As filed with the Securities and Exchange Commission on December 12, 1995
Registration No. 33-
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
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)
---------------
MASSACHUSETTS 6311 04-2664016
(STATE OR OTHER JURISDICTION (PRIMARY STANDARD INDUSTRIAL (I. R. S. EMPLOYER
OF INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
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)
---------------
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)
---------------
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
===============================================================================================================
PROPOSED
TITLE OF EACH PROPOSED MAXIMUM
CLASS OF SECURITIES AMOUNT TO BE MAXIMUM AGGREGATE AMOUNT OF
TO BE REGISTERED REGISTERED OFFERING PRICE PER OFFERING PRICE/*/ REGISTRATION FEE
UNIT/*/
- ---------------------------------------------------------------------------------------------------------------
Interests under
deferred annuity
contracts........... $290,000 Not Applicable $290,000 $100
===============================================================================================================
/*/The proposed maximum offering price per unit is not applicable as these
securities are not issued in predetermined amounts or units. The maximum
aggregate offering price is estimated solely for the purpose of determining the
registration fee.
---------------
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.
JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY
CROSS REFERENCE SHEET
Form S-1 Item Prospectus Caption
------------- ------------------
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....................................Summary Information; The MVA
Fixed Account; Financial
Statements of the Company
4. Use of Proceeds.........................................The MVA Fixed Account
5. Determination of Offering Price................................Not Applicable
6. Dilution.......................................................Not Applicable
7. Selling Security Holders.......................................Not Applicable
8. Plan of Distribution............................Distribution of the Contracts
9. Description of Securities to be
Registered....................................The Contracts; The Accumulation
Period; The Annuity
Period
10. Interests of Named Experts and
Counsel........................................................Not Applicable
11. Information with Respect to the
Registrant..............................Further Information About the Company
12. Disclosure of Commission Position
on Indemnification for Securities
Act Liabilities................................................Not Applicable
JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY
DEFERRED COMBINATION FIXED AND VARIABLE ANNUITY CONTRACTS
JOHN HANCOCK VARIABLE ANNUITY ACCOUNT JF
PROSPECTUS - MARCH __, 1996
The deferred annuity contracts ("Contracts") described in this prospectus
may be funded by any one or more of the ten subaccounts ("Subaccounts") of John
Hancock Variable Annuity Account JF ("Separate Account"), and by the Market
Value Adjustment Fixed Account ("MVA Fixed Account"), which is part of the
General Account of John Hancock Variable Life Insurance Company ("Company").
The Contracts are issued as group or individual Contracts. An individual's
interest in a group Contract is evidenced by the issuance of a separate
Certificate. In some states, Contracts are offered on an individual basis, with
the issuance of an individual Contract. The Certificates and individual
Contracts are collectively referred to herein as the "Contracts."
The Contracts are designed to provide retirement benefits under tax
qualified plans, as well as under non-qualified arrangements. All funds
accumulate on a tax-deferred basis under the Contracts. You may elect a
variable return investment option through the Separate Account or a guaranteed
interest investment option through the MVA Fixed Account, or a combination of
these two options.
Under the variable return investment option, you can choose among one or
more of the following Subaccounts of the Separate Account: International,
Emerging Equities, Discovery, Diversified Core Equity, Sovereign Investors, 500
Index, Sovereign Bond, Strategic Income, Global Income, and Money Market. The
assets of each Subaccount will be invested in a corresponding series, or "Fund,"
of the John Hancock Declaration Trust ("Trust"), a mutual fund advised by John
Hancock Advisers, Inc. ("Adviser"). The prospectus for the Trust accompanies
this prospectus, and describes the investment objectives, policies and risks of
the Trust.
Under the MVA Fixed Account guaranteed interest investment option, you can
choose among various available Guarantee Periods, each of which has its own
interest rate and expiration date. Amounts allocated to the MVA Fixed Account
are credited with interest at a fixed rate for the entire Guarantee Period. A
Market Value Adjustment, or "MVA," positive or negative, may be made upon
annuitization or any withdrawal, surrender or transfer prior to the last day of
any Guarantee Period.
Currently, the number of investment options that may be selected to fund
the Contracts is limited to 18.
This prospectus sets forth information about the Separate Account and the
MVA Fixed Account that a prospective investor ought to know before investing. A
statement of additional information ("SAI") for the Separate Account, dated
March __, 1996, has been filed with the Securities and Exchange Commission
("Commission") and is incorporated herein by reference. The SAI, the table of
contents of which appears at page ___ of this prospectus, is available without
charge upon written or oral request made to the Company's Servicing Office at
the address or telephone number below.
THIS PROSPECTUS SHOULD BE READ AND RETAINED FOR FUTURE REFERENCE. IT IS NOT
VALID UNLESS ACCOMPANIED BY THE CURRENT PROSPECTUS FOR THE TRUST.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
INTERESTS IN THE SEPARATE ACCOUNT AND THE MVA FIXED ACCOUNT ARE NOT DEPOSITS OR
OBLIGATIONS OF, OR INSURED, ENDORSED, OR GUARANTEED BY THE U.S. GOVERNMENT, ANY
BANK, THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR
ANY OTHER AGENCY, ENTITY OR PERSON, AND INVOLVE INVESTMENT RISKS INCLUDING THE
POSSIBLE LOSS OF PRINCIPAL.
Servicing Office
JOHN HANCOCK INVESTORS SERVICES CORPORATION
P.O. BOX 9298
BOSTON, MASSACHUSETTS 02205-9298
TELEPHONE 800-225-5291
[FAX 800-225-0000]
TABLE OF CONTENTS
Page
SPECIAL TERMS..................................................... 4
SYNOPSIS OF EXPENSE INFORMATION................................... 6
SUMMARY INFORMATION............................................... 10
THE COMPANY AND JOHN HANCOCK...................................... 15
SEPARATE ACCOUNT FINANCIAL INFORMATION............................ 15
THE SEPARATE ACCOUNT.............................................. 15
THE TRUST......................................................... 16
THE MVA FIXED ACCOUNT............................................. 17
Guaranteed Rates/Guarantee Periods............................... 17
Market Value Adjustment.......................................... 18
Investments by the Company....................................... 19
CHARGES UNDER THE CONTRACTS....................................... 20
Charges For Mortality And Expense Risks.......................... 20
Charges for Administrative Services.............................. 20
Contingent Deferred Sales Load................................... 20
Nursing Home Waiver of CDSL Charge............................... 22
Optional Death Benefit Charges................................... 22
Variations in Charges............................................ 23
Premium or Similar Taxes......................................... 23
THE CONTRACTS..................................................... 24
Purchase of Contracts............................................ 24
Premium Payments by Wire......................................... 24
THE ACCUMULATION PERIOD........................................... 25
Allocation of Premium Payments................................... 25
Value of Accumulation Units...................................... 25
Determination of MVA Fixed Account Value......................... 25
Transfers Among Subaccounts and Guarantee Periods................ 25
Dollar-Cost Averaging............................................ 26
Surrender of Contract; Partial Withdrawals....................... 26
Systematic Withdrawal............................................ 27
Standard Death Benefit........................................... 27
Optional One Year Stepped-Up Death Benefit....................... 28
Optional Accidental Death Benefit................................ 28
Payment of Death Benefits........................................ 28
THE ANNUITY PERIOD................................................ 29
Variable Monthly Annuity Payments................................ 30
Fixed Monthly Annuity Payments................................... 30
Annuity Options.................................................. 31
Transfers........................................................ 31
Other Conditions................................................. 31
VARIABLE ACCOUNT VALUATION PROCEDURES............................. 32
MISCELLANEOUS PROVISIONS.......................................... 32
Restriction on Assignment........................................ 32
Deferment of Payment............................................. 33
Reservation of Rights............................................ 33
Owner and Beneficiary............................................ 33
2
FEDERAL INCOME TAXES.............................................. 34
The Separate Account, the MVA Fixed Account, and the Company..... 34
Contracts Purchased Other Than to Fund a Tax Qualified Plan...... 34
Diversification Requirements..................................... 35
Contracts Purchased to Fund a Tax Qualified Plan................. 35
Withholding of Taxes............................................. 38
See Your Own Tax Adviser......................................... 38
FURTHER INFORMATION ABOUT THE COMPANY............................. 38
Business of the Company.......................................... 38
Selected Financial Data.......................................... 39
Recent Accounting Developments................................... 40
Management's Discussion and Analysis of Financial Condition and
Results of Operations........................................... 40
Competition...................................................... 45
Employees and Facilities......................................... 45
Transactions with John Hancock................................... 45
Regulation....................................................... 45
Directors - Executive Officers................................... 47
Executive Compensation........................................... 48
SEPARATE ACCOUNT PERFORMANCE...................................... 48
REPORTS........................................................... 49
VOTING PRIVILEGES................................................. 49
CHANGES IN APPLICABLE LAW - FUNDING AND OTHERWISE................. 49
LEGAL PROCEEDINGS................................................. 50
DISTRIBUTION OF THE CONTRACTS..................................... 50
AVAILABLE INFORMATION............................................. 50
EXPERTS AND FINANCIAL STATEMENTS.................................. 51
TABLE OF CONTENTS OF STATEMENT OF ADDITIONAL INFORMATION.......... 51
FINANCIAL STATEMENTS OF THE COMPANY............................... F-1
APPENDIX A - SAMPLE MARKET VALUE ADJUSTMENT CALCULATIONS..........
APPENDIX B - VARIABLE ANNUITY INFORMATION FOR INDIVIDUAL
RETIREMENT ANNUITIES.............................................
THE CONTRACTS OFFERED BY THIS PROSPECTUS MAY NOT BE AVAILABLE IN ALL STATES.
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN
OFFER TO BUY, SECURITIES IN ANY STATE TO ANY PERSON TO WHOM IT IS UNLAWFUL TO
MAKE OR SOLICIT AN OFFER IN THAT STATE.
3
SPECIAL TERMS
As used in this prospectus, the following terms have the indicated
meanings:
ACCUMULATION PERIOD: the period referred to in the term "Accumulation Unit."
ACCUMULATION UNIT: a unit of measurement used in determining the value of an
Owner's interest in a Subaccount during the period prior to the commencement of
annuity payments or, if earlier, the surrender of the Contract. The value of an
Accumulation Unit will reflect the investment performance of the Subaccount and
vary in dollar amount.
ACCUMULATED VALUE: accumulated value of all Subaccounts and the MVA Fixed
Account Value under a Contract.
DATE OF MATURITY: the date elected by the Owner as of which annuity payments
will commence. The election is subject to certain conditions described in "The
Annuity Period". The Contract specifies a "Provisional Date of Maturity" as
discussed under "The Annuity Period."
ANNUITANT: the person designated in the Contract as such.
ANNUITY OPTION: the provisions under which a series of annuity payments is
made to the Annuitant or other payee, such as the Life Annuity with Ten Years
Certain.
ANNUITY UNIT: a unit of measurement used in determining the amount of any
variable annuity payment. The value of an Annuity Unit for each Subaccount will
depend upon the assumed investment rate and the investment performance of that
Subaccount, and will vary in dollar amount.
CONTRACT YEAR: the 12 month period following the date of issue of the Contract
and each 12 month period thereafter. In Certificates issued under group
Contracts, these periods are the "Certificate Year."
FIXED ANNUITY OPTION: an annuity option under which the Company promises to pay
the Annuitant, or any other payee designated by the Owner, fixed payments.
GENERAL ACCOUNT: comprises all assets of the Company other than those in the
Separate Account, and other than those in any other legally segregated separate
account established by the Company.
GUARANTEE PERIOD: the period for which a Guaranteed Rate is credited.
GUARANTEED RATE: the rate of interest credited during any Guarantee Period, on
an effective annual basis.
MARKET VALUE ADJUSTMENT: positive or negative adjustment to MVA Fixed Account
Value that is paid out at a time other than the last day of a Guarantee Period.
MVA FIXED ACCOUNT: comprises all of the Guarantee Periods in which amounts are
held under a Contract.
MVA FIXED ACCOUNT VALUE: the amount of premium payments allocated to Guarantee
Periods, plus interest, less any withdrawals and deductions for Contract Fees,
optional benefit rider charges and any premium or similar taxes.
NET PREMIUM PAYMENT: the amount of any premium payment reduced by any premium
or similar taxes.
4
OWNER: the person or entity, usually the one to whom the Contract is issued,
who has the sole right to exercise all rights and privileges under the Contract
except as otherwise provided in the Contract. As used in this prospectus, Owner
includes the "Participant" referred to in Certificates under Contracts issued on
a group basis.
SURRENDER VALUE: the amount that is payable upon a surrender of the Contract
prior to the Date of Maturity. Surrender Value is equal to the Accumulated
Value of a Contract after all applicable adjustments and deduction of all
applicable charges.
VARIABLE ANNUITY OPTION: an annuity option under which the Company makes to the
Annuitant, or any other payee designated by the Owner, payments which vary in
amount in accordance with the net investment experience of the Subaccounts
selected by the Owner. Not all of the Subaccounts are available under the
Contracts during the annuity period.
WE, US, OUR: mean the Company.
YOU, YOUR: mean the Owner.
5
SYNOPSIS OF EXPENSE INFORMATION
The purpose of this synopsis is to provide an understanding of the various
costs and expenses that the Owner will bear directly or indirectly. The
synopsis includes expenses of the Separate Account and the Trust. For a more
complete description of the fees and charges applicable under the Contracts, see
"Charges Under the Contracts." The management fees charged the Funds and their
annual operating expenses are more fully described in the prospectus for the
Trust.
CONTRACT OWNER TRANSACTION EXPENSES
CONTINGENT DEFERRED SALES LOAD (or "CDSL," as a percentage of premium payments
withdrawn in excess of the Free Withdrawal Value) /1/
YEARS FROM DATE OF
PREMIUM PAYMENT TO CDSL
DATE OF SURRENDER OR WITHDRAWAL PERCENTAGE
------------------------------- ----------
7 or more ....................................................................... 0%
6 but less than 7 ............................................................... 2%
5 but less than 6 ............................................................... 3%
4 but less than 5 ............................................................... 4%
3 but less than 4 ............................................................... 5%
2 but less than 3 ............................................................... 5%
less than 2 ..................................................................... 6%
ANNUAL CONTRACT FEE /2/ ............................................................ $30
SEPARATE ACCOUNT ANNUAL EXPENSES (as a percentage of Account Value)
Initial Premium Payment
-----------------------
Less than $250,000
$250,000 or More
-------- --------
Mortality and Expense Risk Charge ................................... 0.90% 0.90%
Administration Charge ............................................... 0.35% 0.10%
----- -----
Total 1.25% 1.00%
==== ====
__________________________________
/1/In any Contract Year an Owner may withdraw, without a CDSL, an amount equal
to 10% of the Accumulated Value as of the beginning of the Contract Year less
any prior withdrawals, including prior CDSLs, during the Contract Year. This is
the "Free Withdrawal Value."
/2/The annual Contract Fee is deducted on Contracts having an Accumulated Value
of less than $10,000. The Contract Fee is deducted at the beginning of each
Contract Year after the first and at a full surrender during a Contract Year.
The Contract Fee is assessed only during the Accumulation Period, and is
referred to as the "Certificate Fee" in Certificates issued under group
Contracts.
6
TRUST ANNUAL EXPENSES (as a percentage of average net assets)
MANAGEMENT OTHER TOTAL FUND
FUND FEES EXPENSES/3/ EXPENSES
---- ------- -------- --------
John Hancock V.A. International Fund 0.90% 0.25% 1.15%
John Hancock V.A. Emerging Equities Fund 0.75% 0.25% 1.00%
John Hancock V.A. Discovery Fund 0.75% 0.25% 1.00%
John Hancock V.A. Diversified Core Equity Fund 0.70% 0.25% 0.95%
John Hancock V.A. Sovereign Investors Fund 0.60% 0.25% 0.85%
John Hancock V.A. 500 Index Fund 0.35% 0.25% .60%
John Hancock V.A. Sovereign Bond Fund 0.50% 0.25% .75%
John Hancock V.A. Strategic Income Fund 0.60% 0.25% .85%
John Hancock V.A. Global Income Fund 0.75% 0.25% 1.00%
John Hancock V.A. Money Market Fund 0.50% 0.25% 0.75%
_____________________
/3/ Other Fund expenses are based on estimates for the current fiscal year.
EXAMPLES
If you surrender your Contract at the end of the applicable time period,
you would pay the following current expenses on a $1,000 investment allocated to
one of the Subaccounts listed, assuming 5% annual return on assets:
1 YEAR 3 YEARS
------ -------
INTERNATIONAL............................................... $79 $123
EMERGING EQUITIES........................................... 78 118
DISCOVERY................................................... 78 118
DIVERSIFIED CORE EQUITY..................................... 77 117
SOVEREIGN INVESTORS......................................... 76 114
500 INDEX................................................... 74 106
SOVEREIGN BOND.............................................. 75 110
STRATEGIC INCOME............................................ 76 114
GLOBAL INCOME............................................... 78 118
MONEY MARKET................................................ 75 110
7
If you annuitize at the end of the applicable time period, or if you do not
surrender your Contract, you would pay the following current expenses on a
$1,000 investment allocated to one of the Subaccounts listed, assuming 5% annual
return on assets:
1 YEAR 3 YEARS
------ -------
INTERNATIONAL.................................................. $25 $78
EMERGING EQUITIES.............................................. 24 73
DISCOVERY...................................................... 24 73
DIVERSIFIED CORE EQUITY........................................ 23 72
SOVEREIGN INVESTORS............................................ 22 69
500 INDEX...................................................... 20 61
SOVEREIGN BOND................................................. 21 65
STRATEGIC INCOME............................................... 22 69
GLOBAL INCOME.................................................. 24 73
MONEY MARKET................................................... 21 65
________________
The annual Contract Fee reflected in the examples has been expressed as an
annual percentage of assets based on the Company's experience with other
variable annuity contracts using the same contract fee provision.
The examples do not give effect to any premium taxes that may be
applicable, or to any of the charges described under "Optional Benefit Riders,"
below. The examples should not be considered representations of past or future
expenses; actual expenses may be greater than or less than those shown above.
OPTIONAL BENEFIT RIDERS
The Company offers, subject to state availability, three optional
benefit riders that may be elected by the Owner. A separate monthly charge
is made for each rider selected. The charge, as applicable, is made pro-rata
based on relative values through a reduction in Accumulation Units of the
Subaccounts and dollar amounts in the Guarantee Periods under a Contract.
The applicable charge is equal to the Accumulated Value at the beginning of
each month multiplied by 1/12th of the following annual percentage rates:
ONE YEAR STEPPED-UP DEATH BENEFIT RIDER ............................................. 0.15%
ACCIDENTAL DEATH BENEFIT RIDER (terminates at age 80) ............................... 0.10%
NURSING HOME WAIVER OF CDSL RIDER ................................................... 0.05%
For a description of these riders, see "One Year Stepped-Up Death Benefit
Rider" and "Accidental Death Benefit Rider" under "The Accumulation Period," and
"Nursing Home Waiver of CDSL Rider" under "Charges Under the Contracts."
8
MARKET VALUE ADJUSTMENT AND CHARGES APPLICABLE TO THE MVA FIXED ACCOUNT
Except when effected on the last day of a Guarantee Period, surrenders,
transfers or partial withdrawals from the MVA Fixed Account, including amounts
withdrawn to provide an annuity, are subject to a Market Value Adjustment that
may increase or reduce the amount of MVA Fixed Account Value paid out by the
Company. The Market Value Adjustment is computed pursuant to a formula that is
described under "The MVA Fixed Account-Market Value Adjustment." Of the
expenses summarized above, only the "Contingent Deferred Sales Load," "Annual
Contract Fee," and "Optional Benefit Riders" charges are applicable to the MVA
Fixed Account.
