UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A
Proxy Statement Pursuant to Section 14(a)
of the Securities Exchange Act of 1934
(Amendment No. )
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JOHN HANCOCK VARIABLE SERIES TRUST I
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Small Cap Equity Fund
a Separate Investment Fund of
John Hancock Variable Series Trust I
("Trust")
Notice of Special Meeting of Shareholders
A Special Meeting of Shareholders of the Small Cap Equity Fund will be held
at the offices of John Hancock Life Insurance Company ("John Hancock"),
197 Clarendon Street, Boston Massachusetts (telephone 1-800-732-5543), at
11:30 A.M., on Friday, April 4, 2003, to consider and vote upon the following
matters:
1. Proposals to approve, as to the Small Cap Equity Fund:
A. a new Sub-Investment Management Agreement among the Trust, John
Hancock, and Wellington Management Company, LLP ("Wellington
Management"); and
B. an amendment to the current Investment Management Agreement between
the Trust and John Hancock, reflecting an increase in the Fund's
investment advisory fee.
2. Any other business that may properly come before the meeting or any
adjournment thereof.
As an owner of a variable life insurance policy or a variable annuity
contract ("owner") participating in the Small Cap Equity Fund as of the close
of business on February 10, 2003, you can instruct how shares in the Small Cap
Equity Fund attributable to you will be voted at the meeting.
MICHELE G. VAN LEER
Chairman, Board of Trustees
Boston, Massachusetts
March 5, 2003
WHETHER OR NOT YOU EXPECT TO BE PRESENT AT THE MEETING, YOU ARE URGED TO
DATE, SIGN AND RETURN THE ENCLOSED PROXY IN THE ACCOMPANYING STAMPED
ENVELOPE. IN ORDER TO AVOID UNNECESSARY DELAY, WE ASK YOUR COOPERATION IN
MAILING THE PROXY PROMPTLY. YOU MAY STILL VOTE IN PERSON IF YOU ATTEND THE
MEETING.
PROXY STATEMENT
GENERAL
This statement and enclosed form of proxy (voting instructions) are furnished
by the management of John Hancock Variable Series Trust I (the "Trust") to
request voting instructions for the Special Meeting of shareholders of the
Small Cap Equity Fund to be held at the offices of John Hancock Life Insurance
Company ("John Hancock"), 197 Clarendon Street, Boston, Massachusetts 02117, on
Friday, April 4, 2003 at 11:30 A.M. Eastern time or at any adjournment(s)
thereof (the "Meeting"). Trust management is seeking voting instructions for
all shares of the Small Cap Equity Fund (the "Fund") of the Trust that are
attributable to owners of variable life insurance and variable annuity
contracts (together, "Contracts").
THE TRUST WILL FURNISH, WITHOUT CHARGE, A COPY OF ITS ANNUAL REPORT FOR 2001,
ITS SEMI-ANNUAL REPORT FOR THE PERIOD ENDED JUNE 30, 2002 AND, WHEN AVAILABLE,
THE FUND'S ANNUAL REPORT FOR 2002 TO ANY OWNER UPON REQUEST. SUCH REQUEST MAY
BE MADE BY MAIL OR BY TELEPHONE, USING THE ADDRESS OR TOLL-FREE TELEPHONE
NUMBER SHOWN ON THE COVER OF THIS PROXY STATEMENT.
PROPOSALS 1A and 1B -- SMALL CAP EQUITY FUND
APPROVAL OF A NEW SUB-INVESTMENT MANAGEMENT AGREEMENT AND AMENDMENT TO THE
INVESTMENT MANAGEMENT AGREEMENT FOR THE SMALL CAP EQUITY FUND
At its February 5, 2003 meeting, the Trust's Board of Trustees ("Board")
unanimously approved, and recommended that owners approve, the retention of
Wellington Management to replace the Small Cap Equity Fund's current
sub-investment manager. The fee rates payable to Wellington Management by John
Hancock will be higher than it pays to the Fund's current sub-investment
manager; and the Board also unanimously approved, and recommended that owners
approve, a related amendment to the Investment Management Agreement that would
increase fee rates payable by the Trust to John Hancock for management of the
Small Cap Equity Fund. These proposals are discussed in detail below.
Proposed Amendment to the Sub-Investment Management Agreement
Currently, the sub-investment manager for the Small Cap Equity Fund is Capital
Guardian Trust Company ("Capital Guardian") under an agreement with the Trust
and John Hancock dated November 1, 2000.
1
At its meeting on February 5, 2003, the Board, upon John Hancock's
recommendation, decided that, as of May 1, 2003, the Fund's sub-investment
management relationship with Capital Guardian should be terminated and
Wellington Management should be appointed as successor.
The principal reasons for John Hancock's recommendation to replace the current
sub-investment manager were (i) to seek improved investment performance for the
Fund with a disciplined approach consistent with an investment strategy focused
on the common stocks of small U.S. growth companies that are believed to offer
above-average potential for growth in revenues and earnings and (ii) to
continue to build upon a strategic relationship with Wellington Management.
Wellington Management currently manages the Trust's Fundamental Value,
Small/Mid Cap Growth, Small Cap Value (with respect to a portion of the Fund's
assets), Money Market, and High Yield Bond Funds. This strategic relationship
is believed to result in more efficient and effective management and oversight
of the Small Cap Equity Fund.
If Wellington Management is retained for this Fund, as proposed, the Fund's
investment program will thereafter be more oriented toward "growth" investing
and less oriented to "blend" investing (i.e., investing in both "value and
"growth" companies). As a general matter, relatively few investment managers
use a "blend" approach to small cap equity investing. In keeping with the
Fund's modified investment program, therefore, it is planned that, as of May 1,
2003, the Fund's name will be changed to the "Small Cap Emerging Growth Fund."
