION>
AVERAGE ANNUALIZED TOTAL RETURNS
--------------------------------
<S> <C> <C> <C> <C> <C>
VARIABLE INVESTMENT YEAR TO DATE 1 YEAR 5 YEAR 10 YEAR DATE OF
- ------------------- /**/ /**/ /**/ INCEPTION
OPTION/*/ /***/
- ------
Managed.............. 11.5% 11.5% 12.1% 11.9% 11/09/87
Growth & Income...... 21.3% 21.3% 19.8% 16.9% 4/03/72
Equity Index......... 19.8% 19.8% 25.0% N/A 4/30/96
Large Cap Value...... 0.7% 0.7% 15.7% N/A 4/30/96
Large Cap Growth..... 30.5% 30.5% 20.7% 18.1% 11/24/87
Mid Cap Value........ -19.8% -19.8% 8.6% N/A 4/30/96
Mid Cap Growth....... 30.4% 30.4% 17.6% N/A 4/30/96
Real Estate Equity... -25.3% -25.3% 6.0% 6.9% 2/01/89
Small/Mid Cap Growth. -3.2% -3.2% 14.0% N/A 9/23/94
Small/Mid Cap CORE... -0.5% N/A N/A N/A 11/30/98
Small Cap Value...... -14.4% -14.4% 6.7% N/A 4/30/96
Small Cap Growth..... 5.9% 5.9% 6.7% N/A 4/30/96
Global Equity ........ -4.5% N/A N/A N/A 11/30/98
International Balanced 9.4% 9.4% 6.3% N/A 4/30/96
International Equity
Index................ 11.9% 11.9% 2.4% 6.2% 2/01/89
International
Opportunities........ 7.3% 7.3% 5.3% N/A 4/30/96
Emerging Markets
Equity............... -14.2% N/A N/A N/A 11/30/98
Short-Term Bond...... -2.7% -2.7% 3.6% N/A 9/23/94
Bond Index........... -7.4% N/A N/A N/A 11/30/98
Sovereign Bond....... -0.6% -0.6% 5.2% 7.6% 6/02/80
Global Bond.......... 0.6% 0.6% 5.6% N/A 4/30/96
High Yield Bond...... -8.5% N/A N/A N/A 11/30/98
Money Market......... -3.4% -3.4% 2.7% 4.0% 5/13/82
</TABLE>
*
**
***
For the 7-day period ending December 31, 1998, the Money Market option's
current yield was 3.6 % and its effective yield was 3.6 %.
3
<PAGE>
The Account will calculate current yield for each variable investment
option (other than the Money Market option) according to the following formula
prescribed by the SEC:
LOGO
where: a = net investment income earned during the period by the Fund whose
shares are owned by the variable investment option
b = expenses accrued for the period (net of any reimbursements)
c = the average daily number of accumulation units outstanding during
the period
d = the offering price per accumulation unit on the last day of the
period
According to this formula, yield is determined by dividing the net
investment income per accumulation unit earned during the period (minus the
deduction for mortality and expense risk charge, administration charge and
annual contract fee) by the accumulation unit value on the last day of the
period and annualizing the resulting figure. The calculation is based on
specified 30-day periods identified in the advertisement. Neither the
withdrawal charge nor any charges for premium taxes or optional rider benefits
are reflected in the calculation.
The Account may calculate current yield and effective yield figures for the
Money Market option. The current yield of the Money Market option for a
seven-day period ("base period") will be computed by determining the "net change
in value" (calculated as set forth below) of a hypothetical owner account having
a balance of one unit at the beginning of the period, dividing the net change in
account value by the value of the account at the beginning of the base period to
obtain the base period return, and multiplying the base period return by 365/7,
with the resulting yield figure carried to the nearest hundredth of one percent.
Net changes in value of the hypothetical owner account will include net
investment income of that account (accrued daily dividends as declared by the
Money Market Fund, less daily expenses of the Account) for the period, but will
not include realized gains or losses or unrealized appreciation or depreciation
on the underlying Money Market Fund shares. The mortality and expense risk
charges, administration charge and contract fee are reflected, but the
withdrawal charge and any charge for premium taxes and optional benefits are
not.
The effective yield reflects the effects of compounding and represents an
annualization of the current return. The formula for effective yield, as
prescribed by the SEC, is:
Effective yield = (Base period return + 1)/(365/7) / - 1
OTHER PERFORMANCE INFORMATION
You can compare performance information at the Account level to other
variable annuity separate accounts or other investment products surveyed by
Lipper Analytical Services, Inc., an independent service that monitors and ranks
the performance of investment companies. Such performance figures are calculated
in accordance with standardized methods established by each reporting service.
We vote any shares held by the Account that are not attributable to
contracts or for which instructions from owners are not received, in proportion
to the instructions we have received from participants in the Account.
CALCULATION OF ANNUITY PAYMENTS
CALCULATION OF ANNUITY UNITS
We use a measuring device called an "annuity unit" to help us compute the
amount of each monthly payment that is based on a variable investment option.
Each variable investment option has its own annuity unit with its own annuity
unit value.
4
<PAGE>
The number of the contract's annuity units for each variable investment
option normally doesn't change while the payee continues to receive payments,
unless the payee makes a transfer from one variable investment option to
another. The amount of each monthly annuity payment based on a variable
investment option equals the number of the contract's annuity units in that
option times the value of one such unit as of the tenth day preceding the
payment's due date.
To compute the amount of the first annuity payment that is based on any
variable investment option, we first determine the amount of your contract's
value that we will apply to that variable option. We do this as of 10 calendar
days prior to the date the initial monthly annuity payment is due, in the manner
described in the prospectus under "The annuity period - choosing fixed or
variable annuity payments."
For each variable investment option, we THEN divide:
the resulting value (minus any
premium tax charge)
by
$1,000
- -----------------------------------
and multiply the result by
the applicable annuity purchase rate
set forth in the contract and
reflecting
(1) the age and, possibly, sex of the
payee and
(2) the assumed investment rate
(discussed below)
- ---------------------------------------
This computation determines the amount of initial monthly variable annuity
payment to the annuitant from each variable investment option.
We then determine the number of annuity units to be credited to the contract
from each of such variable investment options by dividing:
the amount of the initial monthly variable annuity
payment from that variable annuity option
BY
the annuity unit value of that variable investment option
as of 10 calendar days prior to the date the initial
payment is due
- ----------------------------------------------------------
For example, assume that 10 days before the date of maturity, a contract
has credited to it 4000.000 accumulation units, each having a value of
$12.000000. Assume, further, that the appropriate annuity purchase rate
5
<PAGE>
in the contract for an assumed investment rate of 3 1/2% is $5.47 per $1000 of
proceeds for the annuity option elected. The first monthly annuity payment
would be $262.56.
LOGO
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).
ANNUITY UNIT VALUES
The value of the annuity units varies from day to day, depending on the
investment performance of the variable investment option, the deductions made
against the variable investment option, and the assumed investment rate used in
computing annuity unit values. Thus, the variable monthly annuity payments vary
in amount from month to month.
We calculate annuity unit value separately for each variable investment
option. As of the close of each business day, we calculate the value of one
annuity unit by
(1) multiplying the immediately preceding annuity unit value by the sum of one
plus the applicable net investment rate for the period subsequent to such
preceding value and then
(2) multiplying this product by an adjustment factor to neutralize the assumed
investment rate used in determining the amounts of annuity payable. If
your contract has an assumed investment rate of 3 1/2 % per year, the
adjustment factor for a valuation period of one day would be 0.99990575.
We neutralize the assumed investment rate by applying the adjustment
factor so that the variable annuity payments will increase only if the
actual net investment rate of the variable investment option exceeds 3 1/2
% per year and will decrease only if is less than 3 1/2 % per year.
The amount of the initial variable monthly payment is determined on the
assumption that the actual net investment rate of each variable investment
option used in calculating the "net investment factor" (described below) will be
equal on an annual basis to the "assumed investment rate" (described under "The
annuity period - variable monthly annuity payments" in the prospectus). If the
actual net investment rate between the dates for determining two monthly annuity
payments is greater than the assumed investment rate, the latter monthly payment
will be larger in amount than the former. On the other hand, if the actual net
investment rate between the dates for determining two monthly annuity payments
is less than the assumed investment rate, the latter monthly payment will be
smaller in amount than the former.
MORTALITY TABLES
The mortality tables used as a basis for both variable and fixed annuity
purchase rates are the 1983a Mortality Tables, with projections of mortality
improvements and with certain age adjustments based on the contract year of
annuitization. The mortality table used in a Contract purchased in connection
with certain employer-related plans and used in all contracts issued in Montana
will be the Female Annuity Table of the 1983a Mortality Tables. The impact of
this change will be lower benefits (5% to 15%) from a male's viewpoint than
would otherwise be the case.
ADDITIONAL INFORMATION ABOUT DETERMINING UNIT VALUES
The general manner in which we compute annuity unit values is discussed
above. Like annuity unit values, we calculate accumulation unit values
separately for each variable investment option. As of the close of each
6
<PAGE>
business day, we calculate the value of one accumulation unit of a variable
investment option by multiplying the immediately preceding accumulation unit
value by the sum of one plus the applicable "net investment rate" for the period
subsequent to such preceding value. See "Net investment rate" below.
NET INVESTMENT RATE
For any period, the net investment rate for a variable investment option
equals
(1) the percentage total investment return of the corresponding Fund for that
period (assuming reinvestment of all dividends and other distributions from
the Fund), less
(2) for each calendar day in the period, a deduction of 0.004110% (depending on
the charge for mortality and expense risks) of the value of the variable
investment option at the beginning of the period, and less
(3) a further adjustment in an appropriate amount if we ever elect to impose a
charge for our income taxes.
ADJUSTMENT OF UNITS AND VALUES
We reserve the right to change the number and value of the accumulation
units and/or annuity units credited to your contract, without notice, provided
that strict equity is preserved and the change does not otherwise affect the
benefits, provisions, or investment return of your contract.
HYPOTHETICAL EXAMPLE ILLUSTRATING THE CALCULATION OF ACCUMULATION UNIT VALUES
AND ANNUITY UNIT VALUES
Assume at the beginning of the period being considered, the value of a
particular variable investment option was $4,000,000. Investment income during
the period totaled $2000, while capital gains were $3000 and capital losses were
$1000. Assume also that we are not imposing any tax charge. Charges against
the beginning value of the variable investment option amount to $164.40 assuming
a one day period. The $164.40 was computed by multiplying the beginning 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
Assume further that each accumulation unit had a value of $11.250000 on the
previous business day, and the value of an annuity unit on such previous date
was $1.0850000. Based upon the experience of the variable investment option
during the period, the value of an accumulation unit at the end of the period
would be [$11.250000 x (1 + .0009589)] or $11.260788. The value of an annuity
unit at the end of the period would be [$1.0850000 x (1 + .0009589) x .99990575]
or $1.085938. The final figure, .99990575, neutralizes the effect of a 3 1/2%
assumed investment rate so that the annuity unit's change in value reflects only
the actual investment experience of the variable investment option.
PURCHASES AND REDEMPTIONS OF FUND SHARES
John Hancock purchases and redeems Fund shares for the Account at their net
asset value without any sales or redemption charges. Each available Fund issues
its own separate series of Fund shares. Each such series represents an interest
in one of the Funds of the Trust, which corresponds to one of our variable
investment options. Any dividend or capital gains distributions received by the
Account will be reinvested in shares of that same Fund at their net asset value
as of the dates paid.
On each business day, the account purchases and redeems shares of each fund
for each variable investment option based on, among other things, the amount of
premium payments allocated to that option, dividends reinvested, and transfers
to, from and among investment options, all to be effected as of that date. Such
purchases and redemptions are effective at the net asset value per Trust share
for each fund determined on that same date.
7
<PAGE>
THE ACCOUNT
In addition to the assets attributable to contracts, the Account includes
assets derived from charges made by and, possibly, funds contributed by John
Hancock to commence operations of the variable investment option. From time to
time these additional amounts may be transferred in cash by us to our general
account. Before any such transfer, we will consider any possible adverse impact
transfer might have on any variable investment option. The assets of one
variable investment option are not necessarily legally insulated from
liabilities associated with another variable investment option.
DELAY OF CERTAIN PAYMENTS
Ordinarily, upon a surrender or partial withdrawal, we will pay the value
of any accumulation units in a single sum within 7 days after receipt of a
written request at our Annuity Servicing Office. However, redemption may be
suspended and payment may be postponed under the following conditions:
(1) when the New York Stock Exchange is closed, other than customary weekend
and holiday closings;
(2) when trading on that Exchange is restricted;
(3) when an emergency exists as a result of which (a) disposal of securities in
a variable investment option is not reasonably practicable or (b) it is not
reasonably practicable to determine the value of the net assets of a
variable investment option; or
(4) when a governmental body having jurisdiction over the Account by order
permits such suspension.
Rules and regulations of the SEC, if any are applicable, will govern as to
whether conditions in (2) or (3) exist.
We may defer for up to 15 days the payment of any amount attributable to a
premium payment made by check to allow the check reasonable time to clear.
We may also defer payment of surrender proceeds payable out of any
guarantee period for a period of up to 6 months.
LIABILITY FOR TELEPHONE TRANSFERS
If you authorize telephone transfers, you will be liable for any loss,
expense or cost arising out of any unauthorized or fraudulent telephone or fax
instructions which we reasonably believe to be genuine, unless such loss,
expense or cost is the result of our mistake or negligence. We employ
procedures which provide safeguards against unauthorized transactions, and which
are reasonably designed to confirm that instructions received by telephone are
genuine. These procedures include
. requiring personal identification,
. tape recording calls, and
. providing written confirmation to the owner.
If we do not employ reasonable procedures to confirm that instructions
communicated by telephone are genuine, we may be liable for any loss due to
unauthorized or fraudulent instructions.
VOTING PRIVILEGES
Here's the formula we use to determine the number of Fund shares as to
which you may give instructions:
8
<PAGE>
the total value of your accumulation
units value in a variable investment
option
divided by
the net asset value of 1 share of the
corresponding Fund
- --------------------------------------
At a shareholders' meeting, you may give instructions regarding:
. the election of the Board of Trustees,
. the ratification of the selection of independent auditors,
. the approval of the Trust's investment management agreements,
. and other matters requiring a vote under the 1940 Act.
The annuitant or other payee will also be entitled to give voting
instructions with respect to the Fund shares corresponding to any variable
investment option under which variable annuity payments are then being made. We
determine the number of Fund shares for which the payee can give instructions by
dividing the actuarially determined present value of the payee's annuity units
that correspond to that Fund by the net asset value of one share of that Fund.
We will furnish you information and forms so that you may give voting
instructions.
We may own Fund shares that we do not hold in any separate account whose
participants are entitled to give voting instructions. We will vote such shares
in proportion to the instructions we receive from all variable annuity contract
and variable life insurance policy owners who give us instructions for that
Fund's shares (including owners who participate in separate accounts other than
the Account).
We have designed your voting privileges based upon our understanding of the
requirements of the federal securities laws. If the applicable laws,
regulations, or interpretations change to eliminate or restrict the need for
such voting privileges, we reserve the right to proceed in accordance with any
such revised requirements.
9
<PAGE>
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
To the Directors and Policyholders John Hancock Variable Life Insurance Company
We have audited the accompanying statutory-basis statements of financial
position of John Hancock Variable Life Insurance Company as of December 31, 1998
and 1997, and the related statutory-basis statements of operations and
unassigned deficit 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 Variable Life Insurance Company at December
31, 1998 and 1997, or the results of its operations or its cash flows for the
years then ended.
Also, in our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of John Hancock
Variable Life Insurance Company at December 31, 1998 and 1997, and the results
of its operations and its cash flows for the years then ended in conformity with
accounting practices prescribed or permitted by the Commonwealth of
Massachusetts Division of Insurance.
ERNST & YOUNG LLP
Boston, Massachusetts
February 19, 1999
10
<PAGE>
JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY
STATUTORY-BASIS STATEMENTS OF FINANCIAL POSITION
<TABLE>
<CAPTION>
December 31
--------------------
1998 1997
--------- -----------
(In millions)
<S> <C> <C>
ASSETS
Bonds--Note 6 . . . . . . . . . . . . . . . . . . . . $1,185.8 $1,092.7
Preferred stocks . . . . . . . . . . . . . . . . . . . 36.5 17.2
Common stocks . . . . . . . . . . . . . . . . . . . . 3.1 2.3
Investment in affiliates . . . . . . . . . . . . . . . 81.7 79.1
Mortgage loans on real estate--Note 6 . . . . . . . . 388.1 273.9
Real estate . . . . . . . . . . . . . . . . . . . . . 41.0 39.9
Policy loans . . . . . . . . . . . . . . . . . . . . . 137.7 106.8
Cash items:
Cash in banks . . . . . . . . . . . . . . . . . . . 11.4 83.1
Temporary cash investments . . . . . . . . . . . . . 8.5 60.1
-------- --------
19.9 143.2
Premiums due and deferred . . . . . . . . . . . . . . 32.7 33.8
Investment income due and accrued . . . . . . . . . . 29.8 24.7
Other general account assets . . . . . . . . . . . . . 47.5 16.8
Assets held in separate accounts . . . . . . . . . . . 6,595.2 4,691.1
-------- --------
TOTAL ASSETS . . . . . . . . . . . . . . . . . . . . . $8,599.0 $6,521.5
======== ========
OBLIGATIONS AND STOCKHOLDER'S EQUITY
OBLIGATIONS
Policy reserves . . . . . . . . . . . . . . . . . . $1,652.0 $1,124.3
Federal income and other taxes payable--Note 1 . . . 44.3 36.1
Other general account obligations . . . . . . . . . 150.9 481.9
Transfers from separate accounts, net . . . . . . . (190.3) (146.8)
Asset valuation reserve--Note 1 . . . . . . . . . . 21.9 18.6
Obligations related to separate accounts . . . . . . 6,589.4 4,685.7
-------- --------
TOTAL OBLIGATIONS . . . . . . . . . . . . . . . . . . 8,268.2 6,199.8
STOCKHOLDER'S EQUITY
Common Stock, $50 par value; authorized 50,000
shares; issued and outstanding 50,000 shares . . . 2.5 2.5
Paid-in capital . . . . . . . . . . . . . . . . . . 377.5 377.5
Unassigned deficit . . . . . . . . . . . . . . . . . (49.2) (58.3)
-------- --------
TOTAL STOCKHOLDER'S EQUITY . . . . . . . . . . . . . . 330.8 321.7
-------- --------
TOTAL OBLIGATIONS AND STOCKHOLDER'S EQUITY . . . . . . $8,599.0 $6,521.5
======== ========
</TABLE>
The accompanying notes are an integral part of the statutory-basis financial
statements.
11
<PAGE>
JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY
STATUTORY-BASIS STATEMENTS OF OPERATIONS AND UNASSIGNED DEFICIT
<TABLE>
<CAPTION>
Year ended December 31
-----------------------
1998 1997
----------- -------------
(In millions)
<S> <C> <C>
INCOME
Premiums . . . . . . . . . . . . . . . . . . . . $1,272.3 $ 872.7
Net investment income--Note 3 . . . . . . . . . 122.8 89.7
Other, net . . . . . . . . . . . . . . . . . . . 618.1 449.1
-------- --------
2,013.2 1,411.5
BENEFITS AND EXPENSES
Payments to policyholders and beneficiaries . . 301.4 264.0
Additions to reserves to provide for future
payments to policyholders and beneficiaries . 1,360.2 826.2
Expenses of providing service to policyholders
and obtaining new insurance
--Note 5 . . . . . . . . . . . . . . . . . . . 274.2 233.2
State and miscellaneous taxes . . . . . . . . . 28.1 19.1
-------- --------
1,963.9 1,342.5
-------- --------
GAIN FROM OPERATIONS BEFORE FEDERAL INCOME
TAXES AND NET REALIZED CAPITAL LOSSES . . . 49.3 69.0
Federal income taxes--Note 1 . . . . . . . . . . . 33.1 38.5
-------- --------
GAIN FROM OPERATIONS BEFORE NET REALIZED
CAPITAL
LOSSES . . . . . . . . . . . . . . . . . . . 16.2 30.5
Net realized capital losses--Note 4 . . . . . . . (0.6) (3.0)
-------- --------
NET INCOME . . . . . . . . . . . . . . . . . 15.6 27.5
Unassigned deficit at beginning of year . . . . . (58.3) (96.9)
Net unrealized capital (losses) gains and other
adjustments--Note 4 . . . . . . . . . . . . . . . (6.0) 5.0
Other reserves and adjustments . . . . . . . . . . (0.5) 6.1
-------- --------
UNASSIGNED DEFICIT AT END OF YEAR . . . . . . . . $ (49.2) $ (58.3)
======== ========
</TABLE>
The accompanying notes are an integral part of the statutory-basis financial
statements.
12
<PAGE>
JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY
STATUTORY-BASIS STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year ended December 31
-----------------------
1998 1997
----------- ------------
(In millions)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Insurance premiums . . . . . . . . . . . . . . . $1,275.3 $ 877.0
Net investment income . . . . . . . . . . . . . . 118.2 89.9
Benefits to policyholders and beneficiaries . . . (275.5) (245.2)
Dividends paid to policyholders . . . . . . . . . (22.3) (18.7)
Insurance expenses and taxes . . . . . . . . . . (296.9) (267.2)
Net transfers to separate accounts . . . . . . . (874.4) (715.2)
Other, net . . . . . . . . . . . . . . . . . . . 551.3 408.9
-------- -------
NET CASH PROVIDED FROM OPERATIONS . . . . . . 475.7 129.5
-------- -------
CASH FLOWS USED IN INVESTING ACTIVITIES:
Bond purchases . . . . . . . . . . . . . . . . . (618.8) (621.6)
Bond sales . . . . . . . . . . . . . . . . . . . 340.7 197.3
Bond maturities and scheduled redemptions . . . . 111.8 34.1
Bond prepayments . . . . . . . . . . . . . . . . 76.5 51.6
Stock purchases . . . . . . . . . . . . . . . . . (23.4) (15.7)
Proceeds from stock sales . . . . . . . . . . . . 1.9 6.7
Real estate purchases . . . . . . . . . . . . . . (4.2) (1.3)
Real estate sales . . . . . . . . . . . . . . . . 2.1 0.4
Other invested assets purchases . . . . . . . . . 0.0 (1.0)
Proceeds from the sale of other invested assets . 0.0 0.3
Mortgage loans issued . . . . . . . . . . . . . . (145.5) (94.5)
Mortgage loan repayments . . . . . . . . . . . . 33.2 32.4
Other, net . . . . . . . . . . . . . . . . . . . (435.2) 393.1
-------- -------
NET CASH USED IN INVESTING ACTIVITIES . . . . (660.9) (18.2)
-------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in short-term note payable . . . . . 61.9 0.0
-------- -------
NET CASH PROVIDED FROM FINANCING ACTIVITIES . 61.9 0.0
-------- -------
(DECREASE) INCREASE IN CASH AND TEMPORARY CASH
INVESTMENTS. . . . . . . . . . . . . . . . . . . . (123.3) 111.3
Cash and temporary cash investments at beginning of
year . . . . . . . . . . . . . . . . . . . . . . . 143.2 31.9
-------- -------
CASH AND TEMPORARY CASH INVESTMENTS AT END OF YEAR $ 19.9 $ 143.2
======== =======
</TABLE>
The accompanying notes are an integral part of the statutory-basis financial
statements.
13
<PAGE>
JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS
NOTE 1--NATURE OF OPERATIONS AND SIGNIFICANT ACCOUNTING PRACTICES
John Hancock Variable Life Insurance Company (the Company) is a wholly-owned
subsidiary of John Hancock Mutual Life Insurance Company (John Hancock). The
Company, domiciled in the Commonwealth of Massachusetts, principally writes
variable and universal life insurance policies. Those policies primarily are
marketed through John Hancock's sales organization, which includes a career
agency system composed of company-owned, unionized branch offices and
independent general agencies. Policies also are sold through various
unaffiliated securities broker-dealers and certain other financial institutions.
Currently, the Company writes business in all states except New York.
The preparation of financial statements requires management to make estimates
and assumptions that affect amounts reported in the financial statements and
accompanying notes. Such estimates and assumptions could change in the future as
more information becomes known, which could impact the amounts reported and
disclosed herein.
Basis of Presentation: The financial statements have been prepared using
accounting practices prescribed or permitted by the Commonwealth of
Massachusetts Division of Insurance and in conformity with the practices of the
National Association of Insurance Commissioners (NAIC), which practices differ
from generally accepted accounting principles (GAAP).
The significant differences from GAAP include: (1) policy acquisition costs are
charged to expense as incurred rather than deferred and amortized over the
related premium-paying period; (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 unassigned deficit rather than consolidated in
the financial statements; (8) no provision is made for the deferred income tax
effects of temporary differences between book and tax basis reporting; and (9)
certain items, including modifications to required policy reserves resulting
from changes in actuarial assumptions, are recorded directly to unassigned
deficit rather than being reflected in income. The effects of the foregoing
variances from GAAP have not been determined but are presumed to be material.
The significant accounting practices of the Company are as follows:
Pending Statutory Standards: During March 1998, the NAIC adopted the
codification of statutory accounting practices, which is effective in 2001.
Codification will likely change, to some extent, prescribed statutory accounting
practices and may result in changes to the accounting practices that the Company
uses to prepare its statutory-basis financial statements. Codification will
require adoption by the various states before it becomes the prescribed
statutory basis of accounting for insurance companies domesticated within those
states. Accordingly, before codification becomes effective for the Company, the
Massachusetts Division of Insurance must adopt codification as the prescribed
basis of accounting on which domestic insurers must report their statutory-basis
results to the Division of Insurance. The impact of any such changes on the
Company's unassigned deficit 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.
14
<PAGE>
JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS--CONTINUED
NOTE 1--NATURE OF OPERATIONS AND SIGNIFICANT ACCOUNTING PRACTICES--CONTINUED
Cash and Temporary Cash Investments: Cash includes currency on hand and demand
deposits with financial institutions. Temporary cash investments are short-term,
highly-liquid investments both readily convertible to known amounts of cash and
so near maturity that there is insignificant risk of changes in value because of
changes in interest rates.
Valuation of Assets: General account investments are carried at amounts
determined on the following bases:
Bond and stock values are carried as prescribed by the NAIC; bonds generally
at amortized amounts or cost, preferred stocks generally at cost and common
stocks at fair value. The discount or premium on bonds is amortized using the
interest method.