9
SUMMARY INFORMATION
The Contracts are designed for purchase by individuals doing their own
retirement planning, including plans and trusts that do not qualify for special
tax treatment under the Internal Revenue Code of 1986, as amended ("Code"), and
for purchase in connection with (1) pension and profit-sharing plans qualified
under Section 401(c) of the Code, known as "H.R. 10 plans," (2) pension or
profit-sharing plans qualified under Sections 401(a) or 403(a) of the Code,
known as "corporate plans," (3) plans qualifying under Section 401(k) of the
Code, (4) annuity purchase plans adopted under the provisions of Section 403(b)
of the Code by public school systems and certain other tax-exempt organizations,
(5) individual retirement annuity plans satisfying the requirements of Section
408 of the Code, and (6) deferred compensation plans maintained by a state or
political subdivision or tax exempt organizations under Section 457 of the Code.
For additional information pertaining to the purchase of a Contract as an
Individual Retirement Annuity, see "Appendix B - Variable Annuity Information
for Individual Retirement Annuities".
The Company has appointed its affiliated company, John Hancock Investors
Services Corporation ("JHISC"), as its Servicing Agent for the purpose of
facilitating various administrative, processing, servicing and similar functions
related to the Contracts. JHISC may be reached at the address, telephone and
fax numbers shown on the cover page of this prospectus.
In order to accommodate "employer-related" plans funded by the Contracts,
Contract forms using "unisex" purchase rates, i.e., rates the same for males and
females, are available. Any questions you have as to whether you are
participating in an employer-related plan should be directed to your employer.
Any other question you or your employer may have with respect to this topic can
be directed to JHISC.
THE CONTRACTS
The Contracts offered are "flexible premium" deferred annuity Contracts
under which premium payments may be made in a single sum or at intervals until
the Date of Maturity. At that time annuity payments by the Company will commence
unless the Owner elects to surrender the Contract, in which case, the Surrender
Value will be paid.
An application for a Contract is available from broker-dealers and certain
financial institutions who are participating in the distribution of the
Contracts. Applications are also available directly from the Company by
contacting JHISC. Upon completion, the application is transmitted, along with
the premium payment, to JHISC for processing. See "The Contracts."
JOHN HANCOCK VARIABLE ANNUITY ACCOUNT JF
The Separate Account is a separate investment account of the Company. It is
operated as a unit investment trust and supports the variable benefits payable
under the Contracts. There are currently ten Subaccounts within the Separate
Account: International, Emerging Equities, Discovery, Diversified Core Equity,
Sovereign Investors, 500 Index, Sovereign Bond, Strategic Income, Global Income,
and Money Market. Each Subaccount invests in a corresponding Fund of the Trust.
The Trust is a "series" type mutual fund.
Each Fund has a different investment objective. The Adviser provides
investment management services to the Funds for which it receives a fee from the
Trust. The Adviser utilizes sub-advisers for three of the Funds. John Hancock
Advisers International Limited ("JHAI") provides sub-investment management
services for the International Fund; Independence Investment Associates, Inc.
("IIA") provides sub-advisory services for the Diversified Core Equity Fund; and
Sovereign Asset Management Corporation ("SAMC") together with JHAI and IIA, the
"Sub-advisers") provides sub-advisory services for the Sovereign Investors Fund.
The Sub-advisers are indirect, wholly-owned subsidiaries of John Hancock Mutual
Life Insurance Company ("John Hancock"). Each
10
Sub-adviser receives a fee from the Adviser for these services which in no way
increases the costs borne by the Trust, the Account, or the Owners.
For a more detailed description of the Trust, see its prospectus which
accompanies this prospectus.
MVA FIXED ACCOUNT INVESTMENT OPTIONS
Any amount allocated by the Owner to the MVA Fixed Account earns interest
at a Guaranteed Rate. The level of the Guaranteed Rate depends on the length of
the Guarantee Period selected by the Owner. We currently make available various
Guarantee Periods with durations of up to ten years.
If amounts are transferred, surrendered or otherwise paid out at any time
other than the last day of the applicable Guarantee Period, a Market Value
Adjustment will be applied that will increase or decrease the amount of MVA
Fixed Account Value paid out. Accordingly, the Market Value Adjustment can
result in gains or losses.
For a more complete discussion of the MVA Fixed Account investment options
and Market Value Adjustment, see "The MVA Fixed Account."
PRINCIPAL UNDERWRITER AND DISTRIBUTOR
John Hancock, a registered broker-dealer, acts as the principal underwriter
of the Account. John Hancock Funds, Inc. ("JHFI"), a registered broker-dealer
affiliate of John Hancock, acts as principal distributor of the Contracts. The
Contracts are offered through broker-dealers and financial institutions
unaffiliated with the Company, and through John Hancock's own sales agents.
INVESTMENT OF PREMIUM PAYMENTS
Premium payments received under Contracts, after deduction of any premium
or similar taxes, are allocated to one or more of the Subaccounts and/or one or
more of the Guarantee Periods in the MVA Fixed Account, as directed by the
Owner.
Premium payments may be mailed to JHISC, P. O. Box 9298, Boston, MA 02205-
9298. All checks or other money orders should be made payable to John Hancock
Variable Life Insurance Company. Procedures also have been established for the
receipt of premium payments by wire order. See "Payments by Wire" under "The
Contracts."
MINIMUM AND MAXIMUM PREMIUM PAYMENTS
Each premium payment must be at least $500. No premium payment may exceed
$1,000,000 in any Contract Year. No premium payments may be made within six
months prior to the Annuitant's 85th birthday or thereafter. These limits may
be waived by the Company.
11
FEES AND CHARGES
ACCOUNT CHARGES
Charges made directly to the Account include daily charges aggregating
0.90% annually for mortality and expense risks, and daily charges at the annual
rate of 0.35% and 0.10% under Contracts with initial premium payments of less
than $250,000 and $250,000 or more, respectively. These charges are based on the
average daily net asset value of each Subaccount, and reduce the unit values of
the Subaccounts.
TRUST CHARGES
Management fees at annual rates ranging from 0.35% to 0.95% of average
daily net assets are paid by the Funds to the Adviser. The Funds also incur
charges for other expenses incurred in their operations. Management fees and
other expenses are reflected in the net asset value of each Fund's shares.
WITHDRAWAL CHARGES
A withdrawal charge, or contingent deferred sales load (the CDSL), if
applicable, is deducted from the amount of any premium payment withdrawn from
the Accumulated Value under a Contract, including any partial withdrawal or any
full withdrawal upon a surrender of the Contract. The charge will not apply to
premium payments withdrawn after seven years from the date the payments were
received by the Company. In any Contract Year, up to 10% of the Accumulated
Value as of the beginning of the Contract Year, less any prior withdrawals,
including prior CDSLs, during the Contract Year, may be withdrawn without a
CDSL. The CDSL also does not apply to a withdrawal made to provide an annuity
or a death benefit or, if necessary, to meet minimum distribution requirements
under qualified plans, or under the waiver described in the next paragraph.
NURSING HOME WAIVER OF CDSL CHARGE
An optional "Nursing Home Waiver of CDSL" rider may be elected at the time
the Owner applies for a Contract. Under this benefit, the CDSL, if otherwise
applicable, will be waived on any withdrawals if beginning at least 30 days
after the date of issue, the Owner becomes confined to a long term care facility
("LTCF") for at least 90 consecutive days, subject to certain conditions. At the
beginning of each month, we make a charge for this rider equal to 1/12th of
0.05% (annual percentage rate) of the Accumulated Value of the Contract at that
time. The benefit is not available for applicants over age 75.
CONTRACT FEE AND CERTAIN OTHER CHARGES
An annual Contract Fee of $30 is deducted during the Accumulation Period
under Contracts having an Accumulated Value of less than $10,000. The Company
reserves the right to increase the Contract Fee up to $50, subject to applicable
state regulations. No Contract Fee will be deducted if the Accumulated Value is
$10,000 or more. Charges also may be made for any taxes or interest expense
attributable to the Contracts or the Account.
Deductions are also made for any applicable premium or similar taxes based
on the amount of a premium payment. Currently, such taxes in certain states are
up to 5% of each premium payment. In addition, separate monthly charges are made
for the optional death benefit riders described under "Death Benefits" below.
A more detailed description of all fees and charges applicable under the
Contracts appears under "Charges
12
Under the Contracts." Fees and charges of the Trust are described in its
prospectus which is attached to this prospectus.
WITHDRAWAL PRIOR TO DATE OF MATURITY
At any time before annuity payments begin, if the Annuitant is living, a
Contract may be surrendered in full for its Surrender Value or a portion of the
Accumulated Value may be withdrawn, subject to applicable charges and certain
limits. See "Surrender of Contract; Partial Withdrawals" under "The Contracts."
A 10% tax penalty may be applicable to withdrawals before the Owner attains age
59 1/2. A Market Value Adjustment may also be applied. See "The MVA Fixed
Account."
SYSTEMATIC WITHDRAWAL
The Accumulated Value of a Contract may be systematically withdrawn on a
monthly, quarterly, semi-annual or annual basis, as elected by the Owner.
Systematic withdrawals in any Contract Year may not exceed 10% of the
Accumulated Value at the beginning of the Contract Year. A minimum Accumulated
Value of $15,000 is required to start the program and certain other conditions
apply. See "Systematic Withdrawal" under "The Accumulation Period."
DOLLAR COST AVERAGING
The Owner may elect to have amounts automatically transferred from the
Money Market Subaccount into one or more of the other Subaccounts of the
Account. Transfers of $250 or more may be made monthly, quarterly, semi-annually
or annually. A minimum Accumulated Value of $15,000 in the Money Market
Subaccount is required to start the program. See "Dollar Cost Averaging" under
"The accumulation Period."
DEATH BENEFITS
STANDARD DEATH BENEFIT
The Contracts include a standard death benefit payable upon the death of
the Annuitant prior to the Date of Maturity. The beneficiary will receive the
greater of (a) the Accumulated Value, adjusted by any Market Value Adjustment,
and (b) the aggregate amount of the premium payments made under the Contract,
less any prior withdrawals and CDSLs.
OPTIONAL ONE YEAR STEPPED-UP DEATH BENEFIT
At the time a Contract is applied for, the Owner may elect a one year
stepped-up death benefit rider designed to enhance the death benefit payable to
the beneficiary. Under this rider the benefit payable will be the greater of (a)
the standard death benefit, and (b) the highest Accumulated Value, adjusted by a
Market Value Adjustment, of the Contract as of any Contract anniversary
preceding the anniversary nearest the Annuitant's 81st birthday, plus any
premium payments, less any withdrawals and CDSLs, since such Contract
anniversary. At the beginning of each month, we make a charge for this rider
equal to 1/12th of 0.15% (annual percentage rate) of the Accumulated Value of
the Contract at that time.
13
OPTIONAL ACCIDENTAL DEATH BENEFIT
At the option of the Owner, an accidental death benefit rider may be
elected. Under this rider, upon the accidental death of the Annuitant prior to
the Date of Maturity, the beneficiary will receive, in addition to any other
death benefit, an amount equal to the Accumulated Value of the Contract, as of
the date of receipt of proof of the Annuitant's death, up to a maximum of
$200,000. The benefit is available to age 80, and only may be elected at the
time the Contract is applied for. At the beginning of each month, we make a
charge for this rider equal to 1/12th of 0.10% (annual percentage rate) of the
Accumulated Value of the Contract at that time.
10 DAY FREE-LOOK PROVISION
An Owner may return an individual Contract for any reason within 10 days
after its receipt and receive in cash the Accumulated Value, plus any deductions
previously made from premium payments for premium or similar taxes. Owners
returning individual Contracts issued in North Carolina, South Carolina,
Washington, West Virginia, and Utah, and all individual Contracts issued under
an individual retirement account, will receive gross premium payments made. If
the individual Contract is issued in California to an Owner 60 years of age or
older, the Owner may return the individual Contract within 30 days after its
receipt, and, in that event, the gross premium payments made will be refunded to
the Owner.
In most states, the rights to return Contracts described in the preceding
paragraph apply only to Contracts issued in individual form. In some states,
however, such rights may also apply to certificates under Contracts issued in
group form.
14
SEPARATE ACCOUNT FINANCIAL INFORMATION
The Separate Account has not yet commenced operations and therefore has no
assets or liabilities. Accordingly, neither this prospectus nor the SAI
contains any financial statements for the Separate Account.
THE COMPANY AND JOHN HANCOCK
The Company 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, a mutual life insurance company
organized under the laws of the Commonwealth of Massachusetts in 1862. The
Company's Home Office is located at 200 Clarendon Street, Boston, Massachusetts
02117. See "Further Information About the Company."
John Hancock is a major financial services company. As the Company's
parent, it is anticipated that John Hancock will from time to time make capital
contributions to the Company to enable it to meet its reserve requirements and
expenses in connection with its business. John Hancock is committed to make
additional capital contributions if necessary to ensure that the Company
maintains a positive net worth.
THE SEPARATE ACCOUNT
The Separate Account is a separate account of the Company established under
Massachusetts law on November 13, 1995. The Separate Account, although an
integral part of the Company, meets the definition of a "separate account" under
the Federal securities laws and is registered as a unit investment trust under
the Investment Company Act of 1940, as amended ("1940 Act").
The Separate Account's assets are the property of the Company and the
obligations under the Contracts are the obligations of the Company. Each
Contract provides that the portion of the Separate Account's assets equal to the
reserves and other liabilities under the Contract with respect to the Separate
Account shall not be chargeable with liabilities arising out of any other
business the Company may conduct. In addition to the net assets and other
liabilities for Contracts, the Separate Account's assets include assets derived
from charges made by the Company and, possibly, funds contributed by the Company
to commence operation of the Subaccounts. From time to time these additional
assets may be transferred in cash by the Company to its general account. Before
making any such transfer, the Company will consider any possible adverse impact
the transfer might have on any Subaccount.
Income, gains and losses, whether or not realized, from assets allocated to
the Separate Account are, in accordance with the Contracts, credited to or
charged against the Separate Account without regard to other income, gains or
losses of the Company.
There currently are ten Subaccounts in the Separate Account: the
International, Emerging Equities, Discovery, Diversified Core Equity, Sovereign
Investors, 500 Index, Sovereign Bond, Strategic Income, Global Income, and Money
Market Subaccounts. The assets in each Subaccount are invested in shares of a
corresponding Fund of the Trust. The assets of one Subaccount are not
necessarily legally insulated from liabilities associated with another
Subaccount. New subaccounts may be added and made available to Owners. Prior to
the date of this prospectus, the Separate Account had no operations.
15
THE TRUST
The Trust is a "series" type of mutual fund that is registered under the
1940 Act as an open-end diversified management investment company and organized
as a Massachusetts business trust. The Trust serves as an investment medium for
the Account. In the future, other unit investment trust separate accounts
established by John Hancock and by the Company for variable life insurance
policies and variable annuity contracts may also invest in the Trust. A full
description of the Trust, its investment objectives, policies and restrictions,
its charges and expenses, and all other aspects of its operation is contained in
its attached prospectus (which should be read carefully before investing) and
the SAI referred to therein, which should be read together with this prospectus.
Among other items, the description of the need to monitor events on the part of
the Trust's Board of Trustees for possible conflicts between separate accounts
and other consequences should be noted.
The following is a brief summary of the investment objectives of each Fund
of the Trust.
JOHN HANCOCK V.A. INTERNATIONAL FUND - seeks long-term growth of capital. The
Fund invests primarily in equity securities of foreign companies and
governments.
JOHN HANCOCK V.A. EMERGING EQUITIES FUND - seeks long-term growth of capital.
The potential for growth of capital is the sole basis for selection of portfolio
securities. Current income is not a factor in this selection.
JOHN HANCOCK V.A. DISCOVERY FUND - seeks long-term growth of capital. The
Fund invests primarily in common stocks of companies of all levels of
capitalization which are believed by the Fund's managers to offer superior
prospects for growth. Current income is not a factor of consequence in the
selection of stocks for the Fund.
JOHN HANCOCK V.A. DIVERSIFIED CORE EQUITY FUND - seeks above-average total
return, consisting of capital appreciation and income. The Fund will diversify
its investments to create a portfolio focused on stocks of companies that
management believes are undervalued and have improving fundamentals over both
the intermediate and long term.
JOHN HANCOCK V.A. SOVEREIGN INVESTORS FUND - seeks long-term growth of capital
and income without assuming undue market risks. At times, however, because of
market conditions, the Fund may find it advantageous to invest primarily for
current income. The Fund invests primarily in common stocks of seasoned
companies in sound financial condition with a long record of paying increasing
dividends.
JOHN HANCOCK V.A. 500 INDEX FUND - seeks to replicate the aggregate price and
yield performance of the Standard & Poor's 500 Stock Price Index ("S&P 500
Index"), although there can be no assurance that the Fund will do so. The Fund
invests in all 500 stocks in the S&P 500 Index in approximately the same
proportions as they are represented in the Index.
JOHN HANCOCK V.A. SOVEREIGN BOND FUND - seeks a high level of current income
consistent with prudent investment risk. The Fund invests primarily in a
diversified portfolio of investment grade fixed income securities of U.S. and
foreign issuers, although the Fund may invest up to 25% of its total assets in
lower-rated high-yield, high-risk fixed income securities.
16
JOHN HANCOCK V.A. STRATEGIC INCOME FUND - seeks a high level of current
income. The Fund invests primarily in foreign government and corporate fixed
income securities, U.S. Government securities and lower-rated high-yield, high-
risk fixed income securities of U.S. issuers.
JOHN HANCOCK V.A. GLOBAL INCOME FUND - seeks competitive total investment
return, consisting of current income and capital appreciation. The Fund invests
primarily in a global portfolio of high-grade, fixed income securities.
JOHN HANCOCK V.A. MONEY MARKET FUND - seeks maximum current income consistent
with capital preservation and liquidity. The Fund invests only in high-quality
money market instruments.
_______________________________________
Prospective investors should carefully read the risk disclosures contained in
the Trust prospectus with regard to the investment risks of the high-yield,
high-risk fixed income securities invested in by the John Hancock V.A. Sovereign
Bond Fund and the John Hancock V.A. Strategic Income Fund.
The Company will purchase and redeem shares of the Trust for the Separate
Account at their net asset value without any sales or redemption charges. The
shares of the Trust represent an interest in the Funds that correspond to the
Subaccounts of the Separate Account. Any dividend or capital gains
distributions received by the Separate Account will be reinvested in shares of
the respective Funds at their net asset value as of the dates paid. Any such
distribution will result in a reduction in the value of the shares of the Fund
from which the distribution was made. However, the total net asset value of the
Separate Account, or of any Fund, will not change because of such distribution.
On each Valuation Date, shares of each Fund are purchased or redeemed by the
Company for each Subaccount based on, among other things, the amount of net
premium payments allocated to the Subaccount, dividends and distributions
reinvested, transfers to, from and among Subaccounts, all to be effected as of
that date. Such purchases and redemptions are effected at the net asset value
per share for each Fund determined on that same Valuation Date.
THE MVA FIXED ACCOUNT
GUARANTEED RATES/GUARANTEE PERIODS
Amounts allocated by the Owner to the MVA Fixed Separate Account earn
interest at a Guaranteed Rate commencing with the date of allocation. The
Guaranteed Rate continues for a number of years, i.e., the Guarantee Period,
selected by the Owner. At the end of the Guarantee Period, the Accumulated Value
in that Guarantee Period, including interest accrued thereon, will be
automatically transferred to the Money Market Subaccount unless the Owner elects
to: (a) withdraw such Accumulated Value from the Contract, (b) allocate all or a
portion of the Accumulated Value to a new Guarantee Period of the same duration
as the expiring Guarantee Period, or (c) allocate the Accumulated Value to a
different Guarantee Period or periods or to one or more of the Subaccounts. The
Company must be notified of any election by the Owner at JHISC's office in a
form satisfactory to it within 30 days prior to the end of the expiring
Guarantee Period. The first day of any new Guarantee Period or other
reallocation will be the day after the end of the prior Guarantee Period. The
Company will notify the Owner at least 30 days prior to the end of any Guarantee
Period. A Guarantee Period will generally not be available if it extends beyond
the Date of Maturity.
