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WE NEED YOUR VOTE!
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Dear Variable Contract Owner,
The enclosed proxy materials contain information on some important changes that
are being proposed for one or more of the Funds in the John Hancock Variable
Series Trust I (VST) in which you are an investor. As you know, the VST provides
investment options under your variable life policy or variable annuity contract.
After careful consideration, the VST Board of Trustees determined that each of
the changes is in the in the best interest of shareholders of the affected Fund
and voted to recommend these changes to you for your Fund(s). Your approval is
needed to implement or continue these changes, as explained in the enclosed
statement.
For complete information on these proposed changes, please read the enclosed
materials and complete, sign and return your voting instruction (proxy) card.
If you have any questions or need additional information, please contact a John
Hancock Representative at 1-800-576-2227, Monday through Friday, 8:00 A.M. -
7:00 P.M. ET.
Sincerely,
Michele G. Van Leer
Chairman
John Hancock Variable Series Trust I
John Hancock Variable Series Trust I
Notice of Special Meeting of Shareholders
A Special Meeting of Shareholders of the below-listed Funds of the John
Hancock Variable Series Trust I (the "Trust") will be held at the offices of
John Hancock Life Insurance Company ("John Hancock"), 197 Clarendon Street,
Boston, Massachusetts (telephone 1-800-732-5543), at 11:00 a.m., on Thursday,
March 18, 2004 to consider and vote upon the following matters:
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1. FUNDAMENTAL GROWTH FUND ONLY. A proposal to approve a new
Sub-Management Agreement among the Trust, John Hancock and
Independence Investment LLC ("Independence Investment") to replace the
sub-manager and to decrease the sub-investment management fee paid by
John Hancock for management of this Fund.
2. LARGE CAP GROWTH B FUND ONLY. A proposal to approve a new
Sub-Management Agreement among the Trust, John Hancock and
Independence Investment to replace the sub-manager and to decrease the
sub-investment management fee paid by John Hancock for management of
this Fund (formerly known as the "Large Cap Aggressive Growth Fund").
3. INTERNATIONAL OPPORTUNITIES FUND ONLY. A proposal to approve an
amendment to the current investment management agreement between the
Trust and John Hancock to eliminate John Hancock's obligation to
reimburse this Fund for certain operating expenses.
4. EMERGING MARKETS EQUITY FUND ONLY. A proposal to approve an amendment
to the current investment management agreement between the Trust and
John Hancock to decrease the fees paid by this Fund to John Hancock
and to eliminate John Hancock's obligation to reimburse this Fund for
certain operating expenses.
5. OVERSEAS EQUITY FUND ONLY. A proposal to approve an amendment to the
current investment management agreement between the Trust and John
Hancock to increase the fees paid by this Fund to John Hancock and to
eliminate John Hancock's obligation to reimburse this Fund for certain
operating expenses.
6. INTERNATIONAL EQUITY INDEX FUND ONLY. A proposal to approve an
amendment to the current investment management agreement between the
Trust and John Hancock to eliminate John Hancock's obligation to
reimburse this Fund for certain operating expenses.
7. GLOBAL BOND FUND ONLY. A proposal to approve an amendment to the
current investment management agreement between the Trust and John
Hancock to eliminate John Hancock's obligation to reimburse this Fund
for certain operating expenses.
8. HEALTH SCIENCES FUND ONLY. A proposal to approve an amendment to the
current investment management agreement between the Trust and John
Hancock to eliminate John Hancock's obligation to reimburse this Fund
for certain operating expenses.
9. LARGE CAP VALUE CORE(SM) FUND ONLY. A proposal to approve an amendment
to the current investment management agreement between the Trust and
John Hancock to increase the fees paid by this Fund to John Hancock
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In addition, any other business that may properly come before the meeting
or any adjournment thereof, may be transacted at this Special Meeting.
As an owner of a variable life insurance policy or a variable annuity
contract ("owner") participating as of the close of business on the record date
for the meetings, you can instruct how shares in the Funds attributable to you
will be voted at the meeting. (For the Large Cap Value CORE(SM) Fund, such
record date is [February 11, 2004], and for all of the other Funds the record
date is January 20, 2004. )
John Hancock is soliciting votes from owners invested in each of the
following Funds with respect to the proposal affecting that Fund:
===============================================================
Proposal
---------------------------------
Affected Fund 1 2 3 4 5 6 7 8 9
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Fundamental Growth X
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Large Cap Growth B* X
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International Opportunities X
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Emerging Markets Equity X
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Overseas Equity X
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International Equity Index X
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Global Bond X
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Health Sciences X
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Large Cap Value CORE(SM) X
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*formerly, "Large Cap Aggressive Growth Fund"
By Order of the Board of Trustees
MICHELE G. VAN LEER
Chairman, Board of Trustees
Boston, Massachusetts
February , 2004
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WHETHER OR NOT YOU EXPECT TO BE PRESENT AT THE MEETING, YOU ARE URGED TO DATE,
SIGN AND RETURN AN ENCLOSED PROXY (VOTING INSTRUCTION) CARD FOR EACH FUND YOU
ARE USING IN THE ACCOMPANYING STAMPED ENVELOPE. IN ORDER TO AVOID UNNECESSARY
DELAY, WE ASK YOUR COOPERATION IN MAILING THE PROXY CARD OR CARDS PROMPTLY. YOU
MAY STILL VOTE IN PERSON IF YOU ATTEND THE MEETING.
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1
PROXY STATEMENT
CONTENTS
Topic Starting on page
----------------
GENERAL INFORMATION 1
Proposal 1 FUNDAMENTAL GROWTH FUND
Proposal 2 LARGE CAP GROWTH B FUND
Proposal 3 INTERNATIONAL OPPORTUNITIES FUND
Proposal 4 EMERGING MARKETS EQUITY FUND
Proposal 5 OVERSEAS EQUITY FUND
Proposal 6 INTERNATIONAL EQUITY INDEX FUND
Proposal 7 GLOBAL BOND FUND
Proposal 8 HEALTH SCIENCES FUND
Proposal 9 LARGE CAP VALUE CORE(SM) FUND
GENERAL SOLICITATION AND VOTING INFORMATION
Appendix A - Summary of Sub-Management and Management Agreements A-1
Appendix B - Further Information About John Hancock and
Independence Investment B-1
Appendix C - John Hancock's Calculation of Average Fund Expenses
And Relative Performance Consistency C-1
Appendix D - Record Date and Voting Shares D-1
Appendix E - Summary of Order Placing Procedures for Portfolio
Transactions Of the Funds of the Trust C-1
GENERAL INFORMATION
This statement and enclosed form(s) of proxy (voting instructions) are furnished
by the management of John Hancock Variable Series Trust I (the "Trust") to
request voting instructions for the Special Meeting ("Meeting") of shareholders
of the following series ("Funds") of the Trust:
. Fundamental Growth Fund
. Large Cap Growth B Fund (formerly, "Large Cap Aggressive Growth Fund")
. International Opportunities Fund
. Emerging Markets Equity Fund
. Overseas Equity Fund
. International Equity Index Fund
. Global Bond Fund
. Health Sciences Fund
. Large Cap Value CORE(SM) Fund
3
The Meeting will be held at the offices of John Hancock Life Insurance Company
("John Hancock"), 197 Clarendon Street, Boston, Massachusetts 02117, on
Thursday, March 18, 2004 at 11:00 a.m. Boston time or at any adjournment(s)
thereof. Each Fund will vote on the specific proposal indicated in the chart on
the attached notice.
Trust Management seeks voting instructions for all shares of these Funds of the
Trust that are attributable to owners of variable life insurance and variable
annuity contracts (together, "Contracts"). Solicitation materials were first
made available on or about February , 2004.
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THE TRUST WILL FURNISH, WITHOUT CHARGE, A COPY OF ITS ANNUAL REPORT FOR 2002,
ITS SEMI-ANNUAL REPORT AS OF JUNE 30, 2003 AND, WHEN AVAILABLE, ITS ANNUAL
REPORT FOR 2003. REQUESTS FOR THESE REPORTS MAY BE MADE BY MAIL OR BY TELEPHONE,
USING THE ADDRESS OR TOLL-FREE TELEPHONE NUMBER SHOWN ON THE ATTACHED NOTICE FOR
THIS MEETING.
This statement is first being mailed to owners of Contracts on approximately
February , 2004. We use the term "owners" in the statement to refer to owners
--
of Contracts, and the term "Insurers" to refer to John Hancock and its
subsidiary, the John Hancock Variable Life Insurance Company.
4
PROPOSAL 1 - FUNDAMENTAL GROWTH FUND
APPROVAL OF NEW SUB-MANAGEMENT AGREEMENT WITH INDEPENDENCE
INVESTMENT LLC FOR THE FUNDAMENTAL GROWTH FUND
At its December 10, 2003 meeting, the Trust's Board of Trustees ("Board")
unanimously approved the retention of Independence Investment LLC ("Independence
Investment") to replace Putnam Investment Management, LLC ("Putnam") as the
sub-manager for the Fundamental Growth Fund. Independence Investment began its
service to the Fundamental Growth Fund on December 15, 2003 under a temporary
agreement for a period generally limited to 150 days. Independence Investment is
an affiliate of John Hancock.
You are asked to approve a new sub-management agreement to replace the temporary
agreement so that Independence Investment may continue indefinitely as the
Fund's sub-manager The Board unanimously recommends that owners approve the new
agreement.
The Trust's Management Agreement with John Hancock
John Hancock serves as the overall investment manager for the Fundamental Growth
Fund pursuant to an investment management agreement with the Trust dated July
28, 1999, as amended ("John Hancock 1999 Agreement"). As discussed below, the
only fees that you bear are those under the John Hancock 1999 Agreement, and
that agreement and those fees will not be changed by the current proposal.
As the investment manager, John Hancock, among other things, advises the Trust
in connection with policy decisions of the Fund; provides administration of the
Fund's day-to-day operations; provides personnel, office space, equipment and
supplies for the Fund; maintains records required by the Investment Company Act
of 1940; recommends retention (or termination) of sub-managers to the Fund, as
it deems advisable; supervises activities of the sub-manager; and supervises the
activities of other providers of services to the Trust.
For the services it provides, John Hancock receives compensation from the
Fundamental Growth Fund at the annual rate of 0.90% of the first $250 million of
the Fund's average daily net assets, plus 0.85% of all additional amounts. These
are the same rates as the Fund was paying when Putnam was the Fund's
sub-manager.
Under the John Hancock 1999 Agreement, John Hancock is solely responsible for
the payment of all fees to sub-managers. Also, for any year in which the normal
operating costs and expenses of the Fund (exclusive of the investment management
fees, interest expense, brokerage commissions, taxes and extraordinary expenses
outside the control of John Hancock) exceed 0.10% of the Fundamental Growth
Fund's average daily net assets, the John Hancock 1999 Agreement will continue
to provide that John Hancock will reimburse that Fund in an amount equal to such
excess. Accordingly, the change in the Fundamental Growth Fund's sub-management
arrangements that you are being asked to approve has no effect on the fees and
other Fund operating expenses you bear (either directly or indirectly).
5
Proposed Sub-Management Agreement with Independence Investment
At its meeting on December 10, 2003, the Board, upon John Hancock's
recommendation, decided that the Fund's sub-management relationship with Putnam
should be terminated and that Independence Investment should be appointed as a
successor.
The principal reasons for John Hancock's recommendation to replace the Fund's
sub-manager were (i) concerns that Putnam's reputation and stability would be
adversely impacted by recent allegations of improper trading practices by its
personnel, loss of certain significant accounts and assets under management, and
the turnover of key investment personnel; (ii) the trailing 12 month performance
of Putnam-managed mid-cap growth equity accounts is below other mid cap growth
accounts managed by Putnam's peers for a majority of periods over the past four
years and (iii) John Hancock's belief that, under all of the circumstances, the
Fund's new investment program with Independence Investment is the most
attractive option that is available to the Fund at this time. As Putnam did in
the past, Independence Investment will have day-to-day responsibility for
deciding what investments to purchase and sell for the Fund and for placing
orders for such transactions on behalf of the Fund.
The Investment Program that Independence Investment Intends to Follow for the
Fund
Independence Investment intends to follow an investment strategy for the
Fundamental Growth Fund that is substantially the same as the investment
strategy it now pursues for the Trust's Large Cap Growth Fund. Under that
strategy, the Fundamental Growth Fund will invest primarily in a mix of common
stocks of large U.S. companies that are believed to offer above-average
potential for long-term growth, which may be measured by factors such as
revenues or earnings. Under Independence Investment, John Hancock anticipates
that the Fundamental Growth Fund's investment program will be more focused on
"large cap" growth investing and not on a mix of "large cap" and "mid-cap"
growth investing. In this regard, the Fund will normally invest at least 80% of
its assets in companies with market capitalizations that are within the range of
capitalizations of companies in the Russell 1000(R) Growth Index or the Russell
1000(R) Index./1/
In keeping with the Fund's modified investment program, John Hancock anticipates
that the Fund will have less potential exposure to risks inherent in investing
in small and mid cap stocks and foreign securities. [In addition, John Hancock
anticipates that the Fund will normally have a lower volume of buying and
selling securities and less "turn-over" risk (i.e., the impact that brokerage
commissions involved with a high volume of investment transactions has on
performance). Nevertheless, the Fund's investment in securities of a smaller
number of issuers could produce more volatile performance relative to funds that
invest in a larger number of issuers.]
