AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 25, 1995
REGISTRATION NO. 33-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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MASSACHUSETTS 6311 04-2664016
(STATE OR OTHER (PRIMARY STANDARD (I. R. S. EMPLOYER
JURISDICTION OF INDUSTRIAL IDENTIFICATION NO.)
INCORPORATION OR CLASSIFICATION CODE
ORGANIZATION) NUMBER)
200 CLARENDON STREET
BOSTON, MASSACHUSETTS 02117
(617) 572-4390
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
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FRANCIS C. CLEARY, JR., ESQUIRE
JOHN HANCOCK MUTUAL LIFE INSURANCE COMPANY
JOHN HANCOCK PLACE
BOSTON, MASSACHUSETTS 02117
(NAME, ADDRESS INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box: [X]
CALCULATION OF REGISTRATION FEE
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PROPOSED PROPOSED
TITLE OF EACH MAXIMUM MAXIMUM AMOUNT OF
CLASS OF SECURITIES AMOUNT TO BE OFFERING AGGREGATE REGISTRATION
TO BE REGISTERED REGISTERED PRICE PER UNIT* OFFERING PRICE* FEE
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Interests under single
or flexible premium
modified guaranteed Not
annuity contracts.... $250,000,000 Applicable $250,000,000 $86,206.90
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* The maximum aggregate offering price is estimated solely for the purpose of
determining the registration fee. The proposed maximum offering price per
unit is not applicable in that these securities are not issued in
predetermined amounts or units.
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THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933, OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A)
MAY DETERMINE.
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JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY
CROSS REFERENCE SHEET PURSUANT TO
REGULATION S--K, ITEM 501(B)
FORM S--1 ITEM NUMBER AND CAPTION HEADING IN PROSPECTUS
1. Forepart of the
Registration Statement
and Outside Front Cover
Page of Prospectus...... Outside Front Cover Page
2. Inside Front and Outside
Back Cover Pages of
Prospectus.............. Inside Front Cover
3. Summary Information,
Risk Factors and Ratio
of Earnings to Fixed
Charges................. Description of Contracts; Financial
Statements; Summary Information
4. Use of Proceeds......... Investments by JHVLICO
5. Determination of
Offering Price.......... Not Applicable
6. Dilution................ Not Applicable
7. Selling Security
Holders................. Not Applicable
8. Plan of Distribution.... Distribution of Contracts
9. Description of
Securities to be
Registered.............. Description of Contracts
10. Interests and Named
Experts and Counsel..... Not Applicable
11. Information with Respect
to the Registrant....... The Company; Executive Officers and Directors;
Executive Compensation; Financial Statements;
Legal Matters
12. Disclosure of Commission
Position on
Indemnification for
Securities Act
Liabilities............. Not Applicable
PROSPECTUS
JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY
MODIFIED GUARANTEED ANNUITY CONTRACTS
200 CLARENDON STREET
BOSTON, MASSACHUSETTS
02117
This Prospectus describes certain deferred annuity Contracts offered by John
Hancock Variable Life Insurance Company ("JHVLICO"). The Contracts, issued on
a group basis or as individual contracts, are designed to provide retirement
benefits for eligible individuals. With respect to a Contract issued on a
group basis, eligible individuals include persons who have established
accounts with certain broker-dealers and other financial institutions that
have entered into a distribution agreement to offer interests in the
Contracts, and members of other eligible groups. (See "Distribution of the
Contracts," page .) Contracts issued on an individual basis are offered in
certain states.
An interest in a group Contract will be separately accounted for by the
issuance of a Certificate evidencing the individual Participant's interest
under the Contract. An interest in an individual Contract is evidenced by the
issuance of an individual Contract. The Certificate and individual Contract
are hereinafter referred to as the "Contract."
A minimum single premium payment of at least $5,000 must accompany the
application for a Contract. JHVLICO reserves the right to limit the maximum
single premium payment amount. No additional payment is permitted on a
Contract, although eligible individuals may purchase more than one Contract.
(See "The Application Process," page .)
Premium payments become part of the general assets of JHVLICO.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
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MUTUAL FUNDS, ANNUITIES AND INSURANCE PRODUCTS ARE NOT DEPOSITS OR
OBLIGATIONS OF, OR GUARANTEED BY ANY BANK, NOR ARE THEY INSURED BY THE FDIC;
THEY ARE SUBJECT TO INVESTMENT RISKS, INCLUDING POSSIBLE LOSS OF THE PRINCIPAL
AMOUNT INVESTED.
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The date of this Prospectus is , 1995.
PUBLICLY-AVAILABLE INFORMATION
JHVLICO is subject to the informational requirements of the Securities
Exchange Act of 1934 (the "1934 Act"), as amended, and in accordance therewith
files reports and other information with the Securities and Exchange
Commission (the "Commission"). Such reports and other information can be
inspected and copied at the public reference facilities of the Commission at
Room 1024, 450 Fifth Street, N. W., Washington, D. C.
JHVLICO intends to deliver to holders of outstanding Contracts annual
account statements and such other periodic reports as may be required by law,
but it is not anticipated that any such reports will include periodic
financial statements or information concerning JHVLICO.
TABLE OF CONTENTS
PAGE
----
SUMMARY INFORMATION....................................................... 1
SPECIAL TERMS............................................................. 3
DESCRIPTION OF CONTRACTS.................................................. 5
The Application Process.................................................. 5
Accumulation Period...................................................... 5
Guarantee Periods........................................................ 5
Guarantee Rates and Current Rates........................................ 7
Guarantee Period Exchange Option......................................... 7
Surrenders and Withdrawals............................................... 7
Market Value Adjustment.................................................. 8
Systematic Withdrawals................................................... 9
Premium Taxes............................................................ 10
Death Benefit............................................................ 10
Payment Upon Surrender................................................... 10
Annuity Period........................................................... 11
Date of Maturity and Form of Annuity..................................... 11
Annuity Options.......................................................... 11
Other Conditions......................................................... 12
INVESTMENTS .............................................................. 12
PARTICIPANT AND BENEFICIARY RIGHTS AND PRIVILEGES......................... 13
AMENDMENT OF CONTRACTS.................................................... 13
DISTRIBUTION OF CONTRACTS................................................. 13
FEDERAL INCOME TAXES...................................................... 14
THE COMPANY .............................................................. 17
Business of JHVLICO...................................................... 17
Selected Financial Data.................................................. 17
Recent Accounting Developments........................................... 18
Management Discussion and Analysis of Financial Condition and Results of
Operations.............................................................. 18
Competition.............................................................. 22
Employees and Facilities................................................. 22
Transactions with JHMLICO................................................ 22
Regulation............................................................... 23
Directors and Executive Officers......................................... 23
Executive Compensation................................................... 24
REGISTRATION STATEMENT.................................................... 25
LEGAL MATTERS............................................................. 25
EXPERTS................................................................... 25
APPENDIX A: MARKET VALUE ADJUSTMENT....................................... 26
FINANCIAL STATEMENTS...................................................... F-1
i
SUMMARY INFORMATION
Upon application or purchase order, an initial Guarantee Period is selected
by the Participant from among those then offered by JHVLICO. (See "Initial and
Subsequent Guarantee Periods," page , and "Guarantee Rates and Current
Rates," page .) At the time of this Prospectus, JHVLICO offers initial and
subsequent Guarantee Periods of 3, 5, 6, 7, 8, 9, and 10 years. JHVLICO
reserves the right to change the duration of the Guarantee Periods offered for
any initial or subsequent Guarantee Period. The premium payment (less
withdrawals and any applicable premium taxes and contract fees) will earn
interest at the Initial Guarantee Rate for the Guarantee Period chosen. The
Initial Guarantee Rate is an effective annual rate reflecting the daily
compounding of interest.
At the end of each Guarantee Period, a subsequent Guarantee Period of the
same duration will begin unless, (a) within the 30 day period prior to the end
of such Guarantee Period, a different duration is elected by the Participant
from among those offered by JHVLICO at that time or (b) the annuity payments
begin or the Contract is surrendered at that time. Without JHVLICO's prior
approval, subsequent Guarantee Periods may not extend beyond the Annuitant's
85th birthday.
The Accumulated Value as of the first day of each subsequent Guarantee
Period will earn interest at the Subsequent Guarantee Rate for the Guarantee
Period chosen. JHVLICO'S MANAGEMENT WILL MAKE THE FINAL DETERMINATION AS TO
GUARANTEE RATES TO BE DECLARED. JHVLICO CANNOT PREDICT NOR CAN JHVLICO
GUARANTEE FUTURE GUARANTEE RATES. (See "Guarantee Periods," page , and
"Guarantee Rates and Current Rates," page .)
Subject to certain restrictions, withdrawals and surrenders are permitted.
However, prior to payment of the surrender or withdrawal, such withdrawals and
surrenders made prior to the end of a Guarantee Period may be subject to an
early withdrawal charge and/or a Market Value Adjustment. Except as described
below, the early withdrawal charge will be deducted from any such withdrawal
or surrender made before the end of the seventh Contract Year. The early
withdrawal charge will be equal to seven percent of the amount withdrawn or
surrendered, in excess of the Free Withdrawal Value, in the first Contract
Year, and will be reduced by one percentage point for each of the next six
Contract Years. FOR A SURRENDER MADE AT THE END OF A GUARANTEE PERIOD, NO
EARLY WITHDRAWAL CHARGE OR MARKET VALUE ADJUSTMENT WILL BE APPLIED, PROVIDED
THAT A REQUEST IN WRITING FOR SURRENDER AT THE END OF THE GUARANTEE PERIOD IS
RECEIVED BY JHVLICO WITHIN THE 30 DAYS PRECEDING THE END OF THE GUARANTEE
PERIOD.
No early withdrawal charge will be applicable if the Accumulated Value is
used to purchase an annuity on the Date of Maturity. A Market Value Adjustment
will be applied if the Date of Maturity is not at the end of a Guarantee
Period. To elect an Annuity Option the Participant must notify JHVLICO at
least 30 days before the Date of Maturity.
If the Participant so requests In Writing, JHVLICO will, for each Contract
Year, send the Participant an amount (the Free Withdrawal Value) totaling 10%
of the Accumulated Value calculated as of the first day of the Contract Year.
No early withdrawal charge or Market Value Adjustment will be imposed on such
amount. Any such distribution is deemed a withdrawal, however, and, as such,
may be subject to tax. (See "Surrenders and Withdrawals," page , and "Federal
Taxation," page .)
The Market Value Adjustment reflects the relationship between the Current
Rate for the duration remaining in the Guarantee Period at the time the
surrender or withdrawal is requested
and the then applicable Guarantee Rate for the Contract. Since Current Rates
are based in part upon the investment yields available to JHVLICO (see
"Investments," page ), the effect of the Market Value Adjustment will be
closely related to the levels of such yields. It is possible, therefore, that,
should such yields increase significantly from the time a Contract is
purchased, the amount received upon a surrender of the Contract may be less
than the original premium payment. If such yields should decrease
significantly, the amount received upon a surrender may be more than the
original premium payment.
JHVLICO may defer payment of any surrender for a period not exceeding 6
months from the date of JHVLICO's receipt of a written request for surrender.
If JHVLICO defers payment on a surrender for more than 30 days, JHVLICO will
pay interest on the Surrender Value at a rate equal to the greater of the rate
required by state law and the rate declared by JHVLICO. (See "Payment Upon
Surrender," page .)
If the Surrender Value or Death Benefit has not been paid prior to the Date
of Maturity specified by the Participant or otherwise determined pursuant to
the Contract, JHVLICO will make a lump sum payment or start to pay a series of
payments based on an Annuity Option on such Date of Maturity. The Annuity
Option is selected by the Participant or, if the Participant has not made a
selection, is a life annuity with payments guaranteed for at least 10 years.
(See "Annuity Period," page .)
The Contract provides for a Death Benefit. Upon the death of the Annuitant
or the Participant before the Date of Maturity, the Death Benefit will be
payable to the Beneficiary as determined under the Contract provisions.
Written notification and due proof of death at the offices of JHVLICO are
required to process the Death Benefit. With regard to Joint Participants, at
the death of the first Joint Participant prior to the Date of Maturity, the
Beneficiary will be the surviving Participant notwithstanding that the
designated Beneficiary may be different.
The Death Benefit will equal the Accumulated Value as of the date of death.
In the event of the Participant's death where the named Beneficiary is the
spouse of the Participant and the Annuitant is living, the spouse may elect,
in lieu of receiving the Death Benefit, to become the Participant and continue
the Contract. (See "Death Benefit," page .)
A deduction will be made for premium taxes for Contracts sold in certain
states. Currently such taxes range up to 5% of the Accumulated Value applied
to an Annuity Option. Usually premium taxes are deducted from the Accumulated
Value of the Contract at the time of annuitization. For exceptions to the
normal rule, see "Premium Taxes," page .
2
SPECIAL TERMS
As used in this Prospectus, the following terms have the indicated
meanings:
ACCUMULATED VALUE
During the initial Guarantee Period, Accumulated Value means the premium
payment plus earned interest, less any withdrawals and applicable deduction
for contract fees and any applicable deductions for premium taxes or
similar taxes. During any subsequent Guarantee Period, Accumulated Value is
equal to the Accumulated Value as of the last day of the immediately
preceding Guarantee Period, including any Market Value Adjustments made
under the guarantee period exchange option, plus earned interest, less any
withdrawals and applicable deduction for contract fees and any deduction
for premium taxes or similar taxes during such subsequent Guarantee Period.
ANNUITANT
The individual designated as such in the Contract.
BENEFICIARY
The person entitled to receive benefits per the terms of the Contract in
case of the death of the Annuitant or the Participant, or the Joint
Participant, as applicable.
CONTRACT YEAR
For any given Contract, the 12 month period following the Date of Issue and
each 12 month period thereafter.