The Company currently makes available Guarantee Periods of various
durations. At any time, the Guarantee Periods may be one year and multiple year
periods of up to ten years. The Company reserves the right to add or delete
Guarantee Periods from those that are available at any time for new allocations.
Each
17
Guarantee Period has its own Guaranteed Rate, which may differ from those for
other Guarantee Periods. We may, at our discretion, change the Guaranteed Rate
for future Guarantee Periods. These changes will not affect the Guaranteed
Rates being paid on Guarantee Periods that have already commenced. Each
allocation or transfer of an amount to a Guarantee Period commences the running
of a new Guarantee Period with respect to that amount, which will earn a
Guaranteed Rate that will continue unchanged until the end of that period. A
minimum guaranteed interest rate of 3% applies to all Contracts issued on an
individual basis. Contracts issued on a group basis do not provide for any
minimum interest rate.
The Company declares the Guaranteed Rates from time to time as market
conditions and other factors dictate. The Company advises an Owner of the
Guaranteed Rate for a chosen Guarantee Period at the time a premium payment is
received, a transfer is effectuated or a Guarantee Period is renewed.
The Company has no specific formula for establishing the Guaranteed Rates
for the Guarantee Periods. The rates may be influenced by, but not necessarily
correspond to, interest rates generally available on the types of investments
acquired with amounts allocated to the Guarantee Period. See "Investments by the
Company," below. The Company, in determining Guaranteed Rates, may also
consider, among other factors, the duration of a Guarantee Period, regulatory
and tax requirements, sales and administrative expenses borne by the Company,
risks assumed by the Company, the Company's profitability objectives, and
general economic trends.
THE COMPANY'S MANAGEMENT MAKES THE FINAL DETERMINATION OF THE GUARANTEED RATES
TO BE DECLARED. THE COMPANY CANNOT PREDICT OR ASSURE THE LEVEL OF ANY FUTURE
GUARANTEED RATES IN EXCESS OF ANY APPLICABLE MINIMUM RATE.
Information concerning the Guaranteed Rates applicable to the various
Guarantee Periods, and the durations of the Guarantee Periods offered, at any
time may be obtained from the Company by calling JHISC at the telephone number
indicated on the cover page of this prospectus.
MARKET VALUE ADJUSTMENT
If any MVA Fixed Account Value is withdrawn, transferred or otherwise paid
out before the end of the Guarantee Period in which it is being held, a Market
Value Adjustment will be applied. This generally includes amounts that are paid
out as death benefits pursuant to the Contract, amounts applied to an annuity
option, and amounts paid as a single sum in lieu of an annuity. No Market Value
Adjustment will be applied to amounts that are paid out on the last day of a
Guarantee Period.
The Market Value Adjustment may increase or decrease the amount of MVA
Fixed Account Value being withdrawn, transferred or otherwise paid out. The
comparison of two Guaranteed Rates determines whether the Market Value
Adjustment produces an increase or a decrease. The first rate to compare is the
Guaranteed Rate for the existing Guarantee Period from which amounts are being
transferred or withdrawn. The second rate is the Guaranteed Rate then being
offered for new Guarantee Periods of the same duration as that remaining in the
existing Guarantee Period. If the first rate exceeds the second by more than
1/2%, the Market Value Adjustment produces an increase. If the first rate does
not exceed the second by at least 1/2%, the Market Value Adjustment produces a
decrease. Sample calculations are shown in Appendix A.
The Market Value Adjustment will be determined by multiplying the amount
being withdrawn or transferred from the Guarantee Period (before deduction of
any applicable CDSL) by the following factor:
[((1+g)/(1+c+.005)) circumflex n/12]-1
where,
18
. g is the Guaranteed Rate in effect for the current Guarantee Period (in
decimal form).
. c is the current Guaranteed Rate (in decimal form) in effect for new
Guarantee Periods with durations equal to the number of years remaining
in the current Guarantee Period (rounded up to the nearest whole number
of years). If not available, the Company will declare a Guaranteed Rate
solely for this purpose that is consistent with interest rates for
Guarantee Periods that are currently available.
. n is the number of complete months from the date of withdrawal to the
end of the current Guarantee Period. (Where less than one complete month
remains, n will equal one unless the withdrawal is made on the last day
of the Guarantee Period, in which case no adjustment will apply.)
INVESTMENTS BY THE COMPANY
The Company's obligations with respect to the MVA Fixed Account are
supported by its General Account assets, which also support obligations incurred
by the Company under other insurance and annuity contracts. Investments
purchased with amounts allocated to the MVA Fixed Account are the property of
the Company and Owners have no legal rights in, or participation in the
performance of, such investments. Subject to applicable law, the Company has
sole discretion over the investment of assets in the General Account, including
the MVA Fixed Account, and neither account is subject to registration under the
1940 Act.
Amounts in the Company's General Account and the MVA Fixed Account will be
invested in compliance with applicable state insurance laws and regulations
concerning the nature and quality of investments for the General Account. See
the Company's Financial Statements for information on the Company's investments.
Investment management for amounts in the General Account and in the MVA Fixed
Account is provided to the Company by John Hancock.
The Company intends to consider the return available on the instruments in
which it intends to invest amounts allocated to the MVA Fixed Account when it
establishes Guaranteed Interest Rates. Such return is only one of the factors
considered in establishing the Guaranteed Interest Rates. See "Guaranteed
Interest Rates/Guarantee Periods," above.
The Company expects that amounts allocated to the MVA Fixed Account will be
invested 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 attributable to the MVA Fixed Account
primarily in domestic investment-grade securities. In addition, derivative
contracts will be used only for hedging purposes, to reduce the ordinary
business risk of the Contracts associated with changes in interest rates, and
not for speculating on future changes in the financial markets. Notwithstanding
the foregoing, the Company is not obligated to invest amounts allocated to the
MVA Fixed Account according to any particular strategy. See "Management
Discussion and Analysis of Financial Condition and Results of Operations-
Reserves and Obligations" under "Further Information About the Company."
19
CHARGES UNDER THE CONTRACTS
CHARGES FOR MORTALITY AND EXPENSE RISKS
While variable annuity payments to Annuitants will vary in accordance with
the investment performance of the Separate Account, the amount of such payments
will not be decreased because of adverse mortality experience of Annuitants as a
class or because of an increase in actual expenses of the Company over the
expense charges provided for in the Contracts. The Company assumes the risk that
Annuitants as a class may live longer than expected (necessitating a greater
number of annuity payments) and that its expenses may be higher than the
deductions for such expenses. The Company also provides a standard death benefit
and waives any CDSL upon the death of the Annuitant.
In return for the assumption of these mortality and expense risks, the
Company makes a daily charge to the assets of the Separate Account. The daily
charge is at the rate of 0.002466%, or 0.90% annually, of which 0.45% is for
mortality risks and 0.45%, for expense risks. The Company reserves the right to
revise the amounts of the charge as between mortality risks and expense risks,
should estimates change, but the aggregate charge will not exceed 0.90% on an
annual basis.
CHARGES FOR ADMINISTRATIVE SERVICES
The Company maintains an account for each Owner and Annuitant and makes all
disbursements of benefits. The Company also furnishes such administrative and
clerical services, including the calculation of Accumulation Unit values and the
values and interests determined thereby, as are required for each Subaccount.
The Company makes disbursements from Separate Account funds to pay obligations
chargeable to the Separate Account and maintains the accounts, records, and
other documents relating to the business of the Separate Account required by
regulatory authorities. These administrative services may be performed by the
Company, by JHISC, or by one or more of the Company's other affiliates. For
these and other administrative services, the Company makes a daily charge to the
assets of the Separate Account and assesses, during the Accumulation Period, a
Contract Fee of $30 on all Contracts having an Accumulated Value of less than
$10,000. The Contract Fee will be deducted at the beginning of each Contract
Year after the first and at a full surrender during a Contract Year. The Company
reserves the right to increase this fee up to a maximum of $50 subject to state
regulations. No Contract Fee will be deducted if the Accumulated Value is
$10,000 or more. The Contract Fee will be deducted from each Subaccount and
each Guarantee Period in the same proportion that the Accumulated Value in that
Subaccount or Guarantee Period bears to the full Accumulated Value.
The daily administrative charge is 0.000959%, or 0.35% on an annual basis,
under Contracts with an initial premium payment of less than $250,000; and
0.000274%, or 0.10% on an annual basis, under Contracts with an initial premium
payment of $250,000 or more. The different charges reflect the greater cost of
administering smaller Contracts and lower amounts realized by the Company from
its expense risk charges under such Contracts.
The administrative services charges are not designed, nor are they
expected, to exceed the Company's cost in providing these services.
CONTINGENT DEFERRED SALES LOAD
A contingent deferred sales load, or CDSL, may be assessed whenever a
Contract is surrendered for cash prior to the Date of Maturity ("total
withdrawal" or "surrender") or whenever an amount less than the total
Accumulated Value is withdrawn from a Contract prior to the Date of Maturity
("partial withdrawal"). This charge is used to help defray expenses relating to
the sales of the Contracts, including commissions paid and other distribution
costs.
20
An Owner may withdraw in any Contract Year up to 10% of the Accumulated
Value as of the beginning of the Contract Year without the assessment of any
CDSL. This is the Free Withdrawal Value. If, in any Contract Year, the Owner
withdraws an aggregate amount in excess of 10% of the Accumulated Value as of
the beginning of the Contract Year, the amount withdrawn in excess of 10% is
subject to a CDSL to the extent that the excess is attributable to premium
payments made within seven years of the date of withdrawal or surrender.
No CDSL is assessed on amounts applied to provide an annuity or to pay a
death benefit. Also, no CDSL will apply to certain withdrawals if an Owner has
elected the nursing home waiver of CDSL rider described under "Nursing Home
Waiver of CDSL" below. Amounts withdrawn to satisfy the minimum distribution
requirements for tax qualified plans funded by Contract are not subject to a
CDSL in any Contract Year. Amounts above the minimum distribution requirements
are subject to a CDSL if otherwise applicable.
The CDSL percentage charge depends upon the number of years that have
elapsed from the date of premium payment to the date of its withdrawal, as
follows:
Years from Date
of Premium Payment to CDSL
Date of Surrender or Withdrawal Percentage
------------------------------- -----------
7 or more ................................... 0%
6 but less than 7 ........................... 2%
5 but less than 6 ........................... 3%
4 but less than 5 ........................... 4%
3 but less than 4 ........................... 5%
2 but less than 3 ........................... 5%
less than 2 ................................. 6%
Whenever a CDSL is imposed, it is deducted from each Subaccount of the
Separate Account and each Guarantee Period of the MVA Fixed Account in the
proportion that the amount subject to the CDSL in each bears to the total amount
subject to the CDSL. In calculating the CDSL, all amounts withdrawn plus all
Contract Fees and CDSLs are assumed to be deducted first from the earliest
purchase payment, and then from the next earliest purchase payment, and so forth
until all payments have been exhausted, satisfying the first-in first out, or
"FIFO," method of accounting. The CDSL only applies to premium payments, not to
any earnings or appreciation. For a discussion of the taxation of partial
withdrawals, see "Contracts Purchased Other Than to Fund a Tax Qualified Plan"
under "Federal Income Taxes."
To the extent that any CDSL is applicable, the Accumulated Value will
generally be reduced by the amount of the CDSL, as well as by the actual dollar
amount of the withdrawal request. Any positive MVA will reduce the amount
deducted from the Accumulated Value by the amount of the positive MVA. Any
negative MVA will increase the amount deducted by the amount of the negative
MVA. The CDSL is calculated based upon the full amount by which the Accumulated
Value is reduced, adjusted for any MVA, and subject to the conditions noted
above.
For example, assume a Contract is issued on January 1, 1996, that the
Owner makes premium payments of $5,000 on January 1, 1996, $1,000 on
January 1, 1997, and $1,000 on January 1, 1998. Assume that the Accumulated
Value on January 1, 1999, is $9,000 and that a partial withdrawal is made
by the Owner in the amount of $6,000 (no tax withholding) on June 1, 1999.
The CDSL in this case, assuming no prior partial withdrawals, would equal
$272.23.
In calculating the CDSL under the FIFO method, the January 1, 1996,
$5,000 premium payment is first reduced by the three $30 Contract Fees
assessed on January 1, 1997, 1998, and 1999, i.e., to $4,910. Ten percent
of the Accumulated Value on January 1, 1999, i.e., $900, the free
withdrawal
21
amount, is then deducted leaving $4,010.
The remaining balance of the $5,000 January 1, 1996, premium payment,
i.e., $4,010, is then withdrawn in its entirety and is assessed a CDSL of
$200.50 (.05 x $4,010). All of the $1,000 January 1, 1997, premium payment
is to be withdrawn and is assessed a CDSL of $50 (.05 x $1,000). To make up
the remainder of the $6,000 paid to the Owner, $362.23 is withdrawn from
the January 1, 1998, premium payment. This is assessed a CDSL of $21.73
(.06 x $362.23).
Therefore, the total amount paid to the Owner is $6,000 and the total
CDSL is $272.23. The above example assumes all amounts withdrawn are after
the application of any Market Value Adjustment.
Withdrawals made prior to the Owner attaining age 59 1/2 may be subject to
certain adverse tax consequences. A Federal penalty of 10% is generally
applicable to the taxable portion (earnings) of a premature withdrawal from the
Contract. See "Penalty for Premature Withdrawals" under "Federal Income Taxes."
To the extent that the proceeds from the CDSLs may be insufficient to cover
distribution costs, the Company may recover them from its General Account assets
which may consist of, among other things, proceeds derived from mortality and
expense risk charges deducted from the Separate Account.
NURSING HOME WAIVER OF CDSL
An optional Nursing Home Waiver of CDSL rider may be elected when the
Contract is applied for. Under this benefit, the CDSL, if otherwise applicable,
will be waived as to any withdrawals if, beginning at least 30 days after the
Contract date of issue, the Owner becomes confined to an LTCF (long term care
facility) for at least 90 consecutive days. The Company must receive a request
for a withdrawal and adequate proof of confinement no later than 90 days after
discharge from an LTCF, and the confinement must be prescribed by a physician
and medically necessary. At the beginning of each month, a charge equal to
1/12th of .05% (annual percentage rate) is made against the Accumulated Value at
that time. The charge is made through a pro-rata reduction in Accumulation Units
of the Subaccounts and dollar amounts in the Guarantee Periods, based on
relative values.
OPTIONAL DEATH BENEFIT CHARGES
Separate monthly charges are made for the optional One Year Stepped-Up
Death Benefit and Accidental Death Benefit riders offered by the Company. In
each case, the charge for the rider is made through a pro-rata reduction in
Accumulation Units of the Subaccounts and dollar amounts in the Guarantee
Periods, based on relative values. The charge, made at the beginning of each
month, is equal to the Accumulated Value at that time multiplied by 1/12th of
the following applicable annual percentage rates: One Year Stepped-Up Death
Benefit rider - 0.15%; Accidental Death Benefit rider - 0.10%. See "Optional One
Year Stepped-Up Death Benefit Rider" and "Optional Accidental Death Benefit
Rider" under "The Accumulation Period."
VARIATIONS IN CHARGES
In the future, the Company may allow a reduction in or the elimination of
the CDSL, the charge for the Nursing Home Waiver of CDSL rider, the charge for
mortality and expense risks, the administrative services charge, or the annual
Contract Fee, or the charge for the One Year Stepped-Up Death Benefit rider or
22
Accidental Death Benefit rider, under Contracts sold to groups or classes of
individuals in a manner resulting in a reduction in the expenses associated with
the sale of such Contracts and the benefits offered, or the costs associated
with administering or maintaining the Contracts.
The entitlement to such a reduction in or elimination of charges and fees
will be determined by the Company based upon factors such as the following: (1)
the size of the initial premium payment, (2) the size of the group or class, (3)
the total amount of premium payments expected to be received from the group or
class and the manner in which premium payments are remitted, (4) the nature of
the group or class for which the Contracts are being purchased and the
persistency expected from that group or class as well as the mortality risks
associated with that group or class, (5) the purpose for which the Contracts are
being purchased and whether that purpose makes it likely that costs and expenses
will be reduced, or (6) the level of commissions paid to selling broker-dealers
or certain financial institutions with respect to Contracts within the same
group or class.
The Company will make any reduction in charges or fees according to its own
rules in effect at the time an application for a Contract is approved. The
Company reserves the right to change these rules from time to time. Any
variation in charges or fees will reflect differences in costs and services,
will apply uniformly to all prospective Contract purchasers in the group or
class, and will not be unfairly discriminatory to the interests of any Owner.
PREMIUM OR SIMILAR TAXES
Several states and local governments impose a premium or similar tax on
annuities. Currently, such taxes range up to 5% of the Accumulated Value applied
to an Annuity Option. Ordinarily, any state-imposed premium or similar tax will
be deducted from the Accumulated Value only at the time of annuitization.
The Company will deduct a charge for these taxes from the Accumulated Value
at the time of annuitization, death, surrender, or withdrawal. 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 at death.
The net economic effect of this procedure is not significantly different than if
the Company deducted the premium tax from each premium payment when received.
For Contracts issued in South Dakota the Company pays a tax on each premium
payment at the time it is made.
________________________________
The charges described above (exclusive of taxes) and the Contracts' annuity
purchase rates will apply for the duration of each Contract and, except as noted
above, will not be increased by the Company. However, these charges do not
include all of the expenses which may be incurred for the account of Owners and
Annuitants. Additional charges will be made directly to the Separate Account for
taxes, if any, based on the income of, capital gains of, assets in, or the
existence of, the Separate Account and interest on funds borrowed. In addition,
the Company reserves the right to deduct premium taxes from premiums when paid.
Moreover, the Separate Account purchases and redeems shares of the Trust at net
asset value, Trust which reflects the deduction from the assets of the Trust of
the applicable investment management fees and of certain operating expenses
listed under "Synopsis of Expense Information."
23
THE CONTRACTS
The descriptions herein are based on certain provisions of the Contracts.
Reference should be made to the actual Contracts and to the terms and
limitations of any tax qualified plan which is to be funded by such Contracts.
Tax qualified plans are subject to several requirements and limitations which
may affect the terms of any particular Contract or the advisability of taking
certain action permitted thereby.
PURCHASE OF CONTRACTS
Authorized representatives of the broker-dealer or financial institution
participating in the distribution of the Contracts will assist in the completion
of the application or the placing of an order for a Contract and will be
responsible for its transmittal, together with the necessary premium payment, to
the Company's Servicing Agent, JHISC. If the application or order is complete
and the Contract applied for is suitable, the Contract will be issued and
delivered to the Owner. If the completed application or order is received in
proper form, the initial premium payment accompanying the completed application
is applied within two business days after receipt. If an initial premium payment
is not applied within five business days after receipt, it will be refunded
unless the applicant consents to the retention of the premium payment until
receipt of information necessary to allow the issuance of the Contract.
Each premium payment must be at least $500 in amount. The maximum premium
payment in any Contract Year is $1,000,000. The maximum dollar amount of
transfers and payments to any one Subaccount in a Contract Year is $1,000,000.
While the Annuitant is living and the Contract is in force, premium payments may
be made at any time before the Date of Maturity, except that no new premium
payments may be made after the Annuitant reaches age 84 1/2 under Contracts
funding non-qualified arrangements, or age 70 1/2 under tax qualified plans. A
Contract will not be issued if the proposed Annuitant is older than age 84 1/2.