The Trustees already had considerable familiarity with Wellington Management
and its capabilities and operational practices, because Wellington Management
already has been serving as sub-investment manager to five other Funds of the
Trust.
Among the factors that the Board considered in selecting Wellington Management
as a new sub-investment manager for the Small Cap Equity Fund were the
following:
. Strong organization with experience and significant resources (investment
and operations personnel) dedicated to fundamental investment in
small/mid-cap growth equity portfolios.
. Disciplined and well-defined investment process for investing in small
cap growth equity securities.
. Strong long-term performance record in managing small-cap equity
portfolios.
2
. Sub-advisory fee that is competitive relative to other portfolios with a
similar investment focus.
. Wellington Management's favorable reputation and presence in the variable
products marketplace.
John Hancock currently pays Capital Guardian a sub-advisory fee at an annual
rate of 0.65% of the first $150 million of the Fund's average daily net assets;
0.50% of the next $150 million; 0.40% of the next $200 million; and 0.35% for
any additional amounts. Under this proposal John Hancock will pay Wellington
Management 0.65% of the first $100 million and 0.60% for any additional amounts.
Under this proposal, sub-advisory fees would be higher only when the net assets
of the Fund are very significantly greater than they are now. (Had the proposed
rates been in effect during 2002, John Hancock would have paid the same amount
$389,543 in sub-advisory fees as it actually paid Capital Guardian.) The
Sub-Investment Management Agreement does not otherwise impose greater liability
or obligations on the Small Cap Equity Fund or John Hancock in comparison to
the provisions of the sub-investment management agreement of the Fund with
Capital Guardian that was initially approved by shareholders of the Fund on
October 20, 2000. There have been no votes by shareholders of the Fund since
then with respect to that sub-investment management agreement.
A summary of the new Sub-Investment Management Agreement is included as
Appendix B to this statement. The principal function of a Fund's sub-investment
manager is to make the day-to-day investment decisions for a Fund. As stated in
the Sub-Investment Management Agreement, John Hancock will pay all sub-advisory
fees to the sub-investment manager. Therefore, any increase in the sub-advisory
fees need not necessarily result in any additional charge to the Trust or to
owners. However, in this case the higher fees payable to Wellington Management,
at certain asset levels, will be among the factors reflected in the proposed
increase (discussed below) to the investment advisory fee rates to be paid by
the Trust to John Hancock. The new Sub-Investment Management Agreement with
Wellington Management and the existing sub-investment management agreement with
Capital Guardian are substantially similar except with respect to the rate of
sub-advisory fees.
If the Fund does not receive the requested shareholder approval for the new
Sub-Investment Management Agreement, the Trustees will consider other
appropriate arrangements, subject to any approval required by the 1940 Act.
3
The Proposed Amendment to the Current Investment Management Agreement with John
Hancock
Pursuant to the Investment Management Agreement with the Trust dated March 14,
1996, as amended November 1, 2000, John Hancock advises the Trust in connection
with policy decisions of the Fund; provides administration of day-to-day
operations; provides personnel, office space, equipment and supplies for the
Funds; maintains records required by the Investment Company Act of 1940;
supervises activities of the sub-investment manager; and supervises the
activities of the other providers of services to the Trust. That agreement was
last approved by the shareholders of the Fund on October 20, 2000 in connection
with an amendment to the agreement to increase fees payable to John Hancock.
For any year in which the normal operating costs and expenses of the Fund,
exclusive of the investment advisory fees, interest expense, brokerage
commissions, taxes and extraordinary expenses outside the control of John
Hancock, exceed 0.10% of the Small Cap Equity Fund's average daily net assets,
the current Investment Management Agreement provides that John Hancock will
reimburse that Fund in an amount equal to such excess.
Under the current Investment Management Agreement, the Trust pays John Hancock
investment advisory fees at an annual rate of 0.90% of the first $150 million
of the Fund's average daily net assets; 0.75% of the next $150 million; 0.65%
of the next $200 million; 0.60% of any additional amounts.
After evaluating the fee to be charged to the Small Cap Equity Fund in
comparison to the cost of services to be rendered by John Hancock and the fees
to be paid to the new sub-investment manager, John Hancock recommended to the
Board at its February 5, 2003 meeting that the current Investment Management
Agreement be amended to reflect an increase in that Fund's investment advisory
fees to the following levels: 1.05% of the first $100 million of the Fund's
average daily net assets, and 1.00% of any additional amounts.
If the new fees had been in effect during 2002 for the Fund, (i) the Fund would
have paid John Hancock $629,269, rather than the $539,373 paid under the
current Investment Management Agreement (a 16.7% increase), and (ii) the ratio
of total expenses to average daily net assets would have been 1.15% rather than
1.00%. However, the 1.15% ratio is at the average for funds that support other
variable insurance products, that have similar investment focus, and that are
of a size comparable to the Small Cap Equity Fund (i.e., less than $100 million
in assets). The foregoing analysis is based upon a John Hancock study using
data as of December 31, 2002 that was collected by Morningstar, Inc., an
independent statistical service that tracks expense data on variable insurance
funds. Appendix E to this statement contains additional information on John
Hancock's calculation of average total fund expenses.
4
The following table provides a comparison of the actual expense ratios for 2002
with expense ratios that would have been produced by the proposed modifications
for the Small Cap Equity Fund had they been in effect during 2002. The table is
based on the Small Cap Equity Fund's average net assets during the fiscal year
ended December 31, 2002 and show (1) the current annualized level of all fees
and expenses for the Small Cap Equity Fund under the current investment
advisory fee schedule; and (2) the pro-forma annualized level of all fees and
expenses that would have been incurred by the Fund under the proposed
investment advisory fee schedule. The table does not reflect separate account
expenses, including sales load and other contract-level expenses.