CURRENT RATE
The applicable interest rate contained in a schedule of rates established
by JHVLICO from time to time for various durations.
DATE OF ISSUE
The effective date of the Certificate issued under the group annuity
Contract, or the date of issue of an individual annuity Contract.
DATE OF MATURITY
The date on which annuity payments are to start, provided that the date is
no later than the Annuitant's 85th birthdate without JHVLICO's prior
approval.
FREE WITHDRAWAL VALUE
An amount totaling 10 percent of the Accumulated Value, calculated as of
the first day of the Contract Year, reduced by any prior withdrawals made
during the Contract Year.
GUARANTEE PERIOD
The period for which an Initial or Subsequent Guarantee Rate is credited.
GUARANTEE RATE
The Guarantee Rate refers to either the Initial Guarantee Rate or the
Subsequent Guarantee Rate.
INITIAL GUARANTEE RATE
The rate of interest credited and compounded annually during the initial
Guarantee Period.
3
IN WRITING
A written form satisfactory to JHVLICO and received at its offices
addressed to: Life and Annuity Services, 200 Clarendon Street, P. O. Box
111, Boston, Massachusetts 02117.
PARTICIPANT
With respect to a Group Contract, Participant refers to a person or persons
who has or have been issued a Certificate; with respect to an individual
Contract, Participant refers to a person or persons who has or have been
issued an individual annuity Contract. Where there are joint Participants,
each must join in making any request or election or taking any action
pursuant to the Contract.
SUBSEQUENT GUARANTEE RATE
The rate of interest established by JHVLICO for the applicable subsequent
Guarantee Period.
SURRENDER VALUE
The Accumulated Value of the Contract, less, if applicable, any contract
fees, any income taxes withheld, any deduction for premium taxes or similar
taxes, and any early withdrawal charge, and adjusted by any then applicable
Market Value Adjustment.
WITHDRAWAL
The amount withdrawn prior to any deductions or adjustments.
4
DESCRIPTION OF CONTRACTS
THE APPLICATION PROCESS
A prospective Participant must complete an application form or an order to
purchase. This application or order must be submitted to JHVLICO for approval
along with the premium payment. The minimum premium payment is $5,000. JHVLICO
retains the right to limit the amount of the maximum premium payment.
Contracts are issued within a reasonable time after receipt of the
application or order and the premium payment. JHVLICO reserves the right to
reject an application or order and, in such case, any premium payment will be
returned without interest. Additional premium payments may not be contributed
to an existing Contract. However, additional Contracts may be purchased by
eligible individuals at then prevailing Guarantee Rates and terms.
If the application or order is properly completed and accepted by JHVLICO,
the premium payment becomes part of JHVLICO's general assets and is credited
to an account established for the Participant. We will confirm the crediting
of the premium payment in writing within five business days of receipt of the
payment and of a properly completed application or order. Interest on an
account will be accrued beginning on the date the premium payment is credited.
The premium payment will not be applied in the event that an application or
an order to purchase is not properly completed. JHVLICO will attempt to
contact the Participant in writing or by telephone. JHVLICO will return the
premium payment without interest three weeks after receiving it, if the
application or an order to purchase has not, by that time, been properly
completed.
ACCUMULATION PERIOD
Guarantee Periods
In the application or order, the Participant will select the duration of the
initial Guarantee Period from among those durations offered by JHVLICO. The
duration selected will determine the Initial Guarantee Rate. The premium
payment (less withdrawals and any applicable premium taxes and contract fees)
will earn interest at the Initial Guarantee Rate, which is an annual effective
rate for the Guarantee Period selected reflecting the daily compounding of
interest.
Only one Guarantee Period may be in use under a single Contract at any one
time. Set forth below is an illustration of how interest will be credited to
the Accumulated Value during each Guarantee Period.
Note: The following example assumes no withdrawals of any amount during the
entire five year period. If the Participant were to make a withdrawal or
surrender at any time, taxes and, in some cases, tax penalties, would be
payable. (See "Federal Income Taxes," page .) Also, if the withdrawal or
surrender occurs at any time other than the end of the Guarantee Period, an
early withdrawal charge applies, and a Market Value Adjustment may apply. (See
"Surrenders and Withdrawals," page .) The hypothetical interest rate shown
below is illustrative only and is not intended to predict future interest
rates to be declared under the Contract. Actual interest rates declared for
any given time may be more or less than those shown.
EXAMPLE OF COMPOUNDING AT THE INITIAL GUARANTEE RATE
Premium Payment: $20,000
Guarantee Period: 7 years
Guarantee Rate: 6.00% per annum
(1+Guarantee Rate) 1.06
5
Premium Payment = $20,000.00
Accumulated Value at end of Contract Year 1 = $21,200.00 ($20,000.00 X 1.06)
Accumulated Value at end of Contract Year 2 = $22,472.00 ($21,200.00 X 1.06)
Accumulated Value at end of Contract Year 3 = $23,820.32 ($22,472.00 X 1.06)
Accumulated Value at end of Contract Year 4 = $25,249.54 ($23,820.32 X 1.06)
Accumulated Value at end of Contract Year 5 = $26,764.51 ($25,249.54 X 1.06)
Accumulated Value at end of Contract Year 6 = $28,370.38 ($26,764.51 X 1.06)
Accumulated Value at end of Guarantee Period = $30,072.61
Total Interest Credited in
Guarantee Period: $30,072.61 - $20,000 = $10,072.61
Accumulated Value at end of
Guarantee Period: $20,000.00 + $10,072.61 = $30,072.61
Accumulated Value after 150 days
from the Contract Date: $20,000.00 X (1.06) ^ (150/365) = $20,484.70
Unless the Participant elects to make a surrender (see "Surrenders and
Withdrawals", page ), a subsequent Guarantee Period generally will commence
at the end of a Guarantee Period. Each subsequent Guarantee Period will be the
same duration as the previous Guarantee Period (if available), unless the
Participant elects, within the 30 day period prior to the end of such
Guarantee Period, from among those Guarantee Periods currently being offered
by JHVLICO, a new Guarantee Period of a different duration.
In no event may subsequent Guarantee Periods extend beyond the Annuitant's
85th birthday, or any later date that JHVLICO may have permitted the
Participant to elect as a Date of Maturity. For example, if the Annuitant is
age 81 upon the expiration of a 5 year Guarantee Period, JHVLICO will provide
the subsequent Guarantee Period expiring closest to, without exceeding, the
Annuitant's 85th birthday (assuming no such later Date of Maturity has been
agreed to), if such subsequent Guarantee Period is available and the
Participant has not duly elected a shorter subsequent Guarantee Period. The
Accumulated Value will then earn interest at a Subsequent Guarantee Rate
declared by JHVLICO for that duration. The Subsequent Guarantee Rate for the
Guarantee Period automatically applied in these circumstances may be higher or
lower than the Subsequent Guarantee Rate for longer durations. If all
subsequent Guarantee Periods available would extend beyond the Annuitant's
85th birthday (or any later Date of Maturity that has been duly elected), the
Date of Maturity will automatically become the end of the expiring Guarantee
Period. In such case, JHVLICO will provide an annuity payable to the Annuitant
beginning on such Date of Maturity for a guaranteed period of 10 years and as
long thereafter as the Annuitant lives or a lump sum payment if the
Accumulated Value is insufficient to support an Annuity Option, as described
under "Annuity Options," page ). Also, the Participant may choose to elect
any other optional form of payment available.
The Accumulated Value at the beginning of any subsequent Guarantee Period
will be equal to the Accumulated Value at the end of the Guarantee Period just
ending, including any Market Value Adjustments made under the guarantee period
exchange option. (See "Guarantee Period Exchange Option, page ".) This
Accumulated Value will earn interest at the applicable Subsequent Guarantee
Rate which is an annual effective rate reflecting the daily compounding of
interest.
Within 30 days prior to the end of a Guarantee Period, JHVLICO will notify
the Participant of the expiration of such Guarantee Period.
6
Guarantee Rates and Current Rates
The Initial Guarantee Rate for the initial Guarantee Period will be
established at the time the Contract is purchased. From time to time, for
customers of certain financial institutions, JHVLICO may credit Guarantee
Rates that are higher than those which are otherwise applicable. Except as
described in the following paragraph, however, the Initial and Subsequent
Guarantee Rates that are being offered to Participants or prospective
Participants at any given time will be the same with respect to Guarantee
Periods of the same durations.
Immediately prior to the commencement of a subsequent Guarantee Period, a
Participant may elect to receive a Subsequent Guarantee Rate that is higher
than that which JHVLICO would otherwise provide. This option will be available
to Participants with Contracts having an Accumulated Value of at least $5,000.
This election must be In Writing within 30 days prior to the end of the
Participant's expiring Guarantee Period. If the Participant makes such an
election for a higher Subsequent Guarantee Rate, the existing Contract must be
surrendered, and a new Contract will be issued. Early withdrawal charges under
the new Contract will restart and, in accordance with the procedures described
under "Early Withdrawal Charges," page , will be measured from the Date of
Issue of the new Contract.
JHVLICO's schedule of Current Rates is used to determine the amount of any
Market Value Adjustment at any time. If JHVLICO is currently offering a
Guarantee Period of a given duration, the Current Rate for that duration will
be the same as JHVLICO's basic Guarantee Rates that are then in effect for
that duration. For any durations as to which Guarantee Periods are not then
being offered, the Current Rate will be established by JHVLICO on a basis
consistent with the Current Rates for the Guarantee Periods that are being
offered.
Subject to the discussion in the foregoing paragraphs, JHVLICO will
determine Current Rates and Guarantee Rates periodically at its sole
discretion. JHVLICO has no specific formula for determining the rate of
interest that it will declare as future Current Rates or future Guarantee
Rates. The determination of Current Rates and Guarantee Rates will reflect
interest rates available on the types of debt instruments in which JHVLICO
intends to invest the proceeds attributable to the Contracts. (See
"Investments", page .) In addition, JHVLICO's management may also consider
various other factors in determining Current Rates and Guarantee Rates for a
given period, including regulatory and tax requirements, sales commissions and
administrative expenses, general economic trends, and competitive factors.
JHVLICO's management will make the final determination as to Current and
Guarantee Rates to be declared. JHVLICO cannot predict nor guarantee future
Current Rates or future Guarantee Rates.
Guarantee Period Exchange Option
Once each Contract Year, the Participant may elect In Writing, from those
Guarantee Periods currently offered, a new Guarantee Period of a different
duration, provided that the Accumulated Value after such election is at least
$4,000. A Market Value Adjustment will be applied to the current Accumulated
Value at the time of transfer. There will be no early withdrawal charge for
this transfer. However, early withdrawal charges will continue to be measured
from the Date of Issue of the original Contract. JHVLICO reserves the right to
charge a contract fee of up to $50 for such transfers, but JHVLICO does not
impose a contract fee as of the date of this Prospectus.
Surrenders and Withdrawals
General
Surrenders may be made under a Contract at any time. In the case of all
surrenders that exceed the Free Withdrawal Value, (except surrenders requested
at the end of a Guarantee
7
Period), the Participant will receive the Accumulated Value to date reduced by
any applicable early withdrawal charge and adjusted by any applicable Market
Value Adjustment.
Withdrawals may only be made if the withdrawal is at least $500 and the
remaining Accumulated Value after the withdrawal has been deducted is at least
$4,000. However, a Free Withdrawal Value less than $500 may be withdrawn, but
only in its entirety.
For all withdrawals in excess of the Free Withdrawal Value, except
withdrawals requested at the end of a Guarantee Period, the Participant will
receive the withdrawal amount requested reduced by any applicable early
withdrawal charge and adjusted by any applicable Market Value Adjustment.
No early withdrawal charges or Market Value Adjustments are applied to
surrenders or withdrawals requested at the end of a Guarantee Period if we
receive the request In Writing within the 30 days preceding such date. The
effective date of any withdrawal or surrender, other than one requested at the
end of the Guarantee Period, is the date of receipt of the request In Writing
for such surrender or withdrawal.
Any withdrawal or surrender may be subject to tax (See "Federal Taxation,"
page ) and any unpaid premium taxes.
JHVLICO will, upon request, inform the Participant of the amount payable
upon a surrender or withdrawal.
Early Withdrawal Charge
No deduction for a sales charge is made from the premium payment when
received. An early withdrawal charge, however, may be deducted from
withdrawals or surrenders, in excess of the Free Withdrawal Value, made before
the end of the seventh Contract Year. The amount of any early withdrawal
charge is computed as a percentage of the amount withdrawn or surrendered
prior to the deduction of any other applicable charges or deductions. The
chart below indicates the percentage charge applied during the specified
Contract Year:
YEARS FROM DATE OF ISSUE EARLY
TO DATE OF WITHDRAWAL WITHDRAWAL
OR SURRENDER CHARGES
------------------------ ----------
8 or more................................................... No Charge
7 but less than 6........................................... 1%
6 but less than 5........................................... 2%
5 but less than 4........................................... 3%
4 but less than 3........................................... 4%
3 but less than 2........................................... 5%
2 but less than 1........................................... 6%
less than 1 year............................................ 7%
No early withdrawal charge will be made for surrenders or withdrawals after
Contract Year 7, surrenders or withdrawals effective at the end of a Guarantee
Period, or any Free Withdrawal Value. For purposes of the Free Withdrawal
Value, withdrawals will be deemed to be taken first from the Free Withdrawal
Value, then from the remaining Accumulated Value.
Market Value Adjustment
The amount payable on withdrawals or surrenders may be adjusted up or down
by the application of the Market Value Adjustment. Where applicable, the
Market Value Adjustment is
8
applied to the amount withdrawn or surrendered, net of any early withdrawal
charge or other charges or deductions. The Market Value Adjustment will not be
applied to any Free Withdrawal Value. For this purpose, withdrawals will be
deemed to be taken first from the Free Withdrawal Value, then from the
remaining Accumulated Value.