The foregoing limits may be waived by the Company.
All checks or other forms of premium payment must be made payable to John
Hancock Variable Life Insurance Company.
PREMIUM PAYMENTS BY WIRE
The initial premium payment may be transmitted by wire order from broker-
dealers and financial institutions participating in the distribution of the
Contracts. Wire orders accepted by the Company will be invested in the
investment options selected by the prospective Owner at the value next
determined following receipt in good order. Wire orders must include information
necessary to allocate the payment among the investment options selected by the
prospective Owner. Wire orders not accompanied by complete information may be
held for up to five business days in order to obtain the missing information. If
that information is not obtained within the five business day period, JHISC will
so advise the broker-dealer or financial institution involved and return the
premium payment immediately to the prospective Owner, unless he or she consents
to the retention of the premium payment by the Company until JHISC has received
the information not provided. A Contract will, nevertheless, not be issued,
until the Company receives and accepts a properly completed application. Until a
signed application is received and accepted, no further premium payments or
other transactions will be allowed.
If within ten days of the receipt of the initial premium payment by wire a
completed application is not received or an incomplete application received
cannot be completed, the initial premium payment will be returned to the
prospective Owner.
After a Contract has been issued, subsequent premium payments may be
transmitted by wire through the Owner's bank. Information as to the name of the
Company's bank, our account number and the ABA routing number may be obtained by
calling JHISC at the telephone number on the cover page of this prospectus. The
24
wire order must identify the Subaccounts and Guarantee Periods to which the
premium payment is to be allocated, and the dollar amount to be allocated to
each Subaccount and Guarantee Period. Banks may charge a fee for wire services.
THE ACCUMULATION PERIOD
ALLOCATION OF PREMIUM PAYMENTS
Net premium payments are allocated by the Company to one or more of the
Subaccounts or Guarantee Periods, or among the Subaccounts and Guarantee
Periods, as specified by the Owner at the time of purchasing the Contract, and
as directed by the Owner from time to time thereafter. Any change in the
allocations will be effective as to premium payments made after the receipt by
JHISC of notice in form satisfactory to the Company.
Each net premium payment allocated to a Subaccount purchases Accumulation
Units of that Subaccount at the value of such units next determined after the
receipt of such net premium payment at JHISC. See "Variable Account Valuation
Procedures."
Currently, premium payments may be allocated to a maximum of 18 Subaccounts
and Guarantee Periods.
VALUE OF ACCUMULATION UNITS
The number of Accumulation Units of a Subaccount purchased with a specific
premium payment will be determined by dividing the net premium payment by the
value of an Accumulation Unit in that Subaccount when the net premium payment is
applied. The value of the Accumulation Units so purchased will vary in amount
thereafter, depending upon the investment performance of the Subaccount and the
charges and deductions made against the Subaccount. At any date prior to the
Date of Maturity, the total value of the Accumulation Units in a Subaccount
which have been credited to a Contract can be computed by multiplying the number
of such Accumulation Units by the appropriate Accumulation Unit Value in effect
for such date.
DETERMINATION OF MVA FIXED ACCOUNT VALUE
A Contract's MVA Fixed Account Value is guaranteed by the Company. The
Company bears the investment risk with respect to amounts allocated to the MVA
Fixed Account, except that (a) the Company may vary the Guaranteed Rate for
future Guarantee Periods (subject to the 3% effective annual minimum guaranteed
rate applicable to all Contracts issued on an individual basis) and (b) the
Market Value Adjustment imposes investment risks on the Owner.
The Contract's MVA Fixed Account Value is the sum of the MVA Fixed Account
Values in each Guarantee Period on any date. The MVA Fixed Account Value in a
Guarantee Period is equal to the following amounts, in each case increased by
accrued interest at the applicable Guaranteed Rate:
. The amount of net premium payments or transferred amounts allocated to
the Guarantee Period; less
. The amount of any withdrawals or transfers out of the Guarantee Period;
less
. The amount of any charges deducted from that Guarantee Period.
25
TRANSFERS AMONG SUBACCOUNTS AND GUARANTEE PERIODS
Not more than 12 times in each Contract Year the Owner may (a) transfer all
or any part of the Accumulation Units credited under a Contract from one
Subaccount to another Subaccount, or into a Guarantee Period or (b) transfer all
or any part of the dollar amount in one Guarantee Period to another Guarantee
Period, or to a Subaccount. However, transfers may not be made within 30 days of
the Date of Maturity, and transfers from one Subaccount to another may not
exceed $1,000,000 in value in any Contract Year. A transfer pursuant to the
dollar cost averaging feature discussed below counts toward the limitation of 12
transfers per Contract Year.
Transfers involving the Subaccounts will result in the redemption and/or
purchase of Accumulation Units on the basis of the respective unit values next
determined after receipt of notice satisfactory to the Company at JHISC.
Transfers from a Guarantee Period before its expiration date are subject to a
Market Value Adjustment. The amount of any positive or negative Market Value
Adjustment will be added to or deducted from the transferred amount.
An Owner may request a transfer in writing or, if a telephone transfer
authorization is in effect, by telephoning 800-824-0335. The Owner may send a
written request to JHISC at P.O. Box 9298, Boston, Massachusetts 02205-9298. Any
written request should include the Owner's name, daytime telephone number, and
Contract number, and identify the Subaccounts or Guarantee Periods from which
and to which transfers are to be made. Transfers will be effective on the date
of receipt at our Servicing Office, JHISC, of a request in form satisfactory to
us. The Company reserves the right to modify, suspend, or terminate telephone
transfers at any time without notice to the Owners.
An Owner who authorizes telephone transfers will be liable for any loss,
expense or cost arising out of any unauthorized or fraudulent telephone transfer
instructions which the Company and/or JHISC reasonably believes to be genuine,
unless such loss, expense or cost is the result of the Company's and/or JHISC's
mistake or negligence. The Company and JHISC employ procedures which provide
adequate safeguards against the execution of unauthorized transfers, and which
are reasonably designed to confirm that transfer instructions received by
telephone are genuine. These procedures include requiring personal
identification, tape recording calls, and providing written confirmation to the
Owner.
DOLLAR COST AVERAGING
The Owner may elect to have automatically transferred on a monthly,
quarterly, semi-annual or annual basis, at no cost, Accumulation Units credited
to the Money Market Subaccount into one or more of the other Subaccounts. The
minimum amount of each transfer is $250. To begin the program, the Accumulated
Value in the Money Market Subaccount must be at least $15,000. The program
continues until the earlier of 12, 24, or 36 (as chosen by the Owner) months and
full liquidation of the Money Market Subaccount. Changes in your dollar cost
averaging instructions may be made by telephone or in writing provided the
telephone authorization option has been elected by the Owner. The Company
reserves the right to terminate the dollar cost averaging program at any time.
Automatic transfers into the Guarantee Periods are not permitted.
SURRENDER OF CONTRACT; PARTIAL WITHDRAWALS
Prior to the Date of Maturity, if the Annuitant is living, a Contract may
be surrendered for a cash payment of its Surrender Value, or a partial
withdrawal of the Accumulated Value may be made. The Surrender Value of a
Contract is the Accumulated Value, after any Market Value Adjustment, less any
applicable charges, including any CDSL. Accumulation Units will be redeemed at
their value next determined after the receipt by JHISC of notice of surrender or
partial withdrawal in form satisfactory to the Company. The amount of MVA Fixed
Account Value will be determined on the date of receipt by JHISC of such notice.
The value of any
26
Accumulation Units redeemed may be more or less than the net premium payments
applied under the Contract, depending upon the value of the Trust's shares held
in a Subaccount at the time. Similarly, the MVA Fixed Account Value, as adjusted
by any applicable Market Value Adjustment, may be more or less than the net
premium payments applied to the MVA Fixed Account. The resulting cash payment
upon a surrender will be reduced by any applicable CDSL and any unpaid Contract
Fees or other charges.
Unless directed otherwise by the Owner, that portion of the Accumulated
Value of the Contract redeemed in a partial withdrawal will be redeemed in each
Subaccount and each Guarantee Period in the same proportion as the Accumulated
Value of the Contract is then allocated among the Subaccounts and the Guarantee
Periods. The Company will redeem Accumulation Units and/or withdraw dollar
amounts from the MVA Fixed Account so that the total amount of a partial
withdrawal (after any Market Value Adjustment) equals the dollar amount of the
partial withdrawal request. Any applicable CDSL will be determined after any
Market Value Adjustment and will reduce the remaining Accumulated Value in the
Separate Account and MVA Fixed Account, as the case may be. The CDSL, if any,
will not reduce the partial withdrawal payment made to the owner so long as the
Accumulated Value is sufficient to cover the CDSL.
Payments of Surrender Value, in a single sum, and partial withdrawal
payments, ordinarily will be made within seven days after receipt of the above
notice by JHISC. As described under "Miscellaneous Provisions-Deferment of
Payment," however, redemptions and payments may be delayed under certain
circumstances. See "Federal Income Taxes" for possible adverse tax consequences
of certain surrenders and partial withdrawals.
Any request for a surrender or partial withdrawal should be mailed to
JHISC, P. O. Box 9298, Boston, MA 02205-9298.
Without our approval, a partial withdrawal is not permitted for an amount
less than $100, nor may a partial withdrawal be made if the total remaining
Accumulated Value would be less than $1,000. If the CDSL Free Withdrawal Value
is at any time less than $100, then that amount must be withdrawn in full, in a
single withdrawal, before any further partial withdrawal is made. The Contract
may be terminated by the Company if the Accumulated Value of the Contract at any
time becomes zero.
SYSTEMATIC WITHDRAWAL
An optional systematic withdrawal plan enables the Owner to pre-authorize
periodic withdrawals. Owners electing the plan instruct the Company to withdraw
a percentage or a level dollar amount from the Contract on a monthly, quarterly,
semi-annual, or annual basis. The amount withdrawn will result in the
cancellation of Accumulation Units from each applicable Subaccount in the
Separate Account, and the deduction of dollar amounts from each applicable
Guarantee Period in the MVA Fixed Account, in the ratio that the value of each
bears to the total Accumulated Value. Currently, systematic withdrawal is
available to Owners who have an Accumulated Value of $15,000 or more. The
Company reserves the right to modify the eligibility rules or other terms and
conditions of this program at any time, without notice. The total systematic
withdrawal in a Contract Year is limited to 10% of the Accumulated Value as of
the beginning of the Contract Year. The minimum systematic withdrawal is $100.
In the event that the modal amount of the withdrawal drops below $100 or the
Accumulated Value becomes less than $5,000, the plan will be suspended by the
Company and the Owner will be notified. The systematic withdrawal will terminate
upon cancellation by the Owner. Systematic withdrawal is not available to
Contracts participating in the dollar cost averaging program.
Systematic withdrawals are subject to the CDSL and Market Value Adjustment
described above. There may be tax consequences associated with the systematic
withdrawal plan. See "Federal Income Taxes."
27
STANDARD DEATH BENEFIT
If the Annuitant dies before the Date of Maturity, a standard death benefit
is payable. The death benefit will be the greater of (a) the Accumulated Value,
adjusted by any Market Value Adjustment, next determined following receipt by
JHISC of due proof of death together with any required instructions as to method
of settlement, and (b) the aggregate amount of the premium payments made under
the Contract, less any partial withdrawals and CDSLs.
Payment of the death benefit will be made in a single sum to the
beneficiary designated by the Owner prior to the Annuitant's death unless an
optional method of settlement has been elected by the Owner. If an optional
method of settlement has not been elected by the Owner, the beneficiary may
elect an optional method of settlement in lieu of a single sum. No deduction is
made for sales or other expenses upon such election. Payment will be made in a
single sum in any event if the death benefit is less than $5000. See "Annuity
Options" under "The Annuity Period". If there is no surviving beneficiary, the
Owner, or his or her estate is the beneficiary.
OPTIONAL ONE YEAR STEPPED-UP DEATH BENEFIT
The Owner may elect a one year stepped-up death benefit rider that is
designed to enhance the standard death benefit payable to the beneficiary.
Under this rider, upon the death of the Annuitant before the Date of Maturity,
the benefit payable will be the greater of (a) the standard death benefit, and
(b) the highest Accumulated Value, adjusted by any Market Value Adjustment, of
the Contract as of any Contract anniversary preceding the anniversary nearest
the Annuitant's 81st birthday, plus any premium payments, less any withdrawals
and CDSLs, since such Contract anniversary. The rider is elected at the time a
Contract is applied for. A monthly charge is made for this benefit, so long as
the rider is in effect. See "Charges Under the Contracts."
OPTIONAL ACCIDENTAL DEATH BENEFIT
At the option of the Owner, an accidental death benefit may be elected at
the time the Contract is applied for. Under this rider, upon the death of the
Annuitant prior to the Date of Maturity, the beneficiary will receive in
addition to any other death benefit, an amount equal to the Accumulated Value of
the Contract, as of the date of receipt of due proof of the Annuitant's death
together with any required instructions as to method of settlement, up to a
maximum of $200,000. The benefit is available to issue age 80. A monthly charge
is made for this rider as described under "Charges Under the Contracts."
PAYMENT OF DEATH BENEFITS
Distribution Requirements Following Death of Owner
The Code requires certain distribution provisions to be included in any
Contract used to fund other than a tax qualified plan. See "Federal Income
Taxes". Failure to include the required distribution provisions results in the
Contract not being treated as an annuity for Federal tax purposes. The Code
imposes comparable distribution requirements for Contracts used to fund tax
qualified plans. These required provisions for tax qualified plans will be
reflected by means of separate disclosures and endorsements furnished to
Owners.
The Code distribution requirements are expected to present few practical
problems when the Annuitant and Owner are the same person. Nevertheless, all
Owners of Contracts not used to fund a tax qualified plan and IRA Contract
Owners should be aware that the following distribution requirements are
applicable notwithstanding any provision to the contrary in the Contract (or in
this prospectus) relating to payment of the death benefit or death of the
Annuitant.
If the Owner dies before annuity payments have begun: (a) if the
beneficiary is the surviving spouse of the
28
Owner, the beneficiary may continue the Contract in force as Owner; or (b) if
the beneficiary is not the surviving spouse of the Owner, or if the beneficiary
is the surviving spouse of the Owner but does not choose to continue the
Contract, the entire interest in the Contract on the date of death of the Owner
must be: (i) paid out in full within five years of the Owner's death, or (ii)
applied in full towards the purchase of a life annuity on the beneficiary with
payments commencing within one year of the Owner's death. If the Owner dies on
or after annuity payments have begun, any remaining benefit must be paid out at
least as rapidly as under the method of making annuity payments then in effect.
The Code imposes comparable distribution requirements on tax qualified
plans.
If the Owner is not the Annuitant, "the entire interest in the Contract on
the date of death of the Owner" is equal to the Surrender Value if paid out in
full within five years of the Owner's death, or is equal to the Accumulated
Value if applied in full towards the purchase of a life annuity on the
beneficiary with payments commencing within one year of the Owner's death. Note
that "the entire interest in the Contract on the date of death of the Owner"
which is payable if the Owner dies before annuity payments have begun may be an
amount less than the death benefit which would have been payable if the
Annuitant had died instead.
Notice should be furnished promptly to JHISC upon the death of the Owner.
THE ANNUITY PERIOD
During the annuity period, the total value of a Contract may be allocated
among no more than four "Accounts." For this purpose, all Guarantee Periods
comprising the MVA Fixed Account are counted as one Account; each of the
Subaccounts is counted as one Account. Amounts allocated to the MVA Fixed
Account will provide annuity payments on a fixed basis; amounts allocated to the
Subaccounts will provide annuity payments on a variable basis. If more than four
Accounts are being used on the Date of Maturity, the Company will divide the
total Accumulated Value proportionately among the four Accounts with the largest
Accumulated Values.
Any Accumulated Value in the MVA Fixed Account at the Date of Maturity will
be subject to any positive or negative Market Value Adjustment that is
applicable at that time, before such amount is applied to provide annuity
payments.
Annuity payments will begin on the Date of Maturity if the Annuitant is
then living and the Contract has been in force for at least six months. 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, the payments remaining in the ten-year period will be made to
the contingent payee, subject to the terms of any supplementary agreement
issued. A different form of annuity may be elected by the Owner, as described in
"Annuity Options," below, prior to the Date of Maturity. However, the minimum
Accumlated Value that may be applied to an annuity form, other than a Life
Annuity with Ten Years Certain, is $5,000. Once a given form of annuity takes
effect, it may not be changed.
If the initial monthly annuity payment under a Contract would be less than
$50, the Company may make a single sum payment equal to the total Surrender
Value of the Contract on the date the initial payment would be payable, in place
of all other benefits.
Each Contract specifies a Provisional Date of Maturity at the time of its
issuance, which may be no earlier than six months after the date the first
payment is applied to the Contract. The Owner may subsequently elect a different
Date of Maturity, however. Unless otherwise permitted by the Company, such
subsequent date may be any earlier date provided it is no earlier than six
months after the date the first payment is applied to the Contract, nor later
than the maximum age specified in the Contract, generally age 85. The election
is made by
29
written notice received by JHISC before the Provisional Date of Maturity and at
least 31 days prior to the Date of Maturity. If a Date of Maturity different
from the Provisional Date of Maturity is not elected by the Owner, the
Provisional Date of Maturity shall be the Date of Maturity of the Contract.
Particular care should be taken in electing the Date of Maturity for Contracts
issued under tax qualified plans. See "Federal Income Taxes."
VARIABLE MONTHLY ANNUITY PAYMENTS
Variable monthly annuity payments under a Contract are determined by
converting each Subaccount's Accumulation Units credited to the Contract (less
any applicable premium tax) into the respective Annuity Units of each applicable
Subaccount on the Date of Maturity or some other date elected for commencement
of variable annuity payments.
The amount of each variable annuity payment after the first payment will
depend on the investment performance of the Subaccounts being used. If the
actual net investment return (after deducting all charges) of a Subaccount
during the period between the dates for determining two monthly payments based
on that Subaccount exceeds the "assumed investment rate" (explained below), the
latter monthly payment will be larger than the former. On the other hand, if the
actual net investment return is less than the assumed investment rate, the
latter monthly payment will be smaller than the former.
Assumed Investment Rate
The assumed investment rate for the variable annuity portion of the
Contracts will be 3 1/2% per year except as provided below. The assumed
investment rate is significant in determining the amount of the initial variable
monthly annuity payment and the amount by which subsequent variable monthly
payments are more or less than the initial variable monthly payment.
Where applicable state law so provides, an Owner may elect a Variable
Annuity Option with assumed investment rates of 5% or 6%, if such a rate is
available in the Owner's state. Election of a higher assumed investment rate
produces a larger initial annuity payment but also means that eventually the
monthly annuity payments would be smaller than if a lower assumed investment
rate had been elected.
Calculation of Annuity Units
Accumulation Units are converted into Annuity Units by first multiplying
the number of each Subaccount's Accumulation Units credited to the Contract on
the date of conversion by the appropriate Accumulation Unit Value as of ten
calendar days prior to the date the initial variable monthly annuity payment is
due. For each Subaccount the resulting value (less any applicable premium tax)
is then multiplied by the applicable annuity purchase rate, which reflects the
age and, possibly, sex of the Annuitant and the assumed investment rate,
specified in the Contract. This computation determines the amount of each
Subaccount's initial monthly variable annuity payment to the Annuitant. The
number of each Subaccount's Annuity Units to be credited to the Contract is then
determined by dividing the amount of each Subaccount's initial variable monthly
annuity payment by each Subaccount's Annuity Unit Value as of ten calendar days
prior to the date the initial payment is due.