Current Pro-Forma
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Investment Advisory Fees..................... 0.90% 1.05%
Distribution and Service (12b-1) Fees........ N/A N/A
Other Operating Expenses Absent Reimbursement 0.14% 0.14%
Total Fund Expenses Absent Reimbursement..... 1.04% 1.19%
Expense Reimbursement (including fee waivers) (0.04%) (0.04%)
Total Fund Expenses After Reimbursement...... 1.00% 1.15%
Example: The following Example is intended to help compare the cost of
investing in the Small Cap Equity Fund under the current investment advisory
fee schedule with the cost of investing in the Small Cap Equity Fund under the
proposed investment advisory fee schedule. The Example assumes that $10,000 is
invested directly in shares of the Small Cap Equity Fund at the beginning of
the time period indicated, that the investment has a 5% return each year, and
that the Small Cap Equity Fund's operating expenses remain the same. Because
shares of the Small Cap Equity Fund are bought and sold without sales charges,
the costs shown in the Example would be the same at the end of the time period
indicated, whether or not the shares were redeemed at that time.
One Three Five Ten
Year Years Years Years
---- ----- ----- ------
Although actual costs may be higher or lower,
under the current advisory fee schedule, the
costs would be: $102 $318 $551 $1,222
Although actual costs may be higher or lower,
under the proposed advisory fee schedule,
the costs would be: $117 $365 $632 $1,396
The Example does not reflect any charges imposed under a variable insurance or
variable annuity product. If these charges were included, your costs would be
higher.
5
The proposed amendment to the Investment Management Agreement will change the
investment advisory fee schedule. In all other respects, the current Investment
Management Agreement, including John Hancock's agreement to reimburse the Small
Cap Equity Fund when that Fund's "other fund expenses" exceed 0.10% of that
Fund's average daily net assets, will remain unchanged. See Appendix C to this
statement for a description of the Investment Management Agreement.
Rationale For Proposed Changes In Investment Advisory Fees
After conducting a review of the level of investment advisory fees for
comparable funds, John Hancock noted the following:
. Since the inception of the Fund, there has been an increase in the
commitment of qualified personnel, resources and sophisticated
information systems and technology by John Hancock to support its
increasingly complex investment management activities on behalf of the
Trust.
. Attaining Wellington Management as the Fund's sub-investment manager will
require John Hancock to pay sub-advisory fees for this Fund at a higher
rate at certain asset levels that may be retained in the future.
. The current investment advisory fee and operating expense levels of the
Fund are below the average investment advisory fee and operating expense
levels for other mutual funds within the variable insurance products
marketplace having similar investment focus and asset size.
John Hancock wished to establish a new fee schedule for the Fund that would:
. remain competitive with other funds in the current variable insurance
products marketplace having a similar investment focus and
characteristics;
. provide appropriate financial incentives, within the current competitive
environment, to support John Hancock's increased allocation of personnel
and resources to the Fund; and
. generate sufficient investment advisory fee revenue so that fees under
variable insurance products investing in the Fund would not have to be
raised to less competitive levels in order for John Hancock to meet its
profitability objectives.
As a result of this review and analysis, John Hancock discussed with the Board
the current structures and levels of compensation and fees in the variable
contract marketplace and John Hancock's position relative to marketplace trends
in pricing.
6
Basis For The Trustees' Recommendation
At its meeting held on February 5, 2003, the Board, including all the
Independent Trustees, unanimously approved the modified investment advisory fee
schedule for the Small Cap Equity Fund. The Board is recommending that owners
approve the amendment to the Investment Management Agreement between the Trust
and John Hancock in order to modify the current investment advisory fee
schedules.
In evaluating and approving the amendment to the Investment Management
Agreement, the Board, including the Independent Trustees and with the
assistance of outside counsel to the Trust, requested and evaluated information
from John Hancock that was relevant to whether the amendment would be in the
best interests of the Small Cap Equity Fund and the owners of its shares. In
addition, the Board's Trust Governance Committee, composed exclusively of the
Board's Independent Trustees, met with such counsel prior to the Board meeting
and considered what further information it would request of John Hancock.
In making its decision to approve the modified investment advisory fee
schedule, the Board considered factors bearing on the nature, scope and quality
of the services provided or to be provided to the Small Cap Equity Fund, with a
view toward making a business judgment as to whether the proposal is, under all
of the circumstances, in the best interest of the Fund and owners of its
shares. The factors that the Trustees considered and the conclusions that they,
in their business judgment, reached included, principally, the following:
. The expected benefits of retaining Wellington Management as the Fund's
sub-investment manager.
. The comparability of the investment advisory fees and other expenses that
would be paid by the Fund under the amendment to its Investment
Management Agreement to those paid by other funds within the current
variable insurance marketplace having similar investment focus and asset
size.
. The significantly increased commitment of personnel and resources
required of John Hancock, since the inception of the Fund, to support the
investment management services provided to the Fund, and the increased
sophistication of the investment evaluation and monitoring process used
by John Hancock on behalf of the Fund.
. The impact of the proposed changes in investment advisory fee rates and
changes in other expenses of the Fund on the Fund's total expense ratio
and the continued willingness of John Hancock to agree to limit total
operating expenses for the Fund.
7
. The Board's favorable evaluation of the nature, quality and breadth of
investment management services provided by John Hancock to the Fund since
its inception.
. Current and projected profits to John Hancock, both under the current
investment advisory fee schedule and the proposed new investment advisory
fee schedule, from providing investment management services to the Trust
and from the John Hancock insurance products which use the Trust as a
funding medium.
. John Hancock's advice that the proposed agreements would not have a
material impact on the Fund's current brokerage placement practices,
including practices that permit potential benefits to Wellington
Management from the placing of portfolio transactions to recognize
research and brokerage services.