In the case of either a withdrawal or surrender, any Market Value Adjustment
that is applicable will reflect the relationship between the Current Rate for
the duration remaining in the Guarantee Period at the time the withdrawal or
surrender is requested, and the Guarantee Rate then applicable to the
Contract.
If the Guarantee Rate is higher than the applicable Current Rate, the Market
Value Adjustment, if applicable, will generally result in a higher payment
upon surrender or withdrawal.
If the Guarantee Rate is lower than the applicable Current Rate, then the
Market Value Adjustment, if applicable, will result in a lower payment upon
surrender or withdrawal.
For example, assume a Participant purchases a Contract and selects an
initial Guarantee Period of 7 years and the Guarantee Rate in effect for that
duration is 6% per annum. Assume at the end of 2 years the Participant makes a
withdrawal. If the 5 year Current Rate is then 5%, the amount payable upon
withdrawal will increase after the application of the Market Value Adjustment.
On the other hand, if such Current Rate is higher than the Guarantee Rate, for
example, 7%, the application of the Market Value Adjustment will cause a
decrease in the amount payable to the Participant upon this withdrawal.
Since Current Rates are based in part upon the investment yields available
to JHVLICO (see "Investments" page ), the effect of the Market Value
Adjustment will be closely related to the levels of such yields. It is
theoretically possible, therefore, that, should such yields increase
significantly from the time the Contract is purchased and should the early
withdrawal charges be taken, the amount received upon a surrender of the
Contract could be less than the original premium payment.
The formula for calculating the Market Value Adjustment is set forth in
Appendix A to this Prospectus, which also contains an additional illustration
of the application of the Market Value Adjustment.
Systematic Withdrawals
The Participant may elect In Writing to participate in a systematic
withdrawal plan, which enables the Participant to pre-authorize a periodic
exercise of the contractual withdrawal rights described above. Participants
entering into such a plan instruct JHVLICO to withdraw a percentage or a level
dollar amount up to the Free Withdrawal Value from the total Accumulated Value
of the Contract on a monthly, quarterly, semi-annual, or annual basis. JHVLICO
reserves the right to modify the eligibility rules or other terms and
conditions of this program at any time, without advance notice. In addition,
JHVLICO reserves the right to terminate the program at any time with
appropriate notice to the Participant. The total systematic withdrawal in a
Contract Year is limited to 10% of the Accumulated Value of the Contract as of
the beginning of the Contract Year. The minimum withdrawal is $100. Systematic
withdrawals may be subject to the early withdrawal charge or Market Value
Adjustment described above. The systematic withdrawal plan will terminate upon
cancellation In Writing by the Participant or in the event that the payment of
the amount withdrawn will reduce the Accumulated Value of the Contract to less
than $4,000, or the minimum withdrawal amount drops below $100. There may be
tax consequences associated with the systematic withdrawal plan. (See "Federal
Income Taxes," page .)
9
Premium Taxes
Several states and local governments impose a premium or similar tax on
annuities. Currently, such taxes range up to 5% of the Accumulated Value
applied to an Annuity Option. Ordinarily, any state-imposed premium or similar
tax will be deducted from the Accumulated Value of the Contract only at the
time of annuitization.
For Contracts issued in South Dakota, however, JHVLICO pays a tax on the
premium payment at the time it is made. At the time of annuitization, death,
surrender, or withdrawal, JHVLICO will deduct a charge for these taxes from
the Accumulated Value of the Contract or the amount withdrawn or surrendered.
Such a charge is equal to the applicable premium tax percentage times the
amount of Accumulated Value that is applied to an Annuity Option, surrendered,
withdrawn, or remaining at death.
Death Benefit
Upon the death of the Annuitant or the Participant before the Date of
Maturity, the Death Benefit will be payable to the Beneficiary as determined
under the Contract provisions. With regard to Joint Participants, at the first
death of a Joint Participant prior to the Date of Maturity, the Death Benefit
will be paid to the surviving Participant as Beneficiary notwithstanding that
the designated Beneficiary may be different. The Death Benefit is calculated
as of the date of receipt of notification In Writing of due proof of death.
The Death Benefit will equal the Accumulated Value. No early withdrawal charge
or Market Value Adjustment will be imposed, and JHVLICO will pay interest from
the date of death to the date of payment as provided in the Contract.
The Death Benefit may be taken in one sum, to be paid within six months
after the date JHVLICO receives due proof of death, or under any of the
Annuity Options available under the Contract, provided, however, that if any
Participant dies prior to the Date of Maturity, any Annuity Option elected
must provide that any amount payable as a Death Benefit will be distributed
within 5 years of the date of death, or, if the benefit is payable over a
period not extending beyond the life expectancy of the Beneficiary or over the
life of the Beneficiary, such distribution must commence within one year of
the date of death. Payment will be made in a single sum in any event if the
Death Benefit is less than $5000 or if each periodic payment under the Annuity
Option chosen would be less than $50. Notwithstanding the foregoing, in the
event of the Participant's death where the designated Beneficiary is the
spouse of the Participant and the Annuitant is living, such spouse may elect,
in lieu of receiving the Death Benefit, to continue the Contract as the
Participant. This does not, however, alter the requirement for an IRA that
distributions must begin no later than April 1 of the year following the year
in which the deceased Participant would have attained age 70 1/2.
Payment Upon Surrender
JHVLICO may defer payment of any surrender for a period not exceeding 6
months from date of its receipt of a request for surrender. Only under highly
unusual circumstances will a surrender payment be deferred more than 30 days,
and if payment is deferred for more than 30 days, JHVLICO will pay interest on
the Surrender Value at a rate equal to the greater of the rate required by
state law and the rate declared by JHVLICO. While all circumstances under
which JHVLICO could defer payment upon surrender may not be foreseeable at
this time, such circumstances could include, for example, a time of an
unusually high surrender rate among Participants, accompanied by a radical
shift in interest rates. If payment is withheld for more than 30 days, the
Participant will be notified in writing. JHVLICO will not, however, defer
payment for more than 30 days for any surrender which is to be effective at
the end of any Guarantee Period.
10
ANNUITY PERIOD
Date of Maturity and Form of Annuity
The Participant may elect, In Writing within the 30 days prior to the Date
of Maturity, to have all or a portion of the Surrender Value paid in a lump
sum on the Date of Maturity. Alternatively, or with respect to any portion of
the Surrender Value not paid in a lump sum, the Participant may elect, In
Writing at least 30 days prior to the Date of Maturity, to have the
Accumulated Value with a Market Value Adjustment (less applicable premium
taxes, if any) applied on the Date of Maturity under any of the Annuity
Options described below.
If the Participant has not duly elected an Annuity Option or lump sum
distribution as of the Date of Maturity, the Date of Maturity will be
disregarded and the Contract will continue in force and subsequent Guarantee
Periods will continue to be provided until (a) no subsequent Guarantee Period
is available that would not extend beyond the Annuitant's 85th birthday (or
later Date of Maturity that we have approved), at which time a lump sum
payment or Annuity Option will be provided as described under "Guarantee
Periods," page , (b) the Participant surrenders the Contract, or (c) the
Participant duly elects another Date of Maturity and duly elects a lump sum
distribution or the commencement of an Annuity Option as of that Date of
Maturity.
Each Contract will provide at the time of its issuance for a Life Annuity
with Ten Years Certain. Under this form of annuity, annuity payments are made
monthly to the Annuitant for life and, if the Annuitant dies within ten years
after the Date of Maturity of the Contract, the payments remaining in the ten-
year period will be made to the contingent payee, subject to the terms of any
supplementary agreement issued. (NOTE: The terminology used in a supplementary
agreement may differ from that used in a Contract. For example, in a
supplementary agreement, the term "payee" may be used to refer to the
Annuitant or to some other person named by the Participant to receive payments
under the supplementary agreement in the event of the Annuitant's death, and
the term "contingent payee" may be used to refer to the beneficiary.) A
different form of annuity may be elected by the Participant, as described in
"Annuity Options," prior to the Date of Maturity of the Contract. Once annuity
payments have begun, the form of annuity cannot be changed and the annuity
benefits cannot be surrendered for the purpose of receiving a lump sum benefit
in lieu thereof.
Each Participant selects a provisional Date of Maturity at the time of
application for a Contract. The provisional Date of Maturity may be no earlier
than six months after the date the premium payment is credited to the
Contract. The provisional Date of Maturity is stated in the Contract. The
Participant may subsequently elect a different Date of Maturity which may not
exceed age 85, absent JHVLICO's approval, or be earlier than six months after
the date the premium payment is credited to the Contract, nor later than the
maximum maturity age specified in the Contract. The election for a different
Date of Maturity must be made In Writing before the provisional Date of
Maturity and at least 31 days prior to the Date of Maturity. If a Date of
Maturity different from the provisional Date of Maturity is not elected by the
Participant, the provisional Date of Maturity shall be the Date of Maturity of
the Contract. If, however, a Guarantee Period becomes effective that causes
the Contract to continue beyond the provisional Date of Maturity, then the
provisional Date of Maturity becomes the Annuitant's 85th birthday. Additional
requirements apply to the timing of distributions under IRAs. (See "Contracts
Purchased Under Rollover Individual Retirement Annuity (IRA) Plans," page .)
Annuity Options
The Participant may elect an Annuity Option during the lifetime of the
Annuitant In Writing at least 30 days prior to the Date of Maturity of the
Contract. If no option is selected, Option A
11
with Ten Years Certain will be used. A Beneficiary entitled to payment of a
Death Benefit in a single sum may, if no election has been made by the
Participant prior to the Participant's or Annuitant's death, elect an Annuity
Option In Writing prior to the date the proceeds become payable. No option may
be elected if the Accumulated Value of the Contract to be applied is less than
$5000 or the periodic payment would be less than $50, in which case, JHVLICO
will make a lump sum distribution of the Surrender Value or, upon the death of
an Annuitant or Participant, the amount of any Death Benefit. Among the
options available are the following two basic Annuity Options.
Option A: Life Annuity with Five, Ten Or Twenty Years Certain
Monthly payments will be made for a designated period of 5, 10 or 20
years and thereafter as long as the payee lives, with the guarantee that if
the payee dies prior to the end of the 5, 10 or 20 year period, whichever
is applicable, payments will continue for the remainder of the guaranteed
period to a contingent payee, subject to the terms of any supplementary
agreement issued.
Option B: Life Annuity Without Refund
Monthly payments will be made to the payee as long as he lives.
The Life Annuity with Five Years Certain and the Life Annuity Without Refund
are not available without prior approval by JHVLICO for an Annuitant older
than age 85.
The guaranteed minimum monthly annuity payment rates are set forth in the
Contract. The actual rates applied will be the greater of these minimum rates
and the current rates that JHVLICO has in effect at the time annuity payments
begin. Information concerning current rates is available upon request.
Other Conditions
JHVLICO reserves the right at its sole discretion to make available to
Participants and other payees optional methods of payment in addition to the
Annuity Options described in this Prospectus and the applicable Contract.
If the Participant dies on or after the Date of Maturity, any remaining
interest in the Contract will be paid at least as rapidly as under the method
of distribution in effect at the time of death.
Federal income tax requirements currently applicable to individual
retirement annuity plans provide that the period of years guaranteed under
Option A cannot be any greater than the joint life expectancies of the payee
and his or her designated beneficiary.
INVESTMENTS
Premium payments received under the Contracts and allocated to the Guarantee
Periods will be invested by JHVLICO under the laws of Massachusetts. Contract
owners have no priority claims on, or participation in the performance of,
such assets. All such assets are the property of JHVLICO and available to meet
the guarantees under the Contracts and the general obligations of JHVLICO.
The assets of JHVLICO will be invested in accordance with the requirements
established by applicable state laws regarding the nature and quality of
investments that may be made by life insurance companies and the percentage of
their assets that may be committed to any particular type of investment. In
general, these laws permit investments, within specified limits and subject
12
to certain qualifications, in federal, state, and municipal obligations,
corporate bonds, preferred and common stocks, real estate mortgages, and
certain other investments.
JHVLICO has no specific formula for establishing the Guarantee Rates for the
Guarantee Periods. JHVLICO expects the rates to be influenced by, but not
necessarily correspond to the yields on the fixed income securities to be
acquired with amounts that are allocated to the Guarantee Periods at the time
that the Guaranteed Rate are established.
JHVLICO's current plans are to invest such amounts, according to its
detailed investment policy and guidelines, in fixed income obligations,
including corporate bonds, mortgages, mortgage-backed and asset-backed
securities and government and agency issues having durations in the aggregate
consistent with those of the Guarantee Periods. JHVLICO intends to invest
proceeds from the Contracts primarily in domestic investment-grade securities.
In addition, derivative contracts will be used only for hedging purposes, to
reduce the ordinary business risk of Contracts associated with changes in
interest rates, and not for speculating on future changes in the financial
markets.
PARTICIPANT AND BENEFICIARY RIGHTS AND PRIVILEGES
The Participant has the sole and absolute power to exercise all rights and
privileges under the Contract, except as otherwise provided by the Contract or
by notice of the Participant In Writing. The Participant and the Beneficiary
are designated in the application or order for a Contract and may be changed
by the Participant, effective upon receipt of notice In Writing, subject to
the rights of any assignee of record, any action taken prior to receipt of the
notice, and certain other conditions. While the Annuitant is alive, the
Participant may be changed by notice In Writing. The Beneficiary may be
changed by notice In Writing no later than receipt of due proof of the death
of the Annuitant. The change will take effect whether or not the Participant
or Annuitant is then alive.
The Contracts (other than IRAs) may be assigned at any time before the Date
of Maturity and for any purpose other than as collateral or security for a
loan. JHVLICO will not be bound by an assignment unless and until notice of
such assignment In Writing is received. JHVLICO assumes no responsibility for
the validity or effect of any assignment. In some cases, an assignment or
change of Participant may have adverse tax consequences. An IRA may not be
assigned. The Participant should consult a tax adviser regarding the
consequences of an assignment.