FIXED MONTHLY ANNUITY PAYMENTS
The dollar amount of each fixed monthly annuity payment, specified during
the entire period of annuity payments according to the provisions of the annuity
form selected, will be determined by dividing the amount
30
applied under the Fixed Annuity Option (net of any applicable premium taxes) by
$1,000 and multiplying the result by the greater of: (a) the applicable factor
shown in the appropriate table in the Contract; or (b) the factor currently
offered by the Company at the time of annuitization. This current factor may be
based on the sex of the payee unless prohibited by law.
ANNUITY OPTIONS
The Owner may elect an Annuity Option during the lifetime of the Annuitant
by written notice received by JHISC prior to the Date of Maturity of the
Contract. If no option is selected, Option A with Ten Years Certain will be
used. A beneficiary entitled to payment of a death benefit in a single sum may,
if no election has been made by the Owner prior to the Annuitant's death, elect
an Annuity Option by written notice received by JHISC prior to the date the
proceeds become payable. No option may be elected, other than the Life Annuity
with Ten Years Certain, if the Accumulated Value to be applied is less than
$5000, in which case we will make a payment equal to the total Surrender Value
on the date the initial payment would be payable in place of all other benefits.
Among the options available are the following two Annuity Options, available for
variable annuity payments and fixed annuity payments.
Option A: Life Annuity with Payments for a Guaranteed Period
Monthly payments will be made for a guaranteed period of years, which may
be any number from three to 30, as selected by the Owner or Beneficiary, if the
Contract has been in force for five years or more; or from ten to 30 years if
the Contract has been in force for at least six months but less than five years.
The payments continue after the end of the guarantee period as long as the payee
lives, with the guarantee that if the payee dies prior to the end of the
guarantee period selected, 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 Further Payment on Death of Payee
Monthly payments will be made to the payee as long as he or she lives. No
minimum number of payments is guaranteed.
___________________
The Option A life annuity with five years guaranteed and Option B life
annuity without further payment on the death of payee are not available if the
Annuitant is more than 85 years of age on the Date of Maturity.
TRANSFERS
The procedures for and terms and conditions of transfers by an Annuitant
among Subaccounts during the annuity period are the same as for transfers by
Owners among Subaccounts during the Accumulation Period. See "Accumulation
Period --Transfers Among Subaccounts and Guarantee Periods." Such transactions
involve the redemption and purchase of Annuity Units in the same manner that
transfers during the Accumulation Period involve the redemption and purchase of
Accumulation Units. No transfers to or from a Fixed Annuity Option are
permitted.
31
OTHER CONDITIONS
The Company reserves the right at its sole discretion to make available to
Owners and other payees optional methods of payment in addition to the Annuity
Options described in this prospectus and the applicable Contract.
Federal income tax requirements currently applicable to H.R. 10 and
individual retirement annuity plans provide that the period of years guaranteed
under Option A cannot be any greater than the joint life expectancies of the
payee and his or her designated beneficiary.
If the Owner dies on or after annuity payments have begun, any remaining
benefit must be paid out at least as rapidly as under the method of making
annuity payments then in effect. The Code imposes a comparable distribution
requirement for Contracts used to fund tax qualified plans.
VARIABLE ACCOUNT VALUATION PROCEDURES
VALUATION DATE. A Valuation Date is any date on which the New York Stock
Exchange is open for trading and on which the Trust values its shares. On any
date other than a Valuation Date, the Accumulation Unit Value or Annuity Unit
Value will be the same as that on the next following Valuation Date.
VALUATION PERIOD. A Valuation Period is that period of time from the beginning
of the day following a Valuation Date to the end of the next following Valuation
Date.
ACCUMULATION UNIT VALUE. The Accumulation Unit Value is calculated separately
for each Subaccount. The value of one Accumulation Unit on any Valuation Date is
determined for each Subaccount by multiplying the immediately preceding
Accumulation Unit Value by the applicable Net Investment Factor for the
Valuation Period ending on such Valuation Date.
ANNUITY UNIT VALUE. The Annuity Unit Value is calculated separately for each
Subaccount. The value of one Annuity Unit on any Valuation Date is determined
for each Subaccount by first multiplying the immediately preceding Annuity Unit
Value by the applicable Net Investment Factor for the Valuation Period ending on
such date and then multiplying this product by an adjustment factor which will
neutralize the assumed investment rate used in determining the amounts of
annuity payable. The adjustment factor for a Valuation Period of one day for
Contracts with an assumed investment rate of 3 1/2% per year is 0.99990575. The
assumed investment rate is neutralized by applying the adjustment factor so that
the variable annuity payments will increase only if the actual net investment
rate of the Subaccount exceeds 3 1/2% per year and will decrease only if it is
less than 3 1/2% per year.
NET INVESTMENT FACTOR. The Net Investment Factor for each Subaccount for any
Valuation Period is equal to 1 plus the applicable net investment rate for
such Valuation Period. A Net Investment Factor may be more or less than 1.
The net investment rate for each Subaccount for any Valuation Period is equal to
(a) the accrued investment income and capital gains and losses, whether realized
or unrealized, of the Subaccount for such Valuation Period less (b) the sum of a
deduction for any applicable income taxes and, for each calendar day in the
Valuation Period, a deduction of 0.003425% or 0.002740% (depending on whether
the total asset-based charge for mortality and expense risks and for
administration is 1.25% or 1.00%, respectively, on an annual basis) of the value
of each Subaccount at the beginning of the Valuation Period, the result then
being divided by (c) the value of the total net assets of each Subaccount at the
beginning of the Valuation Period.
ADJUSTMENT OF UNITS AND VALUES. The Company reserves the right to change the
number and value of the Accumulation Units or Annuity Units or both credited to
any Contract, without the consent of the Owner or any other person, provided
strict equity is preserved and the change does not otherwise affect the
benefits, provisions or investment return of the Contract.
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MISCELLANEOUS PROVISIONS
RESTRICTION ON ASSIGNMENT
In order to qualify for favorable tax treatment, certain Contracts may not
be sold, assigned, discounted or pledged as collateral for a loan or as security
for the performance of an obligation or for any other purpose, to any person,
unless the Owner is the trustee of a trust described in Section 401(a) of the
Code. Because an assignment, pledge or other transfer may be a taxable event an
Owner should consult a competent tax adviser before taking any such action.
DEFERMENT OF PAYMENT
The Company may defer for up to 15 days the payment of any amount
attributable to a premium payment made by check to allow the check reasonable
time to clear.
Payment of the value of any Accumulation Units in a single sum upon a
surrender or partial withdrawal will ordinarily be made within seven days after
receipt of the written request therefor by JHISC. However, redemption may be
suspended and payment may be postponed at times (a) when the New York Stock
Exchange is closed, other than customary weekend and holiday closings, (b) when
trading on that Exchange is restricted, (c) when an emergency exists as a result
of which disposal of securities in a Subaccount is not reasonably practicable or
it is not reasonably practicable to determine the value of the net assets of a
Subaccount or (d) when a governmental body having jurisdiction over the Separate
Account by order permits such suspension. Rules and regulations of the
Commission, if any are applicable, will govern as to whether conditions
described in (b) or (c) exist.
The Company may also defer payment of surrender proceeds payable out of the
MVA Fixed Account for a period of up to six months.
RESERVATION OF RIGHTS
The Company reserves the right to add or delete Subaccounts, to change the
underlying investments of any Subaccount, to operate the Separate Account in any
form permitted by law and to terminate the Separate Account's registration under
the 1940 Act if such registration should no longer be legally required. Certain
changes may, under applicable laws and regulations, require notice to or
approval of Owners. Otherwise, changes do not require such notice or approval.
OWNER AND BENEFICIARY
The Owner has the sole and absolute power to exercise all rights and
privileges under the Contract, except as otherwise provided by the Contract or
by written notice of the Owner. The Owner and the beneficiary are designated in
the application and may be changed by the Owner, effective upon receipt of
written notice at JHISC, subject to the rights of any assignee of record, any
action taken prior to receipt of the notice and certain other conditions. While
the Annuitant is alive, the Owner may be changed by written notice. The
beneficiary may be changed by written notice no later than receipt of due proof
of the death of the Annuitant. The change will take effect whether or not the
Owner or the Annuitant is then alive.
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FEDERAL INCOME TAXES
THE SEPARATE ACCOUNT, THE MVA FIXED ACCOUNT, AND THE COMPANY
The Company is taxed as a life insurance company under the Code. The
Separate Account is part of the Company's total operations and is not taxed
separately as a "regulated investment company" or otherwise.
The Contracts permit the Company to charge against the Separate Account and
the MVA Fixed Account any taxes, or provisions for taxes, attributable to the
operation or existence of the Contracts or the Separate Account. Currently, the
Company does not anticipate making a charge for income and other taxes because
of the level of such taxes. If the level of current tax is increased, or is
expected to increase in the future, the Company reserves the right to make a
charge in the future.
The Company assumes no responsibility for determining whether a particular
retirement plan satisfies the applicable requirements of the Code or whether a
particular employee is eligible for inclusion under a plan.
CONTRACTS PURCHASED OTHER THAN TO FUND A TAX QUALIFIED PLAN
The Owner or Other Payee
The Contracts are considered annuity contracts under Section 72 of the
Code. Currently no Federal income tax is payable on increases in Accumulated
Value until payments are made to the Owner or other payee under such Contract.
However, a Contract owned other than by a natural person is not generally an
annuity for tax purposes and any increase in value thereunder is taxable as
ordinary income as accrued.
When payments under a Contract are made in the form of an annuity, the
amount of each payment is taxed to the Owner or other payee as ordinary income
to the extent that such payment exceeds an allocable portion of the Owner's
"investment in the contract" (as defined in the Code). In general, an Owner's
"investment in the contract" is the aggregate amount of premium payments made by
him, reduced by any amounts previously distributed under the Contract that were
not subject to tax. The portion of each variable annuity payment to be excluded
from income is determined by dividing the "investment in the contract," adjusted
by any refund feature, by the number of periodic payments anticipated during the
time that periodic payments are to be made. In the case of a fixed annuity
payment, the amount to be excluded in each year is determined by dividing the
"investment in the contract," adjusted by any refund feature, by the amount of
"expected return" during the time that periodic payments are to be made, and
then multiplying by the amount of the payment." After the entire "investment in
the contract" has been distributed, any remaining payment is fully taxable.
When a payment under a Contract is made in a single sum, the amount of the
payment is taxed as ordinary income to the Owner or other payee to the extent it
exceeds the Owner's "investment in the contract."
For purposes of determining the amount of taxable income resulting from a
partial or complete withdrawal, all Contracts and other annuity contracts issued
by the Company or its affiliates to the Owner within the same calendar year will
be treated as if they were a single contract.
Partial Withdrawals Before Date of Maturity
When a payment under a Contract, including a payment under a systematic
withdrawal plan, is less than the amount that would be paid upon the Contract's
complete surrender and such payment is made prior to the commencement of annuity
payments under the Contract, part or all of the payment (the partial withdrawal)
may be taxed to the Owner or other payee as ordinary income.
On the date of the partial withdrawal, if the cash value of the Contract is
greater than the investment in the Contract, any part of such excess value so
withdrawn is subject to tax as ordinary income.
If an individual assigns or pledges any part of the value of a Contract,
the value so pledged or assigned is taxed as ordinary income to the same extent
as a partial withdrawal.
34
Penalty for Premature Withdrawals
In addition to being included in ordinary income, the taxable portion of
any withdrawal may be subject to a 10-percent penalty tax. The penalty tax does
not apply to payments made to the Owner or other payee after the Owner attains
age 59 1/2, or on account of the Owner's death or disability. If the withdrawal
is made in substantially equal periodic payments over the life of the Annuitant
or other payee or over the joint lives of the Annuitant and the Annuitant's
beneficiary the penalty will also not apply.
DIVERSIFICATION REQUIREMENTS
Each of the Funds of the Series Fund intends to qualify as a regulated
investment company under Subchapter M of the Code and will have to meet the
investment diversification tests of Section 817(h) of the Code and the
underlying regulations. The Treasury Department and the Internal Revenue
Service may, at some future time, issue a ruling or a regulation presenting
situations in which it will deem "investor control" to be present over the
assets of the Funds of the Series Fund, causing the Owner to be taxed currently
on income credited to the Contracts. In such a case, the Company reserves the
right to amend the Contract or the choice of investment options to avoid current
taxation to the Owners.
CONTRACTS PURCHASED TO FUND A TAX QUALIFIED PLAN
Withholding on Eligible Rollover Distributions
Recent legislation requires 20% withholding on certain distributions from
tax qualified plans. An Owner wishing to rollover his entire distribution should
have it paid directly to the successor plan. Otherwise, the Owner's distribution
will be reduced by the 20% mandatory income tax. Consult a qualified tax adviser
before taking such a distribution.
Contracts Purchased under Individual Retirement Annuity Plans (IRA)
The maximum amount of premium payments deductible each year with respect to
an individual retirement annuity contract (as defined in Section 408 of the
Code) issued on the life of an eligible purchaser is the lesser of $2,000 or
100% of compensation includible in gross income. A person may also purchase a
contract for the benefit of his or her non-working spouse. Where an individual
elects to deduct amounts contributed on his or her own behalf and on behalf of a
spouse, the maximum amount of premium payments deductible is the lesser of
$2,250 or 100% of the compensation included in the gross income of the working
spouse; provided, however, not more than $2,000 can be allocated to either
person's account. Taxpayers who are active participants in an employer-sponsored
retirement plan are permitted to make a deductible premium payment only if their
adjusted gross incomes are below certain amounts.
No deduction is allowed for premium payments made in or after the taxable
year in which the Owner has attained the age of 70 1/2 years nor is a deduction
allowed for a "rollover contribution" as defined in the Code.
When payments under a Contract are made in the form of an annuity, or in a
single sum such as on surrender of the Contract or by partial withdrawal, the
payment is taxed as ordinary income.
IRS required minimum distributions must begin no later than April 1 of the
year following the year in which the Owner attains age 70 1/2. The Owner may
incur adverse tax consequences if a distribution on surrender of the Contract or
by partial withdrawal is made prior to his attaining age 59 1/2, except in the
event of his death or total disability.
35
Contracts Purchased under Section 403(b) Plans (TSA)
Premium payments made by an employer which is a public school system or a
tax-exempt organization described in Section 501(c)(3) of the Code under annuity
purchase arrangements described in Section 403(b) of the Code are not taxable
currently to the Owner, to the extent that the aggregate of such amounts does
not exceed the Owner's "exclusion allowance" (as defined in the Code). In
general, an Owner's "exclusion allowance" is determined by multiplying 20% of
his "includible compensation" (as defined in the Code) by the number of years of
his service with the employer and then subtracting from that product the
aggregate amount of premium payments previously excluded from income and certain
other employer payments to retirement plans in which the Owner is a participant.
Additional limitations applicable to premium payments are described in Section
415 of the Code. Deferrals under all plans made at the election of the Owner
generally are limited to an aggregate of $9500 annually.
When payments under a Contract are made in the form of an annuity, such
payments are taxed to the Owner or other payee under the same rules that apply
to such payments under corporate plans (discussed below) except that five-year
averaging and capital gain phase-out are not available.
When payment under a Contract is made in a single sum, such as on surrender
of the contract or by partial withdrawal, the taxable portion of the payment is
taxed as ordinary income and the penalty for premature withdrawals may be
applicable.
Ordinarily an Owner in a Section 403(b) plan does not have any "investment
in the contract" and, thus, any distribution is fully taxed as ordinary income.
Distributions are prohibited before the Owner is age 59 1/2, except on the
Owner's separation from service, death, or disability and except with respect to
distributions attributable to assets held as of December 31, 1988. This
prohibition does not (1) preclude transfers and exchanges to other products that
qualify under Section 403(b) or (2) restrict withdrawals of certain amounts
attributable to pre-January 1, 1989, premium payments.
Contracts Purchased under Corporate Plans
In general, premium payments made by a corporation under a qualified
pension or profit-sharing plan described in Section 401(a) of the Code or a
qualified annuity plan described in Section 403(a) of the Code are deductible by
the corporation and are not taxable currently to the employees.
When payments under a Contract are made in the form of an annuity, the
amount of each payment is taxed to the Annuitant or other payee as ordinary
income except in those cases where the Annuitant has an "investment in the
contract" (as defined in the Code). In general, an Annuitant's "investment in
the contract" is the aggregate amount of premium payments made by him. If an
Annuitant has an "investment in the contract," a portion of each annuity payment
is excluded from income until the investment in the contract is recovered. The
amount to be excluded in each year, in the case of a variable annuity payment,
is determined by dividing the "investment in the contract," adjusted by any
refund feature, by the number of periodic payments anticipated during the time
that periodic payments are to be made. The calculation for fixed annuity
payments is somewhat different. For fixed annuity payments, in general, prior to
recovery of the "investment in the Contract," there is no tax on the amount of
each payment which bears the same ration to that payment as the "investment on
the Contract" bears to the total expected value of the annuity payments for the
term of the payments. However, the remainder of each annuity payment is taxable.
The taxable portion of a distribution (in the form of an annuity or a single sum
payment) is taxed as ordinary income.
When payment under a Contract is made in a single sum or a total
distribution is made within one taxable year of the Annuitant or other payee,
the amount of the payment is taxed to the Annuitant or other payee to the extent
it exceeds the Annuitant's "investment in the contract." If such payment is made
after the Annuitant
36
has attained age 59 1/2, or on account of his death, retirement or other
termination of employment or on account of his death after termination of
employment, five year averaging and a phase-out of capital gains treatment for
pre-1974 contributions may be available with respect to one distribution. Other
rules may be available to taxpayers who have attained age 50 prior to January 1,
1986.
IRS required minimum distributions must begin no later than April 1 of the
year following the year in which the Annuitant attains age 70 1/2 even if the
Annuitant has not retired.
Contracts Purchased under H.R. 10 Plans (Self-Employed)
Self-employed persons, including partnerships, may establish tax qualified
pension and profit-sharing plans and annuity plans for themselves and for their
employees. Generally, the maximum amount of premium payments deductible each
year with respect to variable annuity contracts issued on the life of self-
employed persons under such plans is $30,000 or 25% of "earned income" (as
defined in the Code), whichever is less. Self-employed persons must also make
premium payments for their employees (who have met certain eligibility
requirements) at least at the same rate as they do for themselves. In general,
such premium payments are deductible in full and are not taxable currently to
such employees.
Tax qualified plans may permit self-employed persons and their employees to
make additional premium payments themselves (which are not deductible) of up to
10% of earned income or compensation.
When payments under a Contract are made in the form of an annuity, such
payments are taxed to the Annuitant or other payee under the same rules that
apply to such payments under corporate plans (discussed earlier).
The tax treatment of single sum payments is also the same as under
corporate plans except that five year averaging may be unavailable to a self-
employed Annuitant on termination of service for reasons other than disability.
The same rules that apply to commencement of annuity payments under
corporate plans apply to H.R. 10 plans.
Contracts Purchased By Top-Heavy Plans
Certain corporate and H.R. 10 plans may be characterized under Section 416
of the Code as "top-heavy plans" if a significant portion of the plan assets is
held for the benefit of the "key employees" (as defined in the Code). Care must
be taken to consider the special limitations applicable to top-heavy plans and
the potentially adverse tax consequences to key employees.
Contracts Purchased Under Government Deferred Compensation Plans (Section 457)
Participants in certain deferred compensation plans maintained by a state,
a political subdivision of a state, or their agencies or instrumentalities or by
tax-exempt organizations are permitted to exclude a portion of their
compensation from gross income. Amounts so deferred (including any income
thereon) shall be includible in gross income only for the taxable year in which
such amounts are paid or otherwise made available to the Annuitant or other
payee.