Comparative Performance Information
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/1/ The range of the market capitalization of the companies included in these
two indexes was from [$194] million to [$280 billion] at [December 31,2002].
6
Because Independence Investment will follow an investment program for the
Fundamental Growth Fund that is substantially the same as it has been following
for the Large Cap Growth Fund, the chart below compares the annual investment
performance records of the two Funds in recent years. The figures shown are
total return figures for each period that assume reinvestment of all dividends
and distributions. Past performance, of course does not indicate what
performance will be in the future.
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Annual Total Returns/2/
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1999 2000 2001 2002 2003
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Fundamental Growth Fund N/A/3/ -3.03%/3/ -32.23% -30.28% [ ]
--
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Large Cap Growth Fund 24.07% -17.89% -17.54% -27.82% [ ]
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Possible Future Plans for the Fundamental Growth Fund
After the shareholders have voted on this Proposal 1, the Board currently
intends, at a future meeting, to make a decision whether to merge the
Fundamental Growth Fund with the Large Cap Growth Fund. John Hancock and the
Board believe there could be substantial advantages to such a merger.
Assuming the shareholders vote to approve this Proposal 1, the Fundamental
Growth Fund (1) would (as discussed above) have the same sub-manager and be
following substantially the same investment program as that of the Large Cap
Growth Fund and (2) would be operating under investment management and
sub-management agreements that are substantially identical to those that are
also in place for the Large Cap Growth Fund, except that the investment
management fee for the Large Cap Growth Fund would be somewhat lower than that
for the Fundamental Growth Fund. Under such circumstances, a merger of the
Fundamental Growth Fund with the Large Cap Growth Fund would offer cost savings
and other advantages to investors in the Fundamental Growth Fund.
Such cost savings would result from the fact that the combined Funds would pay
the above-mentioned lower investment management fee level that is applicable to
the Large Cap Growth Fund, as well as the fact that the combined Funds would be
substantially larger than the Fundamental Growth Fund alone would be. (Based on
the sizes of the two funds as of December 31, 2003, the combined Funds would
have net assets of approximately $ million, whereas the Fundamental Growth
-----
Fund alone would have net assets of only $ million.) In addition to having
-----
lower investment management fee rates, the combined Funds would have other
operating expense efficiencies, with the effect that such other operating
expenses probably would
- ----------
/2/ The returns shown do not reflect the deduction of the fees and charges
payable under your variable annuity or variable life insurance Contract through
which you participate in the Trust. Such fees and charges would cause the
investment returns to be less than those shown.
/3/ From its inception on August 31, 1999 until August of 2000, the Fundamental
Growth Fund was named the "Fundamental Mid Cap Growth Fund" and was managed by a
sub-manager unrelated to either Putnam or Independence Investment.
7
be less than the net .10% per annum (after the above-described expense
reimbursement from John Hancock) that the Fundamental Growth Fund currently
bears. Also, a larger Fund could make it easier for Independence Investment to
formulate and implement investment decisions on the most effective and efficient
basis for the Fund.
John Hancock and the Board, however, have made no decision whether to pursue a
merger of the Fundamental Growth Fund with the Large Cap Growth Fund, and the
Board and John Hancock will consider all relevant facts and circumstances at the
time, in reaching any conclusion in that regard. This will include, among other
things, consideration of the shareholders' vote to approve the installation of
Independence Investment as the Fundamental Growth Fund's sub-manager, with the
resulting modification of the Fundamental Growth Fund to be substantially
identical to the Large Cap Growth Fund.
John Hancock and the Board, however, reserve the option of proceeding with
combination of the Fundamental Growth Fund and the Large Cap Growth Fund,
regardless of whether this Proposal 1 is approved. Moreover, it is possible that
any such combination of the two Funds could be accomplished under circumstances
where the Funds' shareholders have no right to vote on the combination.
Basis for the Trustees' Approval
At its December 10, 2003, meeting, the Board, including all the Trustees who are
not associated with John Hancock (the "Independent Trustees"), unanimously
approved a new Sub-Management Agreement, including the below-described modified
schedule of sub-investment management fees to be paid by John Hancock for the
Fundamental Growth Fund, and also recommended that owners approve the agreement.
In evaluating and approving the new agreement, the Board, including the
Independent Trustees and with the assistance of outside counsel to the Trust,
requested and evaluated information from John Hancock that was relevant to
whether the agreements would be in the best interests of the Fundamental Growth
Fund and the owners of its shares.
In making its decision to approve the new agreement, the Board considered
factors bearing on the nature, scope and quality of the services provided or to
be provided to the Fundamental Growth Fund, with a view toward making a business
judgment as to whether the proposal was, under all of the circumstances, in the
best interest of the Fund and owners of its shares.
The factors that the Trustees considered in selecting Independence Investment as
a new sub-manager for the Fundamental Growth Fund included, principally, the
following:
.. Independence Investment has a strong organization with experience and
significant resources (investment and operations personnel) dedicated to
intensive industry-specific fundamental research in large cap growth equity
portfolios.
.. Independence Investment has a disciplined and well-defined process for
investing in a multi-sector portfolio of large cap growth equity securities
that tracks specific benchmarks.
8
.. The Trust has had an overall favorable experience in dealing with
Independence Investment as a sub-manager to several of the Trust's other
Funds, and particularly the Large Cap Growth Fund.
.. Information supplied by John Hancock demonstrates that the Independence
Investment organization has shown a consistent long-term performance record
in managing large cap equity portfolios relative to its peers.
.. The similarity of the investment strategy proposed by Independence
Investment for the Fundamental Growth Fund to the investment strategy
currently utilized by Independence Investment for the Trust's Large Cap
Growth Fund may provide attractive opportunities in the future for both
Funds to combine assets (as discussed above under "Possible Future Plans
for the Fundamental Growth Fund").
John Hancock previously paid Putnam a sub-investment management fee at an annual
rate of 0.50% of the first $250 million of the Fund's average daily net assets,
and 0.45% for any additional amounts. Under the new Sub-Management Agreement
with Independence Investment, John Hancock will pay Independence Investment
0.30% of the first $500 million, 0.2625% of the next $500 million and 0.2250%
for any additional amounts. Under this new agreement with Independence
Investment, therefore, sub-investment management fees are lower than they were
with Putnam. Had the proposed rates been in effect during 2003, John Hancock
would have paid $ in sub-investment management fees, as compared with the
------
$ that it actually paid Putnam. This would have been a % decrease.
------- ----
The Board determined, however, that the retention of such additional amount of
"spread" by John Hancock is reasonable in light of:
.. The significant commitment of personnel and resources required of John
Hancock to support the investment management services provided to the Fund,
and the sophistication of the investment evaluation and monitoring process
used by John Hancock on behalf of the Fund.
.. The continued willingness of John Hancock to agree to limit total operating
expenses for the Fund.
.. The Board's favorable evaluation of the nature, quality and breadth of
investment management services provided by John Hancock to the Fund since
its inception.
.. The estimated profits to the Insurers, both under the current
sub-investment management fee schedule and the proposed new sub-investment
management fee schedule, from John Hancock's providing investment
management services to the Trust and from the Insurers' insurance products
which use the Trust as a funding medium.
.. The appropriateness (including benefits to the Fundamental Growth Fund) of
the Insurers' achieving an adequate level of profitability with respect to
the Trust and such products, which includes retaining an adequate "spread"
between the investment management fees received by John Hancock and the
sub-investment management fees paid by John Hancock.
.. The relationship of such spread as proposed for the Fundamental Growth Fund
to John Hancock's overall objectives and spreads for other Funds of the
Trust.
9
.. The possibility that, if the shareholders approve this Proposal 1, the
Fundamental Growth Fund will be combined with the Trust's Large Cap Growth
Fund, which has a lower investment management fee./4/
The Trustees, at their December 10, 2003 meeting, also were mindful that the
terms and structure of the new sub-management arrangements for the Fund were
essentially comparable to those already in effect with Independence Investment
for the Large Cap Growth Fund. Moreover, those arrangements with Independence
Investment, and much related information, had been reviewed by the Board in
connection with its regular annual evaluation of the Fund's management and
sub-management arrangements on February 5, 2003. Many of the same
considerations, therefore, were also relevant to the Board in connection with
its consideration of the Fund's new arrangements with Independence Investment.
In connection with their deliberations, the Trustees received legal advice from
outside counsel to the Trust regarding the standards and methodology of
evaluation established by the Securities and Exchange Commission, the courts and
the industry for mutual funds selling shares to the public and the applicability
of those standards and methodology to mutual funds - like the Trust - selling
shares to life insurance company separate accounts.
Based upon all of the information and advice available to them, the Trustees
considered the extent and quality of the services that John Hancock and
Independence Investment are expected to provide, directly or indirectly, to the
Fund, the costs and expenses to be borne by the Fund and John Hancock, and the
benefits accruing to the Fund, Independence Investment and John Hancock as a
result of their relationship. As a result of their consideration, the Trustees,
in the exercise of their business judgment, unanimously approved the new
sub-management arrangement as being in the best interests of the Fundamental
Growth Fund and of owners of its shares.
Other Terms of the Agreement
A summary of the new sub-management agreement is included as Appendix A to this
statement. The terms of that agreement also are substantially the same as those
of the corresponding temporary agreement currently in effect, except for the
duration thereof.
The new sub-management agreement does not impose greater liability or
obligations on the Fundamental Growth Fund or John Hancock in comparison to the
provisions of the sub-management agreement of the Fund with Putnam (dated
November 1, 2000). That agreement was initially approved by shareholders of the
Fund on September 28, 2000 and there have been no votes by shareholders of the
Fund since then with respect to that sub-management agreement.
Additional Information
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/4/ The Trust currently pays John Hancock a management fee for the Large Cap
Growth Fund equal to .80% of the first $500 million of that Fund's assets; .75%
of the next $500 million and .70% of additional amounts of that Fund's assets.
Based on December 31, 2003 asset levels, John Hancock's management fee would
decrease from an effective annual rate of [ %] to [ %]of average net assets in
-- --
the event of a combination of the two Funds.
10
John Hancock. John Hancock began providing investment advice to investment
companies in 1972 when it organized a management separate account, invested
primarily in common stocks, for the purpose of funding individual variable
annuity contracts. Both before and after that date, John Hancock established a
number of separate accounts investing in common stocks, public bonds, or other
securities in connection with the funding of variable annuities and group
annuity contracts. John Hancock is a wholly owned subsidiary of John Hancock
Financial Services, Inc., a publicly-held Delaware corporation organized in
February, 2000. The principal business of John Hancock Financial Services, Inc.
is located at John Hancock Place, Post Office Box 111, Boston, Massachusetts
02117.
Signator Investors, Inc. ("Signator"), a company affiliated with John Hancock,
acts as "principal underwriter" of the Trust's shares pursuant to an
Underwriting and Indemnity Agreement, dated May 1, 1997, to which John Hancock
and the Trust are parties. Under that agreement, Signator collects no additional
charges or commission in connection with its duties as principal underwriter.
Signator's address is 197 Clarendon Street, Boston, Massachusetts 02116.
Appendix B to this statement contains additional information concerning John
Hancock's Board of Directors and executive officers.
Independence Investment. Independence Investment began providing investment
advice in 1982 as a Delaware corporation. In 2001 it reorganized as a limited
liability company under the laws of the state of Delaware. Independence
Investment serves as an investment adviser and investment sub-adviser to a
number of institutional clients. It also serves as a sub-manager to other Funds
of the Trust. At December 31, 2003, Independence Investment managed
approximately $11.5 billion in assets for various clients.
The principal business office of Independence Investment is located at 53 State
Street, Boston Massachusetts 02109. Independence Investment is a wholly owned
subsidiary of Independence Management Holdings LLC ("IMH"), which is a wholly
owned subsidiary of John Hancock Subsidiaries LLC ("JHS"), which is a wholly
owned subsidiary of John Hancock. IMH and JHS have the same principal address as
John Hancock Financial Services, Inc.
Mark C. Lapman is the Chairman and President of Independence Investment.
Independence Investment manages the Fundamental Growth Fund with an investment
team that is overseen by Mr. Lapman and by John C. Forelli, a Senior Vice
President of Independence Investment. They are located at 53 State Street,
Boston Massachusetts 02109.
Appendix B to this statement contains further information about Independence
Investment's directors, and fees for services provided by Independence
Investment to comparable funds. Appendix E to this statement contains further
information about Independence Investment's policies in placing portfolio
transactions on behalf of the Fund.
Trustees' Recommendation
11
The Board believes that the sub-management agreement with Independence
Investment is in the best interests of the Fundamental Growth Fund and the
owners of its shares.