AMENDMENT OF THE CONTRACTS
JHVLICO reserves the right to amend the Contracts to meet the requirements
of applicable state or federal laws or regulations. JHVLICO will notify the
Participant in writing of any such amendments.
DISTRIBUTION OF THE CONTRACTS
John Hancock Mutual Life Insurance Company ("John Hancock") is registered as
a broker-dealer with the Commission under the Securities Exchange Act of 1934
and is a member of the National Association of Securities Dealers, Inc. John
Hancock acts as underwriter and distributor of the Contracts, pursuant to a
distribution agreement it has entered into with JHVLICO.
In turn, John Hancock and JHVLICO have entered into agreements to distribute
the Contracts (the "Distribution Agreements") with broker-dealers as well as
certain financial institutions whose
13
representatives are authorized by applicable law to sell annuity products.
Pursuant to the Distribution Agreements, John Hancock or JHVLICO will pay
compensation to such broker-dealers and institutions with respect to each
Contract that is issued, based on the dollar amount applied to that Contract.
Generally, the total commissions so paid will be at a higher rate if that
amount is applied for a longer duration than for a shorter one. The maximum
rate of such total commissions is generally 7%. In some cases, additional
compensation may be paid by John Hancock and JHVLICO at times subsequent to
the Contacts' issuance. The Distribution Agreements require that compensation
paid with respect to Contracts that are cancelled or surrendered within one
year after the Date of Issue must be refunded to John Hancock or JHVLICO.
Broker-dealers and financial institutions engaged in the offer and sale of the
Contracts are solely responsible for the compensation of their representatives
engaged in those activities.
FEDERAL INCOME TAXES
JHVLICO
JHVLICO is taxed as a life insurance company under the Internal Revenue Code
of 1986 (the "Code"). The assets underlying the Contracts will be owned by
JHVLICO. The income earned on such assets will be JHVLICO's income.
JHVLICO assumes no responsibility for determining whether a particular
individual retirement annuity plan satisfies the applicable requirements of
the Code or whether a particular Participant is eligible for such a plan.
THE PARTICIPANT OR OTHER PAYEE
The Contracts are considered annuity contracts under Section 72 of the Code.
Currently no Federal income tax is payable on increases in the value of the
Contract until payments are made to the Participant or other payee under such
Contract. However, a Contract owned other than by a natural person is not
generally an annuity for tax purposes and any increase in value thereunder is
taxable as ordinary income as accrued.
When payments under a Contract are made in the form of an annuity, the
amount of each payment is taxed to the Participant or other payee as ordinary
income to the extent that such payment exceeds that portion of the
Participant's "investment in the contract" (as defined in the Code) allocated
to that payment. In general, the Participant's "investment in the contract" is
the aggregate amount of premium payments made by him or her. The portion of
each annuity payment to be excluded from income is determined by dividing the
"investment in the contract," adjusted by any refund feature, by the amount of
"expected return" during the time that periodic payments are to be made, and
then multiplying by the "amount of the payment." The balance of the payment is
taxable. For purposes of determining the amount of taxable income resulting
from distributions, all Contracts and other annuity contracts issued by
JHVLICO or its affiliates to the Participant within the same calendar year
will be treated as if they were a single Contract.
When a payment under a Contract is made in a single sum, the amount of the
payment is taxed as ordinary income to the Participant or other payee to the
extent it exceeds the Participant's "investment in the contract."
WITHDRAWALS BEFORE ANNUITY STARTING DATE
When a payment under a Contract, including a payment under a systematic
withdrawal plan, is less than the amount that would be paid upon the
Contract's surrender and such payment is
14
made prior to the commencement of annuity payments under the Contract, part or
all of the payment (the withdrawal) may be taxed to the Participant or other
payee as ordinary income. On the date of the withdrawal, if the cash value of
the Contract is greater than the investment in the Contract, any part of such
excess value so withdrawn is subject to tax as ordinary income.
If an individual assigns or pledges any part of the value of a Contract, the
value so pledged or assigned is taxed as ordinary income to the same extent as
a withdrawal.
PENALTY FOR PREMATURE WITHDRAWALS
In addition to being included in ordinary income, the taxable portion of any
withdrawal may be subject to a 10% penalty tax. The penalty tax does not apply
to, among other things, payments made to the Participant or other payee after
the Participant attains age 59 1/2, or on account of the Participant's death
or disability. If the withdrawal is made in substantially equal periodic
payments over the life of the Annuitant or other payee or over the joint lives
of the Annuitant and the Annuitant's beneficiary the penalty will also not
apply.
CONTRACTS PURCHASED UNDER ROLLOVER INDIVIDUAL RETIREMENT ANNUITY (IRA) PLANS
No deduction is allowed for purchase payments made in or after the taxable
year in which the Participant has attained the age of 70 1/2 years nor is a
deduction allowed for a "rollover contribution" as defined in the Code.
When payments under a Contract are made in the form of an annuity, or in a
single sum such as on surrender of the Contract or by withdrawal, the payment
is taxed as ordinary income.
IRS required minimum distributions must begin no later than April 1 of the
year following the year in which the Participant attains age 70 1/2. The
Participant may incur adverse tax consequences if a distribution on surrender
of the Contract or by withdrawal is made prior to his attaining age 59 1/2,
except in the event of his or her death or total disability.
Withholding on Eligible Rollover Distributions
Recent legislation requires 20% withholding on certain distributions from
tax qualified plans. A Participant wishing to rollover his entire distribution
should have it paid directly to the successor plan. Otherwise, the
Participant's distribution will be reduced by the 20% mandatory income tax.
Consult a qualified tax adviser before taking such a distribution.
WITHHOLDING OF TAXES
JHVLICO is obligated to withhold taxes from certain payments unless the
recipient elects otherwise. The withholding rate varies depending upon the
nature and the amount of the distribution. JHVLICO will notify the Participant
or other payee in advance of the first payment of his or her right to elect
out of withholding and furnish a form on which the election may be made. Any
election must be received by JHVLICO in advance of the payment in order to
avoid withholding.
CERTAIN EXCHANGES
Section 1035 of the Code provides generally that no gain or loss will be
recognized under the exchange of a life insurance or annuity contract for an
annuity contract. Thus, a properly completed exchange from one of these types
of products into a Contract pursuant to the special annuity contract exchange
form JHVLICO provides for this purpose is not generally a taxable event under
the Code, and the Participant's investment in the Contract will be the same as
his or her investment in the exchanged product.
15
Because of the complexity of these and other tax aspects in connection with
an exchange, a tax adviser should be consulted before any exchange is made.
SEE YOUR OWN TAX ADVISER
The above description of Federal income tax consequences of owning a
Contract and of the individual retirement plans which may be funded by the
Contracts is only a brief summary and is not intended as tax advice. The rules
governing the provisions of tax qualified plans are extremely complex and
often difficult to understand. Anything less than full compliance with the
applicable rules, all of which are subject to change from time to time, can
have adverse tax consequences. For example, premature withdrawals are
generally subject to a 10% penalty tax. The taxation of an Annuitant or other
payee has become so complex and confusing that great care must be taken to
avoid adverse tax consequences. For further information a prospective
purchaser should consult a qualified tax adviser.
THE COMPANY
BUSINESS OF JHVLICO
JHVLICO was organized under the laws of the Commonwealth of Massachusetts in
1979 and commenced insurance operations in 1980. It is a wholly-owned
subsidiary of John Hancock Mutual Life Insurance Company ("JHMLICO" or "John
Hancock"), a mutual life insurance company organized under the laws of the
Commonwealth of Massachusetts in 1862.
JHVLICO is principally engaged in the writing of variable and universal life
insurance policies. JHVLICO's policies are primarily marketed through
JHMLICO's sales organization, which includes a proprietary sales force
employed at JHMLICO's own agencies and a network of independent general
agencies. Policies also are sold through various unaffiliated securities
broker-dealers and certain financial institutions with which JHMLICO and
JHVLICO have sales agreements. Currently, JHVLICO writes business in all
states except New York. At December 31, 1994, JHVLICO had $30.0 billion of
life insurance in force, net of reinsurance ceded of $4.3 billion.
In 1993, JHVLICO acquired Colonial Penn Annuity and Life Insurance Company
and changed its name to John Hancock Life Insurance Company of America. The
subsidiary's principal business activity at December 31, 1994, is the run-off
of a block of single premium whole life insurance. For additional discussion
of this acquisition, see Note 3 of Notes to Financial Statements.
SELECTED FINANCIAL DATA
The following financial data for JHVLICO and its subsidiary should be read
in conjunction with the financial statements and notes thereto, included
elsewhere in this Prospectus. The results for past accounting periods are not
necessarily indicative of the results to be expected in the future. The
selected financial data and financial statements have been prepared on the
basis of accounting practices prescribed or permitted by the Commonwealth of
Massachusetts Division of Insurance and in conformity with the practices of
the National Association of Insurance Commissioners ("NAIC") ("statutory
accounting practices") which are currently considered generally-accepted
accounting principles for a stock life insurance company wholly-owned by a
mutual life insurance company. See "Recent Accounting Developments," page ,
for additional discussion, regarding generally accepted accounting standards
for mutual life insurance companies.
16
The information presented below should be read in conjunction with, and is
qualified in its entirety by, "Management's Discussion and Analysis of
Financial Condition and Results of Operations," page , and the financial
statements and other information included elsewhere in this Prospectus.
YEAR ENDED AND AT DECEMBER 31,
-------------------------------------
1994 1993* 1992 1991 1990
------ ------ ------ ------ ------
(IN MILLIONS)
SELECTED FINANCIAL DATA
INCOME STATEMENT DATA
Premiums................................ $430.5 $398.8 $416.4 $377.6 $348.2
Net investment income................... 57.6 61.3 62.0 59.5 51.2
Other income, net....................... 95.5 (4.0) (3.9) (1.7) 4.1
TOTAL REVENUES........................ $583.6 $456.1 $474.5 $435.4 $403.5
Total benefits and expenses............. 556.0 456.6 440.8 389.4 376.4
Income tax expense...................... 15.0 6.5 20.5 25.9 11.9
Net realized capital gains (losses)..... 0.4 (2.6) (1.4) (1.4) 0.1
Net gain (loss)......................... 13.0 (9.6) 11.8 18.7 15.3
BALANCE SHEET DATA
Total assets............................ $2,627 $2,379 $2,348 $2,118 $1,773
Total obligations....................... 2,409 2,176 2,108 1,893 1,576
Total stockholder's equity.............. 218 203 240 225 197
- ---------
* On October 1, 1993, JHVLICO entered into an assumption reinsurance agreement
with JHMLICO to cede a block of variable life, universal life and flexible
variable life insurance policies to JHMLICO representing substantially all
of such policies written by JHVLICO in the State of New York. In connection
with this agreement, general account assets consisting of bonds, mortgage
loans, policy loans, cash, investment income due and accrued and deferred
and uncollected premiums totaling $72.2 million were transferred by JHVLICO
to JHMLICO, along with policy reserves, unearned premiums and dividend
liabilities totaling $47.7 million and surplus totaling $24.5 million.
Separate account assets consisting of common stock and policy loans totaling
$200.8 million were transferred to John Hancock's separate accounts along
with $200.8 million in separate account policyholder obligations.
RECENT ACCOUNTING DEVELOPMENTS
In January 1995, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 120, "Accounting and
Reporting by Mutual Life Insurance Enterprises for Certain Long-Duration
Participating Contracts." This Statement extends the requirements of
Statements No. 60, 97, and 113 to mutual life insurance enterprises, and
amends FASB Interpretation No. 40, "Applicability of Generally Accepted
Accounting Principles to Mutual Life Insurance and Other Enterprises." SFAS
No. 120 and Interpretation No. 40, as amended, require mutual life insurance
companies to modify their financial statements in order to continue to be
considered in accordance with generally accepted accounting principles,
effective for 1996 financial statements. The manner in which policy reserves,
new business acquisition costs, asset valuations, and related tax effects are
recorded will change. The modifications to existing accounting practices which
may be necessary have been defined by the American Institute of Certified
Public Accountants in Statement of Position ("SOP") 95-1, "Accounting for
Certain Insurance Activities of Mutual Life Insurance Enterprises." The
effects of such modifications on JHVLICO's general purpose financial
statements have not yet been determined.
17
MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Financial Condition
As of December 31, 1994, total assets grew by 10.4%, to $2,626.9 million,
from $2,378.6 million at December 31, 1993. Much of this growth is
attributable to growth in separate account assets, which grew by 9.7% during
1994, from $1,568.6 million at December 31, 1993, to $1,721.0 million at
December 31, 1994. Total obligations grew by 10.7% during 1994, from $2,175.8
million at December 31, 1993, to $2,409.0 million at December 31, 1994. As
with assets, most of this growth was in separate accounts, which grew by 9.7%
during 1994, from $1,565.3 million at December 31, 1993, to $1,717.7 million
at December 31, 1994. Separate account assets and liabilities consist
primarily of the fund balances associated with variable life business. The
asset holdings include fixed income, equity, growth, total return, real
estate, and global mutual funds, with liabilities representing amounts due to
policyholders. Total stockholder's equity grew by 7.4%, from $202.8 million at
December 31, 1993, to $217.9 million, at December 31, 1994.
Investments
JHVLICO continues to address industry wide issues of asset quality and
liquidity that have emerged in recent years. JHVLICO's bond portfolio is
highly diversified. It is not concentrated by geographic region, industry
group, or individual investment. In 1994, 1993, and 1992, JHVLICO invested new
money predominantly in long term investment grade corporate bonds as a means
of lowering the relative proportion of assets invested in commercial
mortgages. As a result, JHVLICO's holdings in investment (NAIC SVO classes 1
and 2) and medium (NAIC SVO class 3) grade bonds are 90.1% and 7.1%,
respectively, of total general account bonds at December 31, 1994. Most of the
medium grade bonds are private placements that provide long-term financing for
medium size companies. These bonds typically are protected by individually
negotiated financial covenants and/or collateral. The balance (NAIC SVO
classes 4, 5, and 6) of 2.8% of total general account bonds consists of lower
grade bonds and bonds in default. Bonds in default represent 0.5% of total
general account bonds.