In general, the maximum amount of compensation which may be deferred under
such tax-favored plans is the lesser of $7500 or 33 1/3% of the participant's
"includible compensation" (as defined in the Code). The deferred compensation
plan itself must satisfy several conditions, among which are that the plan must
not permit
37
distributions prior to the participant's separation from service (except in the
case of an unforeseen emergency), and that all compensation deferred under the
plan shall remain solely the employer's property and may be subject to the
claims of its creditors.
When payment under a Contract is made in the form of an annuity, or in a
single sum such as on surrender of the Contract or by partial withdrawal, the
payment is taxed as ordinary income.
WITHHOLDING OF TAXES
The Company 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. The Company will notify the Owner or
other payee in advance of the first payment of his or her right to elect out of
withholding and furnish a form on which the election may be made. Any election
must be received by JHISC in advance of the payment in order to avoid
withholding.
SEE YOUR OWN TAX ADVISER
The above description of Federal income tax consequences of owning a
Contract and of the different kinds of tax qualified plans which may be funded
by the Contracts is only a brief summary and is not intended as tax advice. The
rules governing the provisions of tax qualified plans are extremely complex and
often difficult to understand. Anything less than full compliance with the
applicable rules, all of which are subject to change from time to time, can have
adverse tax consequences. For example, premature withdrawals are generally
subject to a 10-percent penalty tax. The taxation of an Annuitant or other payee
has become so complex and confusing that great care must be taken to avoid
pitfalls. For further information a prospective purchaser should consult a
qualified tax adviser.
FURTHER INFORMATION ABOUT THE COMPANY
BUSINESS OF THE COMPANY
The Company is principally engaged in the writing of variable and universal
life insurance policies. The Company's policies are primarily marketed through
John Hancock's sales organization, which includes a proprietary sales force
employed at John Hancock'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 John Hancock and the
Company have sales agreements. Currently, the Company writes business in all
states except New York. At December 31, 1994, the Company had $30.0 billion of
life insurance in force, net of reinsurance ceded of $4.3 billion.
In 1993, the Company 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 the Company 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
38
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," below, for additional discussion, regarding generally
accepted accounting standards for mutual life insurance companies.
The information presented below should be read in conjunction with, and is
qualified in its entirety by, Managements Discussion and Analysis of Financial
Condition and Results of Operations, below, and the financial statements and
other information included elsewhere in this prospectus.
Nine months ended
and at September 30 Years ended and at December 31
------------------- ----------------------------------------
1995 1994 1994 1993/*/ 1992 1991 1990
---- ---- ---- ---- ---- ---- ----
SELECTED FINANCIAL DATA (In millions)
INCOME STATEMENT DATA
Premiums $378.9 $345.2 $430.5 $398.8 $416.4 $377.6 $348.2
Net investment income 47.1 43.1 57.6 61.3 62.0 59.5 51.2
Other income, net 57.7 1.1 95.5 (4.0) (3.9) (1.7) 4.1
TOTAL REVENUES $483.7 $389.4 $583.6 $456.1 $474.5 $435.4 $403.5
Total benefits and expenses 449.3 399.2 556.0 456.6 440.8 389.4 376.4
Income tax expense (benefit) 19.9 (1.4) 15.0 6.5 20.5 25.9 11.9
Net realized capital gains (losses) (0.6) 1.2 0.4 (2.6) (1.4) (1.4) 0.1
Net gain (loss) 13.9 (7.2) 13.0 (9.6) 11.8 18.7 15.3
BALANCE SHEET DATA
Total assets $3,107 $2,502 $2,627 $2,379 $2,348 $2,118 $1,773
Total obligations 2,873 2,307 2,409 2,176 2,108 1,893 1,576
Total stockholder's equity 234 195 218 203 240 225 197
. 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 and by 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
39
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
adopt certain accounting principles in 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 valuation, and the 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 JHVLICOs general purpose financial statements
have not yet been determined.
MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Financial Condition
As of September 30, 1995, total assets grew by 18.3% to $3,107.7 million,
from $2,626.9 million at December 31, 1994. This increase is principally due to
the growth in the separate accounts where assets increased by 28.4% during 1995
from $1,721.0 million at December 31, 1994, to $2,210.0 million at September 30,
1995. Total obligations grew by 19.3% to $2,873.3 million from $2,409.0 million
at December 31, 1994. As with assets, most of this growth was in the separate
accounts, which grew by 28.4% during 1995, from $1,717.7 million at December 31,
1994, to $2,206.2 million at September 30, 1995. 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 7.6% from $217.9 million
at December 31, 1994, to $234.4 million at September 30, 1995.
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 was also
attributable to an increase 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. 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
The Company continues to address industry wide issues of asset quality and
liquidity that have emerged in recent years. The Company's bond portfolio is
highly diversified. It is not concentrated by geographic region, industry
group, or individual investment. In 1995, 1994, and 1993, the Company invested
new money predominantly in long term investment grade corporate bonds as a means
of lowering the relative proportion of assets invested in commercial mortgages.
As a result, the Company's holdings in investment (NAIC SVO classes 1 and 2) and
medium (NAIC SVO class 3) grade bonds are 89.8% and 7.5%, respectively, of total
general account bonds at September 30, 1995. The corresponding percentages at
December 31, 1994 were 90.1% and 7.1%, respectively. Most of the medium grade
bonds are private placements that provide long-term financing for medium size
companies. These bonds typically are protected by individually negotiated
financial covenants and/or collateral. At September 30, 1995, the balance (NAIC
SVO classes 4, 5, and 6) of 2.7% of total general account bonds consists of
lower grade bonds and bonds in default. Bonds in default represent 0.7% of
total general account bonds.
Management believes the Company's commercial mortgage lending philosophy
and practices are sound. The Company generally makes mortgage loans against
properties with proven track records and high occupancy
40
levels, and typically does not make construction or condominium loans nor lend
more than 75% of the property's value at the time of the loan. To assist in the
management of its mortgage loans, the Company uses a computer based mortgage
risk analysis system.
The Company has outstanding commitments to purchase long-term bonds and
issue real estate mortgages totaling $9.0 million and $9.3 million, respectively
at September 30, 1995. The corresponding amounts at December 31, 1994 were $6.7
million and $5.0 million, respectively. If funded, the mortgage loans will be
fully collateralized by the related properties. The Company monitors the
creditworthiness of borrowers under long term bond commitments and requires
collateral as deemed necessary. The majority of these commitments expire in
1996.
Reserves and Obligations
The Company's obligations principally consist of aggregate reserves for
life policies and contracts of $658.1 million in the general account and
obligations of $2,206.2 million in the separate accounts at September 30, 1995.
The corresponding amounts at December 31, 1994 were $638.6 million and $1,717.7
million, respectively. These liabilities are computed in accordance with
commonly accepted actuarial standards and are based on actuarial assumptions
which are in accordance with, or more conservative than, those called for in
state regulations. All reserves meet the requirements of the insurance laws of
the Commonwealth of Massachusetts. Intensive asset adequacy testing was
performed in 1994 for all reserves. As a result of that testing, no additional
reserves were established. Adequacy testing is done annually and generally
performed in the fourth quarter.
The Company's 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 the Company's obligations. At September 30, 1995,
the AVR was $14.1 million, compared to $12.6 million at December 31, 1994 and
$10.4 million at December 31, 1993. The AVR contained voluntary contributions of
$1.1 million in 1994, $1.7 million in 1993, and $2.5 million in 1992. There were
no voluntary contribution made during the nine months ended September 30, 1995.
Management believes the Company's level of reserve is adequate and is made more
conservative by the voluntary contributions.
The AVR was established to stabilize statutory surplus from non interest
related fluctuations in the market value of bonds, stocks, mortgage loans, real
estate and other invested assets. The AVR generally captures realized and
unrealized capital gains or losses on such assets, other than those resulting
from changes in interest rates. Each year, the amount of an insurer's AVR will
fluctuate as capital gains or losses are absorbed by the reserve. To adjust for
such changes over time, an annual contribution must be made to the AVR equal to
20% of the difference between the maximum AVR (as determined annually according
to the type and quality of an insurer's assets) and the actual AVR. The AVR
provisions permitted a phase-in period whereby the required contribution was 10%
in 1992, 15% in 1993, and the full 20% factor thereafter.
Such contributions may result in a slower rate of growth of, or a reduction
to, surplus. Changes in the AVR are accounted for as direct increases or
decreases in surplus. The impact of the AVR on the surplus position of John
Hancock in the future will depend in part on the composition of the Company's
investment portfolio.
The Interest Maintenance Reserve ("IMR") captures realized capital gains
and losses (net of taxes) on fixed income investments (primarily bonds and
mortgage loans) resulting from changes in interest rate levels. These amounts
are not reflected in the Company's capital account and are amortized into net
investment income over the estimated remaining lives of the investments
disposed. At September 30, 1995, December 31, 1994 and December 31, 1993, the
balance of the IMR was $6.5 million, $7.6 million and $7.1 million,
respectively. The
41
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 the Company depends upon the amount of future interest related
capital gains and losses on fixed income investments.
Results of Operations
Nine Months Ended September 30, 1995 and 1994
Net gain from operations was $14.5 million for the nine months ended
September 30, 1995, $22.9 million higher than the same period during 1994.
Operating gain was positively impacted by the effects of a modified coinsurance
reinsurance agreement between John Hancock and the Company entered into during
1994. Under the agreement, John Hancock reinsured 50% of the 1995 and 1994
sales of the Company's flexible premium variable life and scheduled premium
variable life insurance policies. The 1995 increase in operating gain
attributable to this reinsurance agreement was $13.6 million. The balance of
the increase was due to gains from the inforce block of business which was
partially offset by acquisition expenses of new sales and an increase in the
federal income tax expense.
Total revenues increased by 24.2%, or $94.3 million to $483.7 million
during 1995 as compared to the same period during 1994. Premiums, net of premium
ceded to reinsurers, increased by 9.8% or $33.7 million for the nine months
ended September 30, 1995. This increase was primarily due to the sale of a new
variable annuity product. Net investment income increased by 9.3% or $4.0
million to $47.1 million during 1995. The increase was comprised of $1.9 million
from short term bonds; $1.1 million from long term bonds; and $1.2 million from
policy loans. The increase in income on short term bonds was the result of a
larger holding coupled with an upward trend in the average yield. The increase
in long term bond income was the result of an increased asset base. Other income
increased by $56.6 million which was entirely attributable to the increase in
commission and expense allowances and reserve adjustments on reinsurance ceded.
Total benefits and expenses increased by 12.6% or $50.1 million to $449.3
million during the nine months ended September 30, 1995 as compared to the same
period during 1994. Benefit payments and additions to reserves increased by
24.1% or $63.5 million to $326.6 million. This increase was partially offset by
a decrease of $14.0 million in insurance expenses.
1994 Compared to 1993
Net gain from operations was $12.6 million in 1994, $19.6 million higher
than the net loss of $7.0 million in 1993. This increase in operating gain was
primarily attributable to the effects of the modified coinsurance reinsurance
agreement between John Hancock and the Company which was previously described.
The 1994 increase in net operating gain attributable to this reinsurance
agreement was $26.9 million.
Total revenues increased by 28.0%, or $127.5 million, to $583.6 million,
during 1994. Premiums increased by 7.9%, or $31.7 million, to $430.5 million
during 1994, reflecting growth in premium revenues from the universal life
insurance line, as well as the introduction in late 1993 and 1994 of three new
products: the Medallion variable universal product, a variable COLI product, and
a variable survivorship product. Net investment income decreased by 6.0%, or
$3.7 million to $57.6 million, during 1994, due largely to a 16.8%, or $3.3
million decrease in gross income on mortgages and real estate, which contributed
to an overall decrease of 4.9%, or $3.2 million, in gross investment income.
Net investment income was further dampened in 1994 by a 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
42
ceded, as described above.
Total benefits and expenses increased by 21.8%, or $99.4 million, to $556.0
million, during 1994. Benefit payments and additions to reserves increased by
23.3%, or $70.5 million, to $372.8 million, during 1994. The increase primarily
was due to $73.8 million or 66.2% increase in additions to reserves, most of
which occurred in both the universal life and flexible variable life insurance
lines, offset by a 1.7% or $3.3 million decrease in benefit payments. Insurance
expenses, which included a $3.0 million charge for restructuring during 1994,
increased by 19.0%, or $27.4 million, to $171.9 million, during 1994. This
growth in expenses was attributable largely to the cost of growth in new
business.
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 a decrease
of $34.2 million in the 1993 pre-tax gain from the prior year and a decrease of
$14.0 million in federal income tax expense during 1993. During 1993, the
Company entered into an assumption reinsurance agreement with John Hancock,
ceding a block of variable life, universal life, and flexible variable life
insurance policies representing essentially all of such policies written by the
Company 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 John Hancock, along with $200.8
million of separate account assets and obligations.
Total revenues decreased by 3.9%, or $18.4 million, to $456.1 million,
during 1993. Premiums decreased 4.2%, or $17.6 million, to $398.8 million during
1993, resulting partly from sluggish sales growth and the discontinuance during
1993, of the Company'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 due to changes in amounts for reserve adjustment
on reinsurance ceded. Partially offsetting this decrease were 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. 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
The Company's liquidity resources at September 30, 1995, include cash and
short term investments of $52.4 million, public bonds of $170.1 million, and
investment grade private placement bonds of $305.5 million. The corresponding
amounts at December 31, 1994 were $76.0 million, $106.6 million, and $304.1
million, respectively. In addition, the Company's separate accounts are highly
liquid and are available to meet most outflow needs for variable life insurance.
Management believes the liquidity resources above of $528.0 million as of
September 30, 1995, strongly position the Company to meet all its obligations to
policyholders and others. Generally, the Company's financing needs are met by
means of funds provided by normal operations. As of September 30, 1995 and year
end 1994, the Company had no outstanding borrowings from sources outside its
affiliated group.
Total surplus, or stockholder's equity, including the AVR, is $248.5
million as of September 30, 1995, compared to $230.5 million as of December 31,
1994, and $213.2 million as of December 31, 1993. The current
43
statutory accounting treatment of deferred acquisition cost ("DAC") taxes
results in an understatement of the Company's surplus, which will persist during
periods of growth in new business written. These taxes result from federal
income tax law that approximates acquisition expenses and then spreads the
corresponding tax deduction over a period of years. The result is a DAC tax
which is collected immediately and subsequently returned through tax deduction
in later years.
Since it began its operations, the Company has received a total of $381.8
million in capital contributions from John Hancock, of which $377.5 million is
credited to paid-in capital and $2.5 million is credited to capital stock as of
September 30, 1995. In 1993, $1.8 million of capital was returned to John
Hancock. To support the Company's operations, for the indefinite future, John
Hancock is committed to make additional capital contributions if necessary to
ensure that the Company maintains a positive net worth. The Company's
stockholder's equity, net of unassigned deficit, was $234.4 million at September
30, 1995 and $217.9 million at December 31, 1994. For additional discussion of
the Company's capitalization, see Note 2 of the Notes to Financial Statements.
In December 1992, the NAIC approved risk-based capital ("RBC") standards
for life insurance companies as well as a Model Act (the "RBC Model Act") to
apply such standards at the state level. The RBC Model Act provides that life
insurance companies must submit an annual RBC Report which compares a company's
total adjusted capital (statutory surplus plus AVR, voluntary investment
reserves, and one-half the apportioned dividend liability) with its risk-based
capital as calculated by 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 actions against, insurance
companies whose total adjusted capital does not meet the RBC standards. The RBC
Model Act imposes broad confidentiality requirements on those engaged in the
insurance business (including insurers, agents, brokers and others) as to the
use and publication of RBC data. As of December 31, 1994, the Company's total
adjusted capital as defined by the NAIC was well in excess of RBC standards.
Reinsurance
To reduce its exposure to large losses under its insurance policies, the
Company enters into reinsurance arrangements with its parent, John Hancock, and
other non-affiliated insurance companies. For further discussion of the
Company's reinsurance arrangements, including business ceded to John Hancock,
see Notes 6 and 8 of the Notes to Financial Statements.
Separate Accounts
Under applicable state insurance laws, insurers are permitted to establish
separate investment accounts in which assets backing certain policies or
contracts, including variable life policies and certain individual and group
annuity contracts, are held. The investments in each separate investment
account (which may be pooled or customer specific) are maintained separately
from other separate investment accounts and the general investment account. The
investment results of the separate investment account assets are passed through
directly to separate investment account policyholders and contractholders, so
that an insurer derives certain fees from, but bears no investment risk on,
these assets, except the risk on a small number of products that the investment
results of the separate account assets will not meet the minimum rate guaranteed
on these products. Other than amounts derived from or otherwise attributable to
the Company's general investment account, assets of separate investment accounts
are not available to fund the liabilities of the general investment account.
44
COMPETITION
The Company 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, the Company
ranks 154th in terms of net premiums written during 1994. The Company's parent,
John Hancock, 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 the Company'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 the Company of AA+ and AAA,
respectively, which place the Company in the second highest and highest
categories, respectively, by these rating agencies. Moody's Investors Service,
Inc. has assigned the Company a financial strength rating of Aa2, which is its
third highest rating.
EMPLOYEES AND FACILITIES
John Hancock provides the Company with personnel, property, and facilities
for the performance of certain of the Company's corporate functions. John
Hancock 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 the Company's operations. The amount of service fee charged to the
Company was $117.0 million and $98.2 million in 1994 and 1993, respectively.
Approximately 1,400 of John Hancock'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 JOHN HANCOCK
As indicated, property, personnel and facilities are provided, at a service
fee, by John Hancock for purposes of the Company's operations, and the two
companies have entered into certain reinsurance arrangements. In addition, John
Hancock has contributed all of the Company's capital, of which $1.8 million of
paid-in capital was returned to John Hancock 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.
John Hancock receives no additional compensation for its services in
connection with the distribution of the Contracts issued by the Company.
REGULATION
The Company 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 the Company's
ability to sustain adequate returns. The Company'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.
45
Regulators have the discretionary authority, in connection with the
continual licensing of the Company, 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. The
Company does not believe the current or anticipated levels of statutory surplus
of the Company 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 the Company 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.
46
DIRECTORS AND EXECUTIVE OFFICERS
The directors and executive officers of the Company are as follows:
POSITION OTHER BUSINESS EXPERIENCE
NAME AGE WITH THE COMPANY 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 Products &
President 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
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 Services,
Claims Policyholder John Hancock
Services
Edward P. Dowd........... 52 Vice President - Senior Vice President, Real Estate
Investments Investment Group, John Hancock
Roger G. Nastou.......... 53 Vice President - Vice President, Bond & Corporate
Investment 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
47
EXECUTIVE COMPENSATION
Executive officers of the Company also serve one or more of the affiliated
companies of John Hancock. Allocations have been made as to each individual's
time devoted to his or her duties as an executive officer of the Company. The
following table provides information on the allocated compensation paid to the
chief executive officer. There were no executive officers of the Company whose
allocated compensation exceeded $100,000 during 1994. Directors of the Company
receive no compensation in addition to their compensation as employees of John
Hancock.
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
SEPARATE ACCOUNT PERFORMANCE
The Subaccounts may include total return in advertisements. When a
Subaccount advertises its total return, it will usually be calculated for one
year, five years, and ten years or for the life of the applicable Fund. Total
return is the percentage change between the value of a hypothetical investment
in the Subaccount at the beginning of the relevant period to the value of the
investment at the end of the period, assuming the deduction of any CDSL which
would be payable if the Contract Owner surrendered the Contract at the end of
the period indicated. Total return at the Separate Account level will reflect
the CDSL, mortality and expense risk charges, administrative charge, and the
annual Contract Fee. The total return figures will not reflect any premium tax
charge or any charges for optional benefits, including the Nursing Home Waiver
of CDSL, One Year Stepped-Up Death Benefit and Accidental Death Benefit riders.
The total return for the Separate Account will be lower than total return at the
Trust level where comparable charges are not deducted.