In connection with their deliberations, the Trustees and the Governance
Committee received legal advice from outside counsel to the Trust regarding the
standards and methodology of evaluation established by the Securities and
Exchange Commission, the courts and the industry for mutual funds selling
shares to the public and the applicability of those standards and methodology
to mutual funds - like the Trust - selling shares to life insurance company
separate accounts. Such legal counsel, through its representation of John
Hancock on certain matters in which the Trust does not have a direct interest,
is also familiar with Insurers' variable insurance products and Accounts
(defined below) funded through the Trust.
Based upon all of the information and advice available to them, the Trustees
considered the extent and quality of the services that John Hancock and the
sub-investment manager, directly or indirectly, provide to the Fund, the costs
and expenses to be borne by the Fund and John Hancock, and the benefits
accruing to the Fund and John Hancock as a result of their relationship. As a
result of their consideration, the Trustees, in the exercise of their business
judgement, unanimously approved the new investment advisory fee arrangement as
being in the best interests of the Small Cap Equity Fund and of owners of its
shares.
8
Additional Information
Wellington Management. As of December 31, 2002, Wellington Management had over
$302 billion of assets under management, approximately $140 billion of which
was in equities. Appendix D to this statement contains additional information
concerning Wellington Management and its Partners.
John Hancock. John Hancock began providing investment advice to investment
companies in 1972 when it organized a "management" separate account, invested
primarily in common stocks, for the purpose of funding individual variable
annuity contracts. Both before and after that date, John Hancock established a
number of separate accounts investing in common stocks, public bonds, or other
securities in connection with the funding of variable annuities and variable
life insurance. Total assets under management by John Hancock and its
subsidiaries as of December 31, 2002, amounted to approximately $127.6 billion,
of which approximately $66.7 billion was owned by John Hancock. Appendix D to
this statement contains additional information concerning John Hancock and its
Board of Directors and executive officers.
Need for Shareholder Vote
Under currently-applicable legal requirements, the new Sub-Investment
Management Agreement with Wellington Management and the Small Cap Equity
Amendment must be approved by shareholders before either can go into effect.
Trustees' Recommendation
The Board believes that the new Sub-Investment Management Agreement and the
related Small Cap Equity Amendment are in the best interests of the Small Cap
Equity Fund and the owners of its shares.
THE BOARD UNANIMOUSLY RECOMMENDS THAT OWNERS OF THE SMALL CAP EQUITY FUND GIVE
INSTRUCTIONS TO VOTE FOR THE APPROVAL OF BOTH:
PROPOSAL 1A--THE NEW SUB-INVESTMENT MANAGEMENT AGREEMENT WITH WELLINGTON
MANAGEMENT
PROPOSAL 1B--THE SMALL CAP EQUITY AMENDMENT WITH JOHN HANCOCK
9
GENERAL SOLICITATION AND VOTING INFORMATION
Information about the Solicitation
This solicitation is being made of all shares of the Small Cap Equity Fund that
are attributable to interests in John Hancock Variable Life Accounts U, V and
S; John Hancock Variable Annuity Accounts U, V, JF, H and I; and John Hancock
Mutual Variable Life Insurance Account UV (collectively, the "Accounts"). The
cost of printing and mailing this notice and proxy statement and the
accompanying voting instructions form will be borne by the Fund. All other
expenses will be reimbursed by John Hancock to the Fund. In addition to
solicitations by mail, certain John Hancock employees may solicit voting
instructions in person or by telephone; such employees will not be compensated
for such services. Solicitation materials were first made available on or about
March 5, 2003.
Voting Instructions
Although John Hancock and its subsidiary John Hancock Variable Life Insurance
Company (together, the "Insurers"), through the Accounts, legally own all of
the Trust's shares, they will vote all of such shares in accordance with
instructions given by owners of variable life insurance policies and variable
annuity contracts, as discussed below. For this purpose, the owner of a
variable annuity contract during the period after annuity payments have
commenced is the annuitant.
Any authorized voting instructions will also be valid for any adjournment of
the Meeting and will be revocable only at the direction of the owner executing
them. If an insufficient number of affirmative votes are obtained to approve
any item, the Meeting may be adjourned to permit the solicitation of additional
votes.
Shares will be voted for any such adjournment in the discretion of the Insurer
in whose Account the shares are held. Whether a proposal is approved depends
upon whether a sufficient number of votes are cast for the proposal.
Accordingly, an instruction to abstain from voting on any proposal has the same
practical effect as an instruction to vote against that proposal.
Any person giving voting instructions may revoke them at any time prior to
their exercise by submitting a superseding voting instruction form or a notice
of revocation to the Trust. In addition, although mere attendance at the
Meeting will not revoke voting instructions, an owner present at the Meeting
may withdraw his/her voting instruction form and give voting instructions in
person. The Insurers will vote Trust shares in accordance with all properly
executed and unrevoked voting instructions received in time for the Meeting or
properly given at the Meeting.
10
The Insurers will vote the Trust shares of the Fund held in their respective
Accounts which are attributable to the policies and contracts in accordance
with the voting instructions received from owners participating in that Fund.
An Account's shares in the Fund which are not attributable to policies or
contracts or for which no timely voting instructions are received will be
represented and voted by the Insurers in the same proportion as the voting
instructions which are received from all owners participating in the Fund
through that Account. Fund shares which are not attributable to policies and
contracts include shares purchased with contributions made as "seed money" to
the Funds by the Insurers.
Please refer to Appendix A to this statement if you wish additional information
about the number of shares of the Fund that are outstanding.
Majority Voting
In order for the shareholders of the Fund to approve any of the proposals in
this proxy statement, the proposal must receive the favorable vote of a
majority of the outstanding shares of the Fund. When used in this proxy
statement, a "majority vote of the outstanding voting shares" means the
affirmative vote of more than 50% of the outstanding shares or, if it is less,
67% or more of the shares present or represented at the Meeting.