THE BOARD UNANIMOUSLY RECOMMENDS THAT OWNERS OF THE FUNDAMENTAL GROWTH FUND GIVE
INSTRUCTIONS TO VOTE FOR THE APPROVAL OF:
PROPOSAL 1 - THE SUB-MANAGEMENT AGREEMENT WITH INDEPENDENCE INVESTMENT
12
PROPOSAL 2 - LARGE CAP GROWTH B FUND
(formerly, "Large Cap Aggressive Growth" Fund)
APPROVAL OF NEW SUB-MANAGEMENT AGREEMENT WITH INDEPENDENCE
INVESTMENT LLC FOR THE LARGE CAP GROWTH B FUND
At its December 10, 2003 meeting, the Trust's Board of Trustees ("Board")
unanimously approved (a) the retention of Independence Investment LLC
("Independence Investment") to replace Janus Capital Management, LLC ("Janus")
as the sub-manager for the "Large Cap Aggressive Growth" Fund, and (b) changed
the Fund's name to "Large Cap Growth B" Fund. Independence Investment began its
service to the Large Cap Growth B Fund on December 15, 2003 under a temporary
agreement for a period generally limited to 150 days. Independence Investment is
an affiliate of John Hancock.
You are asked to approve a new sub-management agreement to replace the temporary
agreement, so that Independence Investment may continue indefinitely as the
Fund's sub-manager. The Board unanimously recommends that owners approve the new
agreement.
The Trust's Management Agreement with John Hancock
John Hancock serves as the overall investment manager for the Large Cap Growth B
Fund pursuant to an investment management agreement with the Trust dated July
28, 1999, as amended ("John Hancock 1999 Agreement"). As discussed below, the
only fees that you bear are those under the John Hancock 1999 Agreement, and
that agreement and those fees will not be changed by the current proposal.
As the investment manager, John Hancock, among other things, advises the Trust
in connection with policy decisions of the Fund; provides administration of the
Fund's day-to-day operations; provides personnel, office space, equipment and
supplies for the Fund; maintains records required by the Investment Company Act
of 1940; recommends retention (or termination) of sub-managers to the Fund, as
it deems advisable; supervises activities of the sub-manager; and supervises the
activities of other providers of services to the Trust.
For the services it provides, John Hancock receives compensation from the Large
Cap Growth B Fund at the annual rate of 1.00% of the first $10 million of the
Fund's average daily net assets, 0.875% of the next $10 million, plus 0.75% of
all additional amounts. These are the same rates as the Fund was paying when
Janus was the Fund's sub-manager.
Under the John Hancock 1999 Agreement, John Hancock is solely responsible for
the payment of all fees to sub-managers. Also, for any year in which the normal
operating costs and expenses of the Fund (exclusive of the investment management
fees, interest expense, brokerage commissions, taxes and extraordinary expenses
outside the control of John Hancock) exceed 0.10% of the Large Cap Growth B
Fund's average daily net assets, the John Hancock 1999 Agreement will continue
to provide that John Hancock will reimburse that Fund in an amount equal to such
excess. Accordingly, the change in the Large Cap Growth B Fund's sub-
13
management arrangements that you are being asked to approve has no effect on the
fees and other operating expenses you bear (either directly or indirectly).
Proposed Sub-Management Agreement
At its meeting on December 10, 2003, the Board, upon John Hancock's
recommendation, decided that the Fund's sub-management relationship with Janus
should be terminated and that Independence Investment should be appointed as a
successor.
The principal reasons for John Hancock's recommendation to replace the Fund's
sub-manager were (i) concerns that Janus' reputation and stability would be
adversely impacted by recent allegations of improper trading practices by its
personnel and the turnover of key investment personnel, including a chief
investment officer; and (ii) John Hancock's belief that, under all the
circumstances, the Fund's new investment program with Independence Investment is
the most attractive option that is available to the Fund at this time. As Janus
did in the past, Independence Investment will have day-to-day responsibility for
deciding what investments to purchase and sell for the Fund and for placing
orders for such transactions on behalf of the Fund.
The Investment Program that Independence Investment Intends to Follow for the
Fund
Independence Investment intends to follow an investment strategy for the Large
Cap Growth B Fund that is substantially the same as the investment strategy it
now pursues for the Trust's Large Cap Growth Fund. Under that strategy, the
Large Cap Growth B Fund will invest primarily in a mix of common stocks of large
U.S. companies that are believed to offer above-average potential for long-term
growth, which may be measured by factors such as revenues or earnings.
Under Independence Investment, John Hancock anticipates that the Large Cap
Growth B Fund's investment program will continue to be focused on the selection
and maintenance of a portfolio of securities of "large cap" U.S. companies. In
this regard, the Fund will normally invest at least 80% of its assets in
companies with market capitalizations that are within the range of
capitalizations of companies in the Russell 1000(R) Growth Index or the Russell
1000(R) Index./5/ Risk and sector characteristics of the portfolio, however, are
expected to be more oriented toward those of the Russell 1000(R) Growth
Index/6/. In keeping with the Fund's modified investment program, John Hancock
anticipates that the Fund will have less potential exposure to risks inherent in
investing in foreign securities and initial public offerings.
Comparative Performance Information
- ----------
/5/ The range of the market capitalization of the companies included in these
two indexes was from [$194] million to [$280] billion at [December 31, 2002.]
/6/ The weighted average market capitalization of companies included in this
index was [$85.9] billion at [December 31, 2002].
14
Because Independence Investment will follow an investment program for the Large
Cap Aggressive Growth Fund (now named "Large Cap Growth B Fund") that is
substantially the same as it has been following for the Large Cap Growth Fund,
the chart below compares the investment performance records of the two funds in
recent years. As noted in a footnote to the table, however, almost all of the
Large Cap Aggressive Fund's performance record was achieved by a sub-investment
manager unrelated to either Janus or Independence Investment, and this limits
the usefulness of any comparison. The figures shown are total return figures for
each period that assume reinvestment of all dividends and distributions. Past
performance, of course does not indicate what performance will be in the future.
- ---------------------------------------------------------------------------
Annual Total Returns /7/
- ----------------------------------------------------------------------------
1999 2000 2001 2002 2003
- ----------------------------------------------------------------------------
Large Cap Aggressive N/A/8/ -18.77%/7/ -14.69%/7/ -31.36%/7/ [ ]/7/
--
Growth Fund
- ----------------------------------------------------------------------------
Large Cap Growth Fund 24.07% -17.89% -17.54% -27.82% [ ]
--
- ----------------------------------------------------------------------------
Possible Future Plans for Large Cap Growth B Fund
After the shareholders have voted on this Proposal 2, the Board currently
intends, at a future meeting, to make a decision whether to merge the Large Cap
Growth B Fund (formerly the Large Cap Aggressive Growth Fund) with the Large Cap
Growth Fund. John Hancock and the Board believe there could be substantial
advantages to such a merger.
Assuming the shareholders vote to approve this Proposal 2, the Large Cap Growth
B Fund (1) would (as discussed above) have the same sub-manager and be following
substantially the same investment program as that of the Large Cap Growth Fund
and (2) would be operating under investment management and sub-management
agreements that are substantially identical to those that are also in place for
the Large Cap Growth B Fund, except that the investment management fee for the
Large Cap Growth B Fund would be somewhat higher than that for the Large Cap
Growth Fund. Under such circumstances, a merger of the Large Cap Growth B Fund
with the Large Cap Growth Fund would offer cost savings and other advantages to
investors in the Large Cap Growth B Fund.
Such cost savings would result from the fact that the combined Funds would pay
the above-mentioned lower management fee level that is applicable to the Large
Cap Growth Fund, as well as the fact that the combined Funds would be
substantially larger than the Large Cap B Fund alone would be. (Based on the
sizes of the two funds as of December 31, 2003, the combined Funds would have
net assets of approximately $ million, whereas the Large Cap Growth B
---------
- ----------
/7/ The returns shown do not reflect the deduction of the fees and charges
payable under your variable annuity or variable life insurance Contract through
which you participate in the Trust. Such fees and charges would cause the
investment returns to be less than those shown.
/8/ From its inception on August 31, 1999 until May of 2003, the Large Cap
Aggressive Growth Fund was managed by a sub-manager unrelated to either Janus or
Independence Investment.
15
Fund alone would have net assets of only $ million.) In addition to
-------
having lower investment management fee rates, the combined Funds would have
other operating expense efficiencies, with the effect that such other operating
expenses probably would be less than the net .10% per annum (after the
above-described expense reimbursement from John Hancock) that the Large Cap
Growth B Fund currently bears. Also, a larger Fund could make it easier for
Independence Investment to formulate and implement investment decisions on the
most effective and efficient basis for the Fund.
John Hancock and the Board, however, have made no decision whether to pursue a
merger of the Large Cap Growth B Fund with the Large Cap Growth Fund, and the
Board and John Hancock will consider all relevant facts and circumstances at the
time, in reaching any conclusion in that regard. This will include, among other
things, consideration of the shareholders' vote to approve the installation of
Independence Investment as the Large Cap Growth B Fund's sub-manager, with the
resulting modification of the Large Cap Growth B Fund to be substantially
identical to the Large Cap Growth Fund.
John Hancock and the Board, however, reserve the option of proceeding with
combination of the Large Cap Growth B Fund and the Large Cap Growth Fund,
regardless of whether this Proposal 2 is approved. Moreover, it is possible that
any such combination of the two Funds could be accomplished under circumstances
where the Funds' shareholders have no right to vote on the combination.
Basis for the Trustees' Approval
At its December 10, 2003, meeting, the Board, including all the Trustees who are
not associated with John Hancock (the "Independent Trustees"), unanimously
approved a new Sub-Management Agreement, including the below-described modified
schedule of sub-investment management fees to be paid by John Hancock for the
Large Cap Growth B Fund, and also recommended that owners approve the agreement.
In evaluating and approving the new agreement, the Board, including the
Independent Trustees and with the assistance of outside counsel to the Trust,
requested and evaluated information from John Hancock that was relevant to
whether the agreements would be in the best interests of the Large Cap Growth B
Fund and the owners of its shares.
In making its decision to approve the new agreement, the Board considered
factors bearing on the nature, scope and quality of the services provided or to
be provided to the Large Cap Growth B Fund, with a view toward making a business
judgment as to whether the proposal was, under all of the circumstances, in the
best interest of the Fund and owners of its shares.
The factors that the Trustees considered in selecting Independence Investment as
a new sub-manager for the Large Cap Growth B Fund included, principally, the
following:
.. Independence Investment has a strong organization with experience and
significant resources (investment and operations personnel) dedicated to
industry-specific fundamental research in large cap growth equity
portfolios.
16
.. Independence Investment has a disciplined and well-defined process for
investing in a broadly diversified portfolio of large cap growth equity
securities that tracks specific benchmarks.
.. The Trust has had an overall favorable experience in dealing with
Independence Investment as a sub-manager to several of the Trust's other
Funds, and particularly the Large Cap Growth Fund.
.. Information supplied by John Hancock demonstrates that the Independence
Investment organization has shown a consistent long-term performance record
in managing large cap equity portfolios relative to its peers.
.. The similarity of the investment strategy proposed by Independence
Investment for the Large Cap Growth B Fund to the investment strategy
currently utilized by Independence Investment for the Trust's Large Cap
Growth Fund may provide attractive opportunities in the future for both
Funds to combine assets (as discussed above under "Possible Future Plans
for the Large Cap Growth B Fund").
John Hancock previously paid Janus a sub-investment management fee at an annual
rate of 0.55% of the first $100 million of the Fund's average daily net assets,
0.50% of the next $400 million and 0.45% for any additional amounts. Under the
new Sub-Management Agreement with Independence Investment, John Hancock will pay
Independence Investment 0.30% of the first $500 million, 0.2625% of the next
$500 million and 0.2250% for any additional amounts. Under this new agreement
with Independence Investment, therefore, sub-investment management fees are
lower than they were with Janus. Had the proposed rates been in effect during
2003, John Hancock would have paid $ in sub-investment management fees, as
------
compared with the $ that it actually paid Janus. This would have been a
-------
% decrease. The Board determined, however, that the retention of such
- ----
additional amount of "spread" by John Hancock is reasonable in light of:
.. The significant commitment of personnel and resources required of John
Hancock to support the investment management services provided to the Fund,
and the sophistication of the investment evaluation and monitoring process
used by John Hancock on behalf of the Fund.
.. The continued willingness of John Hancock to agree to limit total operating
expenses for the Fund.
.. The Board's favorable evaluation of the nature, quality and breadth of
investment management services provided by John Hancock to the Fund since
its inception.
.. The estimated profits to the Insurers, both under the current
sub-investment management fee schedule and the proposed new sub-investment
management fee schedule, from providing investment management services to
the Trust and from the Insurers' insurance products which use the Trust as
a funding medium.
.. The appropriateness (including benefits to the Large Cap Growth B Fund) of
the Insurers' achieving an adequate level of profitability with respect to
the Trust and such products,
17
which includes retaining an adequate "spread" between the investment
management fees received by John Hancock and the sub-investment management
fees paid by John Hancock.
.. The relationship of such spread as proposed for the Large Cap Growth B Fund
to John Hancock's overall objectives and spreads for other Funds of the
Trust.
.. The possibility that, if shareholders approve this Proposal 2, the Large
Cap Growth B Fund will be combined with the Trust's Large Cap Growth Fund,
which has a lower investment management fee./9/
The Trustees, at their December 10, 2003 meeting, also were mindful that the
terms and structure of the new sub-management arrangements for the Fund were
essentially comparable to those already in effect with Independence Investment
for the Large Cap Growth Fund. Moreover, those arrangements with Independence
Investment, and much related information, had been reviewed by the Board in
connection with its regular annual evaluation of the Fund's management and
sub-management arrangements on February 5, 2003. Many of the same
considerations, therefore, were also relevant to the Board in connection with
its consideration of the Fund's new arrangements with Independence Investment.