The Subaccounts may also advertise total returns in a non-standard format
in conjunction with the standard format described above. The non-standard format
will be the same as the standard format except that it will not reflect any
CDSL.
The Money Market Subaccount may advertise "current yield" and "effective
yield." Current yield refers to the income earned by the Subaccount over a
seven-day period and then annualized; i.e., the income earned in the period is
assumed to be earned every seven days over a 52-week period and stated as a
percentage of the investment. Effective yield is calculated similarly but, when
annualized, the income earned by the investment is assumed to be reinvested in
the Subaccount and thus compounded in the course of a 52-week period. The
effective yield will be slightly higher than the current yield because of this
compounding effect of the assumed reinvestment.
The other Subaccounts may also advertise current yield. For these
Subaccounts, the current yield will be calculated by dividing the annualization
of the income earned by the Subaccount during a recent thirty-day period by the
maximum offering price per unit at the end of such period. In all cases,
current yield and effective yield will reflect the recurring charges at the
Separate Account level including the annual Contract Fee, but will not reflect
any premium tax charge, any CDSL, or any charges for optional benefit riders.
Performance information for the Subaccounts may be compared to other
variable annuity separate accounts or other investment products surveyed by
Lipper Analytical Services, Inc., an independent service which monitors and
ranks the performance of investment companies, or tracked by other rating
services, companies, publications, or persons who independently monitor and rank
investment company performance. Performance figures are
48
calculated in accordance with standardized methods established by each reporting
service.
REPORTS
The Company intends to deliver to Owners 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 the Company.
VOTING PRIVILEGES
All of the assets in the Subaccounts of the Separate Account are invested
in shares of the corresponding Funds of the Trust. The Company will vote the
shares of each Fund which are deemed attributable to the Contracts at meetings
of the Trust's shareholders in accordance with instructions received from Owners
of the Contracts. Units of the Trust held in the Separate Account which are not
attributable to the Contracts and those for which instructions from owners are
not received will be represented by the Company at the meeting and will be voted
for and against each matter in the same proportion as the votes based upon the
instructions received from the owners of all annuity contracts funded through
the Separate Account's corresponding variable Subaccounts.
The number of shares of a Fund held in each Subaccount deemed attributable
to each Owner is determined by dividing a Contract's Accumulation Unit Value (or
for a Contract under which annuity payments have commenced, the equivalent) in
the Subaccount by the net asset value of one share in the corresponding Fund in
which the assets of that Subaccount are invested. Fractional votes will be
counted. The number of shares as to which the Owner may give instructions will
be determined as of the record date for the Trust's meeting.
Owners of Contracts may give instructions regarding the election of the
Board of Trustees of the Trust, ratification of the selection of independent
auditors, approval of the Trust investment management agreements and other
matters requiring a vote under the 1940 Act. Owners will be furnished
information and forms by the Company in order that voting instructions may be
given.
CHANGES IN APPLICABLE LAW-FUNDING AND OTHERWISE
The voting privileges described in this prospectus are afforded based on
the Company's understanding of applicable Federal securities law requirements.
To the extent that applicable law, regulations or interpretations change to
eliminate or restrict the need for such voting privileges, the Company reserves
the right to proceed in accordance with any such revised requirements. The
Company also reserves the right, subject to compliance with applicable law,
including approval of Owners if so required, to transfer assets determined by
the Company to be associated with the class of contracts to which the Contracts
belong from the Account to another separate account or Subaccount by withdrawing
the same percentage of each investment in the Separate Account with appropriate
adjustments to avoid odd lots and fractions.
49
LEGAL PROCEEDINGS
There are no legal proceedings to which the Separate Account or the Company
is a party other than routine litigation which the Company believes is not
relevant or material to the Contracts being offered.
DISTRIBUTION OF THE CONTRACTS
John Hancock is registered as a broker-dealer under the Securities Exchange
Act of 1934 and is a member of the National Association of Securities Dealers,
Inc. John Hancock acts as principal underwriter of the Contracts and has
entered into a distribution agreement with JHFI which is the principal
distributor of the Contracts. The Contracts may be purchased through broker-
dealers and certain financial institutions who have entered into selling
agreements with JHFI and the Company, and whose representatives are authorized
by applicable law to sell annuity products. The compensation paid to such
broker-dealers and financial institutions is not expected to exceed 5.5% of
premium payments. The offering of the Contracts is intended to be continuous,
but neither John Hancock nor JHFI is obligated to sell any particular amount of
Contracts.
The Company reimburses John Hancock for direct and indirect expenses
actually incurred in connection with the marketing and sale of the Contracts. In
addition, on behalf of the Company, John Hancock performs certain insurance
underwriting and determines whether to accept or reject the application for a
Contract.
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the 1934 Act,
and in accordance therewith files reports and other information with 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., and at the Commission's Regional Offices located
at 7 World Trade Center, Suite 1300, New York, New York, and Northwestern Atrium
Center, 500 West Madison Street, Suite 1400, Chicago, Illinois. Copies of such
materials also can be obtained from the Public Reference Section of the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed
rates.
The Company has filed registration statements ("Registration Statements")
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 Statements and does not contain all of the information set forth in
the Registration Statements and exhibits thereto, and reference is hereby made
to such Registration Statements and exhibits for further information relating to
the Company and the Contracts. The Registration Statements and the exhibits
thereto may be inspected and copied, and copies can be obtained at prescribed
rates, in the manner set forth in the preceding paragraph.
50
EXPERTS AND FINANCIAL STATEMENTS
The annual financial statements of the Company that are included in this
prospectus have been audited by , independent auditors, whose report
has been relied upon given their authority as experts in accounting and
auditing.
There are no financial statements for the Separate Account, as the Separate
Account has not yet commenced operations and has no assets or liabilities.
TABLE OF CONTENTS OF STATEMENT
OF ADDITIONAL INFORMATION
CROSS REFERENCE TO
PAGE PAGE IN PROSPECTUS
---- ------------------
The Separate Account ...............................
Services Agreement .................................
Calculation of Performance Data ....................
Calculation of Annuity Payments ....................
Separate Account Financial Statements ..............
51
Report of Independent Auditors
Board of Directors
John Hancock Variable Life Insurance Company
[to be added by amendment]
F-1
JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY
STATEMENTS OF FINANCIAL POSITION
(Unaudited)
September 30 December 31
------------- -----------
1995 1994 1993
(In millions)
Assets
Bonds--Note 7 $ 466.8 $ 458.3 $ 433.0
Preferred stocks 5.2 5.3 6.4
Common stocks 2.3 1.9 2.4
Investment in affiliate 64.9 59.9 57.6
Mortgage loans on real estate--Note 7 138.0 148.5 163.1
Real estate 43.0 27.8 16.7
Policy loans 58.4 47.3 36.9
Cash items:
Cash in banks 0.0 29.3 5.7
Temporary cash investments 52.4 46.7 17.6
52.4 76.0 23.3
Premiums due and deferred 38.6 43.9 47.3
Investment income due and accrued 16.0 14.7 14.4
Other general account assets 12.1 22.3 8.9
Assets held in separate accounts 2,210.0 1,721.0 1,568.6
TOTAL ASSETS $3,107.7 $2,626.9 $2,378.6
Obligations and Stockholder's Equity
Obligations
Policy reserves $ 658.1 $ 638.6 $ 600.3
Federal income and other taxes
payable--Note 1 9.8 17.3 (1.2)
Other accrued expenses (14.9) 22.8 1.0
Asset valuation reserve--Note 1 14.1 12.6 10.4
Obligations related to separate accounts 2,206.2 1,717.7 1,565.3
TOTAL OBLIGATIONS 2,873.3 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 50,000
shares--1995; 20,000 shares--1994 and 1993 2.5 25.0 25.0
Paid-in capital 377.5 355.0 355.0
Unassigned deficit (145.6) (162.1) (177.2)
TOTAL STOCKHOLDER'S EQUITY 234.4 217.9 202.8
TOTAL OBLIGATIONS AND STOCKHOLDER'S
EQUITY $3,107.7 $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
(Unaudited)
Nine months ended
September 30 Year ended December 31
1995 1994 1994 1993 1992
---- ---- ---- ---- ----
(In millions)
INCOME
Premiums $ 378.9 $ 345.2 $ 430.5 $ 398.8 $ 416.4
Net investment income-Note 4 47.1 43.1 57.6 61.3 62.0
Other, net 57.7 1.1 95.5 (4.0) (3.9)
483.7 389.4 583.6 456.1 474.5
BENEFITS AND EXPENSES
Payments to policyholders
and beneficiaries 161.3 138.7 187.5 190.8 199.0
Additions to reserves to provide for
future payments to policyholders
and beneficiaries 165.3 124.4 185.3 111.5 120.9
Expenses of providing service to
policyholders and obtaining new
insurance-Note 6 113.9 127.9 168.9 144.5 111.4
Cost of restructuring 0.0 0.0 3.0 0.0 0.0
State and miscellaneous taxes 8.8 8.2 11.3 9.8 9.5
449.3 399.2 556.0 456.6 440.8
GAIN (LOSS) FROM OPERATIONS
BEFORE FEDERAL INCOME TAXES AND
AND NET REALIZED CAPITAL GAINS
(LOSSES) 34.4 (9.8) 27.6 (0.5) 33.7
Federal income taxes (benefit)-Note 1 19.9 (1.4) 15.0 6.5 20.5
GAIN (LOSS) FROM OPERATIONS
BEFORE NET REALIZED CAPITAL
GAINS (LOSSES) 14.5 (8.4) 12.6 (7.0) 13.2
Net realized capital gains (losses)-Note 5 (0.6) 1.2 0.4 (2.6) (1.4)
NET GAIN (LOSS) 13.9 (7.2) 13.0 (9.6) 11.8
Unassigned deficit at beginning of year (162.1) (177.2) (177.2) (142.3) (157.1)
Net unrealized capital gains (losses) and
other adjustments-Note 5 2.0 (3.7) (1.5) (3.2) (2.2)
Valuation reserve changes-Note 1 0.0 2.5 2.7 2.3 9.0
Change in separate account surplus 0.5 0.0 0.0 0.5 0.2
Other reserves and adjustments 0.1 0.4 0.9 (24.9) (4.0)
UNASSIGNED DEFICIT AT END OF YEAR $(145.6) $(185.2) $(162.1) $(177.2) $(142.3)
The accompany notes are an integral part of the financial statements
F-3
JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY
STATEMENTS OF CASH FLOWS
(Unaudited)
Nine months ended
September 30 Year ended December 31
1995 1994 1994 1993 1992
---- ---- ---- ---- ----
(In millions)
CASH PROVIDED
Insurance premiums $383.3 $352.3 $517.2 $411.4 $425.4
Net investment income 46.1 43.2 57.9 63.0 62.0
Other, net 66.2 0.4 (0.3) (0.6) (2.6)
495.6 395.9 574.8 473.8 484.8
Benefits to policyholders and
beneficiaries 150.3 132.6 175.3 176.6 186.4
Dividends paid to policyholders 9.5 8.9 11.9 14.8 12.2
Insurance expenses and other
taxes 122.5 135.5 180.6 148.4 118.9
Net transfers to separate accounts 149.4 96.4 146.6 91.9 65.9
Other, net 37.8 6.0 7.7 22.1 33.1
469.5 379.4 522.1 453.8 416.5
NET CASH PROVIDED FROM
OPERATIONS 26.1 16.5 52.7 20.0 68.3
Proceeds from the disposition,
redemption and prepayment of:
Bonds 44.9 44.5 70.1 103.0 49.1
Stocks 0.7 1.0 1.2 9.4 4.5
Real estate 0.0 4.2 22.1 3.6 1.7
Other invested assets 0.0 0.0 1.3 0.1 0.0
Mortgage loan repayments 16.3 26.0 35.2 80.1 13.9
Other sources 0.0 11.2 21.8 0.0 0.0
TOTAL CASH PROVIDED 88.0 103.4 204.4 216.2 137.5
CASH APPLIED
Purchase of:
Bonds 53.3 81.0 94.1 92.3 132.5
Stocks 1.7 1.5 1.5 59.8 1.4
Real estate 15.5 0.0 18.4 0.5 0.3
Other invested assets 0.0 0.9 0.9 4.2 0.2
Mortgage loans issued 6.5 28.7 37.9 32.4 16.8
Return of paid-in capital to John Hancock 0.0 0.0 0.0 1.8 0.0
Other applications 34.6 0.0 (1.1) 43.8 (0.3)
TOTAL CASH APPLIED 111.6 112.1 151.7 234.8 150.9
INCREASE (DECREASE) IN CASH
AND TEMPORARY CASH
INVESTMENTS (23.6) (8.7) 52.7 (18.6) (13.4)
Cash and temporary cash
investments at beginning of year 76.0 23.3 23.3 41.9 55.3
CASH AND TEMPORARY CASH
INVESTMENTS AT END OF YEAR $ 52.4 $ 14.6 $ 76.0 $ 23.3 $ 41.9
The accompanying notes are an integral part of the financial statements
F-4
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 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 surplus 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 loss (9.6) (9.6)
Net unrealized capital losses and other
adjustments (3.2) (3.2)
Valuation reserve changes 2.3 2.3
Change in separate account surplus 0.5 0.5
Other reserves and adjustments (24.9) (24.9)
Return of capital (1.8) (1.8)
Balance at December 31, 1993 25.0 355.0 (177.2) 202.8
1994 Transactions:
Net gain 13.0 13.0
Net unrealized capital losses and other
adjustments (1.5) (1.5)
Valuation reserve changes 2.7 2.7
Change in separate account surplus 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
For the nine months ended September 30, 1994
(unaudited)
Balance at December 31, 1993 $ 25.0 $355.0 $(177.2) $202.8
1994 Transactions:
Net loss (7.2) (7.2)
Net unrealized capital losses and other
adjustments (3.7) (3.7)
Valuation reserve changes 2.5 2.5
Change in separate account surplus 0.0 0.0
Other reserves and adjustments 0.4 0.4
Balance at September 30, 1994 $ 25.0 $355.0 $(185.2) $194.8
For the nine months ended September 30, 1995
(unaudited)
Balance at December 31, 1994 $ 25.0 $355.0 $(162.1) $217.9
1995 Transactions:
Net gain 13.9 13.9
Net unrealized capital gains and other
adjustments 2.0 2.0
Valuation reserves changes 0.0 0.0
Change in separate account surplus 0.5 0.5
Other reserves and adjustments 0.1 0.1
Reclassification of paid-in capital (22.5) 22.5 0.0
Balance at September 30, 1995 $ 2.5 $377.5 $(145.6) $234.4
F-5
NOTES TO FINANCIAL STATEMENTS
JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY
(Information as of, and for the periods ended September 30, 1995 and 1994 is
unaudited)
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 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 and by 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
life insurance companies to adopt certain accounting principles in 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 valuation and the 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 Company has not yet
determined the effects of such modifications 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
NOTES TO FINANCIAL STATEMENTS
JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY
(Information as of, and for the periods ended September 30, 1995 and 1994 is
unaudited)
F-6
NOTE 1--ACCOUNTING PRACTICES--CONTINUED
generally at cost and common stocks at market. The discount or premium on
bonds is amortized using the interest method.
Investments in affiliates are included on the statutory equity method.
Goodwill is amortized on a straight line basis over a ten year period.
Mortgage loans are carried at outstanding principal balance or amortized
cost.
Investment real estate is carried at depreciated cost, less encumbrances.
Depreciation on investment real estate is recorded on a straight line
basis.
Real estate acquired in satisfaction of debt and held for sale is carried
at the lower of cost or market as of the date of foreclosure.
Policy loans are carried at outstanding principal balance, not in excess
of policy cash surrender value.
Asset Valuation and Interest Maintenance Reserves: Beginning in 1992, the
-------------------------------------------------
Company adopted the Asset Valuation Reserve (AVR) prescribed by the NAIC to
replace the Mandatory Securities Valuation Reserve (MSVR) previously required
by the NAIC and the additional Mortgage and Real Estate Valuation Reserve
(MSVR) provided by the Company. The 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 September 30,
1995, the IMR, net of 1995 amortization of $0.8 million, amounted to $6.5
million which is included in policy reserves. The corresponding amounts at
September 30, 1994 were $0.8 million and $7.4 million, respectively. 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.
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 1995 and 1994, the change in separate account surplus is
recognized through direct charges or credits to unassigned deficit. In 1993
and 1992 separate
NOTES TO FINANCIAL STATEMENTS
JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY
(Information as of, and for the periods ended September 30, 1995 and 1994 is
unaudited)
F-7
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
1995 and 1994 amounts. The presentation has no effect on unassigned deficit.
Fair Values of Financial Instruments: SFAS No. 107, "Disclosure about Fair
------------------------------------
Value of Financial Instruments," requires disclosure of fair value
information about financial instruments, whether or not recognized in the
statement of financial position, for which it is practicable to 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.
F-8
NOTES TO FINANCIAL STATEMENTS
JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY
(Information as of, and for the periods ended September 30, 1995 and 1994 is
unaudited)
NOTE 1--ACCOUNTING PRACTICES--CONTINUED
The methods and assumptions utilized by the Company in estimating its fair
value disclosures for financial instruments are as follows:
The carrying amounts reported in the statement of financial position for
cash and temporary cash investments approximate their fair values.
Fair values for public bonds are obtained from an independent pricing
service. Fair values for private placement securities and publicly traded
bonds not provided by the independent pricing service are estimated by
the Company by discounting expected future cash flows using current
market rates applicable to the yield, credit quality and maturity of the
investments. The fair values for common and preferred stocks, other than
its subsidiary investments which are carried at equity values are based
on quoted market prices.
The fair value for mortgage loans is estimated using discounted cash flow
analyses using interest rates adjusted to reflect the credit
characteristics of the loans. Mortgage loans with similar characteristics
and credit risks are aggregated into qualitative categories for purposes
of the fair value calculations.
The carrying amount in the statement of financial position for policy
loans approximates its 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 September 30, 1995 and December 31, 1994,
respectively. The fair value for commitments to purchase real estate
approximates the amount of the initial commitment.
Capital Gains and Losses: Realized capital gains and losses, net of taxes
------------------------
and amounts transferred to the IMR, are included in net gain or loss.
Unrealized gains and losses, which consist of market value and book value
adjustments, are shown as adjustments to the unassigned deficit.
Policy Reserves: Reserves for variable life insurance policies are
---------------
maintained principally on the modified preliminary term method using the 1958
and 1980 Commissioner's Standard Ordinary (CSO) mortality tables, with an
assumed interest rate of 4% for policies issued prior to May 1, 1983 and 4
1/2% for policies issued on or thereafter. Reserves for single premium
policies are determined by the net single premium method using the 1958 CSO
mortality table, with an assumed interest rate of 4%. Reserves for universal
life policies issued prior to 1985 are equal to the gross account value which
at all times exceeds minimum statutory requirements. Reserves for universal
life policies issued from 1985 through 1988 are maintained at the greater of
the Commissioner's Reserve Valuation Method (CRVM) using the 1958 CSO
mortality table, with 4 1/2% interest or the cash surrender value. Reserves
for universal life policies issued after 1988 and for flexible variable
policies are maintained using the greater of the cash surrender value or the
CRVM method with the 1980 CSO mortality table and 5 1/2% interest for
policies issued from 1988 through 1992; 5% interest for policies issued in
1993 and 1994; and 4 1/2% interest for policies issued in 1995.