Investments in affiliates are included on the statutory equity method.
Loan-backed bonds and structured securities are valued at amortized cost using
the interest method including anticipated prepayments. Prepayment assumptions
are obtained from broker dealer surveys or internal estimates and are based on
the current interest rate and economic environment. The retrospective
adjustment method is used to value all such securities except for
interest-only securities, which are valued using the prospective method.
The net interest effect of interest rate and currency rate swap transactions
is recorded as an adjustment of interest income as incurred. The initial cost
of interest rate cap 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 real estate is carried at depreciated cost, less encumbrances.
Depreciation on investment real estate is recorded on a straight-line basis.
Accumulated depreciation amounted to $3.0 million in 1998 and $2.1 million in
1997.
Real estate acquired in satisfaction of debt and real estate held for sale are
carried at the lower of cost or fair value.
Policy loans are carried at outstanding principal balance, not in excess of
policy cash surrender value.
Asset Valuation and Interest Maintenance Reserves: The Asset Valuation Reserve
(AVR) is computed in accordance with the prescribed NAIC formula and represents
a provision for possible fluctuations in the value of bonds, equity securities,
mortgage loans, real estate and other invested assets. Changes to the AVR are
charged or credited directly to the unassigned deficit.
The Company also records the NAIC prescribed Interest Maintenance Reserve (IMR)
that represents that portion of the after tax net accumulated unamortized
realized capital gains and losses on sales of fixed income securities,
principally bonds and mortgage loans, attributable to changes in the general
level of interest rates. Such gains and losses are deferred and amortized into
income over the remaining expected lives of the investments sold. At December
31, 1998, the IMR, net of 1998 amortization of $2.4 million, amounted to $10.7
million, which is included in policy reserves. The corresponding 1997 amounts
were $1.2 million and $7.8 million, respectively.
Goodwill: The excess of cost over the statutory book value of the net assets of
life insurance business acquired was $11.4 million and $13.1 million at December
31, 1998 and 1997, respectively, and generally is amortized over a ten-year
period using a straight-line method.
15
<PAGE>
JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS--CONTINUED
NOTE 1--NATURE OF OPERATIONS AND SIGNIFICANT ACCOUNTING PRACTICES--CONTINUED
Separate Accounts: Separate account assets and liabilities reported in the
accompanying statements of financial position represent funds that are
separately administered, principally for variable life insurance policies, and
for which the contractholder, rather than the Company, generally bears the
investment risk. Separate account obligations are intended to be satisfied from
separate account assets and not from assets of the general account. Separate
accounts generally are reported at fair value. The operations of the separate
accounts are not included in the statement of operations; however, income earned
on amounts initially invested by the Company in the formation of new separate
accounts is included in other income.
Fair Value Disclosure of Financial Instruments: Statement of Financial
Accounting Standards (SFAS) No. 107, "Disclosure about Fair Value of Financial
Instruments," requires disclosure of fair value information about certain
financial instruments, whether or not recognized in the statement of financial
position, for which it is practicable to estimate the value. In situations where
quoted market prices are not available, fair values are based on estimates using
present value or other valuation techniques. SFAS No. 107 excludes certain
financial instruments and all nonfinancial instruments from its disclosure
requirements. Therefore, the aggregate fair value amounts presented do not
represent the underlying value of the Company. See Note 11.
The methods and assumptions utilized by the Company in estimating its fair value
disclosures for financial instruments are as follows:
The carrying amounts reported in the statement of financial position for cash
and temporary cash investments approximate their fair values.
Fair values for public bonds are obtained from an independent pricing service.
Fair values for private placement securities and publicly traded bonds not
provided by the independent pricing service are estimated by the Company by
discounting expected future cash flows using current market rates applicable
to the yield, credit quality and maturity of the investments.
The fair values for common and preferred stocks, other than its subsidiary
investments, which are carried at equity values, are based on quoted market
prices.
Fair values for futures contracts are based on quoted market prices. Fair
values for interest rate swap, cap agreements, and currency swap agreements
are based on current settlement values. The current settlement values are
based on brokerage quotes that utilize pricing models or formulas using
current assumptions.
The fair value for 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 amount in the statement of financial position for policy loans
approximates their fair value.
The fair value for outstanding commitments to purchase long-term bonds 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, 1998.
Capital Gains and Losses: Realized capital gains and losses are determined using
the specific identification method. Realized capital gains and losses, net of
taxes and amounts transferred to the IMR, are included in net gain or loss.
Unrealized gains and losses, which consist of market value and book value
adjustments, are shown as adjustments to the unassigned deficit.
16
<PAGE>
JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS--CONTINUED
NOTE 1--NATURE OF OPERATIONS AND SIGNIFICANT ACCOUNTING PRACTICES--CONTINUED
Policy Reserves: Life reserves are developed by actuarial methods and are
determined based on published tables using statutorily specified interest rates
and valuation methods that will provide, in the aggregate, reserves that are
greater than or equal to the minimum or guaranteed policy cash values or the
amounts required by the Commonwealth of Massachusetts Division of Insurance.
Reserves for variable life insurance policies are maintained principally on the
modified preliminary term method using the 1958 and 1980 Commissioner's Standard
Ordinary (CSO) mortality tables, with an assumed interest rate of 4% for
policies issued prior to May 1, 1983 and4 1/2% for policies issued on or
thereafter. Reserves for single premium policies are determined by the net
single premium method using the 1958 CSO mortality table, with an assumed
interest rate of 4%. Reserves for universal life policies issued prior to 1985
are equal to the gross account value which at all times exceeds minimum
statutory requirements. Reserves for universal life policies issued from 1985
through 1988 are maintained at the greater of the Commissioner's Reserve
Valuation Method (CRVM) using the 1958 CSO mortality table, with 4 1/2% interest
or the cash surrender value. Reserves for universal life policies issued after
1988 and for flexible variable policies are maintained using the greater of the
cash surrender value or the CRVM method with the 1980 CSO mortality table and5
1/2% interest for policies issued from 1988 through 1992; 5% interest for
policies issued in 1993 and 1994; and4 1/2% interest for policies issued in 1995
through 1998.
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 are
consolidated with John Hancock in filing a consolidated federal income tax
return basis for the affiliated group. The federal income taxes of the Company
are allocated on a separate return basis with certain adjustments. The Company
made payments of $38.2 million in 1998 and $29.6 million in 1997.
Income before taxes differs from taxable income principally due to tax-exempt
investment income, the limitation placed on the tax deductibility of
policyholder dividends, accelerated depreciation, differences in policy reserves
for tax return and financial statement purposes, capitalization of policy
acquisition expenses for tax purposes and other adjustments prescribed by the
Internal Revenue Code.
Amounts for disputed tax issues relating to the prior years are charged or
credited directly to policyholders' contingency reserve.
Adjustments to Policy Reserves: From time to time, the Company finds it
appropriate to modify certain required policy reserves because of changes in
actuarial assumptions. Reserve modifications resulting from such determinations
are recorded directly to stockholder's equity. During 1997, the Company refined
certain actuarial assumptions inherent in the calculation of reserves related to
AIDS claims under individual life insurance policies resulting in a $6.4 million
increase in stockholder's equity at December 31, 1997. No additional refinements
were made during 1998.
Reinsurance: Premiums, commissions, expense reimbursements, benefits and
reserves related to reinsured business are accounted for on bases consistent
with those used in accounting for the original policies issued and the terms of
the reinsurance contracts. Premiums ceded to other companies have been reported
as a reduction of premium income. Amounts applicable to reinsurance ceded for
future policy benefits, unearned premium reserves and claim liabilities have
been reported as reductions of these items.
Reclassification: Certain 1997 amounts have been reclassified to conform to the
1998 presentation.
17
<PAGE>
JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS--CONTINUED
NOTE 2--ACQUISITION
On June 23, 1993, the Company acquired all of the outstanding shares of stock of
Colonial Penn Annuity and Life Insurance Company (CPAL) from Colonial Penn Life
Insurance Company for an aggregate purchase price of approximately $42.5
million. At the date of acquisition, assets of CPAL were approximately $648.5
million, consisting principally of cash and temporary cash investments and
liabilities were approximately $635.2 million, consisting principally of
reserves related to a block of interest sensitive single-premium whole life
insurance business assumed by CPAL from Charter National Life Insurance Company
(Charter). The purchase price includes contingent payments of up to
approximately $7.3 million payable between 1994 and 1998 based on the actual
lapse experience of the business in force on June 23, 1993. The Company made
contingent payments to CPAL of $1.5 million during 1998 and 1997.
On June 24, 1993, the Company contributed $24.6 million in additional capital to
CPAL. CPAL was renamed John Hancock Life Insurance Company of America (JHLICOA)
on July 7, 1993. JHLICOA was subsequently renamed Investors Partner Life Company
(IPL) on March 5, 1998. IPL manages the business assumed from Charter and does
not currently issue new business.
NOTE 3--NET INVESTMENT INCOME
Investment income has been reduced by the following amounts:
<TABLE>
<CAPTION>
1998 1997
------- --------
(In millions)
<S> <C> <C>
Investment expenses . . . . . . . . . . . . . . . . . . . . $ 8.3 $5.0
Interest expense . . . . . . . . . . . . . . . . . . . . . 2.4 0.7
Depreciation expense . . . . . . . . . . . . . . . . . . . 0.8 1.1
Investment taxes . . . . . . . . . . . . . . . . . . . . . 0.7 0.4
----- ----
$12.2 $7.2
===== ====
</TABLE>
NOTE 4--NET CAPITAL GAINS (LOSSES) AND OTHER ADJUSTMENTS
Net realized capital gains (losses) consist of the following items:
<TABLE>
<CAPTION>
1998 1997
------ --------
(In millions)
<S> <C> <C>
Net gains from asset sales . . . . . . . . . . . . . . . . . $ 7.6 $ 0.8
Capital gains tax . . . . . . . . . . . . . . . . . . . . . (2.9) (0.7)
Net capital gains transferred to IMR . . . . . . . . . . . . (5.3) (3.1)
----- -----
Net Realized Capital Losses . . . . . . . . . . . . . . . $(0.6) $(3.0)
===== =====
</TABLE>
Net unrealized capital (losses) gains and other adjustments consist of the
following items:
<TABLE>
<CAPTION>
1998 1997
--------------- --------
(In millions)
<S> <C> <C>
Net (losses) gains from changes in security values
and book value adjustments . . . . . . . . . . . . $ (2.7) $ 7.0
Increase in asset valuation reserve . . . . . . . . (3.3) (2.0)
-------------- -----
Net Unrealized Capital (Losses) Gains and Other
Adjustments . . . . . . . . . . . . . . . . . . $ (6.0) $ 5.0
============== =====
</TABLE>
18
<PAGE>
JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS--CONTINUED
NOTE 5--TRANSACTIONS WITH PARENT
The Company's Parent provides the Company with personnel, property and
facilities in carrying out certain of its corporate functions. The Parent
annually determines a fee for these services and facilities based on a number of
criteria which were revised in 1998 and 1997 to reflect continuing changes in
the Company's operations. The amount of the service fee charged to the Company
was $157.5 million and $123.6 million in 1998 and 1997, respectively, which has
been included in insurance and investment expenses. The Parent has guaranteed
that, if necessary, it will make additional capital contributions to prevent the
Company's stockholder's equity from declining below $1.0 million.
The service fee charged to the Company by the Parent includes $0.7 million and
$0.9 million in 1998 and 1997, respectively, representing the portion of the
provision for retiree benefit plans determined under the accrual method,
including a provision for the 1993 transition liability which is being amortized
over twenty years, that was allocated to the Company.
The Company has a modified coinsurance agreement with John Hancock to reinsure
50% of 1994 through 1998 issues of flexible premium variable life insurance and
scheduled premium variable life insurance policies. In connection with this
agreement, John Hancock transferred $4.9 million and $22.0 million of cash for
tax, commission, and expense allowances to the Company, which increased the
Company's net gain from operations by $22.2 million and $10.1 million in 1998
and 1997, respectively.
The Company also has a modified coinsurance agreement with John Hancock to
reinsure 50% of 1995 through 1998 issues of certain retail annuity contracts
(Independence Preferred and Declaration). In connection with this agreement, the
Company received a net cash payment of $12.7 million in 1998 and made a net cash
payment of $1.1 million in 1997 for surrender benefits, tax, reserve increase,
commission, expense allowances and premium. This agreement increased the
Company's net gain from operations by $8.4 million and $9.8 million in 1998 and
1997, respectively.
Effective January 1, 1997, the Company entered into a stop-loss agreement with
John Hancock to reinsure mortality claims in excess of 110% of expected
mortality claims in 1998 and 1997 for all policies that are not reinsured under
any other indemnity agreement. In connection with the agreement, John Hancock
received $1.0 million in 1998 and transferred $2.4 million in 1997 of cash for
mortality claims to the Company, which decreased by $0.5 million and increased
by $1.3 million the Company's net gain from operations in 1998 and 1997,
respectively.
At December 31, 1998, the Company had outstanding a short-term note of $61.9
million payable to an affiliate at a variable rate of interest. The note is part
of a revolving line of credit. Interest paid in 1998 was $2.9 million. The note
is included in other general account obligations.
19
<PAGE>
JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS--CONTINUED
NOTE 6--INVESTMENTS
The statement value and fair value of bonds are shown below:
<TABLE>
<CAPTION>
Gross Gross
Statement Unrealized Unrealized Fair
December 31, 1998 Value Gains Losses Value
----------------- --------- ---------- ---------- ----------
(In millions)
<S> <C> <C> <C> <C>
U.S. Treasury securities and
obligations of U.S. government
corporations and agencies . . $ 5.1 $ 0.1 $ 0.0 $ 5.2
Obligations of states and
political subdivisions . . . . 3.2 0.3 0.0 3.5
Corporate securities . . . . . 925.2 50.4 15.0 960.6
Mortgage-backed securities . . 252.3 10.0 0.1 262.2
-------- ----- ----- --------
Total bonds . . . . . . . . . $1,185.8 $60.8 $15.1 $1,231.5
======== ===== ===== ========
</TABLE>
<TABLE>
<CAPTION>
December 31, 1997
-----------------
<S> <C> <C> <C> <C>
U.S. Treasury securities and obligations of
U.S. government corporations and agencies . $254.5 $ 0.2 $0.1 $ 254.6
Obligations of states and political
subdivisions. . . . . . . . . . . . . . . . 12.1 1.0 0.0 13.1
Debt securities issued by foreign governments 0.2 0.0 0.0 0.2
Corporate securities . . . . . . . . . . . . 712.7 43.9 2.7 753.9
Mortgage-backed securities . . . . . . . . . 113.2 3.5 0.0 116.7
------ ----- ---- --------
Total bonds . . . . . . . . . . . . . . . $254.5 $48.6 $2.8 $1,138.5
====== ===== ==== ========
</TABLE>
The statement value and fair value of bonds at December 31, 1998, 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 . . . . . . . . . . . . . . . . $ 57.3 $ 59.1
Due after one year through five years . . . . . . . . . 283.4 294.1
Due after five years through ten years . . . . . . . . 374.9 388.7
Due after ten years . . . . . . . . . . . . . . . . . . 217.9 227.4
-------- --------
933.5 969.3
Mortgage-backed securities . . . . . . . . . . . . . . 252.3 262.2
-------- --------
$1,185.8 $1,231.5
======== ========
</TABLE>
Gross gains of $3.4 million in 1998 and $1.1 million in 1997 and gross losses of
$0.7 million in 1998 and $4.5 million in 1997 were realized from the sale of
bonds.
At December 31, 1998, bonds with an admitted asset value of $8.6 million were on
deposit with state insurance departments to satisfy regulatory requirements.
The cost of common stocks was $2.1 million and $0.0 million at December 31, 1998
and 1997, respectively. At December 31, 1998, gross unrealized appreciation on
common stocks totaled $1.3 million, and gross unrealized depreciation totaled
$0.3 million. The fair value of preferred stock totaled $36.5 million at
December 31, 1998 and $17.2 million at December 31, 1997.
20
<PAGE>
JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS--CONTINUED
NOTE 6--INVESTMENTS--CONTINUED
Bonds with amortized cost of $0.9 million were non-income producing for the
twelve months ended December 31, 1998.
At December 31, 1998, 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>
Statement Geographic Statement
Property Type Value Concentration Value
------------- --------- ------------- ---------
(In millions) (In millions)
<S> <C> <C> <C> <C> <C>
Apartments . . . . . $106.4 East North Central . $ 56.4
Hotels . . . . . . . 9.6 East South Central . 0.9
Industrial . . . . . 71.9 Middle Atlantic . . . 26.2
Office buildings . . 78.2 Mountain . . . . . . 27.5
Retail . . . . . . . 29.6 New England . . . . . 36.9
Agricultural . . . . 71.5 Pacific . . . . . . . 96.4
Other . . . . . . . . 20.9 South Atlantic . . . 83.8
West North Central . 13.1
West South Central . 43.3
Other . . . . . . . . 3.6
------ ------
-----
$388.1 $388.1
====== ======
</TABLE>
At December 31, 1998, the fair values of the commercial and agricultural
mortgage loans portfolios were $331.3 million and $70.0 million, respectively.
The corresponding amounts as of December 31, 1997 were approximately $243.8
million and $42.0 million, respectively.
The maximum and minimum lending rates for mortgage loans during 1998 were 9.19%
and 6.82% for agricultural loans and 8.88% and 6.56% for other properties.
Generally, the maximum 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
The Company cedes business to reinsurers to share risks under variable life,
universal life and flexible variable life insurance policies for the purpose of
reducing exposure to large losses. Premiums, benefits and reserves ceded to
reinsurers in 1998 were $590.2 million, $21.5 million, and $8.2 million,
respectively. The corresponding amounts in 1997 were $427.4 million, $18.3
million, and $10.1 million, respectively.
21
<PAGE>
JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS--CONTINUED
NOTE 7--REINSURANCE--CONTINUED
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 reinsurer.
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, 1998 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--FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK
The notional amounts, carrying values and estimated fair values of the Company's
derivative instruments were as follows at December 31:
<TABLE>
<CAPTION>
Assets (Liabilities)
Number of Contracts/ ---------------------------------------
Notional Amounts 1998 1997
--------------------- --------------------- ----------------
Carrying Fair Carrying Fair
1998 1997 Value Value Value Value
---------- ---------- ---------- --------- -------- --------
($ In millions)
<S> <C> <C> <C> <C> <C> <C>
Futures contracts to
sell securities . . 947 367 $(0.5) $ (0.5) $(0.4) $(0.4)
Interest rate swap
agreements . . . . . $365.0 $245.0 -- (17.7) -- (7.8)
Interest rate cap
agreements . . . . . 89.4 89.4 3.1 3.1 1.4 1.4
Currency rate swap
agreements . . . . . 15.8 14.3 -- (3.3) -- (2.1)
</TABLE>
The Company uses futures contracts, interest rate swap, cap agreements, and
currency rate swap agreements for other than trading purposes to hedge and
manage its exposure to changes in interest rate levels, foreign exchange rate
fluctuations and to manage duration mismatch of assets and liabilities.
The futures contracts expire in 1999. The interest rate swap agreements expire
in 1999 to 2009. The interest rate cap agreements expire in 2006 to 2007. The
currency rate swap agreements expire in 2006 to 2009.
The Company's exposure to credit risk is the risk of loss from a counterparty
failing to perform to the terms of the contract. The Company continually
monitors its position and the credit ratings of the counterparties to these
derivative instruments. To limit exposure associated with counterparty
nonperformance on interest rate and currency swap agreements, the Company enters
into master netting agreements with its counterparties. The Company believes the
risk of incurring losses due to nonperformance by its counterparties is remote
and that such losses, if any, would be immaterial. Futures contracts trade on
organized exchanges and, therefore, have minimal credit risk.
22
<PAGE>
JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS--CONTINUED
NOTE 9--POLICY RESERVES, POLICYHOLDERS' AND BENEFICIARIES' FUNDS AND OBLIGATIONS
RELATED TO SEPARATE ACCOUNTS
The Company's annuity reserves and deposit fund liabilities that are subject to
discretionary withdrawal, with and without adjustment, are summarized as
follows:
<TABLE>
<CAPTION>
December 31, 1998 Percent
----------------- ---------
(In millions)
<S> <C> <C>
Subject to discretionary withdrawal (with
adjustment)
With market value adjustment . . . . . . . . . $ 0.9 0.1%
At book value less surrender charge . . . . . 1,677.9 88.8
-------- -----
Total with adjustment . . . . . . . . . . . 1,678.8 88.9
Subject to discretionary withdrawal at book value
(without adjustment) . . . . . . . . . . . . . 203.6 10.8
Not subject to discretionary withdrawal--general
account . . . . . . . . . . . . . . . . . . . . 6.5 0.3
-------- -----
Total annuity reserves and deposit
liabilities. . . . . . . . . . . . . . . . $1,888.9 100.0%
======== =====
</TABLE>
NOTE 10--COMMITMENTS AND CONTINGENCIES
The Company has extended commitments to purchase long-term bonds and issue real
estate mortgages totaling $5.9 million and $24.8 million, respectively, at
December 31, 1998. The Company monitors the creditworthiness of borrowers under
long-term bond commitments and requires collateral as deemed necessary. If
funded, loans related to real estate mortgages would be fully collateralized by
the related properties. The estimated fair value of the commitments described
above is $32.1 million at December 31, 1998. The majority of these commitments
expire in 1999.
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, 1998. 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.
23
<PAGE>
JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS--CONTINUED
NOTE 11--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
---------------------------------------------
1998 1997
----------------------- -------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
----------- ----------- --------- -----------
(In millions)
<S> <C> <C> <C> <C>
Assets
Bonds--Note 6 . . . . . . $1,185.8 $1,231.5 $1,092.7 $1,138.5
Preferred stocks--Note 6 . 36.5 36.5 17.2 17.2
Common stocks--Note 6 . . 3.1 3.1 2.3 2.3
Mortgage loans on real
estate--Note 6 . . . . . 388.1 401.3 273.9 285.8
Policy loans--Note 1 . . . 137.7 137.7 106.8 106.8
Cash and cash
equivalents--Note 1 . . 19.9 19.9 143.2 143.2
Derivatives assets
(liabilities) relating
to:--Note 8
Futures contracts . . . . (0.5) (0.5) (0.4) (0.4)
Interest rate swaps . . . -- (17.7) -- (7.8)
Currency rate swaps . . . -- (3.3) -- (2.1)
Interest rate caps . . . . 3.1 3.1 1.4 1.4
Liabilities
Commitments--Note 10 . . . -- 32.1 -- 194.5
</TABLE>
The carrying amounts in the table are included in the statutory-basis statements
of financial position. The method and assumptions utilized by the Company in
estimating its fair value disclosures are described in Note 1.
NOTE 12--IMPACT OF YEAR 2000 (UNAUDITED)
The Company relies on John Hancock, its parent company, for information
processing services. John Hancock is executing its plan to address the impact of
the Year 2000 issues that result from computer programs being written using two
digits to reflect the year rather than four to define the applicable year and
century. Historically, the first two digits were hardcoded to save memory. Many
of John Hancock's computer programs that have date-sensitive software, including
those relied upon by the Company, may recognize a date using "00" as the year
1900 rather than the year 2000. This could result in an information technology
(IT) system failure or miscalculations causing disruptions of operations,
including, among other things, a temporary inability to process transactions,
send invoices or engage in similar normal business activities. In addition,
non-IT systems including, but not limited to, security alarms, elevators and
telephones are subject to malfunction due to their dependence on embedded
technology such as microcontrollers for proper operation. As described, the Year
2000 project presents a number of challenges for financial institutions since
the correction of Year 2000 issues in IT and non-IT systems will be complex and
costly for the entire industry.
John Hancock began to address the Year 2000 project as early as 1994. John
Hancock's plan to address the Year 2000 Project includes an awareness campaign,
an assessment period, a renovation stage, validation work and an implementation
of Company solutions.
The continuous awareness campaign serves several purposes: defining the problem,
gaining executive level support and sponsorship, establishing a team and overall
strategy, and assessing existing information system management resources.
Additionally, the awareness campaign establishes an education process to ensure
that all employees are aware of the Year 2000 issue and knowledgeable of their
role in securing solutions.
24
<PAGE>
JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS--CONTINUED
NOTE 12--IMPACT OF YEAR 2000 (UNAUDITED)--CONTINUED
The assessment phase, which was completed for both IT and non-IT systems as of
April 1998, included the identification, inventory, analysis, and prioritization
of IT and non-IT systems and processes to determine their conversion or
replacement.
The renovation stage reflects the conversion, validation, replacement, or
elimination of selected platforms, applications, databases and utilities,
including the modification of applicable interfaces. Additionally, the
renovation stage includes performance, functionality, and regression testing and
implementation. As of December 31, 1998, the renovation phase was substantially
complete for computer applications, systems and desktops. For all remaining
components, the renovation phase is underway and will be complete before the end
of the second quarter of 1999.
The validation phase consists of the compliance testing of renovated systems.
The validation phase is expected to be complete by mid 1999, after renovation is
accomplished. Testing facilities will be used through the remainder of 1999 to
perform special functional testing. Special functional testing includes testing,
as required, with material third parties and industry groups and performing
reviews of "dry runs" of year-end activities. Scheduled testing of material
relationships with third parties, including those impacting the Company, is
underway. It is anticipated that testing with material business partners will
continue through much of 1999.
Finally, the implementation phase involves the actual implementation of
converted or replaced platforms, applications, databases, utilities, interfaces,
and contingency planning. Implementation is being performed concurrently during
the renovation phase and is expected to be completed before the end of the
second quarter of 1999.
The costs of the Year 2000 project consist of internal IT personnel and external
costs such as consultants, programmers, replacement software, and hardware. The
costs of the Year 2000 project are expensed as incurred. The project is funded
partially through a reallocation of resources from discretionary projects.
Through December 31, 1998, John Hancock has incurred and expensed approximately
$9.8 million in related payroll costs for its internal IT personnel on the
project. The estimated range of remaining internal IT personnel costs of the
project is approximately $8 to $9 million. Through December 31, 1998, John
Hancock has incurred and expensed approximately $36.4 million in external costs
for the project. The estimated range of remaining external costs of the project
is approximately $35 to $36 million. The total costs of the Year 2000 project to
John Hancock, based on management's best estimates, include approximately $18
million in internal IT personnel, $7.4 million in the external modification of
software, $34.2 million for external solution providers, $19.4 million in
replacement costs of non-compliant IT systems and $12.6 million in oversight,
test facilities and other expenses. Accordingly, the estimated range of total
costs of the Year 2000 project to John Hancock, internal and external, is
approximately $90 to $95 million. However, there can be no guarantee that these
estimates will be achieved and actual results could materially differ from those
plans. Specific factors that might cause such material differences include, but
are not limited to, the availability and cost of personnel trained in this area,
the ability to locate and correct all relevant computer codes, and similar
uncertainties.