In connection with their deliberations, the Trustees received legal advice from
outside counsel to the Trust regarding the standards and methodology of
evaluation established by the Securities and Exchange Commission, the courts and
the industry for mutual funds selling shares to the public and the applicability
of those standards and methodology to mutual funds - like the Trust - selling
shares to life insurance company separate accounts.
Based upon all of the information and advice available to them, the Trustees
considered the extent and quality of the services that John Hancock and
Independence Investment are expected to provide, directly or indirectly, to the
Fund, the costs and expenses to be borne by the Fund and John Hancock, and the
benefits accruing to the Fund, Independence Investment and John Hancock as a
result of their relationship. As a result of their consideration, the Trustees,
in the exercise of their business judgment, unanimously approved the new
sub-management arrangement as being in the best interests of the Large Cap
Growth B Fund and of owners of its shares.
Other Terms of the Agreement
A summary of the new sub-management agreement is included as Appendix A to this
statement. The terms of that agreement also are substantially the same as those
of the corresponding temporary agreement currently in effect, except for the
duration thereof.
The new sub-management agreement does not impose greater liability or
obligations on the Large Cap Growth B Fund or John Hancock in comparison to the
provisions of the previous sub-
- ----------
/9/ The Trust currently pays John Hancock a management fee for the Large Cap
Growth Fund equal to .80% of the first $500 million of that Fund's assets; .75%
of the next $500 million and .70% of additional amounts of that Fund's assets.
Based on December 31, 2003 asset levels, John Hancock's management fee would
decrease from [ %] to[ ]% of average assets in the event of a combination of
-- --
the two Funds.
18
management agreement of the Fund with Janus dated August 1, 2003./10/ That
agreement was approved by the Trustees at its meeting held on February 5, 2003.
There have been no votes by shareholders of the Large Cap Growth B Fund since
then with respect to the Fund's sub-management arrangements.
Additional Information About John Hancock and Independence Investment
See Proposal 1 for further information about John Hancock and Independence
Investment.
Independence Investment manages the Large Cap Growth B Fund with an investment
team that is overseen by Mr. Lapman and by John C. Forelli, a Senior Vice
President of Independence Investment. They are located at 53 State Street,
Boston Massachusetts 02109. Appendix B to this statement contains a list of
Independence Investment's directors and information about fees for services
provided by Independence Investment to comparable funds. Appendix E to this
statement contains further information about Independence Investment's policies
in placing portfolio transactions on behalf of the Fund.
Trustees' Recommendation
The Board believes that the sub-management agreement with Independence
Investment is in the best interests of the Large Cap Growth B Fund and the
owners of its shares.
THE BOARD UNANIMOUSLY RECOMMENDS THAT OWNERS OF THE LARGE CAP GROWTH B FUND GIVE
INSTRUCTIONS TO VOTE FOR THE APPROVAL OF:
PROPOSAL 2 - THE SUB-MANAGEMENT AGREEMENT WITH INDEPENDENCE INVESTMENT
- ----------
/10/ No shareholder vote was legally required (or obtained) to approve that
agreement. That agreement replaced a temporary sub-management agreement with
Janus dated May 1, 2003.
19
PROPOSAL 3 - INTERNATIONAL OPPORTUNITIES FUND
APPROVAL OF AN AMENDMENT TO THE MANAGEMENT AGREEMENT FOR
THE INTERNATIONAL OPPORTUNITIES FUND
At its December 10, 2003 meeting, the Trust's Board of Trustees ("Board")
unanimously approved, and recommended that owners approve, an amendment to the
management agreement with John Hancock for the International Opportunities Fund.
The proposed amendment would delete John Hancock's contractual obligation to
reimburse the International Opportunities Fund when certain expenses of the Fund
exceed 0.10% per annum of the Fund's average daily net assets. At the same
meeting, the Board approved John Hancock's recommendations to change the
sub-manager of the Fund and the Fund's investment strategies to match those of
the Trust's Overseas Equities Fund. It is proposed that all of these proposals
for the Fund that the Board approved at its December 10, 2003 meeting, which are
explained in more detail in the balance of this Proposal 3, would take effect on
or about May 3, 2004.
The proposed amendment to the management agreement must be approved by
shareholders of the Fund before it can go into effect./11/ If the amendment to
the management agreement had been in effect during 2003 for the Fund, the ratio
of total expenses to average daily net assets [through November 30, 2003] would
have been [1.37%] rather than [1.22%]. John Hancock expects the actual total
expense ratio will be less than [1.37%] in the future, however, as a result of
anticipated custodial fee reductions. The amendment to the International
Opportunities Fund's management agreement that you are being asked to approve
pursuant to this Proposal 3 is independent of the other changes for the
International Opportunities Fund that are mentioned above. Thus, if this
Proposal 3 is approved, it will go into effect regardless of whether those other
changes ultimately are implemented.
John Hancock's Management Agreement with the Trust
John Hancock serves as the overall investment manager for the International
Opportunities Fund pursuant to an investment management agreement with the Trust
dated April 14, 1998, as amended ("John Hancock 1998 Agreement"). As the
investment manager, John Hancock, among other things, advises the Trust in
connection with policy decisions of the Fund; provides administration of the
Fund's day-to-day operations; provides personnel, office space, equipment and
supplies for the Fund; maintains records required by the Investment Company Act
of 1940; recommends retention (or termination) of sub-managers to the Fund, as
it deems advisable; supervises activities of the sub-manager; and supervises the
activities of other providers of services to the Trust.
For the services it provides, John Hancock receives compensation from the
International Opportunities Fund at the annual rate of 1.30% of the first $20
million of the Fund's average
- ----------
/11/ We are not asking you to vote on a new sub-management agreement because,
like many other mutual funds, the Trust has obtained an order from the
Securities and Exchange Commission that generally makes such votes unnecessary
for sub-managers that are not affiliated with John Hancock. The SEC order
requires John Hancock and the Trust to provide owners with an information
statement that describes the reasons for a change in sub-managers. The
applicable information statement will be sent to owners under separate cover.
20
daily net assets, 1.15% of the next $30 million, plus 1.05% of all additional
amounts. No change is being proposed for these fee rates. Under John Hancock
1998 Agreement, John Hancock is solely responsible for the payment of all fees
to sub-managers.
Also, for any year in which the normal operating costs and expenses of the Fund
(exclusive of the management fees, interest expense, brokerage commissions,
taxes and extraordinary expenses outside the control of John Hancock) exceed
0.10% of the International Opportunities Fund's average daily net assets, the
John Hancock 1998 Agreement provides that John Hancock will reimburse that Fund
in an amount equal to such excess. It is this 0.10% expense "cap" provision that
this Proposal 3 seeks to eliminate.
The John Hancock 1998 Agreement was last approved by the shareholders of the
International Opportunities Fund on September 5, 2001 in connection with a
proposal to increase the investment management fees paid to John Hancock.
John Hancock's Reasons for Proposed Change in the Management Agreement
After conducting a review of the International Opportunities Fund's operating
expenses in comparison with other funds, John Hancock noted the following:
.. Funds that (like the International Opportunities Fund) invest primarily in
foreign securities generally incur higher operating expenses than domestic
funds due to a variety of factors, such as the use of foreign custodians
and depositories, foreign trading practices, and lower volume of trades in
less developed markets.
.. John Hancock's contractual obligation to reimburse the Fund for normal
operating expenses associated with investments in foreign securities is
unusual, and many of the Fund's peers that are not part of the Trust do not
have an expense "cap."
.. Over the past three years, John Hancock's reimbursements to the
International Opportunities Fund due to the expense cap substantially
reduced the management fees retained by John Hancock after payment of the
sub-investment management fee to the Fund's sub-manager.
.. The expense cap, therefore, has contributed to a situation in which John
Hancock's level of compensation is not high enough to allow John Hancock to
continue to support the Fund on a long-term basis in the manner that it has
in the past.
.. The International Opportunities Fund's focus on foreign investments, and
the Fund's prospects for growth, make it unlikely that the Fund's operating
expenses would fall below the expense cap for the foreseeable future.
.. Other expenses directly incurred by John Hancock, such as those associated
with client servicing and communication, have increased with the
development of internet-based information systems and asset allocation
tools.
21
As a result of this review and analysis, John Hancock discussed with the Board
the need to make the Fund more economically viable for John Hancock to continue
using the International Opportunities Fund as an investment option in the
Insurers' variable products.
Specifically, with respect to the International Opportunities Fund, John Hancock
proposed that:
.. The John Hancock 1998 Management Agreement should be amended to delete John
Hancock's obligation to reimburse the Fund for "other Fund operating
expenses" over the 0.10% expense cap. In making this proposal, John Hancock
noted that the elimination of its contractual obligation to reimburse the
Fund for certain operating expenses would not preclude John Hancock from
making such reimbursements on a voluntary basis in the future, although it
has no current plans to do so.
.. The Fund should continue as an international stock fund, but with a
different sub-manager. John Hancock recommended that the Fund employ
Capital Guardian Trust Company ("Capital Guardian"), the current
sub-manager for the Trust's Overseas Equity Fund, as the new sub-manager.
This proposal was based on John Hancock's assessment of the strength and
depth of Capital Guardian's resources and capabilities and the investment
performance of the Overseas Equity Fund under Capital Guardian. John
Hancock also proposed that Capital Guardian would manage the International
Opportunities Fund using substantially the same investment program that it
currently uses for the Overseas Equity Fund. Under Capital Guardian, John
Hancock anticipates that the International Opportunities Fund's investment
program will continue to be focused on the selection and maintenance of a
portfolio of equity securities of large established and medium-sized
foreign companies located outside the U.S., primarily in developed
companies and in emerging markets to a lesser extent.
.. John Hancock would pay a sub-investment management fee to Capital Guardian
equal to an annual rate of 0.60% of the first $300 million of the Fund's
average daily net assets, 0.45% on the next $200 million and 0.40% of all
average daily net assets over $500 million. Because, at the Fund's current
asset level, these fees are would be somewhat higher than the fees John
Hancock pays the International Opportunities Fund's current sub-manager12,
the amount of "spread" that John Hancock would be able to retain from the
investment management fee that it receives from the International
Opportunities Fund would be somewhat decreased.
Basis for the Trustees' Recommendation
At its meeting held on December 10, 2003, the Board, including all of the
Trustees who are not associated with John Hancock (the "Independent Trustees"),
unanimously approved the proposed
- ----------
/12/ John Hancock pays the Fund's current sub-manager, T. Rowe Price
International, Inc. ("T. Rowe International"), 0.75% on the first $20 million of
the Fund's average daily net assets, 0.60% on the next $30 million, 0.50% on the
next $150 million, 0.50% on all assets when the Fund is more than $200 million
but less than $500 million, and 0.45% on all assets when the Fund is above $500
million. In addition, T. Rowe International voluntarily waives a percentage of
its fee when all Trust assets managed by T. Rowe International and its
affiliates exceed certain designated aggregate amounts. At December 31, 2003,
the Fund's net assets were approximately [$120 million].
22
amendment to the John Hancock 1998 Management Agreement for the International
Opportunities Fund, and also recommended that owners approve the amendment.
In evaluating and approving the amendment, the Board, including the Independent
Trustees and with the assistance of outside counsel to the Trust, requested and
evaluated information from John Hancock that was relevant to whether the
amendment would be in the best interests of the International Opportunities Fund
and the owners of its shares.
In making its decision to approve the proposed amendment, the Board considered
factors bearing on the nature, scope, quality and profitability to John Hancock
of the services provided to the International Opportunities Fund, with a view
toward making a business judgment as to whether the proposed elimination of John
Hancock's contractual obligation to reimburse the Fund is, under all of the
circumstances, in the best interests of the Fund and owners of its shares.
In approving this change, the Trustees considered various factors and, in their
business judgment, reached various conclusions, principally including the
following:
.. The nature, quality and breadth of investment management services provided
by John Hancock to the Fund over the years has been favorable, as
demonstrated by:
(a) John Hancock's significantly increased commitment of personnel and
resources, since the inception of the Fund, to support the investment
management services provided to the Fund; and
(b) the increased sophistication of the sub-manager evaluation and
monitoring process used by John Hancock on behalf of the Fund.
.. The Trustees believed that there is a need to allow John Hancock to retain
sufficient revenues to incentivize John Hancock, within the competitive
variable insurance marketplace, to promote the Fund either as a discrete
series of the Trust or in combination with other international or global
series of the Trust, as a funding medium for variable insurance products
that the Insurers may market in the future.
.. The Trustees considered information from John Hancock about the overall
profitability to the Insurers of the variable insurance products funded
through the Trust, including profits to John Hancock from serving as the
Trust's primary investment manager. They also considered information
provided by John Hancock about the difficulties of quantifying the cost and
profitability of the advisory function separately from the aggregate cost
and profitability of all of the functions performed by the Insurers to
develop, offer, and maintain the products. The Trustees concluded that,
particularly in view of the interdependence of the Fund and the variable
insurance products that it supports, the aggregate profitability
information the Trustees received was appropriate for purposes of their
deliberations.