Management believes JHVLICO's commercial mortgage lending philosophy and
practices are sound. JHVLICO generally makes mortgage loans against properties
with proven track records and high occupancy levels, and typically does not
make construction or condominium loans nor lend more than 75% of the
property's value at the time of the loan. To assist in the management of its
mortgage loans, JHVLICO uses a computer based mortgage risk analysis system.
JHVLICO has outstanding commitments to purchase long-term bonds and issue
real estate mortgages totaling $6.7 million and $5.0 million, respectively, at
December 31, 1994. If funded, the mortgage loans will be fully collateralized
by related properties. JHVLICO monitors the creditworthiness of borrowers
under long-term bond commitments and required collateral as deemed necessary.
The majority of these commitments expire in 1995.
Reserves and Obligations
JHVLICO's obligations principally consist of aggregate reserves for life
policies and contracts of $638.6 million in the general account and
obligations of $1,717.7 million in the separate accounts at December 31, 1994.
These liabilities are computed in accordance with commonly accepted actuarial
standards and are based on actuarial assumptions which are in accordance with,
or more conservative than, those called for in policy provisions. All reserves
meet the requirements of the insurance laws of the Commonwealth of
Massachusetts. Intensive asset adequacy testing was performed in 1994 for all
reserves. As a result of that testing, no additional reserves were
established.
18
JHVLICO's investment reserves include the Asset Valuation Reserve ("AVR")
required by the NAIC and state insurance regulatory authorities. Prior to
December 31, 1992, the investment reserves included the Mandatory Securities
Valuation Reserve and a voluntary investment reserve called the Mortgage and
Real Estate Valuation Reserve, which were replaced by the AVR.
The AVR is included in JHVLICO's obligations. At December 31, 1994, the AVR
was $12.6 million, compared to $10.4 million at December 31, 1993. The AVR
contains voluntary contributions of $1.1 million in 1994, $1.7 million in
1993, and $2.5 million in 1992. Management believes JHVLICO's level of reserve
is adequate and made more conservative by the voluntary contributions.
The AVR was established to stabilize statutory surplus from non interest
related fluctuations in the market value of bonds, stocks, mortgage loans,
real estate and other invested assets. The AVR generally captures realized and
unrealized capital gains or losses on such assets, other than those resulting
from changes in interest rates. Each year, the amount of an insurer's AVR will
fluctuate as capital gains or losses are absorbed by the reserve. To adjust
for such changes over time, an annual contribution must be made to the AVR
equal to 20% of the difference between the maximum AVR (as determined annually
according to the type and quality of an insurer's assets) and the actual AVR.
The AVR provisions permitted a phase-in period whereby the required
contribution was 10% in 1992, 15% in 1993, and the full 20% factor thereafter.
Such contributions may result in a slower rate of growth of, or a reduction
to, surplus. Changes in the AVR are accounted for as direct increases or
decreases in surplus. The impact of the AVR on the surplus position of John
Hancock in the future will depend in part on the composition of JHVLICO's
investment portfolio.
The Interest Maintenance Reserve ("IMR") captures realized capital gains and
losses (net of taxes) on fixed income investments (primarily bonds and
mortgage loans) resulting from changes in interest rate levels. These amounts
are not reflected in JHVLICO's capital account and are amortized into net
investment income over the estimated remaining lives of the investments
disposed. The IMR provisions permitted a phase-in period so that in 1992, 50%
of realized capital gains and losses on United States government securities
were recognized in net income and were not captured by the IMR. In 1993, the
provisions allowed 25% of these capital gains and losses to flow to net income
with the remainder being captured in the IMR. In 1994, all capital gains and
losses on United States government securities were captured by the IMR. The
impact of the IMR on the surplus of JHVLICO depends upon the amount of future
interest related capital gains and losses on fixed income investments.
Results of Operations
1994 Compared to 1993
Net gain from operations was $12.6 million in 1994, $19.6 million higher
than the net loss of $7.0 million in 1993. This increase in operating gain was
primarily attributable to the effects of a modified coinsurance reinsurance
agreement between JHMLICO and JHVLICO, entered into during 1994. Under the
agreement, JHMLICO reinsured 50% of the 1994 sales of JHVLICO's flexible
premium variable life insurance and scheduled premium variable life insurance
policies. The 1994 increase in pre-tax operating gain attributable to this
reinsurance agreement was $26.9 million.
Total revenues increased by 28.0%, or $127.5 million, to $583.6 million,
during 1994. Premiums increased by 7.9%, or $31.7 million, to $430.5 million
during 1994, reflecting growth in premium revenues from the universal life
insurance line, as well as the introduction in late
19
1993 and 1994 of three new products: the Medallion variable universal product,
a variable COLI product, and a variable survivorship product. Net investment
income decreased by 6.0%, or $3.7 million, to $57.6 million, during 1994, due
largely to a 16.8%, or $3.3 million decrease in gross income on mortgages and
real estate, which contributed to an overall decrease of 4.9%, or $3.2
million, in gross investment income. Net investment income was further
dampened in 1994 by a 13.3%, or $0.5 million, increase in investment expenses.
Other income improved by $99.5 million during 1994, primarily due to the
increase in commission and expense allowances and reserve adjustments on
reinsurance ceded, as described in the preceding paragraph.
Total benefits and expenses increased by 21.8%, or $99.4 million, to $556.0
million, during 1994. Benefit payments and additions to reserves increased by
23.3%, or $70.5 million, to $372.8 million, during 1994. A 1.7%, or $3.3
million, decrease in benefit payments was more than offset by a 66.2%, or
$73.8 million, increase in additions to reserves, most of which occurred in
both the universal life and flexible variable life insurance lines. Insurance
expenses, which included a $3.0 million charge for restructuring during 1994,
increased by 19.0%, or $27.4 million, to $171.9 million, during 1994. This
growth in expenses was attributable largely to the cost of growth in new
business.
1993 Compared to 1992
Net loss from operations was $7.0 million in 1993, which was $20.2 million
lower than the net gain of $13.2 million in 1992. This resulted from the
combination of the 1993 pre-tax net loss from operations of $0.5 million,
which was $34.2 million lower than the 1992 pre-tax net gain of $33.7 million,
partially offset by a decrease of $14.0 million in federal income tax expense
during 1993. During 1993, JHVLICO entered into an assumption reinsurance
agreement with JHMLICO, ceding a block of variable life, universal life, and
flexible variable life insurance policies representing essentially all of such
policies written by JHVLICO in the State of New York. In connection with this
agreement, $72.2 million of general account assets, $47.7 million of reserves
and obligations, and $24.5 million of surplus were transferred to JHMLICO,
along with $200.8 million of seperate account assets and obligations.
Total revenues decreased by 3.95, or $18.4 million, to $456.1 million,
during 1993. Premiums decreased by 4.2%, or $17.6 milion, to $398.8 million
during 1993, resulting partly from sluggish sales growth and partly from the
discontinuance during 1993, of JHVLICO's sales in New York, as described in
the paragraph above. Net investment income decreased by 1.1%, or $0.7 million,
to $61.3 million, during 1993. This decrease was due to a 0.6%, or $0.4
million, decrease in gross investment income, and an increase of 8.9%, or $0.3
million, in investment expenses. Other income decreased by 2.6%, or $0.1
million, to a negative $4.0 million, during 1993, primarily attributable to
changes in amounts for reserve adjustments on reinsurance ceded, which reduced
revenues, partially offset by increases in expense allowances on reinsurance
ceded, IMR amortization and miscellaneous income.
Total benefits and expenses increased by 3.6%, or $15.8 million, to $456.6
million, during 1993. Of this $15.8 million increase, benefit payments and
additions to reserves decreased by 5.5%, or $17.6 million, to $302.3 million,
during 1993. Both benefit payments and additions to reserves decreased during
1993, with benefit payments decreasing by 4.1%, or $8.2 million, to $190.8
million and additions to reserves decreasing by 7.8%, or $9.4 million, to
$111.5 million. The decrease in benefits and additions to reserves was more
than offset by an increase in insurance expenses during 1993 of 29.7%, or
$33.1 million, to $144.5 million.
Liquidity and Capital Resources
JHVLICO's liquidity resources at December 31, 1994, include cash and short
term investments of $76.0 million, public bonds of $106.6 million, and
investment grade private placement bonds of $304.1 million. In addition,
JHVLICO's separate accounts are highly liquid and are available to meet most
outflow needs for variable life insurance.
20
Management believes the liquidity resources above of $486.7 million as of
December 31, 1994, strongly position JHVLICO to meet all its obligations to
policyholders and others. Additionally, the highly liquid position of
JHVLICO's parent company is a resource that may be utilized as required.
Generally, JHVLICO's financing needs are met by means of funds provided by
normal operations. As of year-end 1994, JHVLICO has no outstanding borrowings
from sources outside its affiliated group.
Total surplus, or stockholder's equity, including the AVR, is $230.5 million
as of December 31, 1994, compared to $213.2 million as of December 31, 1993.
The current statutory accounting treatment of deferred acquisition cost
("DAC") taxes results in an understatement of JHVLICO's surplus, which will
persist during periods of growth in new business written. These taxes result
from federal income tax law that approximates acquisition expenses and then
spreads the corresponding tax deductions over a period of years. The result is
a DAC tax which is collected immediately and subsequently returned through tax
deductions in later years.
Since it began its operations, JHVLICO has received a total of $381.8
million in capital contributions from JHMLICO, of which $355.0 million is
credited to paid-in capital and $25.0 million is credited to capital stock as
of December 31, 1994. In 1993, $1.8 million of capital was returned to
JHMLICO. To support JHVLICO's operations, for the indefinite future, JHMLICO
is committed to make additional capital contributions if necessary to ensure
that JHVLICO maintains a positive net worth. JHVLICO's stockholder's equity at
December 31, 1994, net of unassigned deficit, was $217.9 million. For
additional discussion of JHVLICO's capitalization, see Note 2 of the Notes to
Financial Statements.
In December 1992, the NAIC approved risk-based capital ("RBC") standards for
life insurance companies as well as a Model Act (the "RBC Model Act") to apply
such standards at the state level. The RBC Model Act provides that life
insurance companies must submit an annual RBC Report which compares a
company's total adjusted capital (statutory surplus plus AVR, voluntary
investment reserves, and one-half the apportioned dividend liability) with its
risk-based capital as calculated by an RBC formula, where the formula takes
into account the risk characteristics of the company's investments and
products. The formula is to be used by insurance regulators as an early
warning tool to identify possible weakly capitalized companies for purposes of
initiating further regulatory action. The formula is not intended as a means
to rank insurers. The RBC Model Act gives state insurance commissioners
explicit regulatory authority to require various actions by, or take various
against, insurance companies whose total adjusted capital does not meet the
RBC standards. The RBC Model Act imposes broad confidentiality requirements on
those engaged in the insurance business (including insurers, agents, brokers
and others) as to the use and publication of RBC data. As of December 31,
1994, JHVLICO's total adjusted capital as defined by the NAIC was well in
excess of RBC standards.
Reinsurance
To reduce its exposure to large losses under its insurance policies, JHVLICO
enters into reinsurance arrangements with its parent, JHMLICO, and other non-
affiliated insurance companies. For further discussion of JHVLICO's
reinsurance arrangements, including business ceded to John Hancock, see Notes
6 and 8 of the Notes to Financial Statements.
Separate Accounts
Under applicable state insurance laws, insurers are permitted to establish
separate investment accounts in which assets backing certain policies or
contracts, including variable life policies and certain individual and group
annuity contracts, are held. The investments in each separate investment
account (which may be pooled or customer specific) are maintained separate
from
21
other separate investment accounts and the general investment account. The
investment results of the separate investment account assets are passed
through directly to separate investment account policyholders and
contractholders, so that an insurer derives management fees from, but bears no
investment risk on, these assets, except the risk on a small number of
products that the investment results of the separate account assets will not
meet the minimum rate guaranteed on these products. Other than amounts derived
from or otherwise attributable to JHVLICO's general investment account, assets
of separate investment accounts are not available to fund the liabilities of
the general investment account.
COMPETITION
JHVLICO is engaged in a highly competitive business due to the large number
of stock and mutual life insurance companies and other entities marketing
insurance products. There are approximately 2,000 stock, mutual, and other
types of insurers in the life insurance business in the United States.
According to the July 1995, issue of Best's Review Life/Health, JHVLICO ranks
154th in terms of net premiums written during 1994. JHVLICO's parent, JHMLICO,
ranks 6th, and ranks as the 5th largest mutual life insurer in the U.S., based
on total admitted assets at December 31, 1994, according to BestWeek
Life/Health Supplement, dated April 10, 1995.
Best's Company Report, dated May 25, 1995, affirms JHVLICO's financial
stability rating from A.M. Best Company, Inc. of A++, its highest, based on
the strength of its parent company and the capital guarantee discussed above.
Standard & Poor's Corporation and Duff & Phelps Credit Rating Company have
assigned insurance claims-paying ability ratings to JHVLICO of AA+ and AAA,
respectively, which place JHVLICO in the second highest and highest
categories, respectively, by these rating agencies. Moody's Investors Service,
Inc. has assigned JHVLICO a financial strength rating of Aa2, which is its
third highest rating.