25
<PAGE>
JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS--CONTINUED
NOTE 12--IMPACT OF YEAR 2000 (UNAUDITED)--CONTINUED
John Hancock's total Year 2000 project costs include the estimated impact of
external solution providers and are based on presently available information.
However, there is no guarantee that the systems of other companies that John
Hancock's systems rely on will be timely converted, or that a failure to convert
by another company, or a conversion that is incompatible with John Hancock's
systems, including those upon which the Company relies, would not have material
adverse effect on John Hancock or the Company. It is documented in trade
publications that companies in foreign countries are not acting as intensively
as domestic companies to remediate Year 2000 issues. Accordingly, it is expected
that Company facilities based outside the United States face higher degrees of
risks from data exchanges with material business partners. In addition, the
Company has numerous customers that hold products of the Company. Nearly all
products sold by the Company contain date sensitive data, examples of which are
policy expiration dates, birth dates and premium payment dates. Finally, the
regulated nature of the Company's industry exposes it to potential supervisory
or enforcement actions relating to Year 2000 issues.
John Hancock's contingency planning initiative related to the Year 2000 project
is underway. The plan is addressing John Hancock's readiness as well as that of
material business partners on whom John Hancock and the Company depend. John
Hancock's contingency plans are being designed to keep each subsidiary's
operations functioning in the event of a failure or delay due to the Year 2000
record format and date calculation changes. Contingency plans are being
constructed based on the foundation of extensive business resumption plans that
John Hancock has maintained and updated periodically, which outline responses to
situations that may affect critical business functions. These plans also provide
emergency operations guidance, which defines a documented order of actions to
respond to problems. These extensive business resumption plans are being
enhanced to cover Year 2000 situations.
26
<PAGE>
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
Contractowners
John Hancock Variable Annuity Account I of John Hancock Variable Life Insurance
Company
We have audited the accompanying statement of assets and liabilities of John
Hancock Variable Annuity Account I (the Account) (comprising, respectively, the
Large Cap Growth, Sovereign Bond, Emerging Markets Equity, International Equity
Index (formerly, International Equities), Global Equity, Small Cap Growth,
International Balanced, Mid Cap Growth, Large Cap Value, Money Market, Mid Cap
Value, Diversified Mid Cap Growth (formerly, Special Opportunities), Bond Index,
Small/Mid Cap CORE, Real Estate Equity, Growth & Income, Managed, Short-Term
Bond (formerly, Short-Term U.S. Government), Small Cap Value, International
Opportunities, Equity Index, High Yield Bond, and Strategic Bond Subaccounts) as
of December 31, 1998, and the related statements of operations for the year then
ended, and statements of changes in net assets for each of the periods indicated
therein. These financial statements are the responsibility of the Account's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of each of the respective
subaccounts constituting John Hancock Variable Annuity Account I at December 31,
1998, the results of their operations for the year then ended and the changes in
their net assets for each of the periods indicated, in conformity with generally
accepted accounting principles.
ERNST & YOUNG LLP
Boston, Massachusetts
February 10, 1999
27
<PAGE>
JOHN HANCOCK VARIABLE ANNUITY ACCOUNT I
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1998
<TABLE>
<CAPTION>
EMERGING
LARGE SOVEREIGN MARKETS INTERNATIONAL GLOBAL SMALL CAP
CAP GROWTH BOND EQUITY EQUITY INDEX EQUITY GROWTH
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
------------ ------------ ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Investment in shares of portfolios of John
Hancock Variable Series Trust I, at value $182,907,548 $119,873,269 $ 2,316 $21,852,953 $ 175,224 $28,534,427
Receivable from John Hancock Variable
Series Trust I . . . . . . . . . . . . . 204,147 76,176 -- 31,320 7 10,149
------------ ------------ ------------- ----------- ------------- -----------
Total assets . . . . . . . . . . . . . . . 183,111,695 119,949,445 2,316 21,884,273 175,231 28,544,576
LIABILITIES
Payable to John Hancock Variable Life
Insurance Company . . . . . . . . . . . . 196,742 71,318 -- 30,435 9,019
Assets charges payable . . . . . . . . . . 7,405 4,859 -- 885 7 1,131
------------ ------------ ------------- ----------- ------------- -----------
Total liabilities . . . . . . . . . . . . 204,147 76,177 -- 31,320 7 10,150
------------ ------------ ------------- ----------- ------------- -----------
Net assets . . . . . . . . . . . . . . . . $182,907,548 $119,873,268 $ 2,316 $21,852,953 $ 175,224 $28,534,426
============ ============ ============= =========== ============= ===========
</TABLE>
<TABLE>
<CAPTION>
DIVERSIFIED
INTERNATIONAL MID CAP LARGE CAP MONEY MID CAP MID CAP
BALANCED GROWTH VALUE MARKET VALUE GROWTH
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
------------- ----------- ----------- ----------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Investment in shares of portfolios of John
Hancock Variable Series Trust I, at value . $8,076,543 $42,447,554 $59,217,888 $80,100,181 $33,912,965 $62,286,493
Receivable from John Hancock Variable Series
Trust I . . . . . . . . . . . . . . . . . . 15,289 26,382 34,867 1,458,519 28,255 21,725
------------- ----------- ----------- ----------- ----------- -----------
Total assets . . . . . . . . . . . . . . . . 8,091,832 42,473,936 59,252,755 81,558,700 33,941,220 62,308,218
LIABILITIES
Payable to John Hancock Variable Life
Insurance Company . . . . . . . . . . . . . 14,961 24,727 32,472 1,455,359 26,906 19,241
Assets charges payable . . . . . . . . . . . 327 1,655 2,394 3,160 1,349 2,483
---------- ----------- ----------- ----------- ----------- -----------
Total liabilities . . . . . . . . . . . . . 15,288 26,382 34,866 1,458,519 28,255 21,724
---------- ----------- ----------- ----------- ----------- -----------
Net assets . . . . . . . . . . . . . . . . . $8,076,544 $42,447,554 $59,217,889 $80,100,181 $33,912,965 $62,286,494
========== =========== =========== =========== =========== ===========
</TABLE>
See accompanying notes.
28
<PAGE>
JOHN HANCOCK VARIABLE ANNUITY ACCOUNT I
STATEMENT OF ASSETS AND LIABILITIES (CONTINUED)
DECEMBER 31, 1998
<TABLE>
<CAPTION>
BOND SMALL/MID REAL ESTATE GROWTH AND SHORT-TERM
INDEX CAP CORE EQUITY INCOME MANAGED BOND
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
---------- ---------- ----------- ------------ ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Investment in shares
of portfolios of John
Hancock Variable
Series Trust I, at
value. . . . . . . . $55,800 $65,851 $20,280,578 $477,723,436 $503,203,867 $28,989,913
Receivable from John
Hancock Variable
Series Trust I . . . 2 2 3,087 265,848 317,216 27,182
------- ------- ----------- ------------ ------------ -----------
Total assets . . . . 55,802 65,853 20,283,665 477,989,284 503,521,083 29,017,095
LIABILITIES
Payable to John
Hancock Variable Life
Insurance Company . -- -- 2,267 246,398 296,735 26,006
Assets charges payable 2 2 819 19,450 20,481 1,176
------- ------- ----------- ------------ ------------ -----------
Total liabilities . . 2 2 3,086 265,848 317,216 27,182
------- ------- ----------- ------------ ------------ -----------
Net assets . . . . . $55,800 $65,851 $20,280,579 $477,723,436 $503,203,867 $28,989,913
======= ======= =========== ============ ============ ===========
</TABLE>
<TABLE>
<CAPTION>
SMALL CAP INTERNATIONAL EQUITY HIGH-YIELD STRATEGIC
VALUE OPPORTUNITIES INDEX BOND BOND
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
----------- ------------- ----------- ---------- -------------
<S> <C> <C> <C> <C> <C>
ASSETS
Investment in shares
of portfolios of John
Hancock Variable
Series Trust I, at
value. . . . . . . . $23,710,684 $12,490,401 $82,770,312 $277,340 $38,326,070
Receivable from John
Hancock Variable
Series Trust I . . . 21,937 10,043 110,361 5,005 39,942
----------- ----------- ----------- -------- -----------
Total assets . . . . 23,732,621 12,500,444 82,880,673 282,345 38,366,012
LIABILITIES
Payable to John
Hancock Variable Life
Insurance
Company . . . . . . 20,996 9,536 107,003 4,994 38,397
Assets charges payable 940 507 3,358 11 1,545
----------- ----------- ----------- -------- -----------
Total liabilities . . 21,936 10,043 110,361 5,005 39,942
----------- ----------- ----------- -------- -----------
Net assets . . . . . $23,710,685 $12,490,401 $82,770,312 $277,340 $38,326,070
=========== =========== =========== ======== ===========
</TABLE>
See accompanying notes.
29
<PAGE>
JOHN HANCOCK VARIABLE ANNUITY ACCOUNT I
STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
EMERGING
LARGE CAP SOVEREIGN MARKETS INTERNATIONAL GLOBAL SMALL
GROWTH BOND EQUITY EQUITY INDEX EQUITY CAP GROWTH
SUBACCOUNT SUBACCOUNT SUBACCOUNT* SUBACCOUNT SUBACCOUNT* SUBACCOUNT
----------- ------------ -------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Investment income:
Distributions received from the portfolios
of John Hancock Variable Series Trust I $17,754,123 $ 7,843,366 $ 2 $3,340,103 $ 183 $ --
Expenses:
Mortality and expense risks . . . . . . . 1,957,623 1,339,727 1 279,086 116 318,286
----------- ----------- -------------- ---------- ------------- ----------
Net investment income (loss) . . . . . . . 15,796,500 6,503,639 1 3,061,017 67 (318,286)
Net realized and unrealized gain (loss) on
investments:
Net realized gain . . . . . . . . . . . . 596,880 19,842 -- 46,800 2 140,102
Net unrealized appreciation (depreciation)
during the year . . . . . . . . . . . . 26,342,906 (885,688) 52 53,878 5,970 3,283,665
----------- ----------- -------------- ---------- ------------- ----------
Net realized and unrealized gain (loss) on
investments . . . . . . . . . . . . . . . 26,939,786 (865,846) 52 100,678 5,972 3,423,767
----------- ----------- -------------- ---------- ------------- ----------
Net increase in net assets resulting from
operations . . . . . . . . . . . . . . . $42,736,286 $ 5,637,793 $ 53 $3,161,695 $ 6,039 $3,105,481
=========== =========== ============== ========== ============= ==========
</TABLE>
<TABLE>
<CAPTION>
INTERNATIONAL MID CAP LARGE MONEY MID CAP DIVERSIFIED MID
BALANCED GROWTH CAP VALUE MARKET VALUE CAP GROWTH
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
------------- ----------- ---------- ---------- ------------ -----------------
-------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Investment income:
Distributions received from the portfolios of
John Hancock Variable Series Trust I . . . $ 511,835 $ 3,757,540 $3,049,382 $3,114,820 $ 290,965 $1,182,556
Expenses:
Mortality and expense risks . . . . . . . . 98,795 404,450 708,823 873,234 464,827 939,491
---------- ----------- ---------- ---------- ----------- ----------
Net investment income (loss) . . . . . . . . 413,040 3,353,090 2,340,559 2,241,586 (173,862) 243,065
Net realized and unrealized gain (loss) on
investments:
Net realized gain . . . . . . . . . . . . . 53,934 267,464 479,238 -- 287,952 539,743
Net unrealized appreciation (depreciation)
during the year . . . . . . . . . . . . . . 534,703 6,598,290 548,590 -- (5,262,197) 1,329,837
---------- ----------- ---------- ---------- ----------- ----------
Net realized and unrealized gain (loss) on
investments. . . . . . . . . . . . . . . . . 588,637 6,865,754 1,027,828 -- (4,974,245) 1,869,580
---------- ----------- ---------- ---------- ----------- ----------
Net increase (decrease) in net assets
resulting from operations . . . . . . . . . $1,001,677 $10,218,844 $3,368,387 $2,241,586 $(5,148,107) $2,112,645
========== =========== ========== ========== =========== ==========
</TABLE>
- ---------
* From May 1, 1998 (commencement of operations).
See accompanying notes.
30
<PAGE>
JOHN HANCOCK VARIABLE ANNUITY ACCOUNT I
STATEMENT OF OPERATIONS (CONTINUED)
YEAR ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
BOND SMALL/MID REAL ESTATE GROWTH & SHORT-TERM
INDEX CAP CORE EQUITY INCOME MANAGED BOND
SUBACCOUNT* SUBACCOUNT* SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
----------- ----------- ------------ ----------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Investment income:
Distributions
received from the
portfolios of John
Hancock Variable
Series Trust I . . $ 821 $ -- $ 1,426,346 $46,369,017 $46,150,491 $1,443,364
Expenses:
Mortality and expense
risks . . . . . . . 27 30 357,645 5,521,732 6,074,138 350,189
----- ------ ----------- ----------- ----------- ----------
Net investment income
(loss) . . . . . . . 794 (30) 1,068,701 40,847,285 40,076,353 1,093,175
Net realized and
unrealized gain
(loss) on
investments:
Net realized gain
(loss). . . . . . . -- -- 452,751 2,147,226 520,784 (2,851)
Net unrealized
appreciation
(depreciation)
during the year . . (594) 4,111 (6,429,350) 49,182,595 28,631,287 (149,541)
----- ------ ----------- ----------- ----------- ----------
Net realized and
unrealized gain
(loss) on investments (594) 4,111 (5,976,599) 51,329,820 29,152,071 (152,392)
----- ------ ----------- ----------- ----------- ----------
Net increase
(decrease) in net
assets resulting from
operations . . . . . $ 200 $4,081 $(4,907,898) $92,177,100 $69,228,424 $ 940,783
===== ====== =========== =========== =========== ==========
</TABLE>
<TABLE>
<CAPTION>
SMALL CAP INTERNATIONAL EQUITY STRATEGIC HIGH-YIELD
VALUE OPPORTUNITIES INDEX BOND BOND
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT*
------------ ------------- ----------- ---------- -------------
<S> <C> <C> <C> <C> <C>
Investment income:
Distributions
received from the
portfolios of John
Hancock
Variable Series
Trust I . . . . . . $ 128,297 $ 100,807 $ 2,203,164 $1,618,543 $ 1,870
Expenses:
Mortality and expense
risks . . . . . . . 301,602 167,161 869,509 398,482 227
----------- ---------- ----------- ---------- -------
Net investment income
(loss) . . . . . . . (173,305) (66,354) 1,333,655 1,220,061 1,643
Net realized and
unrealized gain
(loss) on
investments:
Net realized gain . 118,285 309,499 863,280 67,380 --
Net unrealized
appreciation
(depreciation)
during the year . . (1,752,884) 1,065,442 11,492,991 680,647 (2,081)
----------- ---------- ----------- ---------- -------
Net realized and
unrealized gain
(loss) on investments (1,634,599) 1,374,941 12,356,271 748,027 (2,081)
----------- ---------- ----------- ---------- -------
Net increase in net
assets resulting from
operations . . . . . $(1,807,904) $1,308,587 $13,689,926 $1,968,088 $ (438)
=========== ========== =========== ========== =======
</TABLE>
- ---------
* From May 1, 1998 (commencement of operations).
See accompanying notes.
31
<PAGE>
JOHN HANCOCK VARIABLE ANNUITY ACCOUNT I
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE YEARS AND PERIODS ENDED DECEMBER 31,
<TABLE>
<CAPTION>
EMERGING
LARGE CAP MARKETS
GROWTH SOVEREIGN BOND EQUITY
SUBACCOUNT SUBACCOUNT SUBACCOUNT
-------------------------- -------------------------- ---------------
1998 1997 1998 1997 1998*
------------- ------------ ------------- ------------ ---------------
<S> <C> <C> <C> <C> <C>
Increase (decrease) in
net assets:
From operations:
Net investment
income . . . . . . $ 15,796,500 $ 7,137,066 $ 6,503,639 $ 3,113,329 $ 1
Net realized gain
(loss) . . . . . . 596,880 786,514 19,842 (3,859) --
Net unrealized
appreciation
(depreciation)
during the period 26,342,906 7,796,536 (885,688) 855,328 52
------------ ----------- ------------ ----------- -------------
Net increase in net
assets resulting from
operations . . . . . 42,736,286 15,720,116 5,637,793 3,964,798 53
From contractowner
transactions:
Net premiums from
contractowners. . . 61,255,494 41,496,489 60,608,173 34,628,042 2,263
Net benefits to
contractowners. . . (12,883,332) (8,939,960) (10,974,922) (6,879,517) --
------------ ----------- ------------ ----------- -------------
Net increase in net
assets from
contractowner
transactions . . . . 48,573,825 32,556,529 49,633,251 27,748,525 2,263
------------ ----------- ------------ ----------- -------------
Net increase in net
assets . . . . . . . 91,310,111 48,276,645 55,271,044 31,713,323 2,316
Net assets at
beginning of period 91,597,437 43,320,792 64,602,224 32,888,901 0
------------ ----------- ------------ ----------- -------------
Net assets at end of
period . . . . . . . $182,907,548 $91,597,437 $119,873,268 $64,602,224 $ 2,316
============ =========== ============ =========== =============
</TABLE>
<TABLE>
<CAPTION>
INTERNATIONAL GLOBAL SMALL CAP
EQUITY INDEX EQUITY GROWTH
SUBACCOUNT SUBACCOUNT SUBACCOUNT
------------------------- ---------- -------------------------
1998 1997 1998* 1998 1997
------------ ------------ ---------- ------------ --------------
<S> <C> <C> <C> <C> <C>
Increase (decrease) in
net assets:
From operations:
Net investment
income (loss) . . $ 3,061,017 $ 544,154 $ 67 $ (318,286) $ (170,394)
Net realized gain
(loss) . . . . . . 46,800 288,859 2 140,102 (215)
Net unrealized
appreciation
(depreciation)
during the period 53,878 (1,921,926) 5,970 3,283,665 1,522,136
----------- ----------- -------- ----------- -----------
Net increase
(decrease) in net
assets resulting from
operations . . . . . 3,161,695 (1,088,913) 6,039 3,105,481 1,351,527
From contractowner
transactions:
Net premiums from
contractowners. . . 5,810,313 9,017,873 151,858 10,489,045 11,681,427
Net benefits to
contractowners. . . (2,686,378) (3,672,073) (17,327) (2,750,799) (1,694,340)
----------- ----------- -------- ----------- -----------
Net increase in net
assets from
contractowner
transactions . . . . 3,123,935 5,345,800 169,185 7,738,246 9,987,087
----------- ----------- -------- ----------- -----------
Net increase in net
assets . . . . . . . 6,285,630 4,256,887 175,224 10,843,727 11,338,614
Net assets at
beginning of period 15,567,323 11,310,436 0 17,690,699 6,352,085
----------- ----------- -------- ----------- -----------
Net assets at end of
period . . . . . . . $21,852,953 $15,567,323 $175,224 $28,534,426 $17,690,699
=========== =========== ======== =========== ===========
</TABLE>
- ---------
* From May 1, 1998 (commencement of operations).
See accompanying notes.
32
<PAGE>
JOHN HANCOCK VARIABLE ANNUITY ACCOUNT I
STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED)
FOR THE YEARS AND PERIODS ENDED DECEMBER 31,
<TABLE>
<CAPTION>
INTERNATIONAL MID CAP LARGE CAP
BALANCED GROWTH VALUE
SUBACCOUNT SUBACCOUNT SUBACCOUNT
-------------------------- ------------------------- --------------------------
1998 1997 1998 1997 1998 1997
------------ ------------- ------------ ------------ ------------ ---------------
<S> <C> <C> <C> <C> <C> <C>
Increase in net assets:
From operations:
Net investment income (loss) . . . . . . $ 413,040 $ 181,845 $ 3,353,090 $ (174,873) $ 2,340,559 $ 1,058,702
Net realized gain . . . . . . . . . . . 53,934 32,991 267,464 13,737 479,238 101,006
Net unrealized appreciation
(depreciation) during the period . . . 534,703 (243,991) 6,598,290 2,369,233 548,590 3,430,516
----------- ------------ ----------- ----------- ----------- ------------
Net increase (decrease) in net assets
resulting from operations . . . . . . . . 1,001,677 (29,155) 10,218,844 2,208,097 3,368,387 4,590,224
From contractowner transactions:
Net premiums from contractowners . . . . 2,759,717 3,568,364 17,121,728 10,855,031 28,069,792 24,102,289
Net benefits to contractowners . . . . . (998,537) (680,956) (2,925,999) (1,545,917) (6,737,672) (2,091,393)
----------- ------------ ----------- ----------- ----------- ------------
Net increase in net assets from
contractowner transactions . . . . . . . 1,761,180 2,887,408 14,195,730 9,309,114 21,332,120 22,010,896
----------- ------------ ----------- ----------- ----------- ------------
Net increase in net assets . . . . . . . . 2,762,857 2,858,253 24,414,574 11,517,211 24,700,507 26,601,120
Net assets at beginning of period . . . . 5,313,687 2,455,434 18,032,980 6,515,769 34,517,382 7,916,262
----------- ------------ ----------- ----------- ----------- ------------
Net assets at end of period . . . . . . . $ 8,076,544 $ 5,313,687 $42,447,554 $18,032,980 $59,217,889 $ 34,517,382
=========== ============ =========== =========== =========== ============
</TABLE>
<TABLE>
<CAPTION>
MONEY MID CAP DIVERSIFIED
MARKET VALUE MID CAP GROWTH
SUBACCOUNT SUBACCOUNT SUBACCOUNT
--------------------------- ------------------------- ---------------------------
1998 1997 1998 1997 1998 1997
------------- ------------- ------------ ------------ ------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Increase in net assets:
From operations:
Net investment income (loss) . . . . . $ 2,241,586 $ 1,680,525 $ (173,862) $ 1,484,019 $ 243,065 $ 5,650,847
Net realized gain . . . . . . . . . . -- -- 287,952 82,355 539,743 2,044,899
Net unrealized appreciation
(depreciation) during the period . . -- -- (5,262,197) 569,438 1,329,837 (5,571,228)
------------ ------------ ----------- ----------- ------------ ------------
Net increase (decrease) in net assets
resulting from operations . . . . . . . 2,241,586 1,680,525 (5,148,107) 2,135,812 2,112,645 2,124,518
From contractowner transactions:
Net premiums from contractowners . . . 98,467,103 73,848,718 22,741,984 18,163,224 6,796,196 26,936,004
Net benefits to contractowners . . . . (71,851,211) (58,501,671) (6,056,909) (957,896) (12,759,797) (16,471,841)
------------ ------------ ----------- ----------- ------------ ------------
Net increase (decrease) in net assets
from contractowner transactions . . . . 26,615,892 15,347,047 16,685,075 17,205,328 (5,963,601) 10,464,163
------------ ------------ ----------- ----------- ------------ ------------
Net increase (decrease) in net assets . 28,857,478 17,027,572 11,536,968 19,341,140 (3,850,956) 12,588,681
Net assets at beginning of period . . . 51,242,703 34,215,131 22,375,997 3,034,857 66,137,450 53,548,769
------------ ------------ ----------- ----------- ------------ ------------
Net assets at end of period . . . . . . $ 80,100,181 $ 51,242,703 $33,912,965 $22,375,997 $ 62,286,494 $ 66,137,450
============ ============ =========== =========== ============ ============
</TABLE>
- ---------
* From May 1, 1998 (commencement of operations).
See accompanying notes.
33
<PAGE>
JOHN HANCOCK VARIABLE ANNUITY ACCOUNT I
STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED)
FOR THE YEARS AND PERIODS ENDED DECEMBER 31,
<TABLE>
<CAPTION>
SMALL/
MID CAP REAL ESTATE GROWTH &
BOND INDEX CORE EQUITY INCOME
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
--------------- --------------- ------------------------- ---------------------------
1998* 1998* 1998 1997 1998 1997
--------------- --------------- ------------ ------------ ------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Increase (decrease) in net assets:
From operations:
Net investment income . . . . . . $ 794 $ (30) $ 1,068,701 $ 1,238,534 $ 40,847,285 $ 30,590,769
Net realized gain . . . . . . . . -- -- 452,751 79,482 2,147,226 271,143
Net unrealized appreciation
(depreciation) during the period (594) 4,111 (6,429,350) 1,363,523 49,182,595 11,923,251
-------------- -------------- ----------- ----------- ------------ ------------
Net increase (decrease) in net assets
resulting from operations . . . . . 200 4,081 (4,907,898) 2,681,539 92,177,106 42,785,163
From contractowner transactions:
Net premiums from contractowners . 55,600 45,493 7,748,395 15,380,217 155,134,300 136,122,595
Net benefits to contractowners . . -- (16,277) (7,358,336) (1,118,876) (40,616,459) (17,521,946)
-------------- -------------- ----------- ----------- ------------ ------------
Net increase in net assets from
contractowner transactions . . . . 55,600 61,770 390,059 14,261,341 114,517,841 118,600,649
-------------- -------------- ----------- ----------- ------------ ------------
Net increase (decrease) in net assets 55,800 65,851 (4,517,839) 16,942,880 206,694,947 161,385,812
Net assets at beginning of period . 0 0 24,798,418 7,855,538 271,028,489 109,642,677
-------------- -------------- ----------- ----------- ------------ ------------
Net assets at end of period . . . . $ 55,800 $ 65,851 $20,280,579 $24,798,418 $477,723,436 $271,028,489
============== ============== =========== =========== ============ ============
</TABLE>
<TABLE>
<CAPTION>
SMALL CAP
MANAGED SHORT-TERM BOND VALUE
SUBACCOUNT SUBACCOUNT SUBACCOUNT
--------------------------- ------------------------- -------------------------
1998 1997 1998 1997 1998 1997
------------- ------------- ------------ ------------ ------------ --------------
<S> <C> <C> <C> <C> <C> <C>
Increase (decrease) in net assets:
From operations:
Net investment income (loss) . . . . . . $ 40,076,353 $ 24,307,891 $ 1,093,175 $ 685,472 $ (173,305) $ 1,048,340
Net realized gain (loss) . . . . . . . . 520,784 142,549 (2,851) (19,586) 118,285 68,848
Net unrealized appreciation
(depreciation) during the period . . . 28,631,287 12,570,799 (149,541) 73,051 (1,752,884) 423,744
------------ ------------ ----------- ----------- ----------- -----------
Net increase (decrease) in net assets
resulting from operations . . . . . . . . 69,228,424 37,021,239 940,783 738,937 (1,807,904) 1,540,932
From contractowner transactions:
Net premiums from contractowners . . . . 156,435,907 132,746,067 16,261,342 8,456,544 13,431,726 11,030,307
Net benefits to contractowners . . . . . (40,551,365) (20,517,998) (6,781,602) (3,000,818) (3,169,232) (768,487)
------------ ------------ ----------- ----------- ----------- -----------
Net increase in net assets from
contractowner transactions . . . . . . . 115,884,542 112,228,069 9,479,740 5,455,726 10,262,494 10,261,820
------------ ------------ ----------- ----------- ----------- -----------
Net increase in net assets . . . . . . . . 185,112,966 149,249,308 10,420,523 6,194,663 8,454,590 11,802,752
Net assets at beginning of period . . . . 318,090,901 168,841,593 18,569,390 12,374,727 15,256,095 3,453,343
------------ ------------ ----------- ----------- ----------- -----------
Net assets at end of period . . . . . . . $503,203,867 $318,090,901 $28,989,913 $18,569,390 $23,710,685 $15,256,095
============ ============ =========== =========== =========== ===========
</TABLE>
See accompanying notes.