.. The Trustees considered how the "spread" between the Fund's management fee
and sub-investment management fee would (even if the expense cap were
eliminated) relate to John Hancock's overall objectives and spreads for
other Funds of the Trust.
23
.. The Trustees believed that retention of Capital Guardian will increase the
potential for improved investment performance by the International
Opportunities Fund, and recognized that it will also result in John Hancock
retaining somewhat less of its management fee following John Hancock's
payment of sub-investment management fees to the sub-manager.
.. The similarity of the investment strategy proposed by John Hancock for the
International Opportunities Fund to the investment strategy currently
utilized by Capital Guardian for the Trust's Overseas Equity Fund (as well
as to the investment strategy proposed by John Hancock for the Emerging
Markets Equity Fund, as described in Proposal 4) may provide attractive
opportunities in the future for these Funds to combine assets./13/ Any such
future combination could result in economies of scale and other benefits
that could be of direct or indirect economic benefit to Contract owners
participating in the International Opportunities Fund.
.. Based on information supplied by John Hancock with respect to anticipated
reductions in the Fund's expenses related to renegotiated custodial fees,
the Trustees concluded that the Fund's operating expenses likely would be
reduced in future years, relative to what they otherwise would have been.
The Trustees were mindful, however, that the amount of such anticipated
reductions were not capable of quantification with any degree of precision
at the present time.
In connection with their deliberations, the Trustees received legal advice from
outside counsel to the Trust regarding the standards and methodology of
evaluation established by the SEC, the courts and the industry for mutual funds
selling shares to the public and the applicability of those standards and
methodology to mutual funds - like the Trust - selling shares to life insurance
company separate accounts. Such legal counsel, through its representation of
John Hancock on certain matters in which the Trust does not have a direct
interest, is also familiar with Insurers' variable insurance products and
Accounts funded through the Trust.
As a result of their consideration, the Trustees, in the exercise of their
business judgment, unanimously approved the proposed amendment to the John
Hancock 1998 Agreement as being in the best interests of the International
Opportunities Fund and owners of its shares.
The Proposed Amendment
The proposed amendment would delete current provisions in the John Hancock 1998
Management Agreement that require John Hancock to reimburse the International
Opportunities Fund for certain operating expenses when the expenses exceed an
amount equal to 0.10% of the Fund's average daily net assets. In all other
respects, the John Hancock 1998 Management Agreement will remain unchanged with
respect to the Fund. Appendix A to this proxy statement provides additional
information about the John Hancock 1998 Management Agreement.
- ----------
/13/ Although the Trustees did not approve a combination of any of these Funds
at the meeting, they expect to consider such a combination at a future Board
meeting.
24
The following table provides a comparison of the Fund's actual expense ratios
for 2003 with expense ratios that would have resulted if the proposed amendment
for the International Opportunities Fund had been in effect during the year
2003. The table is based on the International Opportunities Fund's average net
assets during the year 2003 and shows (1) the current annualized level of all
fees and operating expenses for the International Opportunities Fund [through
November 30, 2003]; and (2) the pro-forma annualized level of all fees and
operating expenses that would have been incurred by the Fund [through November
30, 2003] under the proposed amendment. The table does not reflect separate
account expenses, including sales load and other contract-level expenses. The
table also does not reflect anticipated reductions in the Fund's expenses as a
result of renegotiated custodial fees. /14/
- --------------------------------------------------------------------
Current Pro-Forma
------- ---------
Management fees [1.12%] [1.12%]
-----
Distribution and Service (12b-1) Fees None None
Other Operating Expenses Absent Reimbursement [0.25%] [0.25%]
------- -----
Total Fund Expenses Absent Reimbursement [1.37%] [1.37%]
Expense Reimbursement (including fee waivers) [( 0.15%)] (0.00%)
------- -----
Total Fund Expenses After Reimbursement [1.22%] [1.37%]
-----
- --------------------------------------------------------------------
Example: The following Example is intended to help compare the cost of investing
in the International Opportunities Fund under the current management fee
schedule with the cost of investing in the International Opportunities Fund
under the proposed amendment. The Example assumes that $10,000 is invested in
the International Opportunities Fund at the beginning of the time period
indicated, that the investment has a 5% return each year, and that the
International Opportunities Fund's operating expenses remain the same./15/
One Three Five Ten
Year Years Years Years
---- ----- ----- -----
Although actual costs may be higher or lower, under the current
Management Agreement, the costs would be: $ $ $ $
Although actual costs may be higher or lower, under the proposed
amendment to the Management Agreement, the costs would be: $ $ $ $
The Example does not reflect any charges imposed under a variable insurance or
variable annuity product. If these charges were included, the costs shown would
be higher. The Example also does not reflect anticipated reductions in the
Fund's expenses as a result of renegotiated custodial fees. If these reductions
were included, the costs shown would be lower.
- ----------
/14/ John Hancock estimates that renegotiated custodial fees may result in
future annual reductions in operating expenses for the Fund ranging from [0.04%]
to [0.06%], based on the Fund's net assets at December 31. 2003. Actual expense
reductions for any period, if any, may be greater, equal to, or less than those
within the range estimated by John Hancock.
/15/ Because shares of International Opportunities Fund are bought and sold
without sales charges, the costs shown in the Example would be the same at the
end of the time period indicated, whether or not the shares were redeemed at
that time.
25
Additional Information
See Proposal 1 and Appendix B of this proxy statement for further information
about John Hancock, its Board of Directors and executive officers, and
management fees for comparable funds managed by John Hancock. Appendix E to this
statement contains further information about Capital Guardian's policies in
placing portfolio transactions on behalf of the Fund.
Trustees' Recommendation
The Board unanimously believes that the amendment to the investment management
agreement is in the best interests of the International Opportunities Fund and
owners of its shares.
THE BOARD UNANIMOUSLY RECOMMENDS THAT OWNERS OF THE INTERNATIONAL OPPORTUNITIES
FUND GIVE INSTRUCTIONS TO VOTE FOR APPROVAL OF:
PROPOSAL 3 - AN AMENDMENT TO THE JOHN HANCOCK 1998 MANAGEMENT AGREEMENT
26
PROPOSAL 4 - EMERGING MARKETS EQUITY FUND
APPROVAL OF AN AMENDMENT TO THE MANAGEMENT AGREEMENT FOR
THE EMERGING MARKETS EQUITY FUND
At its December 10, 2003 meeting, the Trust's Board of Trustees ("Board")
unanimously approved, and recommended that owners approve, an amendment to the
management agreement with John Hancock for the Emerging Markets Equity Fund. The
proposed amendment would (a) reduce the management fee paid by the Trust to John
Hancock and (b) delete John Hancock's contractual obligation to reimburse the
Emerging Markets Equity Fund when certain expenses of the Fund exceed 0.10% per
annum of the Fund's average daily net assets. At the same time, the Board
approved John Hancock's recommendations to change the sub-manager of the Fund
and the Fund's investment strategies to match those of the Trust's Overseas
Equities Fund. It is proposed that all of these proposals for the Fund that the
Board approved at its December 10, 2003 meeting, which are explained in more
detail on the balance of this Proposal 4, would take effect on or about May 3,
2004.
The proposed amendment to the management agreement must be approved by
shareholders of the Fund before it can go into effect./16/ If the amendment to
the management agreement had been in effect during 2003 for the Fund, (i) the
Fund would have paid a management fee to John Hancock of $ , rather than
---------
the $ paid under the current investment management agreement, without
-------
reduction for expense reimbursements paid by John Hancock to the Fund (a %
---
decrease), and (ii) the ratio of total expenses to average daily net assets
[through November 30, 2003] would have been [1.69%] rather than [1.58%]. John
Hancock expects the actual total expense ratio to be less than 1.69% in the
future, however, as a result of the Fund's modified investment strategy and
anticipated reductions in custodial fees. The amendment to the Emerging Market
Equity Fund's management agreement that you are being asked to approve pursuant
to this Proposal 4 is independent of the other changes for the International
Opportunities Fund that are mentioned above. Thus, if this Proposal 4 is
approved, it will go into effect regardless of whether those other changes
ultimately are implemented.
John Hancock's Management Agreement with the Trust
John Hancock serves as the overall investment manager for the Emerging Markets
Equity Fund pursuant to an investment management agreement with the Trust dated
April 14, 1998, as amended ("John Hancock 1998 Agreement"). As the investment
manager, John Hancock, among other things, advises the Trust in connection with
policy decisions of the Fund; provides administration of the Fund's day-to-day
operations; provides personnel, office space, equipment and supplies for the
Fund; maintains records required by the Investment Company Act of 1940;
recommends retention (or termination) of sub-managers to the Fund, as it deems
advisable;
- ----------
/16/ We are not asking you to vote on a new sub-management agreement because,
like many other mutual funds, the Trust has obtained an order from the
Securities and Exchange Commission that generally makes such votes unnecessary
for sub-managers that are not affiliated with John Hancock. The SEC order
requires John Hancock and the Trust to provide owners with an information
statement that describes the reasons for a change in sub-managers. The
applicable information statement will be sent to owners under separate cover.
27
supervises activities of the sub-manager; and supervises the activities of other
providers of services to the Trust.
Under the John Hancock 1998 Agreement, John Hancock is solely responsible for
the payment of all fees to sub-managers. Also, for any year in which the normal
operating costs and expenses of the Fund (exclusive of the management fees,
interest expense, brokerage commissions, taxes and extraordinary expenses
outside the control of John Hancock) exceed 0.10% of the Emerging Markets Equity
Fund's average daily net assets, the John Hancock 1998 Agreement provides that
John Hancock will reimburse that Fund in an amount equal to such excess.
The John Hancock 1998 Agreement was last approved by the shareholders of the
Emerging Markets Equity Fund on September 5, 2001 in connection with a proposal
to increase the management fees paid to John Hancock.
John Hancock's Reasons for Proposed Changes in the Management Agreement
After conducting a review of the Emerging Markets Equity Fund's operating
expenses in comparison with other funds, John Hancock noted the following:
.. Funds that invest primarily in foreign securities generally incur higher
operating expenses than domestic funds due to a variety of factors, such as
the use of foreign custodians and depositories, foreign trading practices,
and lower volume of trades in less developed markets. Funds that (like the
Emerging Markets Equity Fund) focus foreign investments primarily in
developing or emerging markets generally incur even higher operating
expenses than funds investing in more developed foreign markets
.. John Hancock's contractual obligation to reimburse the Fund for normal
operating expenses associated with investments in foreign securities is
unusual, and many of the Fund's peers that are not part of the Trust do not
have an expense "cap."
.. Over the past three years, John Hancock's reimbursements to the Emerging
Markets Equity Fund due to the expense cap actually exceeded the management
fees retained by John Hancock after payment of the sub-investment
management fee to the Fund's sub-manager, resulting in a net loss to John
Hancock.
.. The Emerging Market Equity Fund's focus on investments in companies
economically linked to emerging or developing nations, and the Fund's
prospects for growth, make it unlikely that the Fund's operating expenses
would fall below the expense cap for the foreseeable future.
.. Other expenses directly incurred by John Hancock, such as those associated
with client servicing and communication, have increased with the
development of internet-based information systems and asset allocation
tools.
.. The current expense cap has combined with other factors to create a
situation in which John Hancock's level of compensation is not high enough
to allow John Hancock to continue to
28
support the Emerging Markets Equity Fund on a long term basis in the manner
that it has in the past.
As a result of this review and analysis, John Hancock discussed with the Board
the need to restructure the Fund to make it an economically viable component of
the international Funds that John Hancock offers as investment options in the
Insurers' variable products.
Specifically, with respect to the Emerging Markets Fund, John Hancock proposed
that:
.. The John Hancock 1998 Management Agreement should be amended to: (a) reduce
the management fee John Hancock receives from the Fund and (b) delete John
Hancock's obligation to reimburse the Fund for "other Fund operating
expenses" over the 0.10% expense cap. In making these proposals, John
Hancock noted that the elimination of its contractual obligation to
reimburse the Fund for certain operating expenses would not preclude John
Hancock from making such reimbursements on a voluntary basis in the future,
although it has no current plans to do so.
.. The Fund should employ Capital Guardian Trust Company ("Capital Guardian"),
the current sub-manager for the Trust's Overseas Equity Fund, as the new
sub-manager based on John Hancock's assessment of the strength and depth of
Capital Guardian's resources and capabilities and the investment
performance of the Overseas Equity Fund under Capital Guardian.
.. The Fund would continue as an international stock fund, but with a revised
investment strategy that places less focus on companies economically linked
to emerging or developing nations. Specifically, John Hancock proposed that
Capital Guardian would manage the Emerging Markets Equity Fund using
substantially the same investment program that it currently uses for the
Overseas Equity Fund. Under Capital Guardian, John Hancock anticipates that
the Emerging Markets Equity Fund's investment program will be more focused
on the selection and maintenance of a portfolio of equity securities of
large established and medium-sized foreign companies located primarily in
developed companies outside the U.S. and in emerging markets to a lesser
extent. In keeping with the Fund's modified investment program, John
Hancock anticipates that the Fund will have less potential exposure to
risks inherent in investing in emerging market countries and initial public
offerings. In addition, John Hancock anticipates that the Fund will
normally have a lower volume of buying and selling securities, less
"turn-over" risk (i.e., the impact that brokerage commissions involved with
a high volume of investment transactions has on performance).