WHETHER OR NOT YOU EXPECT TO BE PRESENT AT THE MEETING, YOU ARE URGED TO
DATE, SIGN AND RETURN THE ENCLOSED PROXY IN THE ACCOMPANYING STAMPED
ENVELOPE. IN ORDER TO AVOID UNNECESSARY DELAY, WE ASK YOUR COOPERATION IN
MAILING THE PROXY PROMPTLY. YOU MAY STILL VOTE IN PERSON IF YOU ATTEND THE
MEETING.
11
Appendix A
RECORD DATE AND VOTING SHARES
As of the close of business on February 10, 2003 ("the record date"), there
were 7,754,934.940 shares outstanding of the Small Cap Equity Fund.
Each Trust share is entitled to one vote, and fractional votes will be
counted.
The number of Fund shares attributable to each owner of a variable life
insurance policy ("policy") is determined by dividing, as of the record date of
the Meeting, a policy's cash (or account) value (less any outstanding
indebtedness) in the designated subaccount of the applicable Account by the net
asset value of one Fund share. The number of Fund shares attributable to each
owner of a variable annuity contract ("contract") is determined by dividing, as
of the record date of the Meeting, the value of the Accumulation Shares under a
contract (or for each contract under which annuity payments have commenced, the
equivalent determined by dividing the contract reserves by the value of one
Accumulation Share) in the designated subaccount of the applicable Account by
the net asset value of one Fund share.
As a group, the officers and Trustees own less than 1% of the outstanding
shares of the Fund.
A-1
Appendix B
PROPOSAL 1A--SUMMARY OF NEW SUB-INVESTMENT MANAGEMENT AGREEMENT
The Wellington Management Sub-Investment Management Agreement to be voted
upon for the Small Cap Equity Fund is summarized below. It is proposed to be
effective on or about May 1, 2003.
The Sub-Investment Management Agreement contains the agreement of Wellington
Management to act as a sub-investment manager (i.e., as an investment adviser
and manager) to the Small Cap Equity Fund, which will be renamed the "Small Cap
Emerging Growth Fund" on May 1, 2003. Under the proposed agreement with
Wellington Management, Wellington Management will provide the Fund with a
continuing and suitable investment program for the Fund's assets.
Pursuant to the proposed agreement, Wellington Management is required to
adhere to the investment policies, guidelines and restrictions of the Fund, as
established by the Trust and John Hancock from time to time when managing the
investment and reinvestment of the Fund's assets. At its own expense,
Wellington Management agrees to provide specific services, including: (a)
advising the Trust in connection with investment policy decisions to be made by
its Board of Trustees or any committee thereof regarding the Fund's assets and,
upon request, furnishing the Trust with research, economic and statistical data
in connection with the Fund's investments and investment policies; (b)
submitting reports and information as John Hancock the Trust' s Board of
Trustees may reasonably request, to assist the custodian in its determination
of the market value of securities held in the Fund (to the extent such
securities are not otherwise priceable using an approved pricing service); (c)
placing orders for purchases and sales of portfolio investments for the Fund
assets that it manages; (d) maintaining and preserving the records relating to
its activities required by the 1940 Act to be maintained and preserved by the
Trust, to the extent not maintained by the custodian, transfer agent or John
Hancock; and (e) absent specific instructions to the contrary provided to it by
John Hancock and subject to its receipt of all necessary voting materials,
voting all proxies with respect to investments for the Fund assets that it
manages in accordance with Wellington Management's proxy voting policy as most
recently provided to John Hancock.
The services provided by Wellington Management are subject to the overall
supervision, direction, control and review of John Hancock and the Board of
Trustees of the Trust.
Each party to the Sub-Investment Management Agreement bears the costs and
expenses of performing its obligations thereunder. In this regard, the Trust
B-1
specifically agrees to assume the expense of: (a) brokerage commissions for
transactions in the portfolio investments of the Trust and similar fees and
charges for the acquisition, disposition, lending or borrowing of such
portfolio investments; (b) custodian fees and expenses; (c) all taxes,
including issuance and transfer taxes, and reserves for taxes payable by the
Trust to federal, state or other governmental agencies; and (d) interest
payable on the Trust's borrowings. Nothing in either agreement, however, alters
the allocation of expenses and costs agreed upon between the Trust and John
Hancock in the Fund's primary investment management agreement, or in any other
agreement to which they are parties.
For its investment management and advisory services, Wellington Management
is paid a fee by John Hancock at a specified rate. Neither the Small Cap Equity
Fund nor the Trust has any obligation or liability for payment of this fee.
In connection with the investment and reinvestment of the Fund assets that
it manages, Wellington Management is authorized to select the brokers or
dealers that will execute purchase and sale transactions for the Fund and to
seek to obtain the best available price and most favorable execution with
respect to all such purchases and sales of such assets. Wellington Management
has the right, to the extent authorized by the Securities Exchange Act of 1934,
to follow a policy of selecting brokers who furnish brokerage and research
services to the Fund or to the sub-investment manager, and who charge a higher
commission rate to the Fund than may result when allocating brokerage solely on
the basis of seeking the most favorable price and execution. Wellington
Management is required to determine in good faith that its higher cost was
reasonable in relation to the value of the brokerage and research services
provided, and each may combine orders for the sale or purchase of portfolio
securities of the Fund with those for other registered investment companies
managed by the sub-investment manager or its affiliates, if orders are
allocated in a manner deemed equitable by Wellington Management among the
accounts and at a price approximately averaged.
Wellington Management is not permitted to receive any tender offer
solicitation fees or similar payments in connection with the tender of
investments of the Fund.
No provision of the Sub-Investment Management Agreement protects Wellington
Management or John Hancock against any liability to the Trust or its
shareholders to which it might otherwise be subject by reason of any willful
misfeasance, bad faith or negligence in the performance of its duties or the
reckless disregard of its obligations and duties. However Wellington Management
is only obligated to perform the services described in the Sub-Investment
Management Agreement, and it has made no representation nor any warranty that
any level of investment performance or level of investment results will be
achieved.