34
<PAGE>
JOHN HANCOCK VARIABLE ANNUITY ACCOUNT I
STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED)
FOR THE YEARS AND PERIODS ENDED DECEMBER 31,
<TABLE>
<CAPTION>
INTERNATIONAL
OPPORTUNITIES EQUITY INDEX
SUBACCOUNT SUBACCOUNT
------------------------- -------------------------
1998 1997 1998 1997
------------ ------------ ------------ --------------
<S> <C> <C> <C> <C>
Increase (decrease) in
net assets:
From operations:
Net investment
income (loss) . . $ (66,354) $ 15,240 $ 1,333,655 $ 712,444
Net realized gain . 309,499 228,414 863,280 197,333
Net unrealized
appreciation
(depreciation)
during the period 1,065,442 (446,110) 11,492,991 3,355,409
----------- ----------- ----------- -----------
Net increase
(decrease) in net
assets resulting from
operations . . . . . 1,308,587 (202,456) 13,689,926 4,265,186
From contractowner
transactions:
Net premiums from
contractowners. . . 5,947,922 8,632,504 40,459,585 29,273,872
Net benefits to
contractowners. . . (3,502,337) (3,200,776) (7,678,477) (2,339,289)
----------- ----------- ----------- -----------
Net increase in net
assets from
contractowner
transactions . . . . 2,445,585 5,431,728 32,781,108 26,934,583
----------- ----------- ----------- -----------
Net increase in net
assets . . . . . . . 3,754,172 5,229,272 46,471,034 31,199,769
Net assets at
beginning of period 8,736,229 3,506,957 36,299,278 5,099,509
----------- ----------- ----------- -----------
Net assets at end of
period . . . . . . . $12,490,401 $ 8,736,229 $82,770,312 $36,299,278
=========== =========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
HIGH STRATEGIC
YIELD BOND
SUBACCOUNT SUBACCOUNT
---------- -------------------------
1998* 1998 1997
---------- ------------ --------------
<S> <C> <C> <C>
Increase (decrease) in net assets:
From operations:
Net investment income . . . . . . $ 1,643 $ 1,220,061 $ 769,658
Net realized gain . . . . . . . . -- 67,380 11,353
Net unrealized appreciation
(depreciation) during the period (2,081) 680,647 6,045
-------- ----------- -----------
Net increase (decrease) in net assets
resulting from operations . . . . . (438) 1,968,088 787,056
From contractowner transactions:
Net premiums from contractowners . 197,134 22,724,287 12,625,333
Net benefits to contractowners . . (80,644) (2,896,766) (986,296)
-------- ----------- -----------
Net increase in net assets from
contractowner transactions . . . . 277,778 19,827,521 11,639,037
-------- ----------- -----------
Net increase in net assets . . . . . 277,340 21,795,609 12,426,093
Net assets at beginning of period . 0 16,530,461 4,104,368
-------- ----------- -----------
Net assets at end of period . . . . $277,340 $38,326,070 $16,530,461
======== =========== ===========
</TABLE>
- ---------
* From May 1, 1998 (commencement of operations).
See accompanying notes.
35
<PAGE>
JOHN HANCOCK VARIABLE ANNUITY ACCOUNT I
NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION
John Hancock Variable Annuity Account I (the Account) is a separate investment
account of John Hancock Mutual Life Insurance Company (JHMLICO or John Hancock).
The Account was formed to fund variable annuity contracts (Contracts) issued by
JHMLICO. Currently, the Account funds the Accommodator 2000, Independence
Preferred, Market Place Variable Annuity and Independence 2000 contracts. The
Account is operated as a unit investment trust registered under the Investment
Company Act of 1940, as amended, and currently consists of twenty-three
subaccounts. The assets of each subaccount are invested exclusively in shares of
a corresponding Portfolio of John Hancock Variable Series Trust I (the Fund).
New subaccounts may be added as new Portfolios are added to the Fund or as other
investment options are developed and made available to contractowners. The
twenty-three Portfolios of the Fund which are currently available are the Large
Cap Growth, Sovereign Bond, Emerging Markets Equity, International Equity Index
(formerly, International Equities), Global Equity, Small Cap Growth,
International Balanced, Mid Cap Growth, Large Cap Value, Money Market, Mid Cap
Value, Diversified Mid Cap Growth (formerly, Special Opportunities), Bond Index,
Small/Mid Cap CORE, Real Estate Equity, Growth & Income, Managed, Short-Term
Bond (formerly, Short-Term U.S. Government), Small Cap Value, International
Opportunities, Equity Index, High Yield Bond and Strategic Bond Portfolios. Each
Portfolio has a different investment objective.
The assets of the Account are the property of JHVLICO. The portion of the
Account's assets applicable to the Contracts may not be charged with liabilities
arising out of any other business JHVLICO 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
JHVLICO, which is taxed as a life insurance company under the Internal Revenue
Code. JHVLICO 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. JHVLICO 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
JHVLICO 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 1.50%, 1.00% and 1.40% of net assets of the Independence
Preferred, Market Place Variable Annuity, and Independence 2000 Contracts,
respectively.
36
<PAGE>
JOHN HANCOCK VARIABLE ANNUITY ACCOUNT I
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
JHVLICO 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.
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, 1998 were as follows:
<TABLE>
<CAPTION>
SUBACCOUNT SHARES OWNED COST VALUE
---------- ------------ ------------ --------------
<S> <C> <C> <C>
Large Cap Growth . . . . . 6,982,747 $150,451,172 $182,907,548
Sovereign Bond . . . . . . 12,082,044 120,120,816 119,873,269
Emerging Markets . . . . . 327 2,264 2,316
International Equity Index 1,404,381 23,189,239 21,852,953
Global Equity . . . . . . . 17,749 169,254 175,224
Small Cap Growth . . . . . 2,197,060 23,886,640 28,534,427
International Balanced . . 726,016 7,706,291 8,076,543
Mid Cap Growth . . . . . . 2,808,213 33,393,343 42,447,554
Large Cap Value . . . . . . 4,223,729 54,888,975 59,217,888
Money Market . . . . . . . 8,010,018 80,100,181 80,100,181
Mid Cap Value . . . . . . . 2,782,977 38,410,875 33,912,965
Diversified Mid Cap Growth 3,907,655 61,496,198 62,286,493
Bond Index . . . . . . . . 5,476 56,394 55,800
Small/Mid Cap CORE . . . . 7,302 61,739 65,851
Real Estate Equity . . . . 1,627,683 24,164,299 20,280,578
Growth & Income . . . . . . 24,508,272 417,465,409 477,723,436
Managed . . . . . . . . . . 32,181,946 468,704,327 503,203,867
Short-Term Bond . . . . . . 2,885,018 29,127,340 28,989,913
Small Cap Value . . . . . . 2,045,995 24,888,093 23,710,684
International Opportunities 1,022,579 11,723,506 12,490,401
Equity Index . . . . . . . 4,675,568 67,668,207 82,770,312
Strategic Bond . . . . . . 3,615,868 37,636,117 38,326,070
High-Yield Bond . . . . . . 30,044 279,421 277,340
</TABLE>
37
<PAGE>
JOHN HANCOCK VARIABLE ANNUITY ACCOUNT I
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Purchases, including reinvestment of dividend distributions, and proceeds from
sales of shares in the Portfolios of the Fund during 1998, were as follows:
<TABLE>
<CAPTION>
SUBACCOUNT PURCHASES SALES
---------- ------------ -------------
<S> <C> <C>
Large Cap Growth . . . . . . . . . . . $ 66,907,647 $ 2,537,321
Sovereign Bond . . . . . . . . . . . . 58,369,465 2,232,575
Emerging Markets . . . . . . . . . . . 2,265 1
International Equity Index . . . . . . 7,459,306 1,274,355
Global Equity . . . . . . . . . . . . 169,325 73
Small Cap Growth . . . . . . . . . . . 8,943,566 1,523,605
International Balanced . . . . . . . . 2,910,315 736,137
Mid Cap Growth . . . . . . . . . . . . 18,584,991 1,036,171
Large Cap Value . . . . . . . . . . . 25,411,436 1,738,759
Money Market . . . . . . . . . . . . . 67,297,698 38,440,220
Mid Cap Value . . . . . . . . . . . . 18,534,581 2,023,369
Diversified Mid-Cap Growth . . . . . . 3,720,893 9,441,429
Bond Index . . . . . . . . . . . . . . 56,420 26
Small/Mid Cap CORE . . . . . . . . . . 61,758 19
Real Estate Equity . . . . . . . . . . 6,014,732 4,555,975
Growth & Income . . . . . . . . . . . 163,585,966 8,220,839
Managed . . . . . . . . . . . . . . . 160,402,861 4,441,965
Short-Term Bond . . . . . . . . . . . 15,814,484 5,241,569
Small Cap Value . . . . . . . . . . . 11,258,110 1,168,921
International Opportunities . . . . . 5,247,357 2,868,127
Equity Index . . . . . . . . . . . . . 36,593,143 2,478,379
Strategic Bond . . . . . . . . . . . . 22,408,429 1,360,846
High Yield Bond . . . . . . . . . . . 279,476 55
</TABLE>
38
<PAGE>
JOHN HANCOCK VARIABLE ANNUITY ACCOUNT I
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, 1998 were as
follows:
<TABLE>
<CAPTION>
INDEPENDENCE PREFERRED MARKETPLACE INDEPENDENCE PREFERRED
-------------------------- -------------------------- --------------------------
ACCUMULATION ACCUMULATION ACCUMULATION ACCUMULATION ACCUMULATION ACCUMULATION
SUBACCOUNT SHARES SHARE VALUES SHARES SHARE VALUES SHARES SHARE VALUES
---------- ------------ ------------ ------------ ------------ ------------ --------------
<S> <C> <C> <C> <C> <C> <C>
Large Cap Growth . . . . . 5,998,713 $26.385 7,430 $16.825 610,045 $39,895
Sovereign Bond . . . . . . 7,060,247 13.828 28,119 11.570 1,173,339 18.679
Emerging Markets Equity . . -- 9.265 -- 9.269 250 9.266
International Equity Index 1,463,435 13.293 2,769 11.519 147,513 16.074
Global Equity . . . . . . . 2,335 10.300 -- 10.305 14,675 10.301
Small Cap Growth . . . . . 19,911,189 12.506 4,165 14.599 364,599 12.540
International Balanced . . 575,695 12.418 666 12.024 73,871 12.451
Mid Cap Growth . . . . . . 2,121,920 16.012 4,598 17.890 523,041 16.054
Large Cap Value . . . . . . 3,121,477 15.371 10,820 13.122 719,821 15.413
Money Market . . . . . . . 4,529,599 11.652 73,430 10.749 1,976,595 13.423
Mid Cap Value . . . . . . . 2,147,209 13.091 19,554 10.910 425,962 13.126
Diversified Mid Cap Growth 3,371,066 18.106 2,099 12.516 67,121 18.157
Bond Index . . . . . . . . 4,781 10.003 -- 10.007 798 10.004
Small/Mid Cap CORE . . . . 13 10.695 -- 10.699 6,144 10.695
Real Estate Equity . . . . 1,376,429 14.084 7,624 9.797 39,674 20.663
Growth & Income . . . . . . 16,623,489 25.336 52,307 15.653 1,505,823 37.010
Managed . . . . . . . . . . 23,584,757 18.728 14,160 13.653 2,360,737 25.980
Short-Term Bond . . . . . . 1,965,016 12.160 9,164 10.939 409,683 12.193
Small Cap Value . . . . . . 1,605,546 12.525 7,492 11.808 279,710 12.558
International Opportunities 926,001 12.116 2,004 11.530 102,682 12.149
Equity Index . . . . . . . 3,637,757 18.720 36,621 15.494 751,303 18.770
High Yield Bond . . . . . . 11,612 9.886 -- 9.890 16,441 9.887
Strategic Bond . . . . . . 2,327,990 12.204 11,999 11.587 797,395 12.237
</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 JHVLICO or the Fund.
6. IMPACT OF YEAR 2000 (UNAUDITED)
The John Hancock Variable Annuity Account I, along with John Hancock Mutual
Life Insurance Company, its ultimate parent (together, John Hancock), is
executing its plan to address the impact of the Year 2000 issues that result
from computer programs being written using two digits to reflect the year rather
than four to define the applicable year and century. Historically, the first two
digits were hardcoded to save memory. Many of the John Hancock's computer
programs that have date-sensitive software may recognize a date using "00" as
the year 1900 rather than the year 2000. This could result in an information
technology (IT) system failure or miscalculations causing disruptions of
operations, including, among other things, a temporary inability to process
transactions, send invoices or engage in similar normal business activities. In
addition, non-IT systems including, but not limited to, security alarms,
elevators and telephones are subject to malfunction due to their dependence on
embedded technology such as microcontrollers for proper operation. As described,
the Year 2000 project presents a number of challenges for financial institutions
since the correction of Year 2000 issues in IT and non-IT systems will be
complex and costly for the entire industry.
39
<PAGE>
JOHN HANCOCK VARIABLE ANNUITY ACCOUNT I
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
John Hancock began to address the Year 2000 project as early as 1994. John
Hancock's plan to address the Year 2000 Project includes an awareness campaign,
an assessment period, a renovation stage, validation work and an implementation
of Company solutions.
The continuous awareness campaign serves several purposes: defining the
problem, gaining executive level support and sponsorship, establishing a team
and overall strategy, and assessing existing information system management
resources. Additionally, the awareness campaign establishes an education process
to ensure that all employees are aware of the Year 2000 issue and knowledgeable
of their role in securing solutions.
The assessment phase, which was completed for both IT and non-IT systems as of
April 1998, included the identification, inventory, analysis, and prioritization
of IT and non-IT systems and processes to determine their conversion or
replacement.
The renovation stage reflects the conversion, validation, replacement, or
elimination of selected platforms, applications, databases and utilities,
including the modification of applicable interfaces. Additionally, the
renovation stage includes performance, functionality, and regression testing and
implementation. As of December 31, 1998, the renovation phase was substantially
complete for computer applications, systems and desktops. For all remaining
components the renovation phase is underway and will be complete before the end
of the second quarter of 1999.
The validation phase consists of the compliance testing of renovated systems.
The validation phase is expected to be complete by mid 1999, after renovation is
accomplished. John Hancock will use its testing facilities through the remainder
of 1999 to perform special functional testing. Special functional testing
includes testing, as required, with material third parties and industry groups
and to perform reviews of "dry run" of year-end activities. Scheduled testing of
John Hancock's material relationships with third parties is underway. It is
anticipated that testing with material business partners will continue through
much of 1999.
Finally, the implementation phase involves the actual implementation of
converted or replaced platforms, applications, databases, utilities, interfaces,
and contingency planning. John Hancock is concurrently performing implementation
during the renovation phase and plans to complete this phase before the end of
the second quarter of 1999.
The costs of the Year 2000 project consist of internal IT personnel, and
external costs such as consultants, programmers, replacement software, and
hardware. The costs of the Year 2000 project are expensed as incurred. The
project is funded partially through a reallocation of resources from
discretionary projects. Through December 31, 1998, John Hancock has incurred and
expensed approximately $9.8 million in related payroll costs for its internal IT
personnel on the project. The estimated range of remaining internal IT personnel
costs of the project is approximately $8 to $9 million. Through December 31,
1998, John Hancock has incurred and expensed approximately $36.4 million in
external costs for the project. The estimated range of remaining external costs
of the project is approximately $35 to $36 million. The total costs of the Year
2000 project, based on management's best estimates, include approximately $18
million in internal IT personnel, $7.4 million in the external modification of
software, $34.2 million for external solution providers, $19.4 million in
replacement costs of non-compliant IT systems and $12.6 million in oversight,
test facilities and other expenses. Accordingly, the estimated range of total
costs of the Year 2000 project, internal and external, is approximately $90 to
$95 million. However, there can be no guarantee that these estimates will be
achieved and actual results could materially differ from those plans. Specific
factors that might cause such material differences include, but are not limited
to, the availability and cost of personnel trained in this area, the ability to
locate and correct all relevant computer codes, and similar uncertainties.
40
<PAGE>
JOHN HANCOCK VARIABLE ANNUITY ACCOUNT I
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
John Hancock's total Year 2000 project costs include the estimated impact of
external solution providers and are based on presently available information.
However, there is no guarantee that the systems of other companies that John
Hancock's systems rely on will be timely converted, or that a failure to convert
by another company, or a conversion that is incompatible with John Hancock's
systems, would not have material adverse effect on John Hancock. It is
documented in trade publications that companies in foreign countries are not
acting as intensively as domestic companies to remediate Year 2000 issues.
Accordingly, it is expected that Company facilities based outside the United
States face higher degrees of risks from data exchanges with material business
partners. In addition, John Hancock has thousands of individual and business
customers that hold insurance policies, annuities and other financial products
of John Hancock. Nearly all products sold by John Hancock contain date sensitive
data, examples of which are policy expiration dates, birth dates, premium
payment dates. Finally, the regulated nature of John Hancock's industry exposes
it to potential supervisory or enforcement actions relating to Year 2000 issues.
John Hancock's contingency planning initiative related to the Year 2000
project is underway. The plan is addressing John Hancock's readiness as well as
that of material business partners on whom John Hancock depends. John Hancock's
contingency plans are being designed to keep each business unit's operations
functioning in the event of a failure or delay due to the Year 2000 record
format and date calculation changes. Contingency plans are being constructed
based on the foundation of extensive business resumption plans that John Hancock
has maintained and updated periodically, which outline responses to situations
that may affect critical business functions. These plans also provide emergency
operations guidance, which defines a documented order of actions to respond to
problems. These extensive business resumption plans are being enhanced to cover
Year 2000 situations.
41
<PAGE>
JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY
DEFERRED COMBINATION FIXED AND VARIABLE ANNUITY CONTRACTS
JOHN HANCOCK VARIABLE ANNUITY ACCOUNT I
STATEMENT OF ADDITIONAL INFORMATION
__________________
This statement of additional information ("SAI"), dated May 3, 1999 is not a
prospectus. It is intended that this SAI be read in conjunction with the
prospectus of John Hancock Variable Annuity Account I (the "Account") dated May
3, 1999, for the contracts being offered. Terms used in this SAI that are not
otherwise defined herein have the same meanings given to them in the prospectus,
unless the context requires otherwise. A copy of the prospectus may be obtained
from the John Hancock Annuity Servicing Office, 529 Main Street (X-4),
Charlestown, Massachusetts 02129, telephone number 1-800-732-5543.
TABLE OF CONTENTS
_________________
<TABLE>
<CAPTION>
PAGE OF SAI
-----------
<S> <C>
Variations in Charges.................................. 2
Distribution...........................................
Calculation of Performance Data........................ 2
Other Performance Information..........................
Calculation of Annuity Payments........................ 4
Additional Information About Determining Unit Values... 6
Purchases and Redemptions of Fund Shares............... 7
The Account............................................ 7
Delay of Certain Payments.............................. 7
Liability for Telephone Transfers...................... 8
Voting Privileges...................................... 8
JHVLICO Financial Statements........................... 10
Separate Account Financial Statements.................. 23
</TABLE>
Acct I ( Ind 2000) 5/99
<PAGE>
VARIATIONS IN CHARGES
In the future, we may allow a reduction in or the elimination of the
withdrawal charge, the charge for mortality and expense risks, the
administrative services charge,or the annual contract fee. The affected
contracts would involve sales to groups or classes of individuals in a manner
resulting in a reduction in the expenses associated with the sale of such
contracts and the benefits offered, or the costs associated with administering
or maintaining the contracts.
The entitlement to such a reduction in or elimination of charges and fees
will be determined by John Hancock based upon factors such as the following:
(1) the size of the initial premium payment, (2) the size of the group or
class, (3) the total amount of premium payments expected to be received from the
group or class and the manner in which premium payments are remitted, (4) the
nature of the group or class for which the contracts are being purchased and the
persistency expected from that group or class as well as the mortality risks
associated with that group or class, (5) the purpose for which the contracts are
being purchased and whether that purpose makes it likely that costs and expenses
will be reduced, or (6) the level of commissions paid to selling broker-dealers
or certain financial institutions with respect to contracts within the same
group or class.
We will make any reduction in charges or fees according to our rules in
effect at the time an application for a contract is approved. We reserve the
right to change these rules from time to time. Any variation in charges or fees
will reflect differences in costs and services, will apply uniformly to all
prospective contract purchasers in the group or class, and will not be unfairly
discriminatory to the interests of any owner.
DISTRIBUTION
The distribution of the contracts through Signator Investors, Inc.
("Signator") is continuous. Pursuant to a marketing and distribution agreement
between John Hancock and Signator, the amounts we paid and Signator retained
under that agreement for all such services were as follows:
<TABLE>
<CAPTION>
YEAR AMOUNT PAID TO SIGNATOR AMOUNT RETAINED BY SIGNATOR
---- ----------------------- ---------------------------
<S> <C> <C>
1998
1997
1996
</TABLE>
CALCULATION OF PERFORMANCE DATA
The Account may, from time to time, include in advertisements, sales
literature and reports to owners or prospective investors information relating
to the performance of its variable investment options. The performance
information that may be presented is not an estimate or a guarantee of future
investment performance, and does not represent the actual experience of amounts
invested by a particular owner. Set out below is a description of the methods
used in calculating the performance information for the variable investment
options.
The Account will calculate the average annual total return for each
variable investment option (other than the Money Market option), according to
the following formula prescribed by the SEC:
P x ( 1 + T ) n = ERV
<TABLE>
<CAPTION>
<S> <C>
where P = a hypothetical initial premium payment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value of a hypothetical
$1,000 premium payment, made at the beginning of
such period (or fractional portion thereof)
</TABLE>
2
<PAGE>
Average annual total return is the annual compounded rate of return for a
variable investment option that would have produced the ending redeemable value
over the stated period if the performance remained constant throughout. The
calculation assumes a single $1,000 premium payment made into the variable
investment option at the beginning of the period and full redemption at the end
of the period. It reflects adjustments for all Trust and contract level charges
except any premium tax charge or charges for optional rider benefits described
in the prospectus. The annual contract fee has been included as an annual
percentage of assets.
On the basis, the following table shows the average total return for each
variable investment option for the periods ended December 31, 1998:
<TABLE>
<CAPTION>
AVERAGE ANNUALIZED TOTAL RETURNS
--------------------------------
<S> <C> <C> <C> <C> <C>
VARIABLE INVESTMENT YEAR TO DATE 1 YEAR 5 YEAR** 10 YEAR** DATE OF
- ------------------- /**/ INCEPTION
OPTION/*/ /***/
- ------
Managed.............. 13.4% 13.4% 12.7% 12.0% 11/09/87
Growth & Income...... 23.2% 23.2% 20.2% 17.0% 4/03/72
Equity Index......... 21.7% 21.7% 25.8% N/A 4/30/96
Large Cap Value...... 2.6% 2.6% 16.6% N/A 4/30/96
Large Cap Growth..... 32.3% 32.3% 21.1% 18.2% 11/24/87
Mid Cap Value........ -17.9% -17.9% 9.6% N/A 4/30/96
Mid Cap Growth....... 32.2% 32.2% 18.5% N/A 4/30/96
Real Estate Equity... -23.4% -23.4% 6.7% 7.0% 2/01/89
Small/Mid Cap Growth. -1.3% -1.3% 14.6% N/A 9/23/94
Small/Mid Cap CORE... 0.5% N/A N/A N/A 11/30/98
Small Cap Value...... -12.5% -12.5% 7.7% N/A 4/30/96
Small Cap Growth..... 7.8% 7.8% 7.6% N/A 4/30/96
Global Equity........ -3.5% N/A N/A N/A 11/30/98
International Balanced 11.3% 11.3% 7.3% N/A 4/30/96
International Equity
Index................ 13.8% 13.8% 3.1% 6.3% 2/01/89
International
Opportunities........ 9.2% 9.2% 6.3% N/A 4/30/96
Emerging Markets
Equity............... -13.3% N/A N/A N/A 11/30/98
Short-Term Bond...... -0.8% -0.8% 4.4% N/A 9/23/94
Bond Index........... -6.4% N/A N/A N/A 11/30/98
Sovereign Bond....... 1.3% 1.3% 5.8% 7.7% 6/02/80
Global Bond.......... 2.5% 2.5% 6.6% N/A 4/30/96
High Yield Bond...... -7.5% N/A N/A N/A 11/30/98
Money Market......... -1.5% -1.5% 3.4% 4.1% 5/13/82
</TABLE>
*
**
***
*
**
***
For the 7-day period ending December 31, 1998, the Money Market option's
current yield was 3.7 % and its effective yield was 3.7 %.