.. John Hancock would pay a sub-investment management fee to Capital Guardian
equal to an annual rate of 0.60% of the first $300 million of the Fund's
average daily net assets, 0.45% on the next $200 million and 0.40% of all
average daily net assets over $500 million. Because these fees would be
lower than John Hancock pays the Emerging Markets Equity
29
Fund's current sub-manager/17/, the amount of "spread" that John Hancock
would be able to retain from the investment management that it receives
from the Fund would be increased.
Possible Future Plans for the Emerging Markets Equity Fund
After shareholders have voted on this Proposal 4, the Board currently intends,
at a future meeting, to make a decision whether to combine the assets of the
Emerging Markets Growth Fund with one or both of the following other Funds of
the Trust: the Overseas Equity Fund and the International Opportunities Fund.
John Hancock and the Board believe there could be substantial advantages to a
combination of these three Funds (the "Combining Funds").
Each of the Combining Funds will be substantially identical to each of the other
Combining Funds, if (a) the shareholders of the Emerging Markets Equity Fund
approve this Proposal 4 and (b) the shareholders of the other two Combining
Funds approve Proposals 3 and 5 contained in this same statement. Specifically,
all of the Combining Funds will (a) be sub-managed by Capital Guardian, (b) be
following substantially identical investment programs, and (c) have
substantially identical investment management and sub-management agreements
(including the advisory and sub-advisory fees payable thereunder).
Under such circumstances, a combination of the three Funds would offer potential
cost savings and other advantages to investors in the Emerging Markets Equity
Fund. Such cost savings could result from the fact that the combined funds would
be larger than any of the Combining Funds would be alone. (As of December 31,
2003, the net assets of the Emerging Markets Equity, Overseas Equity and
International Opportunities Funds totaled approximately $ million, $
----- -----
million and $ million, respectively.) The operating expenses of the
-----
Combined Funds would be lower (as a percentage of the combined net assets) than
if the Funds remained separate. Also, the larger Fund that results from
combining such assets could make it easier for Capital Guardian to formulate and
implement investment decisions on the most effective and efficient basis for the
Fund.
John Hancock and the Board, however, have made no decision whether to pursue the
combination of all or any two of the Combining Funds; and the Board and John
Hancock will consider all relevant facts and circumstances at the time in
reaching any conclusion in that regard. This will include, among other things,
consideration of whether any or all of Proposals 3, 4 or 5 in this statement are
approved. Nevertheless, John Hancock and the Board reserve the option of
proceeding with a combination of any or all of the Combining Funds, regardless
of whether any or all of such proposals are approved. Moreover, it is possible
that any such combination could be accomplished under circumstances where the
affected Funds' shareholders have no right to vote on that combination.
Basis for the Trustees' Recommendation
- ----------
/17/ John Hancock pays the Fund's current sub-manager, Morgan Stanley Investment
Management Inc. (we sometimes refer to this sub-manager as "Van Kampen"), a
sub-investment management fee for the Emerging Markets Fund equal to 1.10% of
the first $10 million of the Fund's average daily net assets, 0.90% of the next
$140 million and 0.80% of any additional amounts.
30
At its meeting held on December 10, 2003, the Board, including all of the
Trustees who are not associated with John Hancock (the "Independent Trustees"),
unanimously approved the proposed amendment to the John Hancock 1998 Management
Agreement for the Emerging Markets Equity Fund, and also recommended that owners
approve the amendment.
In evaluating and approving the amendment, the Board, including the Independent
Trustees and with the assistance of outside counsel to the Trust, requested and
evaluated information from John Hancock that was relevant to whether the
amendment would be in the best interests of the Emerging Markets Equity Fund and
the owners of its shares.
In making its decision to approve the proposed amendment, the Board considered
factors bearing on the nature, scope, quality and profitability to John Hancock
of the services provided to the Emerging Markets Equity Fund, with a view toward
making a business judgment as to whether the proposed fee decrease and
elimination of John Hancock's contractual obligation to reimburse the Fund is,
under all of the circumstances, in the best interests of the Fund and owners of
its shares.
In approving these changes, which involve the retention of an additional amount
of "spread" by John Hancock, the Trustees considered various factors and, in
their business judgment, reached various conclusions, principally including the
following:
.. The nature, quality and breadth of investment management services provided
by John Hancock to the Fund over the years has been favorable, as
demonstrated by:
(a) John Hancock's significantly increased commitment of personnel and
resources, since the inception of the Fund, to support the investment
management services provided to the Fund, and
(b) the increased sophistication of the sub-manager evaluation and
monitoring process used by John Hancock on behalf of the Fund.
.. The Trustees believed that there is a need to allow John Hancock to retain
sufficient revenues to incentivize John Hancock, within the competitive
variable insurance marketplace, to promote the Fund either as a discrete
series of the Trust or in combination with other international or global
series of the Trust, as a funding medium for variable insurance products
that the Insurers may market in the future.
.. Based on information supplied by John Hancock with respect to anticipated
reductions in the Fund's expenses related to renegotiated custodial fees
and lower costs for foreign securities transactions in developed markets
(as opposed to emerging markets), the Trustees concluded that the Fund's
operating expenses under the modified investment strategy proposed by John
Hancock likely would be reduced in future years, relative to what they
otherwise would have been. The Trustees were mindful, however, that the
amount of such anticipated reductions were not capable of quantification
with any degree of precision at the present time.
.. The Trustees considered information from John Hancock about the overall
profitability to the Insurers of the variable insurance products funded
through the Trust, including profits
31
to John Hancock from serving as the Trust's primary investment manager.
They also considered information provided by John Hancock about the
difficulties of quantifying the cost and profitability of the advisory
function separately from the aggregate cost and profitability of all of the
functions performed by the Insurers to develop, offer, and maintain the
products. The Trustees concluded that, particularly in view of the
interdependence of the Fund and the variable insurance products that it
supports, the aggregate profitability information the Trustees received was
appropriate for purposes of their deliberations.
.. The Trustees considered how the "spread" between the Fund's management fee
and sub-investment management fee would (even if the expense cap were
eliminated) relate to John Hancock's overall objectives and spreads for
other Funds of the Trust.
.. It would be in the best interest of the Emerging Markets Equity Fund, and
the Contract owners participating therein, if John Hancock were able to
retain a larger amount of compensation in connection with its management of
the Fund.
.. The Trustees believed that retention of Capital Guardian will increase the
potential for improved investment performance by the Emerging Markets
Equity Fund, and recognized that it will also result in John Hancock
retaining more of its management fee following John Hancock's payment of
sub-investment management fees to the sub-manager.
.. The similarity of the investment strategy proposed by John Hancock for the
Emerging Markets Equity Fund to the investment strategy currently utilized
by Capital Guardian for the Trust's Overseas Equity Fund (as well as to the
investment strategy proposed by John Hancock for the International
Opportunities Fund, as described in Proposal 3) may provide attractive
opportunities in the future for these Funds to combine assets (as discussed
above under "Possible Future Plans for the Emerging Markets Equity Fund").
In connection with their deliberations, the Trustees received legal advice from
outside counsel to the Trust regarding the standards and methodology of
evaluation established by the SEC, the courts and the industry for mutual funds
selling shares to the public and the applicability of those standards and
methodology to mutual funds - like the Trust - selling shares to life insurance
company separate accounts. Such legal counsel, through its representation of
John Hancock on certain matters in which the Trust does not have a direct
interest, is also familiar with Insurers' variable insurance products and
Accounts funded through the Trust.
As a result of their consideration, the Trustees, in the exercise of their
business judgment, unanimously approved the proposed amendment to the John
Hancock 1998 Agreement as being in the best interests of the Emerging Markets
Equity Fund and owners of its shares.
The Proposed Amendment
For the services it provides, John Hancock currently receives compensation from
the Emerging Markets Equity Fund at the annual rate of 1.65% of the first $10
million of the Fund's average daily net assets, 1.45% of the next $140 million
plus 1.35% of all additional amounts. Under the
32
proposed amendment, the Fund's management fees would decrease to the following
annual levels: 1.30% of the first $20 million of the Fund's average daily net
assets, 1.15% of the next $30 million and 1.05% of any additional amounts. In
addition, the proposed amendment would delete current provisions in the John
Hancock 1998 Management Agreement that require John Hancock to reimburse the
Emerging Market Equity Fund for certain operating expenses when the expenses
exceed an amount equal to 0.10% of the Fund's average daily net assets. In all
other respects, the John Hancock 1998 Management Agreement will remain
unchanged. Appendix A to this proxy statement provides additional information
about the John Hancock 1998 Management Agreement.
The following table provides a comparison of the Fund's actual expense ratios
for 2003 with expense ratios that would have resulted if the proposed amendment
for the Emerging Markets Equity Fund had been in effect during the year 2003.
The table is based on the Emerging Market Equity Fund's average net assets
during the year 2003 and shows (1) the current annualized level of all fees and
operating expenses for the Emerging Market Equity Fund [through November 30,
2003]; and (2) the pro-forma annualized level of all fees and operating expenses
that would have been incurred by the Fund [through November 30, 2003] under the
proposed amendment. The table does not reflect separate account expenses,
including sales load and other contract-level expenses. The table also does not
reflect anticipated reductions in the Fund's expenses as a result of its
modified investment strategy and renegotiated custodial fees./18/
- --------------------------------------------------------------------
Current Pro-Forma
------- ---------
Management fees [1.48%] [1.18%]
-----
Distribution and Service (12b-1) Fees None None
Other Operating Expenses Absent Reimbursement [0.51%] [0.51%]
------- -----
Total Fund Expenses Absent Reimbursement [1.99]% [1.69]%
Expense Reimbursement (including fee waivers) [(0. 41%)] (0.00%)
------- -----
Total Fund Expenses After Reimbursement [1.58%] [1.69%]
-----
- --------------------------------------------------------------------
Example: The following Example is intended to help compare the cost of investing
in the Emerging Markets Equity Fund under the current management fee schedule
with the cost of investing in the Emerging Markets Equity Fund under the
proposed amendment. The Example assumes that $10,000 is invested in the Emerging
Markets Equity Fund at the beginning of the time period indicated, that the
investment has a 5% return each year, and that the Emerging Markets Equity
Fund's operating expenses remain the same./19/
One Three Five Ten
Year Years Years Years
---- ----- ----- -----
Although actual costs may be higher or lower, under the
- ----------
/18/ John Hancock estimates that renegotiated custodial fees may result in
future annual reductions in operating expenses for the Fund ranging from [0.13%]
to [0.15%], based on the Fund's net assets at December 31. 2003. Actual expense
reductions for any period, if any, may be greater, equal to, or less than those
within the range estimated by John Hancock.
/19/ Because shares of the Emerging Markets Equity Fund are bought and sold
without sales charges, the costs shown in the Example would be the same at the
end of the time period indicated, whether or not the shares were redeemed at
that time.
33
current Management Agreement, the costs would be: $ $ $ $
Although actual costs may be higher or lower, under the proposed
amendment to the Management Agreement, the costs would be: $ $ $ $
The Example does not reflect any charges imposed under a variable insurance or
variable annuity product. If these charges were included, the costs shown would
be higher. The Example also does not reflect anticipated reductions in the
Fund's expenses as a result of its modified investment strategy and renegotiated
custodial fees. If these reductions were included, the costs shown would be
lower.
Additional Information
See Proposal 1 and Appendix B of this proxy statement for further information
about John Hancock, its Board of Directors and executive officers, and
management fees charged for comparable funds managed by John Hancock. Appendix E
to this statement contains further information about Capital Guardian's policies
in placing portfolio transactions on behalf of the Fund.
Trustees' Recommendation
The Board unanimously believes that the amendment to the investment management
agreement is in the best interests of the Emerging Markets Equity Fund and
owners of its shares.
THE BOARD UNANIMOUSLY RECOMMENDS THAT OWNERS OF THE EMERGING MARKETS EQUITY FUND
GIVE INSTRUCTIONS TO VOTE FOR APPROVAL OF:
PROPOSAL 4 - AN AMENDMENT TO THE JOHN HANCOCK 1998 MANAGEMENT AGREEMENT
34
PROPOSAL 5 - OVERSEAS EQUITY FUND
APPROVAL OF AN AMENDMENT TO THE MANAGEMENT AGREEMENT FOR THE OVERSEAS
EQUITY FUND
At its December 10, 2003 meeting, the Trust's Board of Trustees ("Board")
unanimously approved, and recommended that owners approve, an amendment to the
management agreement with John Hancock for the Overseas Equity Fund. The
proposed amendment would (a) increase the management fee paid by the Trust to
John Hancock and (b) delete John Hancock's contractual obligation to reimburse
the Overseas Equity Fund when certain expenses of the Fund exceed 0.10% per
annum of the Fund's average daily net assets. It is proposed that the amendment
would take effect on or about May 3, 2004.
The proposed amendment to the management agreement must be approved by
shareholders of the Fund before it can go into effect.