B-2
Unless modified or terminated, the Sub-Investment Management Agreement will
continue with respect to the Fund for an initial 2 year period and from year to
year after that, but only so long as such continuance is specifically approved
at least annually by (a) a majority of the independent Trustees, cast in person
at a meeting called for the purpose of voting on such approval, and (b) either
a vote of the Board of Trustees or a majority of the outstanding voting shares
of the Fund. The Investment Management Agreement also provides that it may be
terminated at any time without penalty by the Trust's Board of Trustees, by
majority vote of the outstanding voting shares of the Fund or, on 60 days'
notice, by John Hancock or Wellington Management. The Sub-Investment Management
Agreement automatically terminates in the event of its assignment or if the
Investment Management Agreement between the Trust and John Hancock for the Fund
is terminated.
B-3
Appendix C
PROPOSAL 1B--SUMMARY OF CURRENT INVESTMENT MANAGEMENT AGREEMENT
The current Investment Management Agreement between the Trust and John
Hancock pertaining to the Small Cap Equity Fund is summarized below.
Pursuant to the Investment Management Agreement, John Hancock advises the
Fund in connection with policy decisions; supervises activities of the Fund's
sub-investment manager; provides personnel, office space, equipment and
supplies for the Trust; and (to the extent that those services are not provided
by other service providers to the Trust) provides administration of day-to-day
operations and maintains records required by the Investment Company Act.
For its investment management and advisory services, John Hancock is paid a
fee by the Fund at a specified rate.
The Investment Management Agreement also provides that, for any fiscal year
in which the normal operating costs and expenses of the Fund, exclusive of its
investment advisory fees, interest, brokerage commissions, taxes and
extraordinary expenses outside the control of John Hancock, exceed 0.10% of the
Fund's average daily net assets, John Hancock will reimburse the Fund promptly
after the end of the fiscal year in an amount equal to such excess.
Under the Investment Management Agreement, John Hancock also pays the
compensation of Trust officers and employees and the expenses of clerical
services relating to the administration of the Trust. The Trust bears all of
its expenses not specifically assumed by John Hancock. These include, but are
not limited to, taxes, custodian and auditing fees, brokerage commissions,
advisory fees payable to John Hancock, the compensation of unaffiliated
Trustees, the cost of the Trust's fidelity bond, the cost of printing and
distributing to Shareholders the Trust's annual and semi-annual reports, the
cost of printing, distributing to Shareholders, and tabulating proxy materials,
compensation paid for certain accounting, valuation and compliance services,
legal fees, securities registration expenses, organizational expenses,
association dues and other expenses related to the Trust's operations.
John Hancock also indemnifies each member of the Board of Trustees against
losses by reason of failure (other than through willful misfeasance, bad faith,
gross negligence or reckless disregard of duties) to take any action relating
to the investment or reinvestment of assets in the Trust, including failure to
seek or retain investment advice or management in addition to or in place of
that provided by John Hancock or the sub-investment managers.
C-1
Unless modified or terminated, the Investment Management Agreement will
continue with respect to the Fund from year to year but only so long as such
continuance is specifically approved at least annually by (a) a majority of the
independent Trustees, cast in person at a meeting called for the purpose of
voting on such approval, and (b) either a vote of the Board of Trustees or a
majority of the outstanding voting shares of the Fund. The Investment
Management Agreement also provides that it may, on 60 days' notice, be
terminated at any time without penalty by the Board of Trustees, by majority
vote of the outstanding voting shares of the Fund, or by John Hancock. The
Investment Management Agreement automatically terminates in the event of its
assignment.
C-2
Appendix D
FURTHER INFORMATION ABOUT JOHN HANCOCK AND WELLINGTON MANAGEMENT
JOHN HANCOCK
John Hancock, John Hancock Place, Boston, Massachusetts 02117, is a life
insurance company chartered in Massachusetts in 1862. It is authorized to
transact a life insurance and annuity business in all fifty states. John
Hancock began selling variable annuity contracts in 1971 and variable life
insurance policies in 1993. Its Accounts owned Trust shares representing 99.7%
of the net assets of the Trust on February 10, 2003. Signator Investors, Inc.,
a company affiliated with John Hancock, acts as "principal underwriter" of the
Trust's shares pursuant to an Underwriting and Indemnity Agreement, dated May
1, 1997, to which John Hancock and the Trust are parties. Under that agreement,
Signator Investors, Inc. collects no additional charges or commissions in
connection with its duties as principal underwriter.
John Hancock is managed by its Board of Directors. The business address of
all directors and executive officers of John Hancock is John Hancock Place,
Boston, Massachusetts 02117.
The directors and executive officers of John Hancock are as follows:
Directors Principal Occupation
--------- --------------------
David F. D'Alessandro Chairman of the Board, President and Chief
Executive Officer, John Hancock
Foster L. Aborn...... Director, formerly Vice Chairman of the Board
and Chief Investment Officer, John Hancock
Wayne A. Budd........ Executive Vice President and General Counsel,
John Hancock
John M. Connors, Jr.. Chairman and Chief Executive Officer and
Director, Hill, Holliday, Connors, Cosmopoulos,
Inc. (advertising)
Robert J. Davis...... Partner, Highland Capital Partners (venture
capital), formerly Chief Executive Officer of Terra
Lycos (internet)
Richard B. DeWolfe... Chairman and Chief Executive Officer of The
DeWolfe Companies, Inc. (real estate)
John M. DiCiccio..... Executive Vice President and Chief Investment
Officer, John Hancock
Robert E. Fast....... Senior Partner, Hale and Dorr (law firm)
D-1
Directors Principal Occupation
--------- --------------------
Thomas P. Glynn.... Chief Operating Officer, Partners HealthCare
System, Inc. (health care)
Michael C. Hawley.. Retired Chairman and Chief Executive Officer,
The Gillette Company (razors, etc.)