3
<PAGE>
The Account will calculate current yield for each variable investment
option (other than the Money Market option) according to the following formula
prescribed by the SEC:
LOGO
<TABLE>
<CAPTION>
<S> <C>
where: a = net investment income earned during the period by the Fund whose shares are owned by the
variable investment option
b = expenses accrued for the period (net of any reimbursements)
c = the average daily number of accumulation units outstanding during the period
d = the offering price per accumulation unit on the last day of the period
</TABLE>
According to this formula, yield is determined by dividing the net
investment income per accumulation unit earned during the period (minus the
deduction for mortality and expense risk charge, administration charge and
annual contract fee) by the accumulation unit value on the last day of the
period and annualizing the resulting figure. The calculation is based on
specified 30-day periods identified in the advertisement. Neither the
withdrawal charge nor any charges for premium taxes or optional rider benefits
are reflected in the calculation.
The Account may calculate current yield and effective yield figures for the
Money Market option. The current yield of the Money Market option for a
seven-day period ("base period") will be computed by determining the "net change
in value" (calculated as set forth below) of a hypothetical owner account having
a balance of one unit at the beginning of the period, dividing the net change in
account value by the value of the account at the beginning of the base period to
obtain the base period return, and multiplying the base period return by 365/7,
with the resulting yield figure carried to the nearest hundredth of one percent.
Net changes in value of the hypothetical owner account will include net
investment income of that account (accrued daily dividends as declared by the
Money Market Fund, less daily expenses of the Account) for the period, but will
not include realized gains or losses or unrealized appreciation or depreciation
on the underlying Money Market Fund shares. The mortality and expense risk
charges, administration charge and contract fee are reflected, but the
withdrawal charge and any charge for premium taxes and optional benefits are
not.
The effective yield reflects the effects of compounding and represents an
annualization of the current return. The formula for effective yield, as
prescribed by the SEC, is:
Effective yield = (Base period return + 1)/(365/7) / - 1
OTHER PERFORMANCE INFORMATION
You can compare performance information at the Account level to other
variable annuity separate accounts or other investment products surveyed by
Lipper Analytical Services, Inc., an independent service that monitors and ranks
the performance of investment companies. Such performance figures are calculated
in accordance with standardized methods established by each reporting service.
We vote any shares held by the Account that are not attributable to
contracts or for which instructions from owners are not received, in proportion
to the instructions we have received from participants in the Account.
CALCULATION OF ANNUITY PAYMENTS
CALCULATION OF ANNUITY UNITS
We use a measuring device called an "annuity unit" to help us compute the
amount of each monthly payment that is based on a variable investment option.
Each variable investment option has its own annuity unit with its own annuity
unit value.
4
<PAGE>
The number of the contract's annuity units for each variable investment
option normally doesn't change while the payee continues to receive payments,
unless the payee makes a transfer from one variable investment option to
another. The amount of each monthly annuity payment based on a variable
investment option equals the number of the contract's annuity units in that
option times the value of one such unit as of the tenth day preceding the
payment's due date.
To compute the amount of the first annuity payment that is based on any
variable investment option, we first determine the amount of your contract's
value that we will apply to that variable option. We do this as of 10 calendar
days prior to the date the initial monthly annuity payment is due, in the manner
described in the prospectus under "The annuity period - choosing fixed or
variable annuity payments."
For each variable investment option, we THEN divide:
the resulting value (minus any
premium tax charge)
by
$1,000
- -----------------------------------
and multiply the result by
the applicable annuity purchase rate
set forth in the contract and
reflecting
(1) the age and, possibly, sex of the
payee and
(2) the assumed investment rate
(discussed below)
- ---------------------------------------
This computation determines the amount of initial monthly variable annuity
payment to the annuitant from each variable investment option.
We then determine the number of annuity units to be credited to the contract
from each of such variable investment options by dividing:
the amount of the initial monthly variable annuity
payment from that variable annuity option
BY
the annuity unit value of that variable investment option
as of 10 calendar days prior to the date the initial
payment is due
- ----------------------------------------------------------
For example, assume that 10 days before the date of maturity, a contract
has credited to it 4000.000 accumulation units, each having a value of
$12.000000. Assume, further, that the appropriate annuity purchase rate
5
<PAGE>
in the contract for an assumed investment rate of 3 1/2% is $5.47 per $1000 of
proceeds for the annuity option elected. The first monthly annuity payment
would be $262.56.
LOGO
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).
ANNUITY UNIT VALUES
The value of the annuity units varies from day to day, depending on the
investment performance of the variable investment option, the deductions made
against the variable investment option, and the assumed investment rate used in
computing annuity unit values. Thus, the variable monthly annuity payments vary
in amount from month to month.
We calculate annuity unit value separately for each variable investment
option. As of the close of each business day, we calculate the value of one
annuity unit by
(1) multiplying the immediately preceding annuity unit value by the sum of one
plus the applicable net investment rate for the period subsequent to such
preceding value and then
(2) multiplying this product by an adjustment factor to neutralize the assumed
investment rate used in determining the amounts of annuity payable. If
your contract has an assumed investment rate of 3 1/2 % per year, the
adjustment factor for a valuation period of one day would be 0.99990575.
We neutralize the assumed investment rate by applying the adjustment
factor so that the variable annuity payments will increase only if the
actual net investment rate of the variable investment option exceeds 3 1/2
% per year and will decrease only if is less than 3 1/2 % per year.
The amount of the initial variable monthly payment is determined on the
assumption that the actual net investment rate of each variable investment
option used in calculating the "net investment factor" (described below) will be
equal on an annual basis to the "assumed investment rate" (described under "The
annuity period - variable monthly annuity payments" in the prospectus). If the
actual net investment rate between the dates for determining two monthly annuity
payments is greater than the assumed investment rate, the latter monthly payment
will be larger in amount than the former. On the other hand, if the actual net
investment rate between the dates for determining two monthly annuity payments
is less than the assumed investment rate, the latter monthly payment will be
smaller in amount than the former.
MORTALITY TABLES
The mortality tables used as a basis for both variable and fixed annuity
purchase rates are the 1983a Mortality Tables, with projections of mortality
improvements and with certain age adjustments based on the contract year of
annuitization. The mortality table used in a Contract purchased in connection
with certain employer-related plans and used in all contracts issued in Montana
will be the Female Annuity Table of the 1983a Mortality Tables. The impact of
this change will be lower benefits (5% to 15%) from a male's viewpoint than
would otherwise be the case.
ADDITIONAL INFORMATION ABOUT DETERMINING UNIT VALUES
The general manner in which we compute annuity unit values is discussed
above. Like annuity unit values, we calculate accumulation unit values
separately for each variable investment option. As of the close of each
6
<PAGE>
business day, we calculate the value of one accumulation unit of a variable
investment option by multiplying the immediately preceding accumulation unit
value by the sum of one plus the applicable "net investment rate" for the period
subsequent to such preceding value. See "Net investment rate" below.
NET INVESTMENT RATE
For any period, the net investment rate for a variable investment option
equals
(1) the percentage total investment return of the corresponding Fund for that
period (assuming reinvestment of all dividends and other distributions from
the Fund), less
(2) for each calendar day in the period, a deduction of 0.003836% (depending on
the charge for mortality and expense risks) of the value of the variable
investment option at the beginning of the period, and less
(3) a further adjustment in an appropriate amount if we ever elect to impose a
charge for our income taxes.
ADJUSTMENT OF UNITS AND VALUES
We reserve the right to change the number and value of the accumulation
units and/or annuity units credited to your contract, without notice, provided
that strict equity is preserved and the change does not otherwise affect the
benefits, provisions, or investment return of your contract.
HYPOTHETICAL EXAMPLE ILLUSTRATING THE CALCULATION OF ACCUMULATION UNIT VALUES
AND ANNUITY UNIT VALUES
Assume at the beginning of the period being considered, the value of a
particular variable investment option was $4,000,000. Investment income during
the period totaled $2000, while capital gains were $3000 and capital losses were
$1000. Assume also that we are not imposing any tax charge. Charges against
the beginning value of the variable investment option amount to $153.44 assuming
a one day period. The $153.44 was computed by multiplying the beginning value
of $4,000,000 by the factor 0.00003836. By substituting in the first formula
above, the net investment rate is equal to $3846.56 ($2000 + $3000 - $1000
- -$153.44) divided by $4,000,000 or 0.0009616
Assume further that each accumulation unit had a value of $11.250000 on the
previous business day, and the value of an annuity unit on such previous date
was $1.0850000. Based upon the experience of the variable investment option
during the period, the value of an accumulation unit at the end of the period
would be [$11.250000 x (1 + .0009616)] or $11.260818. The value of an annuity
unit at the end of the period would be [$1.0850000 x (1 + .0009616) x .99990575]
or $1.085941. The final figure, .99990575, neutralizes the effect of a 3 1/2%
assumed investment rate so that the annuity unit's change in value reflects only
the actual investment experience of the variable investment option.
PURCHASES AND REDEMPTIONS OF FUND SHARES
John Hancock purchases and redeems Fund shares for the Account at their net
asset value without any sales or redemption charges. Each available Fund issues
its own separate series of Fund shares. Each such series represents an interest
in one of the Funds of the Trust, which corresponds to one of our variable
investment options. Any dividend or capital gains distributions received by the
Account will be reinvested in shares of that same Fund at their net asset value
as of the dates paid.
On each business day, the account purchases and redeems shares of each fund
for each variable investment option based on, among other things, the amount of
premium payments allocated to that option, dividends reinvested, and transfers
to, from and among investment options, all to be effected as of that date. Such
purchases and redemptions are effective at the net asset value per Trust share
for each fund determined on that same date.
7
<PAGE>
THE ACCOUNT
In addition to the assets attributable to contracts, the Account includes
assets derived from charges made by and, possibly, funds contributed by John
Hancock to commence operations of the variable investment option. From time to
time these additional amounts may be transferred in cash by us to our general
account. Before any such transfer, we will consider any possible adverse impact
transfer might have on any variable investment option. The assets of one
variable investment option are not necessarily legally insulated from
liabilities associated with another variable investment option.
DELAY OF CERTAIN PAYMENTS
Ordinarily, upon a surrender or partial withdrawal, we will pay the value
of any accumulation units in a single sum within 7 days after receipt of a
written request at our Annuity Servicing Office. However, redemption may be
suspended and payment may be postponed under the following conditions:
(1) when the New York Stock Exchange is closed, other than customary weekend
and holiday closings;
(2) when trading on that Exchange is restricted;
(3) when an emergency exists as a result of which (a) disposal of securities in
a variable investment option is not reasonably practicable or (b) it is not
reasonably practicable to determine the value of the net assets of a
variable investment option; or
(4) when a governmental body having jurisdiction over the Account by order
permits such suspension.
Rules and regulations of the SEC, if any are applicable, will govern as to
whether conditions in (2) or (3) exist.
We may defer for up to 15 days the payment of any amount attributable to a
premium payment made by check to allow the check reasonable time to clear.
We may also defer payment of surrender proceeds payable out of any
guarantee period for a period of up to 6 months.
LIABILITY FOR TELEPHONE TRANSFERS
If you authorize telephone transfers, you will be liable for any loss,
expense or cost arising out of any unauthorized or fraudulent telephone or fax
instructions which we reasonably believe to be genuine, unless such loss,
expense or cost is the result of our mistake or negligence. We employ
procedures which provide safeguards against unauthorized transactions, and which
are reasonably designed to confirm that instructions received by telephone are
genuine. These procedures include
. requiring personal identification,
. tape recording calls, and
. providing written confirmation to the owner.
If we do not employ reasonable procedures to confirm that instructions
communicated by telephone are genuine, we may be liable for any loss due to
unauthorized or fraudulent instructions.
VOTING PRIVILEGES
Here's the formula we use to determine the number of Fund shares as to
which you may give instructions:
8
<PAGE>
the total value of your accumulation
units value in a variable investment
option
divided by
the net asset value of 1 share of the
corresponding Fund
- --------------------------------------
At a shareholders' meeting, you may give instructions regarding:
. the election of the Board of Trustees,
. the ratification of the selection of independent auditors,
. the approval of the Trust's investment management agreements,
. and other matters requiring a vote under the 1940 Act.
The annuitant or other payee will also be entitled to give voting
instructions with respect to the Fund shares corresponding to any variable
investment option under which variable annuity payments are then being made. We
determine the number of Fund shares for which the payee can give instructions by
dividing the actuarially determined present value of the payee's annuity units
that correspond to that Fund by the net asset value of one share of that Fund.
We will furnish you information and forms so that you may give voting
instructions.
We may own Fund shares that we do not hold in any separate account whose
participants are entitled to give voting instructions. We will vote such shares
in proportion to the instructions we receive from all variable annuity contract
and variable life insurance policy owners who give us instructions for that
Fund's shares (including owners who participate in separate accounts other than
the Account).
We have designed your voting privileges based upon our understanding of the
requirements of the federal securities laws. If the applicable laws,
regulations, or interpretations change to eliminate or restrict the need for
such voting privileges, we reserve the right to proceed in accordance with any
such revised requirements.
9
<PAGE>
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
To the Directors and Policyholders John Hancock Variable Life Insurance Company
We have audited the accompanying statutory-basis statements of financial
position of John Hancock Variable Life Insurance Company as of December 31, 1998
and 1997, and the related statutory-basis statements of operations and
unassigned deficit 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 Variable Life Insurance Company at December
31, 1998 and 1997, or the results of its operations or its cash flows for the
years then ended.
Also, in our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of John Hancock
Variable Life Insurance Company at December 31, 1998 and 1997, and the results
of its operations and its cash flows for the years then ended in conformity with
accounting practices prescribed or permitted by the Commonwealth of
Massachusetts Division of Insurance.
ERNST & YOUNG LLP
Boston, Massachusetts
February 19, 1999
10
<PAGE>
JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY
STATUTORY-BASIS STATEMENTS OF FINANCIAL POSITION
<TABLE>
<CAPTION>
December 31
--------------------
1998 1997
--------- -----------
(In millions)
<S> <C> <C>
ASSETS
Bonds--Note 6 . . . . . . . . . . . . . . . . . . . . $1,185.8 $1,092.7
Preferred stocks . . . . . . . . . . . . . . . . . . . 36.5 17.2
Common stocks . . . . . . . . . . . . . . . . . . . . 3.1 2.3
Investment in affiliates . . . . . . . . . . . . . . . 81.7 79.1
Mortgage loans on real estate--Note 6 . . . . . . . . 388.1 273.9
Real estate . . . . . . . . . . . . . . . . . . . . . 41.0 39.9
Policy loans . . . . . . . . . . . . . . . . . . . . . 137.7 106.8
Cash items:
Cash in banks . . . . . . . . . . . . . . . . . . . 11.4 83.1
Temporary cash investments . . . . . . . . . . . . . 8.5 60.1
-------- --------
19.9 143.2
Premiums due and deferred . . . . . . . . . . . . . . 32.7 33.8
Investment income due and accrued . . . . . . . . . . 29.8 24.7
Other general account assets . . . . . . . . . . . . . 47.5 16.8
Assets held in separate accounts . . . . . . . . . . . 6,595.2 4,691.1
-------- --------
TOTAL ASSETS . . . . . . . . . . . . . . . . . . . . . $8,599.0 $6,521.5
======== ========
OBLIGATIONS AND STOCKHOLDER'S EQUITY
OBLIGATIONS
Policy reserves . . . . . . . . . . . . . . . . . . $1,652.0 $1,124.3
Federal income and other taxes payable--Note 1 . . . 44.3 36.1
Other general account obligations . . . . . . . . . 150.9 481.9
Transfers from separate accounts, net . . . . . . . (190.3) (146.8)
Asset valuation reserve--Note 1 . . . . . . . . . . 21.9 18.6
Obligations related to separate accounts . . . . . . 6,589.4 4,685.7
-------- --------
TOTAL OBLIGATIONS . . . . . . . . . . . . . . . . . . 8,268.2 6,199.8
STOCKHOLDER'S EQUITY
Common Stock, $50 par value; authorized 50,000
shares; issued and outstanding 50,000 shares . . . 2.5 2.5
Paid-in capital . . . . . . . . . . . . . . . . . . 377.5 377.5
Unassigned deficit . . . . . . . . . . . . . . . . . (49.2) (58.3)
-------- --------
TOTAL STOCKHOLDER'S EQUITY . . . . . . . . . . . . . . 330.8 321.7
-------- --------
TOTAL OBLIGATIONS AND STOCKHOLDER'S EQUITY . . . . . . $8,599.0 $6,521.5
======== ========
</TABLE>
The accompanying notes are an integral part of the statutory-basis financial
statements.
11
<PAGE>
JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY
STATUTORY-BASIS STATEMENTS OF OPERATIONS AND UNASSIGNED DEFICIT
<TABLE>
<CAPTION>
Year ended December 31
-----------------------
1998 1997
----------- -------------
(In millions)
<S> <C> <C>
INCOME
Premiums . . . . . . . . . . . . . . . . . . . . $1,272.3 $ 872.7
Net investment income--Note 3 . . . . . . . . . 122.8 89.7
Other, net . . . . . . . . . . . . . . . . . . . 618.1 449.1
-------- --------
2,013.2 1,411.5
BENEFITS AND EXPENSES
Payments to policyholders and beneficiaries . . 301.4 264.0
Additions to reserves to provide for future
payments to policyholders and beneficiaries . 1,360.2 826.2
Expenses of providing service to policyholders
and obtaining new insurance
--Note 5 . . . . . . . . . . . . . . . . . . . 274.2 233.2
State and miscellaneous taxes . . . . . . . . . 28.1 19.1
-------- --------
1,963.9 1,342.5
-------- --------
GAIN FROM OPERATIONS BEFORE FEDERAL INCOME
TAXES AND NET REALIZED CAPITAL LOSSES . . . 49.3 69.0
Federal income taxes--Note 1 . . . . . . . . . . . 33.1 38.5
-------- --------
GAIN FROM OPERATIONS BEFORE NET REALIZED
CAPITAL
LOSSES . . . . . . . . . . . . . . . . . . . 16.2 30.5
Net realized capital losses--Note 4 . . . . . . . (0.6) (3.0)
-------- --------
NET INCOME . . . . . . . . . . . . . . . . . 15.6 27.5
Unassigned deficit at beginning of year . . . . . (58.3) (96.9)
Net unrealized capital (losses) gains and other
adjustments--Note 4 . . . . . . . . . . . . . . . (6.0) 5.0
Other reserves and adjustments . . . . . . . . . . (0.5) 6.1
-------- --------
UNASSIGNED DEFICIT AT END OF YEAR . . . . . . . . $ (49.2) $ (58.3)
======== ========
</TABLE>
The accompanying notes are an integral part of the statutory-basis financial
statements.
12
<PAGE>
JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY
STATUTORY-BASIS STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year ended December 31
-----------------------
1998 1997
----------- ------------
(In millions)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Insurance premiums . . . . . . . . . . . . . . . $1,275.3 $ 877.0
Net investment income . . . . . . . . . . . . . . 118.2 89.9
Benefits to policyholders and beneficiaries . . . (275.5) (245.2)
Dividends paid to policyholders . . . . . . . . . (22.3) (18.7)
Insurance expenses and taxes . . . . . . . . . . (296.9) (267.2)
Net transfers to separate accounts . . . . . . . (874.4) (715.2)
Other, net . . . . . . . . . . . . . . . . . . . 551.3 408.9
-------- -------
NET CASH PROVIDED FROM OPERATIONS . . . . . . 475.7 129.5
-------- -------
CASH FLOWS USED IN INVESTING ACTIVITIES:
Bond purchases . . . . . . . . . . . . . . . . . (618.8) (621.6)
Bond sales . . . . . . . . . . . . . . . . . . . 340.7 197.3
Bond maturities and scheduled redemptions . . . . 111.8 34.1
Bond prepayments . . . . . . . . . . . . . . . . 76.5 51.6
Stock purchases . . . . . . . . . . . . . . . . . (23.4) (15.7)
Proceeds from stock sales . . . . . . . . . . . . 1.9 6.7
Real estate purchases . . . . . . . . . . . . . . (4.2) (1.3)
Real estate sales . . . . . . . . . . . . . . . . 2.1 0.4
Other invested assets purchases . . . . . . . . . 0.0 (1.0)
Proceeds from the sale of other invested assets . 0.0 0.3
Mortgage loans issued . . . . . . . . . . . . . . (145.5) (94.5)
Mortgage loan repayments . . . . . . . . . . . . 33.2 32.4
Other, net . . . . . . . . . . . . . . . . . . . (435.2) 393.1
-------- -------
NET CASH USED IN INVESTING ACTIVITIES . . . . (660.9) (18.2)
-------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in short-term note payable . . . . . 61.9 0.0
-------- -------
NET CASH PROVIDED FROM FINANCING ACTIVITIES . 61.9 0.0
-------- -------
(DECREASE) INCREASE IN CASH AND TEMPORARY CASH
INVESTMENTS. . . . . . . . . . . . . . . . . . . . (123.3) 111.3
Cash and temporary cash investments at beginning of
year . . . . . . . . . . . . . . . . . . . . . . . 143.2 31.9
-------- -------
CASH AND TEMPORARY CASH INVESTMENTS AT END OF YEAR $ 19.9 $ 143.2
======== =======
</TABLE>
The accompanying notes are an integral part of the statutory-basis financial
statements.
13
<PAGE>
JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS
NOTE 1--NATURE OF OPERATIONS AND SIGNIFICANT ACCOUNTING PRACTICES
John Hancock Variable Life Insurance Company (the Company) is a wholly-owned
subsidiary of John Hancock Mutual Life Insurance Company (John Hancock). The
Company, domiciled in the Commonwealth of Massachusetts, principally writes
variable and universal life insurance policies. Those policies primarily are
marketed through John Hancock's sales organization, which includes a career
agency system composed of company-owned, unionized branch offices and
independent general agencies. Policies also are sold through various
unaffiliated securities broker-dealers and certain other financial institutions.
Currently, the Company writes business in all states except New York.
The preparation of financial statements requires management to make estimates
and assumptions that affect amounts reported in the financial statements and
accompanying notes. Such estimates and assumptions could change in the future as
more information becomes known, which could impact the amounts reported and
disclosed herein.
Basis of Presentation: The financial statements have been prepared using
accounting practices prescribed or permitted by the Commonwealth of
Massachusetts Division of Insurance and in conformity with the practices of the
National Association of Insurance Commissioners (NAIC), which practices differ
from generally accepted accounting principles (GAAP).
The significant differences from GAAP include: (1) policy acquisition costs are
charged to expense as incurred rather than deferred and amortized over the
related premium-paying period; (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 unassigned deficit rather than consolidated in
the financial statements; (8) no provision is made for the deferred income tax
effects of temporary differences between book and tax basis reporting; and (9)
certain items, including modifications to required policy reserves resulting
from changes in actuarial assumptions, are recorded directly to unassigned
deficit rather than being reflected in income. The effects of the foregoing
variances from GAAP have not been determined but are presumed to be material.
The significant accounting practices of the Company are as follows:
Pending Statutory Standards: During March 1998, the NAIC adopted the
codification of statutory accounting practices, which is effective in 2001.
Codification will likely change, to some extent, prescribed statutory accounting
practices and may result in changes to the accounting practices that the Company
uses to prepare its statutory-basis financial statements. Codification will
require adoption by the various states before it becomes the prescribed
statutory basis of accounting for insurance companies domesticated within those
states. Accordingly, before codification becomes effective for the Company, the
Massachusetts Division of Insurance must adopt codification as the prescribed
basis of accounting on which domestic insurers must report their statutory-basis
results to the Division of Insurance. The impact of any such changes on the
Company's unassigned deficit 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.
14
<PAGE>
JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS--CONTINUED
NOTE 1--NATURE OF OPERATIONS AND SIGNIFICANT ACCOUNTING PRACTICES--CONTINUED
Cash and Temporary Cash Investments: Cash includes currency on hand and demand
deposits with financial institutions. Temporary cash investments are short-term,
highly-liquid investments both readily convertible to known amounts of cash and
so near maturity that there is insignificant risk of changes in value because of
changes in interest rates.
Valuation of Assets: General account investments are carried at amounts
determined on the following bases:
Bond and stock values are carried as prescribed by the NAIC; bonds generally
at amortized amounts or cost, preferred stocks generally at cost and common
stocks at fair value. The discount or premium on bonds is amortized using the
interest method.
Investments in affiliates are included on the statutory equity method.
Loan-backed bonds and structured securities are valued at amortized cost using
the interest method including anticipated prepayments. Prepayment assumptions
are obtained from broker dealer surveys or internal estimates and are based on
the current interest rate and economic environment. The retrospective
adjustment method is used to value all such securities except for
interest-only securities, which are valued using the prospective method.
The net interest effect of interest rate and currency rate swap transactions
is recorded as an adjustment of interest income as incurred. The initial cost
of interest rate cap 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 real estate is carried at depreciated cost, less encumbrances.
Depreciation on investment real estate is recorded on a straight-line basis.
Accumulated depreciation amounted to $3.0 million in 1998 and $2.1 million in
1997.
Real estate acquired in satisfaction of debt and real estate held for sale are
carried at the lower of cost or fair value.
Policy loans are carried at outstanding principal balance, not in excess of
policy cash surrender value.
Asset Valuation and Interest Maintenance Reserves: The Asset Valuation Reserve
(AVR) is computed in accordance with the prescribed NAIC formula and represents
a provision for possible fluctuations in the value of bonds, equity securities,
mortgage loans, real estate and other invested assets. Changes to the AVR are
charged or credited directly to the unassigned deficit.
The Company also records the NAIC prescribed Interest Maintenance Reserve (IMR)
that represents that portion of the after tax net accumulated unamortized
realized capital gains and losses on sales of fixed income securities,
principally bonds and mortgage loans, attributable to changes in the general
level of interest rates. Such gains and losses are deferred and amortized into
income over the remaining expected lives of the investments sold. At December
31, 1998, the IMR, net of 1998 amortization of $2.4 million, amounted to $10.7
million, which is included in policy reserves. The corresponding 1997 amounts
were $1.2 million and $7.8 million, respectively.
Goodwill: The excess of cost over the statutory book value of the net assets of
life insurance business acquired was $11.4 million and $13.1 million at December
31, 1998 and 1997, respectively, and generally is amortized over a ten-year
period using a straight-line method.
15
<PAGE>
JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS--CONTINUED
NOTE 1--NATURE OF OPERATIONS AND SIGNIFICANT ACCOUNTING PRACTICES--CONTINUED
Separate Accounts: Separate account assets and liabilities reported in the
accompanying statements of financial position represent funds that are
separately administered, principally for variable life insurance policies, and
for which the contractholder, rather than the Company, generally bears the
investment risk. Separate account obligations are intended to be satisfied from
separate account assets and not from assets of the general account. Separate
accounts generally are reported at fair value. The operations of the separate
accounts are not included in the statement of operations; however, income earned
on amounts initially invested by the Company in the formation of new separate
accounts is included in other income.