If the amendment to the management agreement had been in effect during 2003 for
the Fund, (i) the Fund would have paid a management fee to John Hancock of
$ , rather than the $ paid under the current investment
--------- -------
management agreement, without reduction for expense reimbursements paid by John
Hancock to the Fund (a % increase), and (ii) the ratio of total expenses to
---
average daily net assets [through November 30, 2003] would have been [1.485%]
rather than [1.15%]. John Hancock expects the total actual expense ratio would
be less than [1.485%] in the future, however, as a result of anticipated
reductions in custodial fees.
John Hancock's Management Agreement with the Trust
John Hancock serves as the overall investment manager for the Overseas Equity
Fund pursuant to an investment management agreement with the Trust dated March
14, 1996, as amended ("John Hancock 1996 Agreement"). As the investment manager,
John Hancock, among other things, advises the Trust in connection with policy
decisions of the Fund; provides administration of the Fund's day-to-day
operations; provides personnel, office space, equipment and supplies for the
Fund; maintains records required by the Investment Company Act of 1940;
recommends retention (or termination) of sub-managers to the Fund, as it deems
advisable; supervises activities of the sub-manager; and supervises the
activities of other providers of services to the Trust.
Under the John Hancock 1996 Agreement, John Hancock is solely responsible for
the payment of all fees to sub-managers. Also, for any year in which the normal
operating costs and expenses of the Fund (exclusive of the management fees,
interest expense, brokerage commissions, taxes and extraordinary expenses
outside the control of John Hancock) exceed 0.10% of the Overseas Equity Fund's
average daily net assets, the John Hancock 1996 Agreement provides that John
Hancock will reimburse that Fund in an amount equal to such excess.
The John Hancock 1996 Agreement was last approved by the shareholders of the
Overseas Equity Fund on October 20, 2000 in connection with a proposal to
increase the management fees
35
paid to John Hancock. That proposal related to the Fund's hiring of Capital
Guardian as the sub-manager.
John Hancock's Reasons for Proposed Changes in the Management Agreement
After conducting a review of the Overseas Equity Fund's operating expenses in
comparison with other funds, John Hancock noted the following:
.. Funds that (like the Overseas Equity Fund) invest primarily in foreign
securities generally incur higher operating expenses than domestic funds
due to a variety of factors, such as the use of foreign custodians and
depositories, foreign trading practices, and lower volume of trades in less
developed markets.
.. John Hancock's contractual obligation to reimburse the Fund for normal
operating expenses associated with investments in foreign securities is
unusual, and many of the Fund's peers that are not part of the Trust do not
have an expense "cap."
.. Over the past three years, John Hancock's reimbursements to the Overseas
Equity Fund due to the expense cap substantially reduced the management
fees retained by John Hancock after payment of the sub-investment
management fee to the Fund's sub-manager.
.. The Overseas Equity Fund's focus on investments in foreign companies make
it unlikely that the Fund's operating expenses would fall below the expense
cap for the foreseeable future.
.. Other expenses directly incurred by John Hancock, such as those associated
with client servicing and communication, have increased with the
development of internet-based information systems and asset allocation
tools.
.. The current expense cap and the current level of the Overseas Equity Fund's
investment management fee, have combined with other factors to create a
situation in which John Hancock's level of compensation is not high enough
to allow John Hancock to continue to support the Fund on a long term basis
in the manner that it has in the past.
As a result of this review and analysis, John Hancock discussed with the Board
the need to restructure the Fund to make it an economically viable component of
the international Funds that John Hancock offers as investment options in the
Insurers' variable products.
Specifically, John Hancock proposed that:
.. The John Hancock 1996 Management Agreement should be amended to (a)
increase the management fees paid to John Hancock for the Overseas Equity
Fund, and (b) delete John Hancock's obligation to reimburse the Overseas
Equity Fund for "other Fund operating expenses" over the 0.10% expense cap.
John Hancock also noted that elimination of its contractual obligation to
reimburse the Fund for certain operating expenses would not preclude John
Hancock from making such reimbursements on a voluntary basis in the future,
although it has no current plans to do so.
36
.. Concurrent with a change in the management fee paid by the Trust to John
Hancock, John Hancock would begin to pay a revised sub-investment
management fee to Capital Guardian for the Overseas Equity Fund equal to an
annual rate of 0.60% of the first $300 million of the Fund's average daily
net assets, 0.45% on the next $200 million and 0.40% of any additional
amounts of that Fund's assets. Because these fees are lower at the Fund's
current asset levels than the sub-investment management fees that John
Hancock is currently paying Capital Guardian/20/, the amount of "spread"
that John Hancock would be able to retain from the investment management
fee it receives from the Overseas Equity Fund would be somewhat increased.
This Proposal 5 seeks your approval only of the above-mentioned amendments to
the John Hancock 1996 Management Agreement. The concurrent changes to the
sub-management agreement with Capital Guardian do not require shareholder
approval.
Possible Future Plans for the Overseas Equity Fund
After shareholders have voted on this Proposal 5, the Board currently intends,
at a future meeting, to make a decision whether to combine the assets of the
Overseas Equity Fund with the assets of one or both of the following other Funds
of the Trust: the International Opportunities Fund and the Emerging Markets
Equity Fund. John Hancock and the Board believe there could be substantial
advantages to a combination of these three Funds (the "Combining Funds").
Each of the Combining Funds will be substantially identical to each of the other
Combining Funds, if (a) the shareholders of the Overseas Equity Fund approve
this Proposal 5 and (b) the shareholders of the other two Combining Funds
approve Proposals 3 and 4 contained in this same statement. Specifically, all of
the Combining Funds will (a) be sub-advised by Capital Guardian, (b) be
following substantially identical investment programs, and (c) have
substantially identical investment management and sub-management agreements
(including the advisory and sub-advisory fees payable thereunder).
Under such circumstances, a combination of the three Funds would offer potential
cost savings and other advantages to investors in the Overseas Equity Fund. Such
cost savings could result from the fact that the combined Funds would be larger
than any of the Combing Funds would be alone. (As of December 31, 2003, the net
assets of the Overseas Equity, Emerging Markets Equity and International
Opportunities Funds totaled approximately $ million, $ million, and
----- -----
$ million, respectively.) The operating expenses of the Combined Funds
------
would be lower (as a percentage of the combined net assets) than if the Funds
remained separate. Also, the larger Fund that resulted from combining such
assets could make it easier for Capital Guardian to formulate and implement
investment decisions on the most effective and efficient basis for the Fund.
- ----------
/20/ John Hancock currently pays Capital Guardian a sub-investment management
fee for the Overseas Equity Fund equal to 0.65% of the first $150 million of the
Fund's average daily net assets, 0.55% of the next $150 million, 0.45% of the
next $200 million and 0.40% of any additional amounts. .
37
John Hancock and the Board, however, have made no decision whether to pursue the
combination of all or any two of the Combining Funds; and the Board and John
Hancock will consider all relevant facts and circumstances at the time in
reaching any conclusion in that regard. This will include, among other things,
whether any or all of Proposals 3, 4 and 5 in this statement are approved.
Nevertheless, John Hancock and the Board reserve the option of proceeding with a
combination of any or all of the Combining Funds, regardless of whether any of
all of such proposals are approved. Moreover, it is possible that any such
combination could be accomplished under circumstances where the affected Funds'
shareholders have no right to vote on that combination.
Basis for the Trustees' Recommendation
At its meeting held on December 10, 2003, the Board, including all of the
Trustees who are not associated with John Hancock (the "Independent Trustees"),
unanimously approved the proposed amendment to the John Hancock 1996 Management
Agreement for the Overseas Equity Fund, and also recommended that owners approve
the amendment.
In evaluating and approving the amendment, the Board, including the independent
Trustees and with the assistance of outside counsel to the Trust, requested and
evaluated information from John Hancock that was relevant to whether the
amendment would be in the best interests of the Overseas Equity Fund and the
owners of its shares.
In making its decision to approve the proposed amendment, the Board considered
factors bearing on the nature, scope, quality and profitability to John Hancock
of the services provided to the Overseas Equity Fund, with a view toward making
a business judgment as to whether the proposed fee increase and elimination of
John Hancock's contractual obligation to reimburse the Fund is, under all of the
circumstances, in the best interests of the Fund and owners of its shares.
In approving a new management fee schedule (which involves the retention of an
additional amount of "spread" by John Hancock) and the elimination of John
Hancock's contractual obligation to reimburse operating expenses over the 0.10%
cap, the Trustees considered various factors and, in their business judgment,
reached various conclusions, principally including the following:
.. The nature, quality and breadth of investment management services provided
by John Hancock to the Fund over the years has been favorable, as
demonstrated by:
(a) John Hancock's significantly increased commitment of personnel and
resources, since the inception of the Fund, to support the investment
management services provided to the Fund, and
(b) the increased sophistication of the sub-manager evaluation and
monitoring process used by John Hancock on behalf of the Fund.
.. The Trustees believed that there is a need to allow John Hancock to retain
sufficient revenues to incentivize John Hancock, within the competitive
variable insurance marketplace, to promote the Fund either as a discrete
series of the Trust or in combination with other international or global
series of the Trust, as a funding medium for variable insurance products
that the Insurers may market in the future.
38
.. The Trustees considered information from John Hancock about the overall
profitability to the Insurers of the variable insurance products funded
through the Trust, including profits to John Hancock from serving as the
Trust's primary investment manager. They also considered information
provided by John Hancock about the difficulties of quantifying the cost and
profitability of the advisory function separately from the aggregate cost
and profitability of all of the functions performed by the Insurers to
develop, offer, and maintain the products. The Trustees concluded that,
particularly in view of the interdependence of the Fund and the variable
insurance products that it supports, the aggregate profitability
information the Trustees received was appropriate for purposes of their
deliberations.
.. The Trustees considered how the "spread" between the Fund's management fee
and sub-investment management fee would (even if the expense cap were
eliminated) relate to John Hancock's overall objectives and spreads for
other Funds of the Trust.
.. It would be in the best interest of the Overseas Equity Fund, and the
Contract owners participating therein, if John Hancock were able to retain
a larger amount of compensation in connection with its management of the
Fund
.. The similarity of the investment strategy currently utilized by Capital
Guardian for the Overseas Equity Fund to the investment strategy proposed
by John Hancock for the International Opportunities Fund (as described in
Proposal 3) and for the Emerging Markets Equity Fund (as described in
Proposal 4) may provide attractive opportunities in the future for these
Funds to combine assets (as discussed above under "Possible Future Plans
for the Overseas Equity Fund").
.. Based on information supplied by John Hancock with respect to anticipated
reductions in the Fund's expenses related to renegotiated custodial fees,
the Trustees concluded that the Fund's operating expenses likely would be
reduced in future years, relative to what they otherwise would have been.
The Trustees were mindful, however, that the amount of such anticipated
reductions were not capable of quantification with any degree of precision
at the present time.
In connection with their deliberations, the Trustees received legal advice from
outside counsel to the Trust regarding the standards and methodology of
evaluation established by the SEC, the courts and the industry for mutual funds
selling shares to the public and the applicability of those standards and
methodology to mutual funds - like the Trust - selling shares to life insurance
company separate accounts. Such legal counsel, through its representation of
John Hancock on certain matters in which the Trust does not have a direct
interest, is also familiar with Insurers' variable insurance products and
Accounts funded through the Trust.
As a result of their consideration, the Trustees, in the exercise of their
business judgment, unanimously approved the proposed amendment to the John
Hancock 1996 Agreement as being in the best interests of the Overseas Equity
Fund and owners of its shares.
The Proposed Amendment
39
For the services it provides, John Hancock currently receives compensation from
the Overseas Equity Fund at the annual rate of 1.05% of the first $150 million
of the Fund's average daily net assets, 0.95% of the next $150 million, 0.80% of
the next $200 million plus 0.75% of all additional amounts. Under the proposed
amendment, the Fund's management fees would increase to the following annual
levels: 1.30% of the first $20 million of the Fund's average daily net assets,
1.15% of the next $30 million and 1.05% of any additional amounts. In addition,
the proposed amendment would delete current provisions in the John Hancock 1996
Management Agreement that require John Hancock to reimburse the Overseas Equity
Fund for certain operating expenses when the expenses exceed an amount equal to
0.10% of the Fund's average daily net assets. In all other respects, the John
Hancock 1996 Management Agreement will remain unchanged. Appendix A to this
proxy statement provides additional information about the John Hancock 1996
Management Agreement.
The following table provides a comparison of the Fund's actual expense ratios
for 2003 with expense ratios that would have resulted if the proposed amendment
for the Overseas Equity Fund had been in effect during the year 2003. The table
is based on the Overseas Equity Fund's average net assets during the year 2003
and shows (1) the current annualized level of all fees and operating expenses
for the Overseas Equity Fund [through November 30, 2003]; and (2) the pro-forma
annualized level of all fees and operating expenses that would have been
incurred by the Fund [through November 30, 2003] under the proposed amendment.