F-9
NOTES TO FINANCIAL STATEMENTS
JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY
(Information as of, and for the periods ended September 30, 1995 and 1994 is
unaudited)
NOTE 1--ACCOUNTING PRACTICES--CONTINUED
Federal Income Taxes: Federal income taxes are provided in the financial
--------------------
statements based on amounts determined to be payable as a result of
operations within the current accounting period. The operations of the
Company are consolidated with John Hancock, its Parent, in filing a
consolidated federal income tax return for the affiliated group. The federal
income taxes of the Company are allocated on a separate return basis with
certain adjustments. The Company made payments of $26.7 million for the nine
months ended September 30, 1995 and received tax benefits of $1.8 million for
the nine months ended September 30, 1994. 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.
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. During the nine months ended
September 30, 1995 and September 30, 1994, there were no refinements in
actuarial assumptions inherent in the calculation of policy reserves.
Reinsurance: Premiums, commissions, expense reimbursements, benefits and
-----------
reserves related to reinsured business are accounted for on bases consistent
with those used in accounting for the original policies issued and the terms
of the reinsurance contracts. Premiums ceded to other companies have been
reported as a reduction of premium income. Amounts applicable to reinsurance
ceded for future policy benefits, unearned premium reserves and claim
liabilities have been reported as reductions of these items.
Reclassifications: Certain 1993 and 1992 amounts have been reclassified to
------------------
permit comparison with the corresponding 1995 and 1994 amounts.
F-10
NOTES TO FINANCIAL STATEMENTS
JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY
(Information as of, and for the periods ended September 30, 1995 and 1994 is
unaudited)
NOTE 2--CAPITALIZATION
At December 31, 1994, the Company had 50,000 shares authorized with 20,000
shares issued and outstanding. On February 16, 1995, the Company issued the
remaining 30,000 shares to John Hancock and transferred $22.5 million from
common stock to paid-in capital. The par value per share is $50.
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 had 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 was
$17.9 million and $18.9 million at September 30, 1995 and December 31, 1994,
respectively. The Company made contingent payments to CPAL of $1.5 million
for the nine months ended September 30, 1995 and $1.5 million in 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-11
NOTES TO FINANCIAL STATEMENTS
JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY
(Information as of, and for the periods ended September 30, 1995 and 1994 is
unaudited)
NOTE 4--NET INVESTMENT INCOME
Investment income has been reduced by the following amounts:
Nine months ended
September 30
1995 1994 1994 1993 1992
---- ------ ------ ------ ------
(In millions)
Investment expenses $1.9 $2.3 $3.4 $2.9 $2.8
Interest expense 0.0 0.0 0.2 0.0 0.0
Depreciation expense 0.7 0.4 0.6 0.6 0.5
Investment taxes 0.4 0.2 0.2 0.3 0.2
$3.0 $2.9 $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:
Nine months ended
September 30
1995 1994 1994 1993 1992
---- ------ ---- ------ ------
(In millions)
Gains (losses) from asset
sales $ 0.1 $(0.7) $(1.6) $ 9.6 $(2.1)
Less capital gains (tax) credit (0.5) 2.5 2.5 (4.2) 0.8
Less net amounts transferred
to IMR (0.2) (0.6) (0.5) (8.0) (0.1)
Net Realized Capital Gains
(Losses) $(0.6) $ 1.2 $ 0.4 $(2.6) $(1.4)
Net unrealized capital gains (losses) and other adjustments consist of the
following items:
Nine months ended
September 30
1995 1994 1994 1993 1992
---- ---- ---- ---- ----
(In millions)
Gains (losses) from changes
in security values and book
value adjustments $ 3.6 $(2.0) $ 0.7 $(1.4) $ 1.4
Increase in asset valuation
reserve (1.6) (1.7) (2.2) (1.8) (3.6)
Net Unrealized Capital
Gains (Losses) and
Other Adjustments $ 2.0 $(3.7) $(1.5) $(3.2) $(2.2)
F-12
NOTES TO FINANCIAL STATEMENTS
JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY
(Information as of, and for the periods ended September 30, 1995 and 1994 is
unaudited)
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 1995, 1994, 1993 and 1992 to reflect
continuing changes in the Company's operations. The amount of the service fee
charged to the Company was $72.4 million, $88.5 million, $117.0 million,
$98.2 million and $75.2 million for the nine months ended September 30, 1995
and September 30, 1994, in 1994 and 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 $1.6 million, $2.0 million, $6.0 million and $1.4 million for the
nine months ended September 30, 1995 and September 30, 1994 and the years
ended December 31, 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.
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 1995 and 1994 issues of
flexible premium variable life insurance and scheduled premium variable life
insurance policies. In connection with this agreement, John Hancock
transferred $30.2 million of cash for tax, commission, and expense allowances
to the Company, which increased the Company's net gain from operations by
$13.6 million for the nine months ended September 30, 1995. The corresponding
amounts for the year ended December 31, 1994 were $29.5 million and $26.9
million, respectively.
F-13
NOTES TO FINANCIAL STATEMENTS
JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY
(Information as of, and for the periods ended September 30, 1995 and 1994 is
unaudited)
NOTE 7--INVESTMENTS
The statement value and fair value of bonds are shown below:
Nine Months Ended September 30, 1995
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 $ 4.4 $ 0.0 $ 0.1 $ 4.3
Obligations of states and political
subdivisions 12.9 1.1 0.0 14.0
Debt securities issued by foreign
governments 0.3 0.0 0.0 0.3
Corporate securities 442.6 38.5 0.6 480.5
Mortgage-backed securities 6.6 0.2 0.1 6.7
Totals $466.8 $39.8 $ 0.8 $505.8
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
F-14
NOTES TO FINANCIAL STATEMENTS
JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY
(Information as of, and for the periods ended September 30, 1995 and 1994 is
unaudited)
NOTE 7--INVESTMENTS--CONTINUED
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
The statement value and fair value of bonds by contractual maturity, are
shown below. Maturities will differ from contractual maturities because
eligible borrowers may exercise their right to call or prepay obligations
with or without call or prepayment penalties.
September 30, 1995 December 31, 1994
------------------ -----------------
Statement Fair Statement Fair
Value Value Value Value
(In millions)
Due in one year or less $ 14.5 $ 14.8 $ 28.5 $ 28.6
Due after one year through five years 133.0 139.1 163.1 165.7
Due after five years through ten years 177.1 188.4 167.7 162.5
Due after ten years 135.6 156.8 95.9 98.6
460.2 499.1 455.2 455.4
Mortgage-backed securities 6.6 6.7 3.1 3.1
$466.8 $505.8 $458.3 $458.5
Proceeds from sales, maturities and prepayments of bonds during the nine
months ended September 30, 1995 and September 30, 1994 were $44.9 million and
$44.5 million, respectively. Gross gains of $0.6 million and $0.9 million and
gross losses of $0.1 million and $0.0 million were realized on these
transactions during the nine months ended September 30, 1995 and September
30, 1994, respectively.
F-15
NOTES TO FINANCIAL STATEMENTS
JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY
(Information as of, and for the periods ended September 30, 1995 and 1994 is
unaudited)
NOTE 7--INVESTMENTS--CONTINUED
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 September 30, 1995, December
31, 1994 and December 31, 1993, respectively. Gross unrealized appreciation
on common stocks totaled $1.6 million at September 30, 1995 and $1.6 million
at December 31, 1994 and gross unrealized depreciation totaled $0.7 million
at September 30, 1995 and $1.2 million at December 31, 1994. The fair value
of preferred stock totaled $5.4 million at September 30, 1995, $5.0 million
at December 31, 1994, and $6.7 million at December 31, 1993.
Mortgage loans with outstanding principal balances of $1.1 million and bonds
with amortized cost of $0.0 million were nonincome producing for the nine
months ended September 30, 1995. The corresponding amounts for the twelve
months ended December 31, 1994 were $3.4 million and $0.2 million,
respectively.
The mortgage loan portfolio was diversified by geographic region and specific
collateral property type as displayed below. The Company controls credit risk
through credit approvals, limits and monitoring procedures.
September 30, 1995
Statement Geographic Statement
Property Type Value Concentration Value
(In millions) (In millions)
Apartments $ 44.9 East North Central $ 24.9
Hotels 4.5 East South Central 4.9
Industrial 20.7 Middle Atlantic 11.2
Office buildings 12.6 Mountain 11.8
Retail 12.1 New England 20.5
1-4 Family 20.4 Pacific 37.7
Agricultural 22.8 South Atlantic 27.0
$138.0 $138.0
F-16
NOTES TO FINANCIAL STATEMENTS
JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY
(Information as of, and for the periods ended September 30, 1995 and 1994 is
unaudited)
NOTE 7--INVESTMENTS--CONTINUED
December 31, 1994
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 September 30, 1995, the fair values of the commercial and agricultural
mortgage loans portfolios were $121.9 million and $29.3 million,
respectively. The corresponding amounts as of December 31, 1994 were
approximately $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.
NOTE 8--REINSURANCE
The Company cedes business to reinsurers to share risks under variable life,
universal life and flexible variable life insurance policies for the purpose
of reducing exposure to large losses. Premiums, benefits and reserves ceded
to reinsurers during the nine months ended September 30, 1995 were $48.1
million, $6.1 million, and $12.9 million, respectively. The corresponding
amounts during the nine months ended September 30, 1994 were $9.5 million,
$9.3 million, and $15.9 million, respectively. The corresponding amounts in
1994 were $67.5 million, $12.3 million, and $16.3 million, respectively. The
corresponding amounts in 1993 were $74.9 million, $9.8 million, and $14.4
million, respectively. 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.
F-17
NOTES TO FINANCIAL STATEMENTS
JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY
(Information as of, and for the periods ended September 30, 1995 and 1994 is
unaudited)
NOTE 9--COMMITMENTS AND CONTINGENCIES
The Company has extended commitments to purchase long-term bonds and issue
real estate mortgages totalling $9.0 million and $9.3 million, respectively,
at September 30, 1995. The corresponding amounts at December 31, 1994 were
$6.7 million and $5.0 million, respectively. The Company monitors the
creditworthiness of borrowers under long-term bond commitments and requires
collateral as deemed necessary. If funded, loans related to real estate
mortgages would be fully collateralized by the related properties. The fair
values of the commitments described above was $19.2 million at September 30,
1995 and $11.7 million at December 31, 1994. The majority of the commitments
at September 30, 1995 expire in 1996.
In the normal course of its business operations, the Company is involved in
litigation from time to time with claimants, beneficiaries and others, and a
number of litigation matters were pending as of September 30, 1995 and
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-18
APPENDIX A - SAMPLE MARKET VALUE ADJUSTMENT CALCULATIONS
The formula which will be used to determine the Market Value Adjustment is:
[(1 + g)/(1 + c + .005)] circumflex (n/12) - 1
Sample Calculation 1: Positive Adjustment
Amount withdrawn or transferred $10,000
Existing Guarantee Period 7 years
Time of withdrawal or transfer beginning of 3rd year of Existing Guarantee Period
Guaranteed Rate (g) 8%*
Guaranteed Rate for
new 5-year guarantee (c) 7%*
Remaining Guarantee Period (n) 60 months
Market Value Adjustment:
$10,000 x [((1 + .08)/(1 + .07 + .005)) circumflex (60/12) - 1] = $234.73
Amount transferred or withdrawn (adjusted for Market Value Adjustment):
$10,234.73
Sample Calculation 2: Negative Adjustment
Amount withdrawn or transferred $10,000
Existing Guarantee Period 7 years
Time of withdrawal or transfer beginning of 3rd year of Existing Guarantee Period
Guaranteed Rate (g) 8%*
Guaranteed Rate for
new 5-year guarantee (c) 9%*
Remaining Guarantee Period (n) 60 months
Market Value Adjustment:
$10,000 x [((1 + .08)/(1 + .09 + .005)) circumflex (60/12) - 1] = $-666.42
Amount transferred or withdrawn (adjusted for Market Value Adjustment):
$9,333.58
Sample Calculation 3: Negative Adjustment
Amount withdrawn or transferred $10,000
Guarantee Period 7 years
Time of withdrawal or transfer beginning of 3rd year of Existing Guarantee Period
Guaranteed Rate (g) 8%*
Guaranteed Rate for
new 5-year guarantee (c) 7.75%*
Remaining Guarantee Period (n) 60 months
Market Value Adjustment:
$10,000 x [((1 + .08)/(1 + .0775 + .005)) circumflex (60/12) - 1] = $-114.94
Amount transferred or withdrawn (adjusted for Market Value Adjustment):
$9,885.06
__________________________
. Assumed for illustrative purposes only.
APPENDIX B - VARIABLE ANNUITY INFORMATION
FOR INDIVIDUAL RETIREMENT ANNUITIES
To help you understand your purchase of this Contract as an Individual
Retirement Annuity (IRA), we are providing the following summary.
I. Accumulation Units and the MVA Fixed Account. Each net premium payment you
make into your Contract is allocated to the Subaccounts and/or Guarantee
Periods you select. Accumulation Units are acquired under the Contract with
amounts you allocate to the Subaccounts. This is the unit of measurement used
to determine the value of the variable portion of your Contract. The number of
units acquired in any Subaccount is based on the unit value of that Subaccount
next determined after receipt of the payment at JHISC. The values of
Accumulation Units fluctuate with the daily investment performance of the
corresponding Subaccount. The growth in the value of your Contract, to the
extent invested in the Separate Account, is neither guaranteed nor projected
and varies with the investment performance of the Fund underlying the
Subaccount you have selected. Each net premium payment allocated to a
Guarantee Period in the MVA Fixed Account will be credited interest, as
determined by the Company. A minimum guaranteed interest rate of 3% applies to
all Contracts issued on an individual basis. Amounts withdrawn or surrendered
from a Guarantee Period may be increased or decreased by a Market Value
Adjustment. More details appear under "Accumulation Period" and "The MVA Fixed
Account" in this prospectus.
II. Separate Account and Trust Charges. The assets of the Separate Account are
charged for services and certain expense guarantees. The annualized charge
equals a maximum of 1.25%. Trust fees varying by Fund are charged against the
Funds for investment management and advisory services, and other expenses.
Details appear under "Charges Under the Contracts" in this prospectus and in
the accompanying prospectus of the Trust.
III. Deductions from the Contract. The full amount of each premium payment,
net of any premium taxes deducted, is applied to the Contract. At or after the
payment dates, one or more of the following charges may be made, depending on
circumstances.
1. CDSL. In each Contract Year you may withdraw as much as 10% of the
Accumulated Value of your Contract as of the beginning of the Contract Year
without charge. Withdrawals in excess of this amount will be subject to the
following charges:
Years from Date
of Premium Payment to CDSL
Date of Surrender or Withdrawal Charge
------------------------------- ------
7 or more .............................................0%
6 but less than 7......................................2%
5 but less than 6......................................3%
4 but less than 5......................................4%
3 but less than 4......................................5%
2 but less than 3......................................5%
less than 2............................................6%
For the purpose of calculating the CDSL, deposits are considered to be
withdrawn on a "first-in first-out" basis. Earnings are considered to be
withdrawn last, and are withdrawn without charge. Under certain
circumstances the CDSL is not assessed. This is described in more detail
under "Contingent Deferred Sales Load" under "Charges Under the Contracts"
in this prospectus.
2. Contract Fee. The Company currently deducts $30 from the
Accumulated Value as a Contract Fee if the Accumulated Value is less than
$10,000. This occurs annually or at the time of surrender. Please refer to
"Charges for Administrative Services" under "Charges Under the Contracts" in
this prospectus.
3. STATE PREMIUM TAX. Some states and local governments impose a premium or
similar tax on annuities. The Company only deducts this tax when required to do
so. Please refer to "Premium or Similar Taxes" under "Changes Under Contracts"
in this prospectus.
4. OPTIONAL BENEFIT RIDERS. Three optional benefit riders are available
under the Contracts, including the One Year Stepped-Up Death Benefit, Accidental
Death Benefit and Nursing Home Waiver of CDSL riders. The charges for these
riders are 0.15%, 0.10% and 0.05% (annual percentage rates), respectively, of
Accumulated Value. Please refer to "Nursing Home Waiver of CDSL" and "Optional
Death Benefit Charges" under "Charges Under the Contracts."
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 . $100
Printing Expenses .................................... $
Accounting Fees .................................. $
Legal Fees and Miscellaneous Expenses ................ $
-------
Total expenses ................................... $
=======
- --------------
* To be completed by amendment.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Pursuant to Section X of the Company's By-Laws and Section 67 of the
Massachusetts Business Corporation Law, the Company 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 the Company. 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 the Company. The Company 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). 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.
II-1
1(b). 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(c). 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.)
1(d). Third Amendment dated December __, 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.)
1(e). [Individual and Group Combination MVA/Variable Annuity Contracts
Marketing and Distribution Agreement Among John Hancock Mutual Life
Insurance Company, John Hancock Variable Life Insurance Company, and
John Hancock Funds, Inc., dated December __, 1995. (To be filed by
amendment.)
1(f). Form of Soliciting Dealer Agreement between John Hancock Funds, Inc.,
and soliciting broker-dealers or financial institutions participating in
distribution of Contracts. (Included as Appendix B to Exhibit 3(e).)
3(a). Articles of Organization of John Hancock Variable Life Insurance
Company, incorporated by reference from Form S-1 Registration Statement
of John Hancock Variable Life Insurance Company (File No. 33-62895)
filed electronically on September 22, 1995.
3(b). By-Laws of John Hancock Variable Life Insurance Company, incorporated by
reference from Form S-1 Registration Statement of John Hancock Variable
Life Insurance Company (File No. 33-62895) filed electronically on
September 22, 1995.
4(a). Form of group deferred combination fixed and variable annuity contract.
4(b). Form of group deferred combination fixed and variable annuity
certificate.
4(c). Form of individual deferred combination fixed and variable annuity
contract. (To be filed by amendment.)
4(d). Form of nursing home waiver of CDSL rider.
4(e). Form of one year stepped-up death benefit rider.
II-2
4(f). Form of accidental death benefit rider.
4(g). Form of contract application.
5. Opinion and consent of counsel. (To be filed by amendment.)
10. Responsibility and Cost Allocation Agreement Among John Hancock Mutual
Life Insurance Company, John Hancock Variable Life Insurance Company and
John Hancock Funds, Inc., dated December __, 1995. (To be filed by
amendment.)
23(a). Consent of independent auditors. (To be filed by amendment.)
23(b). Consent of counsel. (See Exhibit 5.)
24. Powers of Attorney. (Incorporated by reference from Form S-1
Registration Statement for John Hancock Variable Life Insurance Company,
filed September 25, 1995 (File No. 33-62895).
27. Financial Data Schedule with respect to Unaudited Financial Statements
of John Hancock Variable Life Insurance Company for the Period Ended
September 30, 1995.
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;
(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.
II-3
(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-4
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 THE 7th DAY OF DECEMBER, 1995.
JOHN HANCOCK VARIABLE LIFE
INSURANCE COMPANY (REGISTRANT)
By /s/HENRY D. SHAW
-------------------------------
Henry D. Shaw
Vice Chairman of the Board
and President
AS REQUIRED BY THE SECURITIES ACT OF 1933, THIS REGISTRATION STATEMENT HAS
BEEN SIGNED BY THE FOLLOWING PERSONS IN THEIR CAPACITIES WITH JOHN HANCOCK
VARIABLE LIFE INSURANCE COMPANY AND ON THE DATES INDICATED.
Signature Title Date
- --------- ----- ----
/s/PATRICK F. SMITH Controller (Principal December 7, 1995
- -------------------
Patrick F. Smith Financial Officer and
Principal Accounting Officer)
/s/HENRY D. SHAW Vice Chairman December 7, 1995
- ------------------
Henry D. Shaw and President
for himself and as (Acting Principal
Attorney-in-Fact Executive Officer)
FOR: David F. D'Alessandro Chairman of the Board
Robert S. Paster Director
Michelle G. Van Leer Director
Joseph A. Tomlinson Director
Robert R. Reitano Director
Francis C. Cleary, Jr. Director
Barbara L. Luddy Director
II-5