Fair Value Disclosure of Financial Instruments: Statement of Financial
Accounting Standards (SFAS) No. 107, "Disclosure about Fair Value of Financial
Instruments," requires disclosure of fair value information about certain
financial instruments, whether or not recognized in the statement of financial
position, for which it is practicable to estimate the value. In situations where
quoted market prices are not available, fair values are based on estimates using
present value or other valuation techniques. SFAS No. 107 excludes certain
financial instruments and all nonfinancial instruments from its disclosure
requirements. Therefore, the aggregate fair value amounts presented do not
represent the underlying value of the Company. See Note 11.
The methods and assumptions utilized by the Company in estimating its fair value
disclosures for financial instruments are as follows:
The carrying amounts reported in the statement of financial position for cash
and temporary cash investments approximate their fair values.
Fair values for public bonds are obtained from an independent pricing service.
Fair values for private placement securities and publicly traded bonds not
provided by the independent pricing service are estimated by the Company by
discounting expected future cash flows using current market rates applicable
to the yield, credit quality and maturity of the investments.
The fair values for common and preferred stocks, other than its subsidiary
investments, which are carried at equity values, are based on quoted market
prices.
Fair values for futures contracts are based on quoted market prices. Fair
values for interest rate swap, cap agreements, and currency swap agreements
are based on current settlement values. The current settlement values are
based on brokerage quotes that utilize pricing models or formulas using
current assumptions.
The fair value for 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 amount in the statement of financial position for policy loans
approximates their fair value.
The fair value for outstanding commitments to purchase long-term bonds 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, 1998.
Capital Gains and Losses: Realized capital gains and losses are determined using
the specific identification method. Realized capital gains and losses, net of
taxes and amounts transferred to the IMR, are included in net gain or loss.
Unrealized gains and losses, which consist of market value and book value
adjustments, are shown as adjustments to the unassigned deficit.
16
<PAGE>
JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS--CONTINUED
NOTE 1--NATURE OF OPERATIONS AND SIGNIFICANT ACCOUNTING PRACTICES--CONTINUED
Policy Reserves: Life reserves are developed by actuarial methods and are
determined based on published tables using statutorily specified interest rates
and valuation methods that will provide, in the aggregate, reserves that are
greater than or equal to the minimum or guaranteed policy cash values or the
amounts required by the Commonwealth of Massachusetts Division of Insurance.
Reserves for variable life insurance policies are maintained principally on the
modified preliminary term method using the 1958 and 1980 Commissioner's Standard
Ordinary (CSO) mortality tables, with an assumed interest rate of 4% for
policies issued prior to May 1, 1983 and4 1/2% for policies issued on or
thereafter. Reserves for single premium policies are determined by the net
single premium method using the 1958 CSO mortality table, with an assumed
interest rate of 4%. Reserves for universal life policies issued prior to 1985
are equal to the gross account value which at all times exceeds minimum
statutory requirements. Reserves for universal life policies issued from 1985
through 1988 are maintained at the greater of the Commissioner's Reserve
Valuation Method (CRVM) using the 1958 CSO mortality table, with 4 1/2% interest
or the cash surrender value. Reserves for universal life policies issued after
1988 and for flexible variable policies are maintained using the greater of the
cash surrender value or the CRVM method with the 1980 CSO mortality table and5
1/2% interest for policies issued from 1988 through 1992; 5% interest for
policies issued in 1993 and 1994; and4 1/2% interest for policies issued in 1995
through 1998.
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 are
consolidated with John Hancock in filing a consolidated federal income tax
return basis for the affiliated group. The federal income taxes of the Company
are allocated on a separate return basis with certain adjustments. The Company
made payments of $38.2 million in 1998 and $29.6 million in 1997.
Income before taxes differs from taxable income principally due to tax-exempt
investment income, the limitation placed on the tax deductibility of
policyholder dividends, accelerated depreciation, differences in policy reserves
for tax return and financial statement purposes, capitalization of policy
acquisition expenses for tax purposes and other adjustments prescribed by the
Internal Revenue Code.
Amounts for disputed tax issues relating to the prior years are charged or
credited directly to policyholders' contingency reserve.
Adjustments to Policy Reserves: From time to time, the Company finds it
appropriate to modify certain required policy reserves because of changes in
actuarial assumptions. Reserve modifications resulting from such determinations
are recorded directly to stockholder's equity. During 1997, the Company refined
certain actuarial assumptions inherent in the calculation of reserves related to
AIDS claims under individual life insurance policies resulting in a $6.4 million
increase in stockholder's equity at December 31, 1997. No additional refinements
were made during 1998.
Reinsurance: Premiums, commissions, expense reimbursements, benefits and
reserves related to reinsured business are accounted for on bases consistent
with those used in accounting for the original policies issued and the terms of
the reinsurance contracts. Premiums ceded to other companies have been reported
as a reduction of premium income. Amounts applicable to reinsurance ceded for
future policy benefits, unearned premium reserves and claim liabilities have
been reported as reductions of these items.
Reclassification: Certain 1997 amounts have been reclassified to conform to the
1998 presentation.
17
<PAGE>
JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS--CONTINUED
NOTE 2--ACQUISITION
On June 23, 1993, the Company acquired all of the outstanding shares of stock of
Colonial Penn Annuity and Life Insurance Company (CPAL) from Colonial Penn Life
Insurance Company for an aggregate purchase price of approximately $42.5
million. At the date of acquisition, assets of CPAL were approximately $648.5
million, consisting principally of cash and temporary cash investments and
liabilities were approximately $635.2 million, consisting principally of
reserves related to a block of interest sensitive single-premium whole life
insurance business assumed by CPAL from Charter National Life Insurance Company
(Charter). The purchase price includes contingent payments of up to
approximately $7.3 million payable between 1994 and 1998 based on the actual
lapse experience of the business in force on June 23, 1993. The Company made
contingent payments to CPAL of $1.5 million during 1998 and 1997.
On June 24, 1993, the Company contributed $24.6 million in additional capital to
CPAL. CPAL was renamed John Hancock Life Insurance Company of America (JHLICOA)
on July 7, 1993. JHLICOA was subsequently renamed Investors Partner Life Company
(IPL) on March 5, 1998. IPL manages the business assumed from Charter and does
not currently issue new business.
NOTE 3--NET INVESTMENT INCOME
Investment income has been reduced by the following amounts:
<TABLE>
<CAPTION>
1998 1997
------- --------
(In millions)
<S> <C> <C>
Investment expenses . . . . . . . . . . . . . . . . . . . . $ 8.3 $5.0
Interest expense . . . . . . . . . . . . . . . . . . . . . 2.4 0.7
Depreciation expense . . . . . . . . . . . . . . . . . . . 0.8 1.1
Investment taxes . . . . . . . . . . . . . . . . . . . . . 0.7 0.4
----- ----
$12.2 $7.2
===== ====
</TABLE>
NOTE 4--NET CAPITAL GAINS (LOSSES) AND OTHER ADJUSTMENTS
Net realized capital gains (losses) consist of the following items:
<TABLE>
<CAPTION>
1998 1997
------ --------
(In millions)
<S> <C> <C>
Net gains from asset sales . . . . . . . . . . . . . . . . . $ 7.6 $ 0.8
Capital gains tax . . . . . . . . . . . . . . . . . . . . . (2.9) (0.7)
Net capital gains transferred to IMR . . . . . . . . . . . . (5.3) (3.1)
----- -----
Net Realized Capital Losses . . . . . . . . . . . . . . . $(0.6) $(3.0)
===== =====
</TABLE>
Net unrealized capital (losses) gains and other adjustments consist of the
following items:
<TABLE>
<CAPTION>
1998 1997
--------------- --------
(In millions)
<S> <C> <C>
Net (losses) gains from changes in security values
and book value adjustments . . . . . . . . . . . . $ (2.7) $ 7.0
Increase in asset valuation reserve . . . . . . . . (3.3) (2.0)
-------------- -----
Net Unrealized Capital (Losses) Gains and Other
Adjustments . . . . . . . . . . . . . . . . . . $ (6.0) $ 5.0
============== =====
</TABLE>
18
<PAGE>
JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS--CONTINUED
NOTE 5--TRANSACTIONS WITH PARENT
The Company's Parent provides the Company with personnel, property and
facilities in carrying out certain of its corporate functions. The Parent
annually determines a fee for these services and facilities based on a number of
criteria which were revised in 1998 and 1997 to reflect continuing changes in
the Company's operations. The amount of the service fee charged to the Company
was $157.5 million and $123.6 million in 1998 and 1997, respectively, which has
been included in insurance and investment expenses. The Parent has guaranteed
that, if necessary, it will make additional capital contributions to prevent the
Company's stockholder's equity from declining below $1.0 million.
The service fee charged to the Company by the Parent includes $0.7 million and
$0.9 million in 1998 and 1997, respectively, representing the portion of the
provision for retiree benefit plans determined under the accrual method,
including a provision for the 1993 transition liability which is being amortized
over twenty years, that was allocated to the Company.
The Company has a modified coinsurance agreement with John Hancock to reinsure
50% of 1994 through 1998 issues of flexible premium variable life insurance and
scheduled premium variable life insurance policies. In connection with this
agreement, John Hancock transferred $4.9 million and $22.0 million of cash for
tax, commission, and expense allowances to the Company, which increased the
Company's net gain from operations by $22.2 million and $10.1 million in 1998
and 1997, respectively.
The Company also has a modified coinsurance agreement with John Hancock to
reinsure 50% of 1995 through 1998 issues of certain retail annuity contracts
(Independence Preferred and Declaration). In connection with this agreement, the
Company received a net cash payment of $12.7 million in 1998 and made a net cash
payment of $1.1 million in 1997 for surrender benefits, tax, reserve increase,
commission, expense allowances and premium. This agreement increased the
Company's net gain from operations by $8.4 million and $9.8 million in 1998 and
1997, respectively.
Effective January 1, 1997, the Company entered into a stop-loss agreement with
John Hancock to reinsure mortality claims in excess of 110% of expected
mortality claims in 1998 and 1997 for all policies that are not reinsured under
any other indemnity agreement. In connection with the agreement, John Hancock
received $1.0 million in 1998 and transferred $2.4 million in 1997 of cash for
mortality claims to the Company, which decreased by $0.5 million and increased
by $1.3 million the Company's net gain from operations in 1998 and 1997,
respectively.
At December 31, 1998, the Company had outstanding a short-term note of $61.9
million payable to an affiliate at a variable rate of interest. The note is part
of a revolving line of credit. Interest paid in 1998 was $2.9 million. The note
is included in other general account obligations.
19
<PAGE>
JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS--CONTINUED
NOTE 6--INVESTMENTS
The statement value and fair value of bonds are shown below:
<TABLE>
<CAPTION>
Gross Gross
Statement Unrealized Unrealized Fair
December 31, 1998 Value Gains Losses Value
----------------- --------- ---------- ---------- ----------
(In millions)
<S> <C> <C> <C> <C>
U.S. Treasury securities and
obligations of U.S. government
corporations and agencies . . $ 5.1 $ 0.1 $ 0.0 $ 5.2
Obligations of states and
political subdivisions . . . . 3.2 0.3 0.0 3.5
Corporate securities . . . . . 925.2 50.4 15.0 960.6
Mortgage-backed securities . . 252.3 10.0 0.1 262.2
-------- ----- ----- --------
Total bonds . . . . . . . . . $1,185.8 $60.8 $15.1 $1,231.5
======== ===== ===== ========
</TABLE>
<TABLE>
<CAPTION>
December 31, 1997
-----------------
<S> <C> <C> <C> <C>
U.S. Treasury securities and obligations of
U.S. government corporations and agencies . $254.5 $ 0.2 $0.1 $ 254.6
Obligations of states and political
subdivisions. . . . . . . . . . . . . . . . 12.1 1.0 0.0 13.1
Debt securities issued by foreign governments 0.2 0.0 0.0 0.2
Corporate securities . . . . . . . . . . . . 712.7 43.9 2.7 753.9
Mortgage-backed securities . . . . . . . . . 113.2 3.5 0.0 116.7
------ ----- ---- --------
Total bonds . . . . . . . . . . . . . . . $254.5 $48.6 $2.8 $1,138.5
====== ===== ==== ========
</TABLE>
The statement value and fair value of bonds at December 31, 1998, 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 . . . . . . . . . . . . . . . . $ 57.3 $ 59.1
Due after one year through five years . . . . . . . . . 283.4 294.1
Due after five years through ten years . . . . . . . . 374.9 388.7
Due after ten years . . . . . . . . . . . . . . . . . . 217.9 227.4
-------- --------
933.5 969.3
Mortgage-backed securities . . . . . . . . . . . . . . 252.3 262.2
-------- --------
$1,185.8 $1,231.5
======== ========
</TABLE>
Gross gains of $3.4 million in 1998 and $1.1 million in 1997 and gross losses of
$0.7 million in 1998 and $4.5 million in 1997 were realized from the sale of
bonds.
At December 31, 1998, bonds with an admitted asset value of $8.6 million were on
deposit with state insurance departments to satisfy regulatory requirements.
The cost of common stocks was $2.1 million and $0.0 million at December 31, 1998
and 1997, respectively. At December 31, 1998, gross unrealized appreciation on
common stocks totaled $1.3 million, and gross unrealized depreciation totaled
$0.3 million. The fair value of preferred stock totaled $36.5 million at
December 31, 1998 and $17.2 million at December 31, 1997.
20
<PAGE>
JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS--CONTINUED
NOTE 6--INVESTMENTS--CONTINUED
Bonds with amortized cost of $0.9 million were non-income producing for the
twelve months ended December 31, 1998.
At December 31, 1998, 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>
Statement Geographic Statement
Property Type Value Concentration Value
------------- --------- ------------- ---------
(In millions) (In millions)
<S> <C> <C> <C>
Apartments . . . . . $106.4 East North Central . $ 56.4
Hotels . . . . . . . 9.6 East South Central . 0.9
Industrial . . . . . 71.9 Middle Atlantic . . . 26.2
Office buildings . . 78.2 Mountain . . . . . . 27.5
Retail . . . . . . . 29.6 New England . . . . . 36.9
Agricultural . . . . 71.5 Pacific . . . . . . . 96.4
Other . . . . . . . . 20.9 South Atlantic . . . 83.8
West North Central . 13.1
West South Central . 43.3
Other . . . . . . . . 3.6
------ ------
$388.1 $388.1
====== ======
</TABLE>
At December 31, 1998, the fair values of the commercial and agricultural
mortgage loans portfolios were $331.3 million and $70.0 million, respectively.
The corresponding amounts as of December 31, 1997 were approximately $243.8
million and $42.0 million, respectively.
The maximum and minimum lending rates for mortgage loans during 1998 were 9.19%
and 6.82% for agricultural loans and 8.88% and 6.56% for other properties.
Generally, the maximum 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
The Company cedes business to reinsurers to share risks under variable life,
universal life and flexible variable life insurance policies for the purpose of
reducing exposure to large losses. Premiums, benefits and reserves ceded to
reinsurers in 1998 were $590.2 million, $21.5 million, and $8.2 million,
respectively. The corresponding amounts in 1997 were $427.4 million, $18.3
million, and $10.1 million, respectively.
21
<PAGE>
JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS--CONTINUED
NOTE 7--REINSURANCE--CONTINUED
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 reinsurer.
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, 1998 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--FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK
The notional amounts, carrying values and estimated fair values of the Company's
derivative instruments were as follows at December 31:
<TABLE>
<CAPTION>
Assets (Liabilities)
Number of Contracts/ ---------------------------------------
Notional Amounts 1998 1997
--------------------- --------------------- ----------------
Carrying Fair Carrying Fair
1998 1997 Value Value Value Value
---------- ---------- ---------- --------- -------- --------
($ In millions)
<S> <C> <C> <C> <C> <C> <C>
Futures contracts to
sell securities . . 947 367 $(0.5) $ (0.5) $(0.4) $(0.4)
Interest rate swap
agreements . . . . . $365.0 $245.0 -- (17.7) -- (7.8)
Interest rate cap
agreements . . . . . 89.4 89.4 3.1 3.1 1.4 1.4
Currency rate swap
agreements . . . . . 15.8 14.3 -- (3.3) -- (2.1)
</TABLE>
The Company uses futures contracts, interest rate swap, cap agreements, and
currency rate swap agreements for other than trading purposes to hedge and
manage its exposure to changes in interest rate levels, foreign exchange rate
fluctuations and to manage duration mismatch of assets and liabilities.
The futures contracts expire in 1999. The interest rate swap agreements expire
in 1999 to 2009. The interest rate cap agreements expire in 2006 to 2007. The
currency rate swap agreements expire in 2006 to 2009.
The Company's exposure to credit risk is the risk of loss from a counterparty
failing to perform to the terms of the contract. The Company continually
monitors its position and the credit ratings of the counterparties to these
derivative instruments. To limit exposure associated with counterparty
nonperformance on interest rate and currency swap agreements, the Company enters
into master netting agreements with its counterparties. The Company believes the
risk of incurring losses due to nonperformance by its counterparties is remote
and that such losses, if any, would be immaterial. Futures contracts trade on
organized exchanges and, therefore, have minimal credit risk.
22
<PAGE>
JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS--CONTINUED
NOTE 9--POLICY RESERVES, POLICYHOLDERS' AND BENEFICIARIES' FUNDS AND OBLIGATIONS
RELATED TO SEPARATE ACCOUNTS
The Company's annuity reserves and deposit fund liabilities that are subject to
discretionary withdrawal, with and without adjustment, are summarized as
follows:
<TABLE>
<CAPTION>
December 31, 1998 Percent
----------------- ---------
(In millions)
<S> <C> <C>
Subject to discretionary withdrawal (with
adjustment)
With market value adjustment . . . . . . . . . $ 0.9 0.1%
At book value less surrender charge . . . . . 1,677.9 88.8
-------- -----
Total with adjustment . . . . . . . . . . . 1,678.8 88.9
Subject to discretionary withdrawal at book value
(without adjustment) . . . . . . . . . . . . . 203.6 10.8
Not subject to discretionary withdrawal--general
account . . . . . . . . . . . . . . . . . . . . 6.5 0.3
-------- -----
Total annuity reserves and deposit
liabilities. . . . . . . . . . . . . . . . $1,888.9 100.0%
======== =====
</TABLE>
NOTE 10--COMMITMENTS AND CONTINGENCIES
The Company has extended commitments to purchase long-term bonds and issue real
estate mortgages totaling $5.9 million and $24.8 million, respectively, at
December 31, 1998. The Company monitors the creditworthiness of borrowers under
long-term bond commitments and requires collateral as deemed necessary. If
funded, loans related to real estate mortgages would be fully collateralized by
the related properties. The estimated fair value of the commitments described
above is $32.1 million at December 31, 1998. The majority of these commitments
expire in 1999.
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, 1998. 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.
23
<PAGE>
JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS--CONTINUED
NOTE 11--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
---------------------------------------------
1998 1997
----------------------- -------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
----------- ----------- --------- -----------
(In millions)
<S> <C> <C> <C> <C>
Assets
Bonds--Note 6 . . . . . . $1,185.8 $1,231.5 $1,092.7 $1,138.5
Preferred stocks--Note 6 . 36.5 36.5 17.2 17.2
Common stocks--Note 6 . . 3.1 3.1 2.3 2.3
Mortgage loans on real
estate--Note 6 . . . . . 388.1 401.3 273.9 285.8
Policy loans--Note 1 . . . 137.7 137.7 106.8 106.8
Cash and cash
equivalents--Note 1 . . 19.9 19.9 143.2 143.2
Derivatives assets
(liabilities) relating
to:--Note 8
Futures contracts . . . . (0.5) (0.5) (0.4) (0.4)
Interest rate swaps . . . -- (17.7) -- (7.8)
Currency rate swaps . . . -- (3.3) -- (2.1)
Interest rate caps . . . . 3.1 3.1 1.4 1.4
Liabilities
Commitments--Note 10 . . . -- 32.1 -- 194.5
</TABLE>
The carrying amounts in the table are included in the statutory-basis statements
of financial position. The method and assumptions utilized by the Company in
estimating its fair value disclosures are described in Note 1.
NOTE 12--IMPACT OF YEAR 2000 (UNAUDITED)
The Company relies on John Hancock, its parent company, for information
processing services. John Hancock is executing its plan to address the impact of
the Year 2000 issues that result from computer programs being written using two
digits to reflect the year rather than four to define the applicable year and
century. Historically, the first two digits were hardcoded to save memory. Many
of John Hancock's computer programs that have date-sensitive software, including
those relied upon by the Company, may recognize a date using "00" as the year
1900 rather than the year 2000. This could result in an information technology
(IT) system failure or miscalculations causing disruptions of operations,
including, among other things, a temporary inability to process transactions,
send invoices or engage in similar normal business activities. In addition,
non-IT systems including, but not limited to, security alarms, elevators and
telephones are subject to malfunction due to their dependence on embedded
technology such as microcontrollers for proper operation. As described, the Year
2000 project presents a number of challenges for financial institutions since
the correction of Year 2000 issues in IT and non-IT systems will be complex and
costly for the entire industry.
John Hancock began to address the Year 2000 project as early as 1994. John
Hancock's plan to address the Year 2000 Project includes an awareness campaign,
an assessment period, a renovation stage, validation work and an implementation
of Company solutions.
The continuous awareness campaign serves several purposes: defining the problem,
gaining executive level support and sponsorship, establishing a team and overall
strategy, and assessing existing information system management resources.
Additionally, the awareness campaign establishes an education process to ensure
that all employees are aware of the Year 2000 issue and knowledgeable of their
role in securing solutions.
24
<PAGE>
JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS--CONTINUED
NOTE 12--IMPACT OF YEAR 2000 (UNAUDITED)--CONTINUED
The assessment phase, which was completed for both IT and non-IT systems as of
April 1998, included the identification, inventory, analysis, and prioritization
of IT and non-IT systems and processes to determine their conversion or
replacement.
The renovation stage reflects the conversion, validation, replacement, or
elimination of selected platforms, applications, databases and utilities,
including the modification of applicable interfaces. Additionally, the
renovation stage includes performance, functionality, and regression testing and
implementation. As of December 31, 1998, the renovation phase was substantially
complete for computer applications, systems and desktops. For all remaining
components, the renovation phase is underway and will be complete before the end
of the second quarter of 1999.
The validation phase consists of the compliance testing of renovated systems.
The validation phase is expected to be complete by mid 1999, after renovation is
accomplished. Testing facilities will be used through the remainder of 1999 to
perform special functional testing. Special functional testing includes testing,
as required, with material third parties and industry groups and performing
reviews of "dry runs" of year-end activities. Scheduled testing of material
relationships with third parties, including those impacting the Company, is
underway. It is anticipated that testing with material business partners will
continue through much of 1999.
Finally, the implementation phase involves the actual implementation of
converted or replaced platforms, applications, databases, utilities, interfaces,
and contingency planning. Implementation is being performed concurrently during
the renovation phase and is expected to be completed before the end of the
second quarter of 1999.
The costs of the Year 2000 project consist of internal IT personnel and external
costs such as consultants, programmers, replacement software, and hardware. The
costs of the Year 2000 project are expensed as incurred. The project is funded
partially through a reallocation of resources from discretionary projects.
Through December 31, 1998, John Hancock has incurred and expensed approximately
$9.8 million in related payroll costs for its internal IT personnel on the
project. The estimated range of remaining internal IT personnel costs of the
project is approximately $8 to $9 million. Through December 31, 1998, John
Hancock has incurred and expensed approximately $36.4 million in external costs
for the project. The estimated range of remaining external costs of the project
is approximately $35 to $36 million. The total costs of the Year 2000 project to
John Hancock, based on management's best estimates, include approximately $18
million in internal IT personnel, $7.4 million in the external modification of
software, $34.2 million for external solution providers, $19.4 million in
replacement costs of non-compliant IT systems and $12.6 million in oversight,
test facilities and other expenses. Accordingly, the estimated range of total
costs of the Year 2000 project to John Hancock, internal and external, is
approximately $90 to $95 million. However, there can be no guarantee that these
estimates will be achieved and actual results could materially differ from those
plans. Specific factors that might cause such material differences include, but
are not limited to, the availability and cost of personnel trained in this area,
the ability to locate and correct all relevant computer codes, and similar
uncertainties.
25
<PAGE>
JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS--CONTINUED
NOTE 12--IMPACT OF YEAR 2000 (UNAUDITED)--CONTINUED
John Hancock's total Year 2000 project costs include the estimated impact of
external solution providers and are based on presently available information.
However, there is no guarantee that the systems of other companies that John
Hancock's systems rely on will be timely converted, or that a failure to convert
by another company, or a conversion that is incompatible with John Hancock's
systems, including those upon which the Company relies, would not have material
adverse effect on John Hancock or the Company. It is documented in trade
publications that companies in foreign countries are not acting as intensively
as domestic companies to remediate Year 2000 issues. Accordingly, it is expected
that Company facilities based outside the United States face higher degrees of
risks from data exchanges with material business partners. In addition, the
Company has numerous customers that hold products of the Company. Nearly all
products sold by the Company contain date sensitive data, examples of which are
policy expiration dates, birth dates and premium payment dates. Finally, the
regulated nature of the Company's industry exposes it to potential supervisory
or enforcement actions relating to Year 2000 issues.
John Hancock's contingency planning initiative related to the Year 2000 project
is underway. The plan is addressing John Hancock's readiness as well as that of
material business partners on whom John Hancock and the Company depend. John
Hancock's contingency plans are being designed to keep each subsidiary's
operations functioning in the event of a failure or delay due to the Year 2000
record format and date calculation changes. Contingency plans are being
constructed based on the foundation of extensive business resumption plans that
John Hancock has maintained and updated periodically, which outline responses to
situations that may affect critical business functions. These plans also provide
emergency operations guidance, which defines a documented order of actions to
respond to problems. These extensive business resumption plans are being
enhanced to cover Year 2000 situations.