EMPLOYEES AND FACILITIES
JHMLICO provides JHVLICO with personnel, property, and facilities for the
performance of certain of JHVLICO's corporate functions. JHMLICO annually
determines a fee for these services and facilities based on a number of
criteria which were revised in 1994 and 1993 to reflect continuing changes in
JHVLICO's operations. The amount of service fee charged to JHVLICO was $117.0
million and $98.2 million in 1994 and 1993, respectively.
Approximately 1,400 of JHMLICO's field office employees and agents are
members of a labor union. The current agreement with union employees and
agents is subject to renewal in June, 1996.
TRANSACTIONS WITH JHMLICO
As indicated, property, personnel and facilities are provided, at a service
fee, by JHMLICO for purposes of JHVLICO's operations, and the two companies
have entered into certain reinsurance arrangements. In addition, JHMLICO has
contributed all of JHVLICO's capital, of which $1.8 million of paid-in capital
was returned to JHMLICO during 1993. It is expected that arrangements and
transactions such as the foregoing will continue in the future to an
indeterminate extent. See Notes 2 and 6 of the Notes to Financial Statements.
JHMLICO receives no additional compensation for its services as underwriter
and distributor of the Contracts issued by JHVLICO.
22
REGULATION
JHVLICO is subject to extensive state regulatory oversight in jurisdictions
in which it does business. This regulatory oversight, increasing scrutiny upon
the insurance regulatory framework and proposals to adopt a federal regulatory
framework may in the future adversely affect JHVLICO's ability to sustain
adequate returns. JHVLICO's business also could be adversely affected by
changes in state law relating to asset and reserve valuation requirements,
limitations on investments and risk-based capital requirements, and, at the
federal level, by laws and regulations that may affect certain aspects of the
insurance industry. Assessments also are levied against John Hancock companies
as a result of participation in various types of state guaranty associations,
state insurance pools for the uninsured or other arrangements.
Regulators have the discretionary authority, in connection with the
continual licensing of JHVLICO, to limit or prohibit new issuances of business
to policyholders when, in their judgment, such regulators determine that such
insurer is not maintaining minimum statutory surplus or capital or if further
transaction of business will be hazardous to its policyholders. JHVLICO does
not believe the current or anticipated levels of statutory surplus of JHVLICO
or any member of its affiliated group, and the volume of their sales of new
life and annuity policies, present a material risk that the amount of new
insurance that JHVLICO or any of such insurance affiliates may issue will be
limited.
Although the federal government does not directly regulate the business of
insurance, federal initiatives often have an impact on the business in a
variety of ways. Current and proposed federal measures which may significantly
affect the insurance business include removal of barriers preventing banks
from engaging in the insurance business, limits to medical testing for
insurability, tax law changes affecting the taxation of insurance companies,
the tax treatment of insurance products and its impact on the relative
desirability of various personal investment vehicles and proposed legislation
to prohibit the use of gender in determining insurance and pension rates and
benefits.
DIRECTORS AND EXECUTIVE OFFICERS
The directors and executive officers of JHVLICO are as follows:
POSITION OTHER BUSINESS
NAME AGE WITH JHVLICO WITHIN PAST 5 YEARS
---- --- ------------ -------------------
David F. D'Alessandro
Director............... 44 Chairman Senior Executive Vice President--
Retail Sector, John Hancock
Henry D. Shaw,
Director............... 61 Vice Chairman & Senior Vice President, Retail
President Products & Markets, John Hancock
Robert S. Paster,
Director............... 43 Vice President & Second Vice President, Valuation
Actuary & Financial Systems, John
Hancock
Michele G. Van Leer,
Director............... 37 Vice President Vice President, Life & Annuity
Products, John Hancock
Joseph A. Tomlinson,
Director............... 48 Vice President Vice President, Alternative
Distribution, John Hancock
Robert R. Reitano,
Director............... 45 Vice President Second Vice President, Investment
Policy & Research, John Hancock
23
Francis C. Cleary, Jr.,
Director............. 63 Vice President & Vice President & Counsel, Equity
Counsel & Pension Law, John Hancock
Barbara L. Luddy,
Director............ 43 Vice President Second Vice President, Financial
Reporting & Analysis, John
Hancock
Daniel L. Ouellette.. 46 Vice President-- Vice President, Marketing & Sales
Marketing Support, John Hancock
Thomas J. Lee........ 41 Vice President-- Vice President, Life & Annuity
Claims Services, John Hancock
Policyholder
Services
Edward P. Dowd....... 52 Vice President-- Senior Vice President, Real
Investments Estate Investment Group, John
Hancock
Roger G. Nastou...... 53 Vice President-- Vice President, Bond & Corporate
Investments Finance, John Hancock
Laura L. Mangan...... 33 Vice President & Assistant Regulatory/Compliance
Secretary Officer, Staff & Corporate
Secretarial, John Hancock
Patrick F. Smith..... 53 Controller Senior Associate Controller,
Controller's Department, John
Hancock
Leonard C. Bassett... 57 Treasurer Financial Officer, Financial
Sector Management, John Hancock
EXECUTIVE COMPENSATION
Executive officers of JHVLICO also serve one or more of the affiliated
companies of JHMLICO. Allocations have been made as to each individual's time
devoted to his or her duties as an executive officer of JHVLICO. The following
table provides information on the allocated compensation paid to the chief
executive officer. There were no executive officers of JHVLICO whose allocated
compensation exceeded $100,000 during 1994. Directors of JHVLICO receive no
compensation in addition to their compensation as employees of JHMLICO.
LONG TERM
ANNUAL COMPENSATION COMPENSATION
---------------------- -----------------
NAME TITLE SALARY BONUS OTHER LTIP ALL OTHER
---- -------- ------- ------- ------ ------- ---------
David F. D'Alessandro......... Chairman $40,670 $20,903 $3,815 $21,965 $ 0
24
REGISTRATION STATEMENT
JHVLICO has filed a registration statement (the "Registration Statement")
with the Commission under the Securities Act of 1933 relating to the Contracts
offered by this Prospectus. This Prospectus has been filed as a part of the
Registration Statement and does not contain all of the information set forth
in the Registration Statement and exhibits thereto, and reference is hereby
made to such Registration Statement and exhibits for further information
relating to JHVLICO and the Contracts. The Registration Statement and the
exhibits thereto may be inspected and copied, at the Commission's Washington,
D.C., headquarters.
LEGAL MATTERS
The legal validity of the Contracts have been passed upon by Francis C.
Cleary, Jr., Vice President and Counsel of John Hancock.
EXPERTS
The annual financial statements of JHVLICO included in this Prospectus have
been audited by, , independent auditors, whose reports thereon
appear in the Prospectus and have been so included in reliance on their
reports given on their authority as experts in accounting and auditing.
25
APPENDIX A: MARKET VALUE ADJUSTMENT
The Market Value Adjustment (MVA) is equal to A times (B - 1) where
A is (i) any surrender or withdrawal in excess of the Free Withdrawal Value,
less (ii) any early withdrawal charge, if applicable; and
B is the Market Value Adjustment Factor below:
[(1 + g)/(1 + c + .005)] (CIRCUMFLEX) (n/12),
where
g = The guarantee rate in effect for the current Guarantee Period
(expressed as a decimal).
c = The current rate (expressed as a decimal) in effect for durations
equal to the number of years remaining in the current Guarantee
Period (years rounded up to the nearest whole number). If not
available, JHVLICO will declare a rate solely for this period that
is consistent with rates for durations that are currently available.
n = The number of complete months from the date of withdrawal to the end
of the current Guarantee Period. (Where less than one complete month
remains, n will equal 1 unless the withdrawal is made on the last
day of the guarantee period, at which time no adjustment will
apply.)
EXAMPLES OF THE MARKET VALUE ADJUSTMENT
These examples assume the following:
Premium: $20,000
Guarantee Period: 7 years
Guarantee Rate: 6.00%
Surrender: 2 years and 106 days (3.5 months) after deposit
Prior Withdrawals: none
At time of surrender:
The Accumulated Value = $20,000 X (1.06) (CIRCUMFLEX) (2 + 106/365)
= $22,855.51
The Free Withdrawal Value = (.1) X ($20,000) X (1.06) (CIRCUMFLEX) (2)
= $2,247.20
The early withdrawal charge = ($22,855.51 - $2,247.20) X (.05)
= $1,030.42
n, the number of complete
months from date of
withdrawal to end of current
Guarantee Period = 7 years - (2 years + 3.5) months
= 56 months
26
EXAMPLE OF A POSITIVE MARKET VALUE ADJUSTMENT:
Assume that on the date of surrender, the current interest rate for a new
Guarantee Period of 5 years (4 years and 8.5 months remaining in the Guarantee
Period rounded up to the next full year) is 5%.
The MVA factor = [(1 + g)/(1 + c + .005)] (CIRCUMFLEX) (n/12)
= (1.06/1.055) (CIRCUMFLEX) (56/12)
= 1.02231
The MVA = ($22,855.51 - $2,247.20 - $1,030.42) X (1.02231 - 1)
= $436.78
The Surrender Value = $22,855.51 - $1,030.42 + $436.78
= $22,261.87
EXAMPLE OF A NEGATIVE MARKET VALUE ADJUSTMENT:
Assume that on the date of surrender, the current interest rate for a new
Guarantee Period of 5 years is 7%.
The MVA factor = [(1 + g)/(1+ c + .005)] (CIRCUMFLEX) (n/12)
= (1.06/1.075) (CIRCUMFLEX) (56/12)
= .936529
The MVA = ($22,855.51 - $2,247.20 - $1,030.42) X (.936529 - 1)
= -$1,242.63
The Surrender Value = $22,855.51 - $1,030.42 - $1,242.63
= $20,582.46
27
FINANCIAL STATEMENTS
[This page reserved for Report of Independent Auditors]
F-1
JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY
STATEMENTS OF FINANCIAL POSITION
DECEMBER 31
------------------
1994 1993
-------- --------
(IN MILLIONS)
ASSETS
Bonds--Note 7............................................ $ 458.3 $ 433.0
Preferred stocks......................................... 5.3 6.4
Common stocks............................................ 1.9 2.4
Investment in affiliate.................................. 59.9 57.6
Mortgage loans on real estate--Note 7.................... 148.5 163.1
Real estate.............................................. 27.8 16.7
Policy loans............................................. 47.3 36.9
Cash items:
Cash in banks.......................................... 29.3 5.7
Temporary cash investments............................. 46.7 17.6
-------- --------
76.0 23.3
Premiums due and deferred................................ 43.9 47.3
Investment income due and accrued........................ 14.7 14.4
Other general account assets............................. 22.3 8.9
Assets held in separate accounts......................... 1,721.0 1,568.6
-------- --------
TOTAL ASSETS......................................... $2,626.9 $2,378.6
======== ========
OBLIGATIONS AND STOCKHOLDER'S EQUITY
OBLIGATIONS
Policy reserves.......................................... $ 638.6 $ 600.3
Federal income and other taxes payable--Note 1........... 17.3 (1.2)
Other accrued expenses................................... 22.8 1.0
Asset valuation reserve--Note 1.......................... 12.6 10.4
Obligations related to separate accounts................. 1,717.7 1,565.3
-------- --------
TOTAL OBLIGATIONS.................................... 2,409.0 2,175.8
STOCKHOLDER'S EQUITY--Notes 2 and 6
Common Stock, $50 par value; authorized 50,000 shares;
issued and outstanding 20,000 shares.................... 25.0 25.0
Paid-in capital.......................................... 355.0 355.0
Unassigned deficit....................................... (162.1) (177.2)
-------- --------
TOTAL STOCKHOLDER'S EQUITY........................... 217.9 202.8
-------- --------
TOTAL OBLIGATIONS AND STOCKHOLDER'S EQUITY................. $2,626.9 $2,378.6
======== ========
The accompanying notes are an integral part of the financial statements.
F-2
JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY
STATEMENTS OF OPERATIONS AND UNASSIGNED DEFICIT
YEAR ENDED DECEMBER 31
-------------------------
1994 1993 1992
------- ------- -------
(IN MILLIONS)
INCOME
Premiums.......................................... $ 430.5 $ 398.8 $ 416.4
Net investment income--Note 4..................... 57.6 61.3 62.0
Other, net........................................ 95.5 (4.0) (3.9)
------- ------- -------
583.6 456.1 474.5
BENEFITS AND EXPENSES
Payments to policyholders and beneficiaries....... 187.5 190.8 199.0
Additions to reserves to provide for future
payments to policyholders and beneficiaries...... 185.3 111.5 120.9
Expenses of providing service to policyholders and
obtaining new insurance--Note 6.................. 168.9 144.5 111.4
Cost of restructuring............................. 3.0 0.0 0.0
State and miscellaneous taxes..................... 11.3 9.8 9.5
------- ------- -------
556.0 456.6 440.8
------- ------- -------
GAIN (LOSS) FROM OPERATIONS BEFORE FEDERAL
INCOME TAXES AND NET REALIZED CAPITAL LOSSES... 27.6 (0.5) 33.7
Federal income taxes--Note 1........................ 15.0 6.5 20.5
------- ------- -------
GAIN (LOSS) FROM OPERATIONS BEFORE NET REALIZED
CAPITAL GAINS (LOSSES)......................... 12.6 (7.0) 13.2
Net realized capital gains (losses)--Note 5......... 0.4 (2.6) (1.4)
------- ------- -------
NET GAIN (LOSS)................................. 13.0 (9.6) 11.8
Unassigned deficit at beginning of year............. (177.2) (142.3) (157.1)
Net unrealized capital losses and other
adjustments--Note 5................................ (1.5) (3.2) (2.2)
Valuation reserve changes--Note 1................... 2.7 2.3 9.0
Change in separate account surplus.................. 0.0 0.5 0.2
Other reserves and adjustments...................... 0.9 (24.9) (4.0)
------- ------- -------
UNASSIGNED DEFICIT AT END OF YEAR............... $(162.1) $(177.2) $(142.3)
======= ======= =======
The accompanying notes are an integral part of the financial statements.