Edward H. Linde.... President and Chief Executive Officer, Boston
Properties, Inc. (real estate)
Judith A. McHale... President and Chief Operating Officer, Discovery
Communications, Inc. (multimedia
communications)
R. Robert Popeo.... Chairman, Mintz, Levin, Cohn, Ferris, Glovsky
and Popeo (law firm)
Richard F. Syron... Chairman, President and Chief Executive Officer,
Thermo Electron Corp. (scientific and industrial
instruments)
Robert J. Tarr, Jr. Formerly Chairman, President and Chief Executive
Officer, HomeRuns.com (online grocer)
Other Executive Officers
------------------------
Thomas E. Moloney.... Senior Executive Vice President and Chief
Financial Officer
Michael A. Bell...... Senior Executive Vice President--Retail; Founder
and Director of Monitor Company (management
consulting)
Derek Chilvers....... Executive Vice President; Chairman and Chief
Executive Officer of John Hancock International
Holdings, Inc.
Maureen R. Ford...... Executive Vice President; Chairman and Chief
Executive Officer of John Hancock Funds, Inc.
James E. Collins..... Vice President and Secretary
Robert F. Walters.... Executive Vice President and Chief Information
Officer
D-2
The following employees of John Hancock (or an affiliate) are also Trustees
or principal officers of the John Hancock Variable Series Trust I:
Michele G. Van Leer. Chairman of the Trust
Kathleen F. Driscoll President and Vice Chairman of the Trust
Raymond F. Skiba.... Treasurer of the Trust
Karen Q. Visconti... Secretary of the Trust
Jude Curtis......... Compliance Officer of the Trust
The following table contains information concerning funds managed by John
Hancock that have an investment objective similar to the Small Cap Equity Fund:
Comparable Fund*
---------------------------------------------------------------------------
Fee Schedule
(as a % of Average Net Net Assets at 12/31/02
Name Assets) (000's omitted)**
------------------------- ----------------------- -------------------------
Small Cap Growth 1.05% of all net assets $120,723
Small Cap Value .95% of all assets $120,070
- --------
* Funds listed are series of the John Hancock Variable Series Trust I. This is
the only mutual fund for which John Hancock serves as an investment manager.
** Small Cap Equity net assets at 12/31/02 (000's omitted) are $50,327.
D-3
WELLINGTON MANAGEMENT COMPANY, LLP
Wellington Management Company, LLP ("Wellington Management") is a
Massachusetts limited liability partnership, which is owned entirely by its
76 partners, all of whom are full-time professional members of the firm. Its
partners are:
Kenneth L. Abrams Nancy T. Lukitsh
Nicholas C. Adams Mark T. Lynch
Rand L. Alexander Mark D. Mandel
Deborah L. Allinson Christine S. Manfredi
Steven C. Angeli Earl E. McEvoy
James H. Averill Duncan M. McFarland
John F. Averill Paul M. Mecray III
Karl E. Bandtel Matthew E. Megargel
Mark J. Beckwith James N. Mordy
James A. Bevilacqua Diane C. Nordin
Kevin J. Blake Stephen T. O'Brien
William N. Booth Andrew S. Offit
Michael J. Boudens Edward P. Owens
Paul Braverman Saul J. Pannell
Robert A. Bruno Thomas L. Pappas
Michael T. Carmen Jonathan M. Payson
Maryann E. Carroll Phillip H. Perelmuter
William R. H. Clark Robert D. Rands
John DaCosta James A. Rullo
Pamela Dippel John R. Ryan
Scott M. Elliott Joseph H. Schwartz
Robert L. Evans James H. Shakin
David R. Fassnacht Theodore E. Shasta
Lisa d. Finkel Andrew J. Shilling
Mark A. Flaherty Binkley C. Shorts
Charles T. Freeman Scott E. Simpson
Laurie A. Gabriel Trond Skramstad
Ann C. Gallo Stephen A. Soderberg
Nicholas P. Greville Eric Stromquist
Paul Hamel Brendan J. Swords
William J. Hannigan Harriett Tee Taggart
Lucius T. Hill, III Frank L. Teixeira
James P. Hoffmann Perry M. Traquina
Jean M. Hynes Gene R. Tremblay
Paul D. Kaplan Nilesh P. Undavia
Lorraine A. Keady Clare Villari
John C. Keogh Kim Williams
George C. Lodge, Jr. Itsuki Yamashita
D-4
The managing partners of Wellington Management are Laurie A. Garbiel, Duncan
M. McFarland and John R. Ryan. Steven C. Angeli, Partner will have primary
responsibility for the Small Cap Equity Fund managed by Wellington Management.
All of the partners can be reached at the Firm's principal business address, 75
State Street, Boston Massachusetts 02109.
The following table contains information concerning funds managed by
Wellington Management that have investment objectives similar to those of the
Small Cap Equity Fund:
Comparable Funds*
-----------------------------------------------------------------------
Net Assets at
Sub-Advisor Fee Schedule 12/31/02
Name (as a % of Average Net Assets) (millions)
-------------------------- ------------------------------ -------------
Hartford Small Company** 0.400% of First $50 million $562
0.300% of Next $100 million
0.250% of Next $350 million
0.200% of Next $500 million
0.175% Thereafter
The Hartford Small Company 0.400% of First $50 million $181
Fund** 0.300% of Next $100 million
0.250% of Next $350 million
0.200% of Next $500 million
0.175% Thereafter
- --------
* Funds listed are those for which Wellington serves as a sub-advisor. All
fees may be subject to waivers. Minimum annual fees are not reflected in
effective annual rates.