26
<PAGE>
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
Contractowners
John Hancock Variable Annuity Account I of John Hancock Variable Life Insurance
Company
We have audited the accompanying statement of assets and liabilities of John
Hancock Variable Annuity Account I (the Account) (comprising, respectively, the
Large Cap Growth, Sovereign Bond, Emerging Markets Equity, International Equity
Index (formerly, International Equities), Global Equity, Small Cap Growth,
International Balanced, Mid Cap Growth, Large Cap Value, Money Market, Mid Cap
Value, Diversified Mid Cap Growth (formerly, Special Opportunities), Bond Index,
Small/Mid Cap CORE, Real Estate Equity, Growth & Income, Managed, Short-Term
Bond (formerly, Short-Term U.S. Government), Small Cap Value, International
Opportunities, Equity Index, High Yield Bond, and Strategic Bond Subaccounts) as
of December 31, 1998, and the related statements of operations for the year then
ended, and statements of changes in net assets for each of the periods indicated
therein. These financial statements are the responsibility of the Account's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of each of the respective
subaccounts constituting John Hancock Variable Annuity Account I at December 31,
1998, the results of their operations for the year then ended and the changes in
their net assets for each of the periods indicated, in conformity with generally
accepted accounting principles.
ERNST & YOUNG LLP
Boston, Massachusetts
February 10, 1999
27
<PAGE>
JOHN HANCOCK VARIABLE ANNUITY ACCOUNT I
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1998
<TABLE>
<CAPTION>
EMERGING
LARGE SOVEREIGN MARKETS INTERNATIONAL GLOBAL SMALL CAP
CAP GROWTH BOND EQUITY EQUITY INDEX EQUITY GROWTH
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
------------ ------------ ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Investment in shares of portfolios of John
Hancock Variable Series Trust I, at value $182,907,548 $119,873,269 $ 2,316 $21,852,953 $ 175,224 $28,534,427
Receivable from John Hancock Variable
Series Trust I . . . . . . . . . . . . . 204,147 76,176 -- 31,320 7 10,149
------------ ------------ ------------- ----------- ------------- -----------
Total assets . . . . . . . . . . . . . . . 183,111,695 119,949,445 2,316 21,884,273 175,231 28,544,576
LIABILITIES
Payable to John Hancock Variable Life
Insurance Company . . . . . . . . . . . . 196,742 71,318 -- 30,435 9,019
Assets charges payable . . . . . . . . . . 7,405 4,859 -- 885 7 1,131
------------ ------------ ------------- ----------- ------------- -----------
Total liabilities . . . . . . . . . . . . 204,147 76,177 -- 31,320 7 10,150
------------ ------------ ------------- ----------- ------------- -----------
Net assets . . . . . . . . . . . . . . . . $182,907,548 $119,873,268 $ 2,316 $21,852,953 $ 175,224 $28,534,426
============ ============ ============= =========== ============= ===========
</TABLE>
<TABLE>
<CAPTION>
DIVERSIFIED
INTERNATIONAL MID CAP LARGE CAP MONEY MID CAP MID CAP
BALANCED GROWTH VALUE MARKET VALUE GROWTH
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
------------- ----------- ----------- ----------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Investment in shares of portfolios of John
Hancock Variable Series Trust I, at value . $8,076,543 $42,447,554 $59,217,888 $80,100,181 $33,912,965 $62,286,493
Receivable from John Hancock Variable Series
Trust I . . . . . . . . . . . . . . . . . . 15,289 26,382 34,867 1,458,519 28,255 21,725
------------- ----------- ----------- ----------- ----------- -----------
Total assets . . . . . . . . . . . . . . . . 8,091,832 42,473,936 59,252,755 81,558,700 33,941,220 62,308,218
LIABILITIES
Payable to John Hancock Variable Life
Insurance Company . . . . . . . . . . . . . 14,961 24,727 32,472 1,455,359 26,906 19,241
Assets charges payable . . . . . . . . . . . 327 1,655 2,394 3,160 1,349 2,483
---------- ----------- ----------- ----------- ----------- -----------
Total liabilities . . . . . . . . . . . . . 15,288 26,382 34,866 1,458,519 28,255 21,724
---------- ----------- ----------- ----------- ----------- -----------
Net assets . . . . . . . . . . . . . . . . . $8,076,544 $42,447,554 $59,217,889 $80,100,181 $33,912,965 $62,286,494
========== =========== =========== =========== =========== ===========
</TABLE>
See accompanying notes.
28
<PAGE>
JOHN HANCOCK VARIABLE ANNUITY ACCOUNT I
STATEMENT OF ASSETS AND LIABILITIES (CONTINUED)
DECEMBER 31, 1998
<TABLE>
<CAPTION>
BOND SMALL/MID REAL ESTATE GROWTH AND SHORT-TERM
INDEX CAP CORE EQUITY INCOME MANAGED BOND
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
---------- ---------- ----------- ------------ ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Investment in shares
of portfolios of John
Hancock Variable
Series Trust I, at
value. . . . . . . . $55,800 $65,851 $20,280,578 $477,723,436 $503,203,867 $28,989,913
Receivable from John
Hancock Variable
Series Trust I . . . 2 2 3,087 265,848 317,216 27,182
------- ------- ----------- ------------ ------------ -----------
Total assets . . . . 55,802 65,853 20,283,665 477,989,284 503,521,083 29,017,095
LIABILITIES
Payable to John
Hancock Variable Life
Insurance Company . -- -- 2,267 246,398 296,735 26,006
Assets charges payable 2 2 819 19,450 20,481 1,176
------- ------- ----------- ------------ ------------ -----------
Total liabilities . . 2 2 3,086 265,848 317,216 27,182
------- ------- ----------- ------------ ------------ -----------
Net assets . . . . . $55,800 $65,851 $20,280,579 $477,723,436 $503,203,867 $28,989,913
======= ======= =========== ============ ============ ===========
</TABLE>
<TABLE>
<CAPTION>
SMALL CAP INTERNATIONAL EQUITY HIGH-YIELD STRATEGIC
VALUE OPPORTUNITIES INDEX BOND BOND
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
----------- ------------- ----------- ---------- -------------
<S> <C> <C> <C> <C> <C>
ASSETS
Investment in shares
of portfolios of John
Hancock Variable
Series Trust I, at
value. . . . . . . . $23,710,684 $12,490,401 $82,770,312 $277,340 $38,326,070
Receivable from John
Hancock Variable
Series Trust I . . . 21,937 10,043 110,361 5,005 39,942
----------- ----------- ----------- -------- -----------
Total assets . . . . 23,732,621 12,500,444 82,880,673 282,345 38,366,012
LIABILITIES
Payable to John
Hancock Variable Life
Insurance
Company . . . . . . 20,996 9,536 107,003 4,994 38,397
Assets charges payable 940 507 3,358 11 1,545
----------- ----------- ----------- -------- -----------
Total liabilities . . 21,936 10,043 110,361 5,005 39,942
----------- ----------- ----------- -------- -----------
Net assets . . . . . $23,710,685 $12,490,401 $82,770,312 $277,340 $38,326,070
=========== =========== =========== ======== ===========
</TABLE>
See accompanying notes.
29
<PAGE>
JOHN HANCOCK VARIABLE ANNUITY ACCOUNT I
STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
EMERGING
LARGE CAP SOVEREIGN MARKETS INTERNATIONAL GLOBAL SMALL
GROWTH BOND EQUITY EQUITY INDEX EQUITY CAP GROWTH
SUBACCOUNT SUBACCOUNT SUBACCOUNT* SUBACCOUNT SUBACCOUNT* SUBACCOUNT
----------- ------------ -------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Investment income:
Distributions received from the portfolios
of John Hancock Variable Series Trust I $17,754,123 $ 7,843,366 $ 2 $3,340,103 $ 183 $ --
Expenses:
Mortality and expense risks . . . . . . . 1,957,623 1,339,727 1 279,086 116 318,286
----------- ----------- -------------- ---------- ------------- ----------
Net investment income (loss) . . . . . . . 15,796,500 6,503,639 1 3,061,017 67 (318,286)
Net realized and unrealized gain (loss) on
investments:
Net realized gain . . . . . . . . . . . . 596,880 19,842 -- 46,800 2 140,102
Net unrealized appreciation (depreciation)
during the year . . . . . . . . . . . . 26,342,906 (885,688) 52 53,878 5,970 3,283,665
----------- ----------- -------------- ---------- ------------- ----------
Net realized and unrealized gain (loss) on
investments . . . . . . . . . . . . . . . 26,939,786 (865,846) 52 100,678 5,972 3,423,767
----------- ----------- -------------- ---------- ------------- ----------
Net increase in net assets resulting from
operations . . . . . . . . . . . . . . . $42,736,286 $ 5,637,793 $ 53 $3,161,695 $ 6,039 $3,105,481
=========== =========== ============== ========== ============= ==========
</TABLE>
<TABLE>
<CAPTION>
INTERNATIONAL MID CAP LARGE MONEY MID CAP DIVERSIFIED MID
BALANCED GROWTH CAP VALUE MARKET VALUE CAP GROWTH
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
------------- ----------- ---------- ---------- ------------ -----------------
-------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Investment income:
Distributions received from the portfolios of
John Hancock Variable Series Trust I . . . $ 511,835 $ 3,757,540 $3,049,382 $3,114,820 $ 290,965 $1,182,556
Expenses:
Mortality and expense risks . . . . . . . . 98,795 404,450 708,823 873,234 464,827 939,491
---------- ----------- ---------- ---------- ----------- ----------
Net investment income (loss) . . . . . . . . 413,040 3,353,090 2,340,559 2,241,586 (173,862) 243,065
Net realized and unrealized gain (loss) on
investments:
Net realized gain . . . . . . . . . . . . . 53,934 267,464 479,238 -- 287,952 539,743
Net unrealized appreciation (depreciation)
during the year . . . . . . . . . . . . . . 534,703 6,598,290 548,590 -- (5,262,197) 1,329,837
---------- ----------- ---------- ---------- ----------- ----------
Net realized and unrealized gain (loss) on
investments. . . . . . . . . . . . . . . . . 588,637 6,865,754 1,027,828 -- (4,974,245) 1,869,580
---------- ----------- ---------- ---------- ----------- ----------
Net increase (decrease) in net assets
resulting from operations . . . . . . . . . $1,001,677 $10,218,844 $3,368,387 $2,241,586 $(5,148,107) $2,112,645
========== =========== ========== ========== =========== ==========
</TABLE>
- ---------
* From May 1, 1998 (commencement of operations).
See accompanying notes.
30
<PAGE>
JOHN HANCOCK VARIABLE ANNUITY ACCOUNT I
STATEMENT OF OPERATIONS (CONTINUED)
YEAR ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
BOND SMALL/MID REAL ESTATE GROWTH & SHORT-TERM
INDEX CAP CORE EQUITY INCOME MANAGED BOND
SUBACCOUNT* SUBACCOUNT* SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
----------- ----------- ------------ ----------- ----------- -------------
-------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Investment income:
Distributions
received from the
portfolios of John
Hancock Variable
Series Trust I . . $ 821 $ -- $ 1,426,346 $46,369,017 $46,150,491 $1,443,364
Expenses:
Mortality and expense
risks . . . . . . . 27 30 357,645 5,521,732 6,074,138 350,189
----- ------ ----------- ----------- ----------- ----------
Net investment income
(loss) . . . . . . . 794 (30) 1,068,701 40,847,285 40,076,353 1,093,175
Net realized and
unrealized gain
(loss) on
investments:
Net realized gain
(loss). . . . . . . -- -- 452,751 2,147,226 520,784 (2,851)
Net unrealized
appreciation
(depreciation)
during the year . . (594) 4,111 (6,429,350) 49,182,595 28,631,287 (149,541)
----- ------ ----------- ----------- ----------- ----------
Net realized and
unrealized gain
(loss) on investments (594) 4,111 (5,976,599) 51,329,820 29,152,071 (152,392)
----- ------ ----------- ----------- ----------- ----------
Net increase
(decrease) in net
assets resulting from
operations . . . . . $ 200 $4,081 $(4,907,898) $92,177,100 $69,228,424 $ 940,783
===== ====== =========== =========== =========== ==========
</TABLE>
<TABLE>
<CAPTION>
SMALL CAP INTERNATIONAL EQUITY STRATEGIC HIGH-YIELD
VALUE OPPORTUNITIES INDEX BOND BOND
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT*
------------ ------------- ----------- ---------- -------------
-------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Investment income:
Distributions
received from the
portfolios of John
Hancock
Variable Series
Trust I . . . . . . $ 128,297 $ 100,807 $ 2,203,164 $1,618,543 $ 1,870
Expenses:
Mortality and expense
risks . . . . . . . 301,602 167,161 869,509 398,482 227
----------- ---------- ----------- ---------- -------
Net investment income
(loss) . . . . . . . (173,305) (66,354) 1,333,655 1,220,061 1,643
Net realized and
unrealized gain
(loss) on
investments:
Net realized gain . 118,285 309,499 863,280 67,380 --
Net unrealized
appreciation
(depreciation)
during the year . . (1,752,884) 1,065,442 11,492,991 680,647 (2,081)
----------- ---------- ----------- ---------- -------
Net realized and
unrealized gain
(loss) on investments (1,634,599) 1,374,941 12,356,271 748,027 (2,081)
----------- ---------- ----------- ---------- -------
Net increase in net
assets resulting from
operations . . . . . $(1,807,904) $1,308,587 $13,689,926 $1,968,088 $ (438)
=========== ========== =========== ========== =======
</TABLE>
- ---------
* From May 1, 1998 (commencement of operations).
See accompanying notes.
31
<PAGE>
JOHN HANCOCK VARIABLE ANNUITY ACCOUNT I
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE YEARS AND PERIODS ENDED DECEMBER 31,
<TABLE>
<CAPTION>
EMERGING
LARGE CAP MARKETS
GROWTH SOVEREIGN BOND EQUITY
SUBACCOUNT SUBACCOUNT SUBACCOUNT
-------------------------- -------------------------- ---------------
1998 1997 1998 1997 1998*
------------- ------------ ------------- ------------ ---------------
<S> <C> <C> <C> <C> <C>
Increase (decrease) in
net assets:
From operations:
Net investment
income . . . . . . $ 15,796,500 $ 7,137,066 $ 6,503,639 $ 3,113,329 $ 1
Net realized gain
(loss) . . . . . . 596,880 786,514 19,842 (3,859) --
Net unrealized
appreciation
(depreciation)
during the period 26,342,906 7,796,536 (885,688) 855,328 52
------------ ----------- ------------ ----------- -------------
Net increase in net
assets resulting from
operations . . . . . 42,736,286 15,720,116 5,637,793 3,964,798 53
From contractowner
transactions:
Net premiums from
contractowners. . . 61,255,494 41,496,489 60,608,173 34,628,042 2,263
Net benefits to
contractowners. . . (12,883,332) (8,939,960) (10,974,922) (6,879,517) --
------------ ----------- ------------ ----------- -------------
Net increase in net
assets from
contractowner
transactions . . . . 48,573,825 32,556,529 49,633,251 27,748,525 2,263
------------ ----------- ------------ ----------- -------------
Net increase in net
assets . . . . . . . 91,310,111 48,276,645 55,271,044 31,713,323 2,316
Net assets at
beginning of period 91,597,437 43,320,792 64,602,224 32,888,901 0
------------ ----------- ------------ ----------- -------------
Net assets at end of
period . . . . . . . $182,907,548 $91,597,437 $119,873,268 $64,602,224 $ 2,316
============ =========== ============ =========== =============
</TABLE>
<TABLE>
<CAPTION>
INTERNATIONAL GLOBAL SMALL CAP
EQUITY INDEX EQUITY GROWTH
SUBACCOUNT SUBACCOUNT SUBACCOUNT
------------------------- ---------- -------------------------
1998 1997 1998* 1998 1997
------------ ------------ ---------- ------------ --------------
<S> <C> <C> <C> <C> <C>
Increase (decrease) in
net assets:
From operations:
Net investment
income (loss) . . $ 3,061,017 $ 544,154 $ 67 $ (318,286) $ (170,394)
Net realized gain
(loss) . . . . . . 46,800 288,859 2 140,102 (215)
Net unrealized
appreciation
(depreciation)
during the period 53,878 (1,921,926) 5,970 3,283,665 1,522,136
----------- ----------- -------- ----------- -----------
Net increase
(decrease) in net
assets resulting from
operations . . . . . 3,161,695 (1,088,913) 6,039 3,105,481 1,351,527
From contractowner
transactions:
Net premiums from
contractowners. . . 5,810,313 9,017,873 151,858 10,489,045 11,681,427
Net benefits to
contractowners. . . (2,686,378) (3,672,073) (17,327) (2,750,799) (1,694,340)
----------- ----------- -------- ----------- -----------
Net increase in net
assets from
contractowner
transactions . . . . 3,123,935 5,345,800 169,185 7,738,246 9,987,087
----------- ----------- -------- ----------- -----------
Net increase in net
assets . . . . . . . 6,285,630 4,256,887 175,224 10,843,727 11,338,614
Net assets at
beginning of period 15,567,323 11,310,436 0 17,690,699 6,352,085
----------- ----------- -------- ----------- -----------
Net assets at end of
period . . . . . . . $21,852,953 $15,567,323 $175,224 $28,534,426 $17,690,699
=========== =========== ======== =========== ===========
</TABLE>
- ---------
* From May 1, 1998 (commencement of operations).
See accompanying notes.
32
<PAGE>
JOHN HANCOCK VARIABLE ANNUITY ACCOUNT I
STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED)
FOR THE YEARS AND PERIODS ENDED DECEMBER 31,
<TABLE>
<CAPTION>
INTERNATIONAL MID CAP LARGE CAP
BALANCED GROWTH VALUE
SUBACCOUNT SUBACCOUNT SUBACCOUNT
-------------------------- ------------------------- --------------------------
1998 1997 1998 1997 1998 1997
------------ ------------- ------------ ------------ ------------ ---------------
<S> <C> <C> <C> <C> <C> <C>
Increase in net assets:
From operations:
Net investment income (loss) . . . . . . $ 413,040 $ 181,845 $ 3,353,090 $ (174,873) $ 2,340,559 $ 1,058,702
Net realized gain . . . . . . . . . . . 53,934 32,991 267,464 13,737 479,238 101,006
Net unrealized appreciation
(depreciation) during the period . . . 534,703 (243,991) 6,598,290 2,369,233 548,590 3,430,516
----------- ------------ ----------- ----------- ----------- ------------
Net increase (decrease) in net assets
resulting from operations . . . . . . . . 1,001,677 (29,155) 10,218,844 2,208,097 3,368,387 4,590,224
From contractowner transactions:
Net premiums from contractowners . . . . 2,759,717 3,568,364 17,121,728 10,855,031 28,069,792 24,102,289
Net benefits to contractowners . . . . . (998,537) (680,956) (2,925,999) (1,545,917) (6,737,672) (2,091,393)
----------- ------------ ----------- ----------- ----------- ------------
Net increase in net assets from
contractowner transactions . . . . . . . 1,761,180 2,887,408 14,195,730 9,309,114 21,332,120 22,010,896
----------- ------------ ----------- ----------- ----------- ------------
Net increase in net assets . . . . . . . . 2,762,857 2,858,253 24,414,574 11,517,211 24,700,507 26,601,120
Net assets at beginning of period . . . . 5,313,687 2,455,434 18,032,980 6,515,769 34,517,382 7,916,262
----------- ------------ ----------- ----------- ----------- ------------
Net assets at end of period . . . . . . . $ 8,076,544 $ 5,313,687 $42,447,554 $18,032,980 $59,217,889 $ 34,517,382
=========== ============ =========== =========== =========== ============
</TABLE>
<TABLE>
<CAPTION>
MONEY MID CAP DIVERSIFIED
MARKET VALUE MID CAP GROWTH
SUBACCOUNT SUBACCOUNT SUBACCOUNT
--------------------------- ------------------------- ---------------------------
1998 1997 1998 1997 1998 1997
------------- ------------- ------------ ------------ ------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Increase in net assets:
From operations:
Net investment income (loss) . . . . . $ 2,241,586 $ 1,680,525 $ (173,862) $ 1,484,019 $ 243,065 $ 5,650,847
Net realized gain . . . . . . . . . . -- -- 287,952 82,355 539,743 2,044,899
Net unrealized appreciation
(depreciation) during the period . . -- -- (5,262,197) 569,438 1,329,837 (5,571,228)
------------ ------------ ----------- ----------- ------------ ------------
Net increase (decrease) in net assets
resulting from operations . . . . . . . 2,241,586 1,680,525 (5,148,107) 2,135,812 2,112,645 2,124,518
From contractowner transactions:
Net premiums from contractowners . . . 98,467,103 73,848,718 22,741,984 18,163,224 6,796,196 26,936,004
Net benefits to contractowners . . . . (71,851,211) (58,501,671) (6,056,909) (957,896) (12,759,797) (16,471,841)
------------ ------------ ----------- ----------- ------------ ------------
Net increase (decrease) in net assets
from contractowner transactions . . . . 26,615,892 15,347,047 16,685,075 17,205,328 (5,963,601) 10,464,163
------------ ------------ ----------- ----------- ------------ ------------
Net increase (decrease) in net assets . 28,857,478 17,027,572 11,536,968 19,341,140 (3,850,956) 12,588,681
Net assets at beginning of period . . . 51,242,703 34,215,131 22,375,997 3,034,857 66,137,450 53,548,769
------------ ------------ ----------- ----------- ------------ ------------
Net assets at end of period . . . . . . $ 80,100,181 $ 51,242,703 $33,912,965 $22,375,997 $ 62,286,494 $ 66,137,450
============ ============ =========== =========== ============ ============
</TABLE>
- ---------
* From May 1, 1998 (commencement of operations).
See accompanying notes.
33
<PAGE>
JOHN HANCOCK VARIABLE ANNUITY ACCOUNT I
STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED)
FOR THE YEARS AND PERIODS ENDED DECEMBER 31,
<TABLE>
<CAPTION>
SMALL/
MID CAP REAL ESTATE GROWTH &
BOND INDEX CORE EQUITY INCOME
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
--------------- --------------- ------------------------- ---------------------------
1998* 1998* 1998 1997 1998 1997
--------------- --------------- ------------ ------------ ------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Increase (decrease) in net assets:
From operations:
Net investment income . . . . . . $ 794 $ (30) $ 1,068,701 $ 1,238,534 $ 40,847,285 $ 30,590,769
Net realized gain . . . . . . . . -- -- 452,751 79,482 2,147,226 271,143
Net unrealized appreciation
(depreciation) during the period (594) 4,111 (6,429,350) 1,363,523 49,182,595 11,923,251
-------------- -------------- ----------- ----------- ------------ ------------
Net increase (decrease) in net assets
resulting from operations . . . . . 200 4,081 (4,907,898) 2,681,539 92,177,106 42,785,163
From contractowner transactions:
Net premiums from contractowners . 55,600 45,493 7,748,395 15,380,217 155,134,300 136,122,595
Net benefits to contractowners . . -- (16,277) (7,358,336) (1,118,876) (40,616,459) (17,521,946)
-------------- -------------- ----------- ----------- ------------ ------------
Net increase in net assets from
contractowner transactions . . . . 55,600 61,770 390,059 14,261,341 114,517,841 118,600,649
-------------- -------------- ----------- ----------- ------------ ------------
Net increase (decrease) in net assets 55,800 65,851 (4,517,839) 16,942,880 206,694,947 161,385,812
Net assets at beginning of period . 0 0 24,798,418 7,855,538 271,028,489 109,642,677
-------------- -------------- ----------- ----------- ------------ ------------
Net assets at end of period . . . . $ 55,800 $ 65,851 $20,280,579 $24,798,418 $477,723,436 $271,028,489
============== ============== =========== =========== ============ ============
</TABLE>
<TABLE>
<CAPTION>
SMALL CAP
MANAGED SHORT-TERM BOND VALUE
SUBACCOUNT SUBACCOUNT SUBACCOUNT
--------------------------- ------------------------- -------------------------
1998 1997 1998 1997 1998 1997
------------- ------------- ------------ ------------ ------------ --------------
<S> <C> <C> <C> <C> <C> <C>
Increase (decrease) in net assets:
From operations:
Net investment income (loss) . . . . . . $ 40,076,353 $ 24,307,891 $ 1,093,175 $ 685,472 $ (173,305) $ 1,048,340
Net realized gain (loss) . . . . . . . . 520,784 142,549 (2,851) (19,586) 118,285 68,848
Net unrealized appreciation
(depreciation) during the period . . . 28,631,287 12,570,799 (149,541) 73,051 (1,752,884) 423,744
------------ ------------ ----------- ----------- ----------- -----------
Net increase (decrease) in net assets
resulting from operations . . . . . . . . 69,228,424 37,021,239 940,783 738,937 (1,807,904) 1,540,932
From contractowner transactions:
Net premiums from contractowners . . . . 156,435,907 132,746,067 16,261,342 8,456,544 13,431,726 11,030,307
Net benefits to contractowners . . . . . (40,551,365) (20,517,998) (6,781,602) (3,000,818) (3,169,232) (768,487)
------------ ------------ ----------- ----------- ----------- -----------
Net increase in net assets from
contractowner transactions . . . . . . . 115,884,542 112,228,069 9,479,740 5,455,726 10,262,494 10,261,820
------------ ------------ ----------- ----------- ----------- -----------
Net increase in net assets . . . . . . . . 185,112,966 149,249,308 10,420,523 6,194,663 8,454,590 11,802,752
Net assets at beginning of period . . . . 318,090,901 168,841,593 18,569,390 12,374,727 15,256,095 3,453,343
------------ ------------ ----------- ----------- ----------- -----------
Net assets at end of period . . . . . . . $503,203,867 $318,090,901 $28,989,913 $18,569,390 $23,710,685 $15,256,095
============ ============ =========== =========== =========== ===========
</TABLE>
See accompanying notes.