F-3
JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY
STATEMENTS OF STOCKHOLDER'S EQUITY
ADDITIONAL
COMMON PAID-IN UNASSIGNED
STOCK CAPITAL DEFICIT TOTAL
------ ---------- ---------- -------------
(IN MILLIONS)
Balance at January 1, 1992.......... $25.0 $356.8 $(157.1) $224.7
1992 Transactions:
Net gain (loss)................... 11.8 11.8
Net unrealized capital losses and
other adjustments................ (2.2) (2.2)
Valuation reserve changes......... 9.0 9.0
Change in separate account sur-
plus............................. 0.2 0.2
Other reserves and adjustments.... (4.0) (4.0)
----- ------ ------- ------
Balance at December 31, 1992........ 25.0 356.8 (142.3) 239.5
1993 Transactions:
Net gain (loss)................... (9.6) (9.6)
Net unrealized capital losses and
other adjustments................ (3.2) (3.2)
Valuation reserve changes......... 2.3 2.3
Change in separate account sur-
plus............................. 0.5 0.5
Other reserves and adjustments.... (1.8) (24.9) (26.7)
----- ------ ------- ------
Balance at December 31, 1993........ 25.0 355.0 (177.2) 202.8
1994 Transactions:
Net gain (loss)................... 13.0 13.0
Net unrealized capital losses and
other adjustments................ (1.5) (1.5)
Valuation reserve changes......... 2.7 2.7
Change in separate account sur-
plus............................. 0.0 0.0
Other reserves and adjustments.... 0.9 0.9
----- ------ ------- ------
Balance at December 31, 1994........ $25.0 $355.0 $(162.1) $217.9
===== ====== ======= ======
F-4
JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY
STATEMENTS OF CASH FLOWS
YEAR ENDED DECEMBER 31
----------------------
1994 1993 1992
------ ------ ------
(IN MILLIONS)
CASH PROVIDED
Insurance premiums......... $517.2 $411.4 $425.4
Net investment income...... 57.9 63.0 62.0
Other, net................. (0.3) (0.6) (2.6)
------ ------ ------
574.8 473.8 484.8
Benefits to policyholders
and beneficiaries......... 175.3 176.6 186.4
Dividends paid to
policyholders............. 11.9 14.8 12.2
Insurance expenses
and other taxes........... 180.6 148.4 118.9
Net transfers to
separate accounts......... 146.6 91.9 65.9
Other, net................. 7.7 22.1 33.1
------ ------ ------
522.1 453.8 416.5
------ ------ ------
NET CASH PROVIDED FROM
OPERATIONS............ 52.7 20.0 68.3
Proceeds from the
disposition, redemption
and prepayment of:
Bonds.................... 70.1 103.0 49.1
Stocks................... 1.2 9.4 4.5
Real estate.............. 22.1 3.6 1.7
Other invested assets.... 1.3 0.1 0.0
Mortgage loan repayments... 35.2 80.1 13.9
Other sources.............. 21.8 0.0 0.0
------ ------ ------
TOTAL CASH PROVIDED.... 204.4 216.2 137.5
CASH APPLIED
Purchase of:
Bonds.................... 94.1 92.3 132.5
Stocks................... 1.5 59.8 1.4
Real estate.............. 18.4 0.5 0.3
Other invested assets.... 0.9 4.2 0.2
Mortgage loans issued...... 37.9 32.4 16.8
Return of paid-in capital
to John Hancock........... 0.0 1.8 0.0
Other applications......... (1.1) 43.8 (0.3)
------ ------ ------
TOTAL CASH APPLIED..... 151.7 234.8 150.9
------ ------ ------
INCREASE (DECREASE) IN
CASH AND TEMPORARY
CASH INVESTMENTS...... 52.7 (18.6) (13.4)
Cash and temporary cash
investments at beginning
of year..................... 23.3 41.9 55.3
------ ------ ------
CASH AND TEMPORARY CASH
INVESTMENTS AT END OF
YEAR.................. $ 76.0 $ 23.3 $ 41.9
====== ====== ======
The accompanying notes are an integral part of the financial statements.
F-5
JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS
NOTE 1--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
financial statements have been prepared on the basis of accounting practices
prescribed or permitted by the Commonwealth of Massachusetts Division of
Insurance and in conformity with the practices of the National Association of
Insurance Commissioners which are currently considered generally accepted
accounting principles for a stock life insurance company wholly-owned by a
mutual life insurance company. Accordingly, the assets in the statements of
financial position are "admitted assets" as defined by regulatory authorities.
In April 1993, the Financial Accounting Standard Board (FASB) issued
Interpretation 40, "Applicability of Generally Accepted Accounting Principles
to Mutual Life insurance and Other Enterprises." The Interpretation, as
amended in 1994, is effective for 1996 annual financial statements and
thereafter, and no longer will allow statutory financial statements to be
described as being prepared in conformity with generally accepted accounting
principles (GAAP). For GAAP reporting purposes, this requires life insurance
companies to adopt all applicable standards promulgated by the FASB in any
general purpose financial statements such companies may issue. The Company
currently is unable to quantify the effects of the Interpretation on its
general purpose financial statements.
The significant accounting practices of the Company are as follows:
Revenues and Expenses: Premium revenues are recognized over the premium-
paying period of the policies whereas expenses, including the acquisition
costs of new business, are charged to operations as incurred and policyholder
dividends are provided as paid or accrued.
Cash and Temporary Cash Investments: Cash includes currency on hand and
demand deposits with financial institutions. Temporary cash investments are
short-term, highly-liquid investments both readily convertible to known
amounts of cash and so near maturity that there is insignificant risk of
changes in value because of changes in interest rates.
Valuation of Assets: General account investments are carried at amounts
determined on the following bases:
Bonds and stock values are carried as prescribed by the National
Association of Insurance Commissioners (NAIC): bonds generally at amortized
amounts or cost, preferred stocks generally at cost and common stocks at
market. The discount or premium on bonds is amortized using the interest
method.
Investments in affiliates are included on the statutory equity method.
Goodwill is amortized on a straight line basis over a ten year period.
Mortgage loans are carried at outstanding principal balance or amortized
cost.
Investment real estate is carried at depreciated cost, less encumbrances.
Depreciation on investment real estate is recorded on a straight line
basis. Real estate acquired in satisfaction of debt and held for sale is
carried at the lower of cost or market as of the date of foreclosure.
Policy loans are carried at outstanding principal balance, not in excess
of policy cash surrender value.
F-6
JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
NOTE 1--ACCOUNTING PRACTICES--(CONTINUED)
Asset Valuation and Interest Maintenance Reserves: Beginning in 1992, the
Company adopted the Asset Valuation Reserve (AVR) prescribed by the NAIC to
replace the Mandatory Securities Valuation Reserve (MSVR) previously acquired
by the NAIC and the Additional Mortgage and Real Estate Valuation Reserve
(MRVR) provided by the Company. 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 the after tax net accumulated unamortized realized
capital gains and losses attributable to changes in the general level of
interest rates on sales of fixed income securities, principally bonds and
mortgage loans. Such gains and losses are deferred and amortized into income
over the remaining expected lives of the investments sold. At December 31,
1994, the IMR, net of 1994 amortization of $1.1 million, amounted to $7.1
million, which is included in policy reserves. The corresponding 1993 amounts
were $0.5 million and $7.6 million, respectively. The corresponding 1992
amounts were $0.0 million and $0.1 million, respectively.
Separate Accounts: Separate account assets (unit investment trusts valued at
market) and separate account obligations (principally policyholder account
values) are included as separate captions in the statements of financial
position. In 1994, the change in separate account surplus is recognized
through direct charges or credits to unassigned deficit. In 1993 and 1992,
separate account business was combined with the general account under the
appropriate captions in the consolidated summary of operations. The 1993 and
1992 presentation was reclassified to permit comparison with the corresponding
1994 amounts. The presentation has no effect on unassigned deficit.
Fair Values 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 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.
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 equity values are based on
quoted market prices.
F-7
JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
NOTE 1--ACCOUNTING PRACTICES--(CONTINUED)
The fair value for mortgage loans is estimated using discounted cash flow
analyses using interest rates adjusted to reflect the credit
characteristics of the loans. Mortgage loans with similar characteristics
and credit risks are aggregated into qualitative categories for purposes of
the fair value calculations.
The carrying amount in the statement of financial position for policy
loans approximates their fair value.
The fair value for outstanding commitments to purchase long-term bonds is
estimated using a discounted cash flow method incorporating adjustments for
the difference in the level of interest rates between the dates the
commitments were made and December 31, 1994. The fair value for commitments
to purchase real estate approximates the amount of the initial commitment.
Capital Gains and Losses: Realized capital gains and losses, net of taxes
and amounts transferred to the IMR, are included in net gain or loss.
Unrealized gains and losses, which consist of market value and book value
adjustments, are shown as adjustments to the unassigned deficit.
Policy Reserves: Reserves for variable life insurance policies are
maintained principally on the modified preliminary term method using the 1958
and 1980 Commissioner's Standard Ordinary (CSO) mortality tables, with an
assumed interest rate of 4% for policies issued prior to May 1, 1983 and 4
1/2% for policies issued on or thereafter. Reserves for single premium
policies are determined by the net single premium method using the 1958 CSO
mortality table, with an assumed interest rate of 4%. Reserves for universal
life policies issued prior to 1985 are equal to the gross account value which
at all times exceeds minimum statutory requirements. Reserves for universal
life policies issued from 1985 through 1988 are maintained at the greater of
the Commissioner's Reserve Valuation Method (CRVM) using the 1958 CSO
mortality table, with 4 1/2% interest or the cash surrender value. Reserves
for universal life policies issued after 1988 and for flexible variable
policies are maintained using the greater of the CRVM method using the 1980
CSO mortality table, with 5 1/2% interest or the cash surrender value.
Federal Income Taxes: Federal income taxes are provided in the financial
statements based on amounts determined to be payable as a result of operations
within the current accounting period. The operations of the Company are
consolidated with John Hancock, its Parent, in filing a consolidated federal
income tax return for the affiliated group. The federal income taxes of the
Company are allocated on a separate return basis with certain adjustments. The
Company received federal tax benefits of $7.0 million in 1994 and made
payments of $17.0 million and $24.9 million in 1993 and 1992, respectively.
Income before taxes differs from taxable income principally due to tax-
exempt investment income, the limitation placed on the tax deductibility of
policyholder dividends, accelerated depreciation, differences in policy
reserves for tax return and financial statement purposes, capitalization of
policy acquisition expenses for tax purposes and other adjustments prescribed
by the Internal Revenue Code.
No provision is generally recognized for timing differences that may exist
between financial reporting and taxable income or loss.
F-8
JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
NOTE 1--ACCOUNTING PRACTICES--(CONTINUED)
Adjustments to Policy Reserves: From time to time, the Company finds it
appropriate to modify certain required policy reserves because of changes in
actuarial assumptions or increased benefits. Reserve modifications resulting
from such determinations are recorded directly to the unassigned deficit.
During 1994, the Company refined certain actuarial assumptions inherent in the
calculation of preconversion yearly renewable term and gross premium
deficiency reserves, resulting in a $2.7 million decrease in the unassigned
deficit at December 31, 1994. Similar refinements to the actuarial assumptions
inherent in the calculation of active life waiver of premium disability
reserves were made during 1993 and 1992, resulting in a $2.3 million and $9.0
million decrease in the unassigned deficit at December 31, 1993 and December
31, 1992, respectively.
Reinsurance: Premiums, commissions, expense reimbursements, benefits and
reserves related to reinsured business are accounted for on bases consistent
with those used in accounting for the original policies issued and the terms
of the reinsurance contracts. Premiums ceded to other companies have been
reported as a reduction of premium income. Amounts applicable to reinsurance
ceded for future policy benefits, unearned premium reserves and claim
liabilities have been reported as reductions of these items.
Reclassifications: Certain 1993 and 1992 amounts have been reclassified to
permit comparison with the corresponding 1994 amounts.
NOTE 2--CAPITALIZATION
In prior years, the Company received capital contributions from John
Hancock, with a portion of the contributed capital being credited to common
stock, although no additional shares were issued. This practice, which is
acceptable to statutory authorities, has the effect of stating the carrying
value of issued shares of common stock at amounts other than $50 per share par
value with the offset reflected in paid-in capital.
During 1993, the Company returned $1.8 million of paid-in capital to John
Hancock.
NOTE 3--ACQUISITION
On June 23, 1993, the Company acquired all of the outstanding shares of
stock of Colonial Penn Annuity and Life Insurance Company (CPAL) from Colonial
Penn Life Insurance Company, for an aggregate purchase price of approximately
$42.5 million. At the date of acquisition, assets of CPAL were approximately
$648.5 million, consisting principally of cash and temporary cash investments
and liabilities were approximately $635.2 million, consisting principally of
reserves related to a block of interest sensitive single-premium whole life
insurance business assumed by CPAL from Charter National Life Insurance
Company (Charter). The purchase price includes contingent payments of up to
approximately $7.3 million payable between 1994 and 1998 based on the actual
lapse experience of the business in force on June 23, 1993. The acquisition
was accounted for using the purchase method and the unamortized goodwill at
December 31, 1994 was $18.9 million. The Company made contingent payments to
CPAL of $1.5 million during 1994.
On June 24, 1993, the Company contributed $24.6 million in additional
capital to CPAL. CPAL was renamed John Hancock Life Insurance Company of
America (JHLICOA) on July 7, 1993. JHLICOA manages the business assumed from
Charter and does not currently issue new business.