** Wellington Management currently manages approximately $42 billion for
Hartford.
D-5
Appendix E
JOHN HANCOCK'S CALCULATION OF
AVERAGE TOTAL FUND EXPENSES
Proposals 1A and 1B--Small Cap Equity Fund
Calculation of Average Total Fund Expenses. John Hancock selected all
variable annuity and life funds listed within the Morningstar Small Cap Growth
investment category. It next selected all accounts in this investment category
investing in funds that were (i) "actively" managed (i.e., no index funds),
(ii) managed in a comparable manner to the anticipated style of the Small Cap
Equity Fund after May 1, 2003 (i.e., no "market timing," specialty or balanced
funds) and (iii) of a comparable size to the Small Cap Equity Fund (i.e., less
than $100 million of assets). This resulted in a universe of 453 small cap
growth accounts, which John Hancock averaged on a simple average basis
(i.e., unweighted by asset size) based on Morningstar data provided as of
November 30, 2002.
E-1
WE NEED YOUR VOTE!
Dear Shareholder,
The enclosed proxy materials contain information
on some important changes that are being proposed
for the Small Cap Equity Fund, which is part of
the Variable Series Trust (VST). You have
allocated amounts to the Small Cap Equity Fund, as
one of the investment options under your variable
life policy or variable annuity contract.
After careful consideration, the VST Board of
Trustees unanimously approved the recommendation
by John Hancock Life Insurance Company to do the
following:
. Terminate the existing sub-investment management
agreement with Capital Guardian Trust Company
. Approve a new sub-investment management
agreement with Wellington Management Company,
LLP. Wellington Management Company, LLP provides
a solid organization, a strong performance
record and a premier reputation for growth
within the variable product marketplace.
. Increase the investment advisory fee that the
Fund pays John Hancock to bring the expense
ratio in line with the average expense ratio for
comparable funds.
The VST Board of Trustees determined that all of
the changes are in the best interest of all
shareholders and voted to recommend these changes
for the Small Cap Equity Fund. Your approval is
needed to implement these changes.
For complete information on these proposed
changes, please read the enclosed materials and
complete, sign and return your voting instruction
card.
If you have any questions or need additional
information, please contact a John Hancock
Representative at 1-800-576-2227, Monday through
Friday, 8:00 A.M. - 7:00 P.M. ET.
Sincerely,
/s/ Michele G. Van Leer
Michele G. Van Leer
Chairman
John Hancock Variable Series Trust I
[LOGO] John Hancock
VOTING INSTRUCTION FORM
PLEASE SIGN, DATE AND RETURN ALL VOTING INSTRUCTION FORMS RECEIVED IN THE
ENCLOSED POSTAGE-PAID ENVELOPE THESE VOTING INSTRUCTIONS ARE SOLICITED BY THE
TRUSTEES FOR THE SPECIAL MEETING OF SHAREHOLDERS ON FRIDAY, APRIL 4, 2003 -
11:30 A.M. EASTERN TIME, 197 CLARENDON STREET, BOSTON, MASSACHUSETTS
SMALL CAP EQUITY FUND
JOHN HANCOCK VARIABLE SERIES TRUST I
Special Meeting of Shareholders To Be Held on April 4, 2003
A Special Meeting of Shareholders of the John Hancock Variable Series Trust
I (the "Trust") for the Fund shown above will be held at the office of John
Hancock Life Insurance Company ("John Hancock"), 197 Clarendon Street, Boston,
Massachusetts, (telephone 1-800-732-5543) at 11:30 a.m. Eastern Time, on
Friday, April 4, 2003. By signing and dating below, you instruct the record
holder to, and such record holder will, vote the shares attributable to your
variable life insurance or variable annuity contract as marked or, if not
marked, to vote "FOR" the proposal on the reverse side of this form, and to use
its discretion to vote any other matter incident to the conduct of the Special
Meeting. If you do not intend to personally attend the Special Meeting, please
complete, detach and mail this form in the enclosed envelope at once.
The record owner is hereby instructed to vote the shares of the above named
Fund that are attributable to the undersigned's contract at the Special Meeting
of Shareholders and at any adjournment thereof.
Date ____________, 2003
PLEASE BE SURE TO SIGN AND DATE THIS PROXY
[Sign in the box]
_______________________________________
Signature(s) of Shareholder(s)
NOTE: Signature(s) should agree with the name(s) printed hereon. When
signing as attorney, executor, administrator, trustee or guardian, please give
your full name as such. If a corporation, please sign in full corporate name by
president or other authorized officer. If a partnership, please sign in
partnership name by authorized person.
VOTING INSTRUCTION FORM
PLEASE SIGN, DATE AND RETURN ALL VOTING INSTRUCTION FORMS RECEIVED IN THE
ENCLOSED POSTAGE-PAID ENVELOPE THESE VOTING INSTRUCTIONS ARE SOLICITED BY
THE TRUSTEES FOR THE SPECIAL MEETING OF SHAREHOLDERS ON FRIDAY, APRIL 4,
2003 - 11:30 A.M. EASTERN TIME, 197 CLARENDON STREET, BOSTON, MASSACHUSETTS
Please fill in box(es) as shown using black or blue ink or number 2 pencil.
PLEASE DO NOT USE FINE POINT PENS.
If this card is executed, but you give no direction, the shares will be
voted "FOR" the proposal.
Proposal 1A: To approve, as to the Small Cap Equity Fund, a new
Sub-Investment Management Agreement with Wellington Management.
[_] FOR [_] AGAINST [_] ABSTAIN
Proposal 1B: To approve, as to the Small Cap Equity Fund, the Small Cap
Equity Amendment with John Hancock.
[_] FOR [_] AGAINST [_] ABSTAIN
PLEASE DO NOT FORGET TO SIGN AND DATE THE REVERSE SIDE OF THIS CARD