34
<PAGE>
JOHN HANCOCK VARIABLE ANNUITY ACCOUNT I
STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED)
FOR THE YEARS AND PERIODS ENDED DECEMBER 31,
<TABLE>
<CAPTION>
INTERNATIONAL
OPPORTUNITIES EQUITY INDEX
SUBACCOUNT SUBACCOUNT
------------------------- -------------------------
1998 1997 1998 1997
------------ ------------ ------------ --------------
<S> <C> <C> <C> <C>
Increase (decrease) in
net assets:
From operations:
Net investment
income (loss) . . $ (66,354) $ 15,240 $ 1,333,655 $ 712,444
Net realized gain . 309,499 228,414 863,280 197,333
Net unrealized
appreciation
(depreciation)
during the period 1,065,442 (446,110) 11,492,991 3,355,409
----------- ----------- ----------- -----------
Net increase
(decrease) in net
assets resulting from
operations . . . . . 1,308,587 (202,456) 13,689,926 4,265,186
From contractowner
transactions:
Net premiums from
contractowners. . . 5,947,922 8,632,504 40,459,585 29,273,872
Net benefits to
contractowners. . . (3,502,337) (3,200,776) (7,678,477) (2,339,289)
----------- ----------- ----------- -----------
Net increase in net
assets from
contractowner
transactions . . . . 2,445,585 5,431,728 32,781,108 26,934,583
----------- ----------- ----------- -----------
Net increase in net
assets . . . . . . . 3,754,172 5,229,272 46,471,034 31,199,769
Net assets at
beginning of period 8,736,229 3,506,957 36,299,278 5,099,509
----------- ----------- ----------- -----------
Net assets at end of
period . . . . . . . $12,490,401 $ 8,736,229 $82,770,312 $36,299,278
=========== =========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
HIGH STRATEGIC
YIELD BOND
SUBACCOUNT SUBACCOUNT
---------- -------------------------
1998* 1998 1997
---------- ------------ --------------
<S> <C> <C> <C>
Increase (decrease) in net assets:
From operations:
Net investment income . . . . . . $ 1,643 $ 1,220,061 $ 769,658
Net realized gain . . . . . . . . -- 67,380 11,353
Net unrealized appreciation
(depreciation) during the period (2,081) 680,647 6,045
-------- ----------- -----------
Net increase (decrease) in net assets
resulting from operations . . . . . (438) 1,968,088 787,056
From contractowner transactions:
Net premiums from contractowners . 197,134 22,724,287 12,625,333
Net benefits to contractowners . . (80,644) (2,896,766) (986,296)
-------- ----------- -----------
Net increase in net assets from
contractowner transactions . . . . 277,778 19,827,521 11,639,037
-------- ----------- -----------
Net increase in net assets . . . . . 277,340 21,795,609 12,426,093
Net assets at beginning of period . 0 16,530,461 4,104,368
-------- ----------- -----------
Net assets at end of period . . . . $277,340 $38,326,070 $16,530,461
======== =========== ===========
</TABLE>
- ---------
* From May 1, 1998 (commencement of operations).
See accompanying notes.
35
<PAGE>
JOHN HANCOCK VARIABLE ANNUITY ACCOUNT I
NOTES TO FINANCIAL STATEMENTS
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. Currently, the Account funds the Accommodator 2000, Independence
Preferred, Market Place Variable Annuity and Independence 2000 contracts. The
Account is operated as a unit investment trust registered under the Investment
Company Act of 1940, as amended, and currently consists of twenty-three
subaccounts. The assets of each subaccount are invested exclusively in shares of
a corresponding Portfolio of John Hancock Variable Series Trust I (the Fund).
New subaccounts may be added as new Portfolios are added to the Fund or as other
investment options are developed and made available to contractowners. The
twenty-three Portfolios of the Fund which are currently available are the Large
Cap Growth, Sovereign Bond, Emerging Markets Equity, International Equity Index
(formerly, International Equities), Global Equity, Small Cap Growth,
International Balanced, Mid Cap Growth, Large Cap Value, Money Market, Mid Cap
Value, Diversified Mid Cap Growth (formerly, Special Opportunities), Bond Index,
Small/Mid Cap CORE, Real Estate Equity, Growth & Income, Managed, Short-Term
Bond (formerly, Short-Term U.S. Government), Small Cap Value, International
Opportunities, Equity Index, High Yield Bond and Strategic Bond Portfolios. Each
Portfolio has a different investment objective.
The assets of the Account are the property of JHVLICO. The portion of the
Account's assets applicable to the Contracts may not be charged with liabilities
arising out of any other business JHVLICO 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
JHVLICO, which is taxed as a life insurance company under the Internal Revenue
Code. JHVLICO 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. JHVLICO 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
JHVLICO 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 1.50%, 1.00% and 1.40% of net assets of the Independence
Preferred, Market Place Variable Annuity, and Independence 2000 Contracts,
respectively.
36
<PAGE>
JOHN HANCOCK VARIABLE ANNUITY ACCOUNT I
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
JHVLICO 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.
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, 1998 were as follows:
<TABLE>
<CAPTION>
SUBACCOUNT SHARES OWNED COST VALUE
---------- ------------ ------------ --------------
<S> <C> <C> <C>
Large Cap Growth . . . . . 6,982,747 $150,451,172 $182,907,548
Sovereign Bond . . . . . . 12,082,044 120,120,816 119,873,269
Emerging Markets . . . . . 327 2,264 2,316
International Equity Index 1,404,381 23,189,239 21,852,953
Global Equity . . . . . . . 17,749 169,254 175,224
Small Cap Growth . . . . . 2,197,060 23,886,640 28,534,427
International Balanced . . 726,016 7,706,291 8,076,543
Mid Cap Growth . . . . . . 2,808,213 33,393,343 42,447,554
Large Cap Value . . . . . . 4,223,729 54,888,975 59,217,888
Money Market . . . . . . . 8,010,018 80,100,181 80,100,181
Mid Cap Value . . . . . . . 2,782,977 38,410,875 33,912,965
Diversified Mid Cap Growth 3,907,655 61,496,198 62,286,493
Bond Index . . . . . . . . 5,476 56,394 55,800
Small/Mid Cap CORE . . . . 7,302 61,739 65,851
Real Estate Equity . . . . 1,627,683 24,164,299 20,280,578
Growth & Income . . . . . . 24,508,272 417,465,409 477,723,436
Managed . . . . . . . . . . 32,181,946 468,704,327 503,203,867
Short-Term Bond . . . . . . 2,885,018 29,127,340 28,989,913
Small Cap Value . . . . . . 2,045,995 24,888,093 23,710,684
International Opportunities 1,022,579 11,723,506 12,490,401
Equity Index . . . . . . . 4,675,568 67,668,207 82,770,312
Strategic Bond . . . . . . 3,615,868 37,636,117 38,326,070
High-Yield Bond . . . . . . 30,044 279,421 277,340
</TABLE>
37
<PAGE>
JOHN HANCOCK VARIABLE ANNUITY ACCOUNT I
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Purchases, including reinvestment of dividend distributions, and proceeds from
sales of shares in the Portfolios of the Fund during 1998, were as follows:
<TABLE>
<CAPTION>
SUBACCOUNT PURCHASES SALES
---------- ------------ -------------
<S> <C> <C>
Large Cap Growth . . . . . . . . . . . $ 66,907,647 $ 2,537,321
Sovereign Bond . . . . . . . . . . . . 58,369,465 2,232,575
Emerging Markets . . . . . . . . . . . 2,265 1
International Equity Index . . . . . . 7,459,306 1,274,355
Global Equity . . . . . . . . . . . . 169,325 73
Small Cap Growth . . . . . . . . . . . 8,943,566 1,523,605
International Balanced . . . . . . . . 2,910,315 736,137
Mid Cap Growth . . . . . . . . . . . . 18,584,991 1,036,171
Large Cap Value . . . . . . . . . . . 25,411,436 1,738,759
Money Market . . . . . . . . . . . . . 67,297,698 38,440,220
Mid Cap Value . . . . . . . . . . . . 18,534,581 2,023,369
Diversified Mid-Cap Growth . . . . . . 3,720,893 9,441,429
Bond Index . . . . . . . . . . . . . . 56,420 26
Small/Mid Cap CORE . . . . . . . . . . 61,758 19
Real Estate Equity . . . . . . . . . . 6,014,732 4,555,975
Growth & Income . . . . . . . . . . . 163,585,966 8,220,839
Managed . . . . . . . . . . . . . . . 160,402,861 4,441,965
Short-Term Bond . . . . . . . . . . . 15,814,484 5,241,569
Small Cap Value . . . . . . . . . . . 11,258,110 1,168,921
International Opportunities . . . . . 5,247,357 2,868,127
Equity Index . . . . . . . . . . . . . 36,593,143 2,478,379
Strategic Bond . . . . . . . . . . . . 22,408,429 1,360,846
High Yield Bond . . . . . . . . . . . 279,476 55
</TABLE>
38
<PAGE>
JOHN HANCOCK VARIABLE ANNUITY ACCOUNT I
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, 1998 were as
follows:
<TABLE>
<CAPTION>
INDEPENDENCE PREFERRED MARKETPLACE INDEPENDENCE PREFERRED
-------------------------- -------------------------- --------------------------
ACCUMULATION ACCUMULATION ACCUMULATION ACCUMULATION ACCUMULATION ACCUMULATION
SUBACCOUNT SHARES SHARE VALUES SHARES SHARE VALUES SHARES SHARE VALUES
---------- ------------ ------------ ------------ ------------ ------------ --------------
<S> <C> <C> <C> <C> <C> <C>
Large Cap Growth . . . . . 5,998,713 $26.385 7,430 $16.825 610,045 $39,895
Sovereign Bond . . . . . . 7,060,247 13.828 28,119 11.570 1,173,339 18.679
Emerging Markets Equity . . -- 9.265 -- 9.269 250 9.266
International Equity Index 1,463,435 13.293 2,769 11.519 147,513 16.074
Global Equity . . . . . . . 2,335 10.300 -- 10.305 14,675 10.301
Small Cap Growth . . . . . 19,911,189 12.506 4,165 14.599 364,599 12.540
International Balanced . . 575,695 12.418 666 12.024 73,871 12.451
Mid Cap Growth . . . . . . 2,121,920 16.012 4,598 17.890 523,041 16.054
Large Cap Value . . . . . . 3,121,477 15.371 10,820 13.122 719,821 15.413
Money Market . . . . . . . 4,529,599 11.652 73,430 10.749 1,976,595 13.423
Mid Cap Value . . . . . . . 2,147,209 13.091 19,554 10.910 425,962 13.126
Diversified Mid Cap Growth 3,371,066 18.106 2,099 12.516 67,121 18.157
Bond Index . . . . . . . . 4,781 10.003 -- 10.007 798 10.004
Small/Mid Cap CORE . . . . 13 10.695 -- 10.699 6,144 10.695
Real Estate Equity . . . . 1,376,429 14.084 7,624 9.797 39,674 20.663
Growth & Income . . . . . . 16,623,489 25.336 52,307 15.653 1,505,823 37.010
Managed . . . . . . . . . . 23,584,757 18.728 14,160 13.653 2,360,737 25.980
Short-Term Bond . . . . . . 1,965,016 12.160 9,164 10.939 409,683 12.193
Small Cap Value . . . . . . 1,605,546 12.525 7,492 11.808 279,710 12.558
International Opportunities 926,001 12.116 2,004 11.530 102,682 12.149
Equity Index . . . . . . . 3,637,757 18.720 36,621 15.494 751,303 18.770
High Yield Bond . . . . . . 11,612 9.886 -- 9.890 16,441 9.887
Strategic Bond . . . . . . 2,327,990 12.204 11,999 11.587 797,395 12.237
</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 JHVLICO or the Fund.
6. IMPACT OF YEAR 2000 (UNAUDITED)
The John Hancock Variable Annuity Account I, along with John Hancock Mutual
Life Insurance Company, its ultimate parent (together, John Hancock), is
executing its plan to address the impact of the Year 2000 issues that result
from computer programs being written using two digits to reflect the year rather
than four to define the applicable year and century. Historically, the first two
digits were hardcoded to save memory. Many of the John Hancock's computer
programs that have date-sensitive software may recognize a date using "00" as
the year 1900 rather than the year 2000. This could result in an information
technology (IT) system failure or miscalculations causing disruptions of
operations, including, among other things, a temporary inability to process
transactions, send invoices or engage in similar normal business activities. In
addition, non-IT systems including, but not limited to, security alarms,
elevators and telephones are subject to malfunction due to their dependence on
embedded technology such as microcontrollers for proper operation. As described,
the Year 2000 project presents a number of challenges for financial institutions
since the correction of Year 2000 issues in IT and non-IT systems will be
complex and costly for the entire industry.
39
<PAGE>
JOHN HANCOCK VARIABLE ANNUITY ACCOUNT I
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
John Hancock began to address the Year 2000 project as early as 1994. John
Hancock's plan to address the Year 2000 Project includes an awareness campaign,
an assessment period, a renovation stage, validation work and an implementation
of Company solutions.
The continuous awareness campaign serves several purposes: defining the
problem, gaining executive level support and sponsorship, establishing a team
and overall strategy, and assessing existing information system management
resources. Additionally, the awareness campaign establishes an education process
to ensure that all employees are aware of the Year 2000 issue and knowledgeable
of their role in securing solutions.
The assessment phase, which was completed for both IT and non-IT systems as of
April 1998, included the identification, inventory, analysis, and prioritization
of IT and non-IT systems and processes to determine their conversion or
replacement.
The renovation stage reflects the conversion, validation, replacement, or
elimination of selected platforms, applications, databases and utilities,
including the modification of applicable interfaces. Additionally, the
renovation stage includes performance, functionality, and regression testing and
implementation. As of December 31, 1998, the renovation phase was substantially
complete for computer applications, systems and desktops. For all remaining
components the renovation phase is underway and will be complete before the end
of the second quarter of 1999.
The validation phase consists of the compliance testing of renovated systems.
The validation phase is expected to be complete by mid 1999, after renovation is
accomplished. John Hancock will use its testing facilities through the remainder
of 1999 to perform special functional testing. Special functional testing
includes testing, as required, with material third parties and industry groups
and to perform reviews of "dry run" of year-end activities. Scheduled testing of
John Hancock's material relationships with third parties is underway. It is
anticipated that testing with material business partners will continue through
much of 1999.
Finally, the implementation phase involves the actual implementation of
converted or replaced platforms, applications, databases, utilities, interfaces,
and contingency planning. John Hancock is concurrently performing implementation
during the renovation phase and plans to complete this phase before the end of
the second quarter of 1999.
The costs of the Year 2000 project consist of internal IT personnel, and
external costs such as consultants, programmers, replacement software, and
hardware. The costs of the Year 2000 project are expensed as incurred. The
project is funded partially through a reallocation of resources from
discretionary projects. Through December 31, 1998, John Hancock has incurred and
expensed approximately $9.8 million in related payroll costs for its internal IT
personnel on the project. The estimated range of remaining internal IT personnel
costs of the project is approximately $8 to $9 million. Through December 31,
1998, John Hancock has incurred and expensed approximately $36.4 million in
external costs for the project. The estimated range of remaining external costs
of the project is approximately $35 to $36 million. The total costs of the Year
2000 project, based on management's best estimates, include approximately $18
million in internal IT personnel, $7.4 million in the external modification of
software, $34.2 million for external solution providers, $19.4 million in
replacement costs of non-compliant IT systems and $12.6 million in oversight,
test facilities and other expenses. Accordingly, the estimated range of total
costs of the Year 2000 project, internal and external, is approximately $90 to
$95 million. However, there can be no guarantee that these estimates will be
achieved and actual results could materially differ from those plans. Specific
factors that might cause such material differences include, but are not limited
to, the availability and cost of personnel trained in this area, the ability to
locate and correct all relevant computer codes, and similar uncertainties.
40
<PAGE>
JOHN HANCOCK VARIABLE ANNUITY ACCOUNT I
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
John Hancock's total Year 2000 project costs include the estimated impact of
external solution providers and are based on presently available information.
However, there is no guarantee that the systems of other companies that John
Hancock's systems rely on will be timely converted, or that a failure to convert
by another company, or a conversion that is incompatible with John Hancock's
systems, would not have material adverse effect on John Hancock. It is
documented in trade publications that companies in foreign countries are not
acting as intensively as domestic companies to remediate Year 2000 issues.
Accordingly, it is expected that Company facilities based outside the United
States face higher degrees of risks from data exchanges with material business
partners. In addition, John Hancock has thousands of individual and business
customers that hold insurance policies, annuities and other financial products
of John Hancock. Nearly all products sold by John Hancock contain date sensitive
data, examples of which are policy expiration dates, birth dates, premium
payment dates. Finally, the regulated nature of John Hancock's industry exposes
it to potential supervisory or enforcement actions relating to Year 2000 issues.
John Hancock's contingency planning initiative related to the Year 2000
project is underway. The plan is addressing John Hancock's readiness as well as
that of material business partners on whom John Hancock depends. John Hancock's
contingency plans are being designed to keep each business unit's operations
functioning in the event of a failure or delay due to the Year 2000 record
format and date calculation changes. Contingency plans are being constructed
based on the foundation of extensive business resumption plans that John Hancock
has maintained and updated periodically, which outline responses to situations
that may affect critical business functions. These plans also provide emergency
operations guidance, which defines a documented order of actions to respond to
problems. These extensive business resumption plans are being enhanced to cover
Year 2000 situations.
41
<PAGE>
PART C. OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS
(A) FINANCIAL STATEMENTS
<TABLE>
<C> <S>
1. Condensed Financial Information (Part A)
2. Statement of Assets and Liabilities, John Hancock Variable Annuity
Account I, at December 31, 1998. (Part B)
3. Statement of Operations, John Hancock Variable Annuity Account I, for
the period ended December 31, 1998. (Part B)
4. Statement of Changes in Net Assets, John Hancock Variable Annuity I,
for the period ended December 31, 1998. (Part B)
5. Notes to Financial Statements, John Hancock Variable Annuity Account I.
(Part B)
6. Statement of Financial Position, John Hancock Variable Life Insurance
Company, at December 31, 1998 and December 31, 1997. (Part B)
7. Summary of Operations and Unassigned Deficit, John Hancock Variable
Life Insurance Company, for each of the two years in the period ended
December 31, 1998. (Part B)
8. Statement of Cash Flows, John Hancock Variable Life Insurance Company,
for each of the two years in the period ended December 31, 1998. (Part
B)
9. Notes to Financial Statements, John Hancock Variable Life Insurance
Company. (Part B)
(B) EXHIBITS:
1. JHVLICO Board Resolution establishing the John Hancock Variable Annuity
Account I, dated June 15, 1994, included in the initial Form N-4
Registration Statement to this File No. 33-82648, filed August 10,
1994.
2. Not Applicable.
3.(a) Form of Distribution and Servicing Agreement among John Hancock
Distributors, Inc., John Hancock Mutual Life Insurance Company, and John
Hancock Variable Life Insurance Company, incorporated by reference from
Pre-Effective No. 2 to Form S-6 Registration Statement of John Hancock
Variable Life Acount S (File No. 333-15075), filed April 18, 1997.
(b) Specimen Variable Contracts Selling Agreement between John Hancock
Distributors, Inc., and selling broker-dealers, incorporated by
reference from Pre-Effective Amendment No. 1 to Form N-4 Registration
Statement for John Hancock Variable Life Account S (File No. 333-
15075) filed April 18, 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. 82648, 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. 82648, filed August 10, 1994,
and December 13, 1997, respectively.
6. Certificate of Incorporation and By-Laws of John Hancock Variable Life
Insurance Company, included in Post-Effective Amendment No. 1 to this
File No. 33-82648, filed April 25, 1995.
</TABLE>
C-1
<PAGE>
<TABLE>
<C> <S>
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. 33-82648, filed August 10, 1994.
10.A. Consent of Independent Auditors. Representation of Counsel.
10.B. Representation of Counsel.
11. Not Applicable.
12. Not Applicable.
13. Diagram of Subsidiaries of John Hancock Mutual Life Insurance Company
incorporated by reference from Post-Effective Amendment No. 5 to Form
N-4 Registration Statement of John Hancock Variable Annuity Account H
(File No. 333-08345) filed April 28, 1999.
14. Power of Attorney for Ronald J. Bocage, incorporated by reference from
Form 10-K annual report of John Hancock Variable Life Insurance Company
(File No. 33-62895) filed March 28, 1997. Copies of Powers of attorney
for all other directors, included in Post-Effective Amendment No. 1 to
this File No. 33-82648, filed April 25, 1995.
</TABLE>
ITEM 25. DIRECTORS AND OFFICERS OF THE DEPOSITOR
DIRECTORS
<TABLE>
<CAPTION>
NAME POSITION WITH DEPOSITOR
---- -----------------------
<S> <C>
David F. D'Alessandro............... Chairman of the Board and President
Michele G. VanLeer.................. Vice Chairman of the Board and President
Thomas J. Lee....................... Director
Robert R. Reitano................... Director
Ronald J. Bocage.................... Director, Vice President and Counsel
Joseph A. Tomlinson................. Director and Vice President
John M. DeCiccio.................... Director
Barbara L. Luddy.................... Director and Actuary
Robert S. Paster.................... Director
EXECUTIVE OFFICERS OTHER THAN DIRECTORS
Daniel L. Ouellette................. Vice President, Marketing
Patrick F. Smith.................... Controller
</TABLE>
All of the above-named officers and directors can be contacted at the
following business address: John Hancock Variable 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 JHVLICO, operated as a unit investment
trust. Registrant supports benefits payable under JHVLICO'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 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, JHVLICO directly controls
Registrant.
A diagram of the subsidiaries of John Hancock is incorporated by reference
from Exhibit 13 to Post-Effective Amendment No. 5 to Form N-4 Registration
Statement of John Hancock Variable Annuity Account H (File No. 333-08345) filed
April 28, 1999.
C-2
<PAGE>
ITEM 27. NUMBER OF CONTRACT OWNERS
As of March 31, 1999, the number of Contract Owners of all forms of the
Contracts offered by the Account was 44,740.
ITEM 28. INDEMNIFICATION
Article X of the By-Laws of JHVLICO provides indemnification to each present
and former trustee, officer, and employee of JHVLICO 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 JHVLICO.
JHVLICO may pay expenses incurred in defending an action or claim in advance
of its final disposition, but only upon receipt of an undertaking by the
person indemnified to repay such amounts if he or she should be determined not
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 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 1 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 24, 1998, Section 7 of the Underwriting and Administrative
Services Agreement by
C-3
<PAGE>
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 I,
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 V, and John Hancock
Variable Life Accounts U, V, and S, and John Hancock Mutual Variable Life
Insurance Account UV.
(b) In response to this item, the response to Item 25 is hereby incorporated
by reference.
(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, cancelled
stock certificates. JHVLICO (at the same address), in its capacity as
Registrant's depositor, and John Hancock (at the same address), in its
capacities as Registrant's investment adviser and transfer agent, keep all other
records required by Section 31(a) of the Act.
ITEM 31. MANAGEMENT SERVICES
Not applicable.
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.
C-4
<PAGE>
(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 Variable Life Insurance Company represents that the fees
and charges deducted under the Contracts, 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
Pursuant to the requirements of the Securities Act of 1933, the John
Hancock Variable Life Insurance Company has duly caused this amendment to the
Registration Statement to be signed on its behalf by the undersigned, thereunder
duly authorized, and its seal to be hereunto fixed and attested, all in the City
of Boston and Commonwealth of Massachusetts on the 29th day of April, 1999.
JOHN HANCOCK VARIABLE LIFE
INSURANCE COMPANY
(SEAL)
By /s/ MICHELE G. VAN LEER
-----------------------
Michele G. Van Leer
President
Attest: /s/ SANDRA M. DADALT
----------------------
Sandra M. DaDalt
Assistant Secretary
<PAGE>
Pursuant to the requirements of the Securities Act of 1933, this Post-
Effective Amendment to the Registration Statement has been signed below by the
following persons in the capacities with John Hancock Variable Life Insurance
Company and on the dates indicated.
Signatures Title Date
- ---------- ----- ----
/s/ PATRICK F. SMITH
- --------------------
Patrick F. Smith Controller (Principal Accounting April 29, 1999
Officer and Acting Principal
Financial Officer)
/s/ MICHELE G. VAN LEER
- -----------------------
Michele G. Van Leer Vice Chairman of the Board
for herself and as and President(Acting Principal
Attorney-in-Fact Executive Officer) April 29, 1999
For: David F. D'Alessandro Chairman of the Board
Robert S. Paster Director
Thomas J. Lee Director
Malcolm Cheung Director
Joseph A. Tomlinson Director
Barbara L. Luddy Director
Ronald J. Bocage Director
Robert R. Reitano Director
<PAGE>
Pursuant to the requirements of the Securities Act of 1933, the
Registrant, certifies that it meets all of the requirements for effectiveness of
this Registration Statement pursuant to Rule 485(b) under the Securities Act of
1933 and has duly caused this Post-Effective Amendment to the Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, and its seal to be hereunto fixed and attested, all in the City of
Boston and Commonwealth of Massachusetts on the 29th day of April, 1999.
On behalf of the Registrant
By John Hancock Variable Life Insurance Company
(Depositor)
(SEAL)
By /s/ Michele G. Van Leer
-----------------------
Michele G. Van Leer
President
Attest /s/ SANDRA M. DADALT
----------------------
Sandra M. DaDalt
Assistant Secretary
<PAGE>
INDEX TO EXHIBITS
FORM N-4
JOHN HANCOCK VARIABLE ANNUITY ACCOUNT I
<TABLE>
<CAPTION>
EXHIBITS
--------
<C> <S>
10.A. Consent of Independent Auditors.
10.B. Representation of Counsel
</TABLE>
<PAGE>
EXHIBIT 10(a)
[John Hancock Mutual Life Insurance Company Letterhead]
April 23, 1999
SECURITIES & EXCHANGE COMMISSION
450 Fifth Street, N.W.
Washington, D.C. 20549
RE: John Hancock Variable Annuity Account I
File Nos. 33-82648 and 811-8696
Dear Commissioners:
This opinion is being furnished with respect to the filing of
Post-Effective Amendment No. 6 under the Securities Act of 1933 (Amendment No.
10 under the Investment Company Act of 1940) of the Form N-4 Registration
Statement of John Hancock Variable Annuity Account I 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).
We hereby consent to the filing of this opinion with and as a part of
this Post-Effective Amendment to Registrant's Registration Statement with the
Commission.
Very truly yours,
/s/ Sandra M. DaDalt
Sandra M. DaDalt
Counsel
<PAGE>
EXHIBIT 10.B
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the references to our firm under the captions "Experts" in the
Prospectus and in Post-Effective Amendment No. 6 to the Registration Statement
(Form N-4, No. 33-82648) of John Hancock Variable Annuity Account I.
We also consent to the inclusion of our reports dated February 10, 1999 on the
financial statements included in the Annual Report of the John Hancock Variable
Annuity Account I, and dated February 19, 1999, on the financial statements
included in the Annual Report of the John Hancock Variable Life Insurance
Company for the year ended December 31, 1998.
/s/ ERNST & YOUNG LLP
ERNST & YOUNG LLP
Boston, Massachusetts
April 28, 1999