F-9
JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
NOTE 4--NET INVESTMENT INCOME
Investment income has been reduced by the following amounts:
1994 1993 1992
----- ----- -----
(IN MILLIONS)
Investment expenses................................... $ 3.4 $ 2.9 $ 2.8
Interest expense...................................... 0.2 0.0 0.0
Depreciation expense.................................. 0.6 0.6 0.5
Investment taxes...................................... 0.2 0.3 0.2
----- ----- -----
$ 4.4 $ 3.8 $ 3.5
===== ===== =====
NOTE 5--NET CAPITAL GAINS (LOSSES) AND OTHER ADJUSTMENTS
Net realized capital gains (losses) consist of the following items:
1994 1993 1992
----- ----- -----
(IN MILLIONS)
Gains (losses) from asset sales....................... $(1.6) $ 9.6 $(2.1)
Less capital gains (tax) credit....................... 2.5 (4.2) 0.8
Less net amounts transferred to IMR................... (0.5) (8.0) (0.1)
----- ----- -----
Net Realized Capital Gains (Losses)................. $ 0.4 $(2.6) $(1.4)
===== ===== =====
Net unrealized capital losses and other adjustments consist of the following
items:
1994 1993 1992
----- ----- -----
(IN MILLIONS)
Gains (losses) from changes in security values and
book value adjustments............................... $ 0.7 $(1.4) $ 1.4
Increase in asset valuation reserve................... (2.2) (1.8) (3.6)
----- ----- -----
Net Unrealized Capital Losses and Other
Adjustments........................................ $(1.5) $(3.2) $(2.2)
===== ===== =====
NOTE 6--TRANSACTIONS WITH PARENT
The Company's Parent provides the Company with personnel, property and
facilities in carrying out certain of its corporate functions. The Parent
annually determines a fee for these services and facilities based on a number
of criteria which were revised in 1994, 1993 and 1992 to reflect continuing
changes in the Company's operations. The amount of the service fee charged to
the Company was $117.0 million, $98.2 million and $75.2 million in 1994, 1993
and 1992, 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.
In 1992, the National Association of insurance Commissioners issued its
accounting policy for "Employers' Accounting for Postretirement Benefits Other
Than Pensions." The service fee charged to the Company by the Parent includes
$6.0 million and $1.4 million in 1994 and 1993, respectively, representing the
portion of the provision for retiree benefit plans determined under the
accrual method in accordance with this policy, including a provision for the
transition liability which is being amortized over twenty years, that was
allocated to the Company.
F-10
JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
NOTE 6--TRANSACTIONS WITH PARENT--(CONTINUED)
On October 1, 1993, the Company entered into an assumption reinsurance
agreement with John Hancock to cede a block of variable life, universal life
and flexible variable life insurance policies to John Hancock representing
substantially all of such policies written by the Company in the State of New
York. In connection with this agreement, general account assets consisting of
bonds, mortgage loans, policy loans, cash, investment income due and accrued
and deferred and uncollected premiums totalling $72.2 million were transferred
by the Company to John Hancock, along with policy reserves, unearned premiums
and dividend liabilities totalling $47.7 million and surplus totalling $24.5
million. Separate account assets consisting of common stock and policy loans
totalling $200.8 million were transferred to John Hancock's separate accounts
along with $200.8 million in separate account policyholder obligations.
Effective January 1, 1994, the Company entered into a modified coinsurance
agreement with John Hancock to reinsure 50% of 1994 issues of flexible premium
variable life insurance and scheduled premium variable life insurance
policies. In connection with this agreement, John Hancock transferred $29.5
million of cash for tax, commission, and expense allowances to the Company,
which increased the Company's net gain from operations by $26.9 million in
1994.
NOTE 7--INVESTMENTS
The statement value and fair value of bonds are shown below:
YEAR ENDED DECEMBER 31, 1994
--------------------------------------
GROSS GROSS
STATEMENT UNREALIZED UNREALIZED FAIR
VALUE GAINS LOSSES VALUE
--------- ---------- ---------- ------
(IN MILLIONS)
U.S. treasury securities and
obligations of U.S. government
corporations and agencies........... $ 10.4 $ 0.0 $ 0.5 $ 9.9
Obligations of states and political
subdivisions........................ 11.6 0.2 0.1 11.7
Debt securities issued by foreign
governments......................... 1.3 0.0 0.0 1.3
Corporate securities................. 431.9 10.5 9.9 432.5
Mortgage-backed securities........... 3.1 0.1 0.1 3.1
------ ----- ----- ------
Totals............................. $458.3 $10.8 $10.6 $458.5
====== ===== ===== ======
YEAR ENDED DECEMBER 31, 1993
--------------------------------------
GROSS GROSS
STATEMENT UNREALIZED UNREALIZED FAIR
VALUE GAINS LOSSES VALUE
--------- ---------- ---------- ------
(IN MILLIONS)
U.S. treasury securities and
obligations of U.S. government
corporations and agencies........... $ 3.5 $ 0.2 $ 0.0 $ 3.7
Obligations of states and political
subdivisions........................ 10.6 1.3 0.0 11.9
Debt securities issued by foreign
governments......................... 0.4 0.0 0.0 0.4
Corporate securities................. 413.5 47.3 0.8 460.0
Mortgage-backed securities........... 5.0 0.2 0.0 5.2
------ ----- ----- ------
Totals............................. $433.0 $49.0 $ 0.8 $481.2
====== ===== ===== ======
F-11
JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
NOTE 7--INVESTMENTS--(CONTINUED)
The statement value and fair value of bonds at December 31, 1994, 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.
STATEMENT FAIR
VALUE VALUE
--------- ------
(IN MILLIONS)
Due in one year or less.................................... $ 28.5 $ 28.6
Due after one year through five years...................... 163.1 165.7
Due after five years through ten years..................... 167.7 162.5
Due after ten years........................................ 95.9 98.6
------ ------
455.2 455.4
Mortgage-backed securities................................. 3.1 3.1
------ ------
$458.3 $458.5
====== ======
Proceeds from sales, maturities, and prepayments of bonds during 1994, 1993
and 1992 were $70.1 million, $103.0 million and $49.1 million, respectively.
Gross gains of $1.1 million in 1994, $10.1 million in 1993 and $0.9 million in
1992 and gross losses of $0.2 million in 1994, $0.0 million in 1993 and $1.0
million in 1992 were realized on these transactions.
The cost of common stocks was $1.4 million at December 31, 1994, 1993 and
1992. Gross unrealized appreciation on common stocks totaled $1.6 million, and
gross unrealized depreciation totaled $1.2 million at December 31, 1994. The
fair value of preferred stock totaled $5.0 million at December 31, 1994, $6.7
million at December 31, 1993 and $16.2 million at December 31, 1992.
Mortgage loans with outstanding principal balances of $3.4 million and bonds
with amortized cost of $0.2 million were nonincome producing for the twelve
months ended December 31, 1994.
At December 31, 1994, 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.
STATEMENT GEOGRAPHIC STATEMENT
PROPERTY TYPE VALUE CONCENTRATION VALUE
------------- ------------- ------------------ -------------
(IN MILLIONS) (IN MILLIONS)
Apartments.................... $ 53.7 East North Central $ 25.3
Hotels........................ 4.6 East South Central 5.5
Industrial.................... 20.9 Middle Atlantic 16.1
Office buildings.............. 19.0 Mountain 14.4
Retail........................ 17.1 New England 24.2
Agricultural.................. 26.3 Pacific 38.2
Other......................... 6.9 South Atlantic 24.8
------ ------
$148.5 $148.5
====== ======
At December 31, 1994, the fair values of the commercial and agricultural
mortgage loans portfolios were $118.8 million and $27.3 million, respectively.
The corresponding amounts as of December 31, 1993 were approximately $141.4
million and $31.4 million, respectively. The corresponding amounts as of
December 31, 1992 were approximately $200.2 million and $41.1 million,
respectively.
F-12
JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--(CONCLUDED)
NOTE 8--REINSURANCE
The Company cedes business to reinsurers to share risks under variable life,
universal life and flexible variable life insurance policies for the purpose of
reducing exposure to large losses. Premiums, benefits and reserves ceded to
reinsurers in 1994 were $67.5 million, $12.3 million, and $16.3 million,
respectively. The corresponding amounts in 1993 were $74.9 million, $9.8
million, and $14.4 million, respectively. The corresponding amounts in 1992
were $15.5 million, $5.8 million, and $18.4 million, respectively
To the extent that an assuming reinsurance company is unable to meet its
obligations under a reinsurance agreement, the Company remains liable as the
direct insurer on all risks reinsured.
NOTE 9--COMMITMENTS AND CONTINGENCIES
The Company has extended commitments to purchase long-term bonds and issue
real estate mortgages totalling $6.7 million and $5.0 million, respectively, at
December 31, 1994. 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 fair value of the commitments described above is
$11.7 million at December 31, 1994. The majority of these commitments expire in
1995.
The Massachusetts Division of Insurance is in the process of conducting a
routine regulatory examination of the Company's financial statements for the
years 1989 through 1992. The Company does not believe that potential findings
resulting from issues raised by the regulators will have a material impact on
the Company's Stockholder's Equity.
In the normal course of its business operations, the Company is involved in
litigation from time to time with claimants, beneficiaries and others, and a
number of litigation matters were pending as of December 31, 1994. It is the
opinion of management, after consultation with counsel, that the ultimate
liability with respect to these claims, if any, will not materially affect the
financial position of the Company.
F-13
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The estimated expenses of issuance and distribution of the Contracts are as
follows:
AMOUNT*
-------
Securities and Exchange Commission Registration Fee.................. $
Printing Expenses.................................................... $
Accounting Fees...................................................... $
Legal Fees and Miscellaneous Expenses................................ $
---
Total expenses..................................................... $
===
- --------
* To be filed by amendment.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Pursuant to Section X of JHVLICO's By-Laws and Section 67 of the
Massachusetts Business Corporation Law, JHVLICO indemnifies each director,
former director, officer, and former officer, and his or her heirs and legal
representatives from liability incurred or imposed in connection with any
legal action in which he or she may be involved by reason of any alleged act
or omission as an officer or a director of JHVLICO. No indemnification shall
be paid if a director or officer is finally adjudicated not to have acted in
good faith in the reasonable belief that his or her action was in the best
interest of JHVLICO. JHVLICO may pay expenses incurred in defending an action
or claim in advance of its final disposition, but only upon receipt of an
undertaking by the person indemnified to repay such amounts if he or she
should be determined not to be entitled to indemnification.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
Not Applicable
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
1(a). Form of Annuity Marketing and Distribution Agreement Among John Hancock
Mutual Life Insurance Company, John Hancock Variable Life Insurance
Company, and Essex Corporation. (To be filed by amendment.)
1(b). Distribution Agreement by and between John Hancock Mutual Life
Insurance Company and John Hancock Variable Life Insurance Company,
dated August 26, 1993, incorporated by reference from Pre-Effective
Amendment No. 1 to initial Form S-6 Registration statement for John
Hancock Variable Life Account S (File No. 33-64366) filed October 29,
1993.
1(c). Amendment dated August 1, 1994, to Distribution Agreement by and
between John Hancock Mutual Life Insurance Company and John Hancock
Variable Life Insurance Company, dated August 26, 1993, incorporated by
reference from Form N-4 Registration Statement for John Hancock
Variable Annuity Account I (File No. 33-82648), filed August 10, 1994.
1(d). Second Amendment dated September ,1995, to Distribution Agreement by
and between John Hancock Mutual Life Insurance Company and John Hancock
Variable Life Insurance Company, dated August 26, 1993. (To be filed by
amendment.)
3(a). Articles of Incorporation for John Hancock Variable Life Insurance
Company.
3(b). By-Laws of John Hancock Variable Life Insurance Company.
II-1
4(a). Form of Group Annuity Contract.
4(b). Form of Group Annuity Contract Certificate.
4(c). Form of Group Annuity Contract Application. (To be filed by amendment.)
5. Opinion re: legality.
23(a). Consent of independent auditors. (To be filed by amendment.)
23(b). Consent of counsel. (Included as part of Exhibit 5.)
24. Powers of Attorney.
27. Financial Data Schedule. (To be filed by amendment.)
ITEM 17. UNDERTAKINGS
(a) The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
i. To include any Prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
ii. To reflect in the Prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the registration statement;
iii. To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or
any material change to such information in the registration statement,
including (but not limited to) any addition or deletion of a managing
underwriter;
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
(b) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers, and controlling persons
of the registrant pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer, or controlling
person of the registrant in the successful defense of any action, suit, or
proceeding) is asserted by such director, officer, or controlling person in
connection with the securities being registered, the registrant will, unless
in the opinion or its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question of
whether such indemnification by it is against public policy as expressed in
the Act and will be governed by the final adjudication of such issue.
II-2
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Boston, Commonwealth of
Massachusetts, on this 14th day of September, 1995.
John Hancock Variable Life Insurance
Company
/s/ Henry D. Shaw
By __________________________________
HENRY D. SHAW VICE CHAIRMAN &
PRESIDENT
Pursuant to the requirements of the Securities Act of 1933, the registration
statement has been signed by the following persons in the capacities and on
the date indicated.
SIGNATURE DATE
/s/ Patrick F. Smith Controller 9-18-95
By __________________________________ (Principal
PATRICK F. SMITH Financial Officer
and Principal
Accounting Officer)
/s/ Henry D. Shaw Vice Chairman & 9-14-95
By __________________________________ President (Acting
HENRY D. SHAW Principal Executive
Officer)
For himself and as Attorney in Fact for:
David F. D'Alessandro Chairman
Robert S. Paster Director & Actuary
Michele G. Van Leer Director
Joseph A. Tomlinson Director
Robert R. Reitano Director
Barbara L. Luddy Director
Francis C. Cleary, Jr. Director
II-3
LIST OF EXHIBITS
3(a). Articles of Incorporation for John Hancock Variable Life Insurance
Company
3(b). By-Laws of John Hancock Variable Life Insurance Company
4(a). Form of Group Annuity Contract
4(b). Form of Group Annuity Contract Certificate
5. Opinion re: legality
24. Powers of Attorney