The table does not reflect separate account expenses, including sales load and
other contract-level expenses. The table also does not reflect anticipated
reductions in the Fund's expenses as a result of renegotiated custodial
fees./21/
- ---------------------------------------------------------------------
Current Pro-Forma
------- ---------
Management fees [1.05%] [1.225%]
------
Distribution and Service (12b-1) Fees None None
Other Operating Expenses Absent Reimbursement [0.26%] [0.26%]
------- ------
Total Fund Expenses Absent Reimbursement [1.31]% [1.485]%
Expense Reimbursement (including fee waivers) [(0.16%)] (0.00%)
------- ------
Total Fund Expenses After Reimbursement [1.15%] [1.485%]
------
- ---------------------------------------------------------------------
Example: The following Example is intended to help compare the cost of investing
in the Overseas Equity Fund under the current management fee schedule with the
cost of investing in the Overseas Equity Fund under the proposed amendment. The
Example assumes that $10,000 is invested in the Overseas Equity Fund at the
beginning of the time period indicated, that the investment has a 5% return each
year, and that the Overseas Equity Fund's operating expenses remain the
same./22/
- ----------
/21/ John Hancock estimates that renegotiated custodial fees may result in
future annual reductions in operating expenses for the Fund ranging from [0.04%]
to [0.06%], based on the Fund's net assets at December 31. 2003. Actual expense
reductions for any period, if any, may be greater, equal to, or less than those
within the range estimated by John Hancock.
/22/ Because shares of the Overseas Equity Fund are bought and sold without
sales charges, the costs shown in the Example would be the same at the end of
the time period indicated, whether or not the shares were redeemed at that time.
40
One Three Five Ten
Year Years Years Years
---- ----- ----- -----
Although actual costs may be higher or lower, under the current
Management Agreement, the costs would be: $ $ $ $
Although actual costs may be higher or lower, under the proposed
amendment to the Management Agreement, the costs would be: $ $ $ $
The Example does not reflect any charges imposed under a variable insurance or
variable annuity product. If these charges were included, the costs shown would
be higher. The Example also does not reflect anticipated reductions in the
Fund's expenses as a result of renegotiated custodial fees. If these reductions
were included, the costs shown would be lower.
Additional Information
See Proposal 1 and Appendix B of this proxy statement for information about John
Hancock and its Board of Directors and executive officers, and management fees
charged for comparable funds managed by John Hancock. Appendix E to this
statement contains further information about Capital Guardian's policies in
placing portfolio transactions on behalf of the Fund.
Trustees' Recommendation
The Board unanimously believes that the amendment to the investment management
agreement is in the best interests of the Overseas Equity Fund and owners of its
shares.
THE BOARD UNANIMOUSLY RECOMMENDS THAT OWNERS OF THE OVERSEAS EQUITY FUND GIVE
INSTRUCTIONS TO VOTE FOR APPROVAL OF:
PROPOSAL 5 - AN AMENDMENT TO THE JOHN HANCOCK 1996 MANAGEMENT AGREEMENT
41
PROPOSAL 6 - INTERNATIONAL EQUITY INDEX FUND
APPROVAL OF AN AMENDMENT TO THE MANAGEMENT AGREEMENT FOR
THE INTERNATIONAL EQUITY INDEX FUND
At its December 10, 2003 meeting, the Trust's Board of Trustees ("Board")
unanimously approved John Hancock's recommendation, and recommended that owners
approve, an amendment to the management agreement with John Hancock for the
International Equity Index Fund. The proposed amendment would delete John
Hancock's contractual obligation to reimburse the International Equity Index
Fund when certain expenses of the Fund exceed 0.10% per annum of the Fund's
average daily net assets. At the same meeting, the Board approved John Hancock's
recommendation to change the sub-manager of the Fund. Both of these
recommendations would take effect on or about May 3, 2004.
The proposed amendment to the management agreement must be approved by
shareholders of the Fund before it can go into effect. If the amendment to the
management agreement had been in effect during 2003 for the Fund, the ratio of
total expenses to average daily net assets [through November 30, 2003] would
have been [0.37%] rather than [0.27%]. However, the 0.37% ratio would still
compare favorably to the total expense ratios currently incurred by funds that
support other variable insurance products and that have similar investment focus
to the International Equity Index Fund. The average total expense ratio for all
such funds is 0.58%./23/ John Hancock expects the actual total expense ratio to
be less than [0.37%] in the future, however, as a result of anticipated
reductions in custodial fees.
The amendment to the International Equity Index Fund's management agreement that
you are being asked to approve pursuant to this Proposal 6 is independent of the
proposed change in the Fund's sub-manager./24/ Thus, if this Proposal 6 is
approved, it will go into effect regardless of whether the change of sub-manager
ultimately is implemented.
John Hancock's Management Agreement with the Trust
John Hancock serves as the overall investment manager for the International
Equity Index Fund pursuant to an investment management agreement with the Trust
dated April 12, 1988, as amended ("John Hancock 1988 Agreement"). As the
investment manager, John Hancock, among other things, advises the Trust in
connection with policy decisions of the Fund; provides administration of the
Fund's day-to-day operations; provides personnel, office space, equipment and
supplies for the Fund; maintains records required by the Investment Company Act
of 1940;
- ----------
/23/ The foregoing analysis is based upon a John Hancock study using data as of
September 30, 2003 that was collected by Morningstar, Inc., an independent
statistical service that tracks expense data on variable insurance funds.
Appendix C to this statement contains additional information on John Hancock's
calculation of average total fund expenses.
/24/ We are not asking you to vote on the new sub-management agreement because,
like many other mutual funds, the Trust has obtained an order from the
Securities and Exchange Commission that generally makes such votes unnecessary
for sub-managers that are not affiliated with John Hancock. The SEC order
requires John Hancock and the Trust to provide owners with an information
statement that describes the reasons for a change in sub-managers. The
applicable information statement will be sent to owners under separate cover.
42
recommends retention (or termination) of sub-managers to the Fund, as it deems
advisable; supervises activities of the sub-manager; and supervises the
activities of other providers of services to the Trust. For the services it
provides, John Hancock receives compensation from the International Equity Index
Fund a management fee equal to 0.18% of the first $100 million of that Fund's
assets, 0.15% of the next $500 million, and 0.11% of additional amounts of that
Fund's assets.
Under the John Hancock 1988 Agreement, John Hancock is solely responsible for
the payment of all fees to sub-managers. Also, for any year in which the normal
operating costs and expenses of the Fund (exclusive of the management fees,
interest expense, brokerage commissions, taxes and extraordinary expenses
outside the control of John Hancock) exceed 0.10% of the International Equity
Index Fund's average daily net assets, the John Hancock 1988 Agreement provides
that John Hancock will reimburse that Fund in an amount equal to such excess.
The John Hancock 1988 Agreement was last approved by the shareholders of the
International Equity Index Fund on April 23, 1999 in connection with a proposal
to change the method of allocating certain expenses among the Funds and to
reduce the expense cap.
John Hancock's Reasons for Proposed Change in the Management Agreement
After conducting a review of the International Equity Index Fund's operating
expenses in comparison with other funds, John Hancock noted the following:
.. Funds that invest primarily in foreign securities generally incur higher
operating expenses than domestic funds due to a variety of factors, such as
the use of foreign custodians and depositories, foreign trading practices,
and lower volume of trades in less developed markets.
.. John Hancock's contractual obligation to reimburse the Fund for normal
operating expenses associated with investments in foreign securities is
unusual, and many of the Fund's peers that are not part of the Trust do not
have an expense cap.
.. Over the past three years, John Hancock's reimbursements to the
International Equity Index Fund due to the expense cap substantially
exceeded the management fees retained by John Hancock after payment of the
sub-investment management fee to the Fund's sub-manager, resulting in a net
loss to John Hancock.
.. The International Equity Index Fund's focus on foreign investments makes it
unlikely that the Fund's operating expenses would fall below the expense
cap for the foreseeable future.
.. Other expenses directly incurred by John Hancock, such as those associated
with client servicing and communication, have increased with the
development of internet-based information systems and asset allocation
tools.
.. The current expense cap has combined with other factors to create a
situation in which John Hancock's level of compensation is not high enough
to allow John Hancock to continue to support the International Equity Index
Fund in the manner that it has in the past.
43
As a result of this review and analysis, John Hancock discussed with the Board
the need to make it more economically viable for John Hancock to continue to
offer the International Equity Index Fund as an investment option in the
Insurers' variable products.
Specifically, with respect to the International Equity Index Fund, John Hancock
proposed that:
.. The John Hancock 1988 Management Agreement should be amended to delete John
Hancock's obligation to reimburse the Fund for "other Fund operating
expenses" over the 0.10% expense cap. In making this proposal, John Hancock
noted that the elimination of its contractual obligation to reimburse the
Fund for certain operating expenses would not preclude John Hancock from
making such reimbursements on a voluntary basis in the future, although it
has no current plans to do so.
.. The Fund should continue as an international stock index fund, but with a
different sub-manager. John Hancock recommended that the Fund employ SSgA
Funds Management, Inc. ("SSgA"), the current sub-manager for the Trust's
Equity Index Fund, as the new sub-manager.
.. John Hancock would pay a sub-investment management fee to SSgA equal to an
annual rate of 0.10% of the first $100 million of the Fund's average daily
net assets, and 0.08% of all average daily net assets over $100 million.
Because these fees would be lower than John Hancock pays the International
Equity Index Fund's current sub-manager/25/, the amount of "spread" that
John Hancock would be able to retain from the investment management fee
that it receives from the fund would be increased.
Basis for the Trustees' Recommendation
At its meeting held on December 10, 2003, the Board, including all of the
Trustees who are not associated with John Hancock (the "Independent Trustees"),
unanimously approved the proposed amendment to the John Hancock 1988 Management
Agreement for the International Equity Index Fund, and also recommended that
owners approve the amendment.
In evaluating and approving the amendment, the Board, including the Independent
Trustees and with the assistance of outside counsel to the Trust, requested and
evaluated information from John Hancock that was relevant to whether the
amendment would be in the best interests of the International Equity Index Fund
and the owners of its shares.
In making its decision to approve the proposed amendment, the Board considered
factors bearing on the nature, scope, quality and profitability to John Hancock
of the services provided to the International Equity Index Fund, with a view
toward making a business judgment as to whether the proposed elimination of John
Hancock's contractual obligation to reimburse the Fund is,
- ----------
/25/ John Hancock pays the Fund's current sub-manager, Independence Investment
LLC, a sub-investment management fee equal to 0.125% of the first $100 million
of the Fund's average daily net assets, 0.10% of the next $100 million, and
0.06% of any additional amounts.
44
under all of the circumstances, in the best interests of the Fund and owners of
its shares. In approving the elimination of John Hancock's contractual
obligation to reimburse operating expenses over the 0.10% expense cap under
circumstances in which John Hancock would retain an additional amount of
"spread,"the Trustees considered various factors and, in their business
judgment, reached various conclusions, principally including the following:
.. The nature, quality and breadth of investment management services provided
by John Hancock to the Fund over the years has been favorable, as
demonstrated by:
(a) John Hancock's significantly increased commitment of personnel and
resources, since the inception of the Fund, to support the investment
management services provided to the Fund, and
(b) the increased sophistication of the sub-manager evaluation and
monitoring process used by John Hancock on behalf of the Fund.
.. The Trustees believed that there is a need to allow John Hancock to retain
sufficient revenues to incentivize John Hancock, within the competitive
variable insurance marketplace, to promote the Fund as a funding medium for
variable insurance products that the Insurers may market in the future.
.. Based on information supplied by John Hancock, the Trustees concluded that
the additional amount of "spread" that the reduced sub-investment
management fee would allow John Hancock to retain would not adequately
off-set John Hancock's reimbursements to the International Equity Index
Fund of anticipated operating expenses of the Fund above the 0.10% expense
cap.
.. The Trustees considered information from John Hancock about the overall
profitability to the Insurers of the variable insurance products funded
through the Trust, including profits to John Hancock from serving as the
Trust's primary investment manager. They also considered information
provided by John Hancock about the difficulties of quantifying the cost and
profitability of the advisory function separately from the aggregate cost
and profitability of all of the functions performed by the Insurers to
develop, offer, and maintain the products. The Trustees concluded that,
particularly in view of the interdependence of the Fund and the variable
insurance products that it supports, the aggregate profitability
information the Trustees received was appropriate for purposes of their
deliberations.
.. The Trustees considered how the "spread" between the Fund's management fee
and sub-investment management fee would (even if the expense cap were
eliminated) relate to John Hancock's overall objectives and spreads for
other Funds of the Trust.
.. Based on information supplied by John Hancock with respect to anticipated
reductions in the Fund's expenses related to renegotiated custodial fees,
the Trustees concluded that the Fund's operating expenses likely would be
reduced in future years, relative to what they otherwise would have been.
The Trustees were mindful, however, that the amount of such anticipated
reductions were not capable of quantification with any degree of precision
at the present time.
45
.. It would be in the best interest of the International Equity Index Fund,
and Contract owners participating therein, if John Hancock were able to
retain a larger amount of compensation in connection with its management of
the Fund.
In connection with their deliberations, the Trustees received legal advice from
outside counsel to the Trust regarding the standards and methodology of
evaluation established by the SEC, the courts and the industry for mutual funds
selling shares to the public and the applicability of those standards and
methodology to mutual funds - like the Trust - selling shares to life insurance
company separate accounts. Such legal counsel, through its representation of
John Hancock on certain matters in which the Trust does not have a direct
interest, is also familiar with Insurers' variable insurance products and
Accounts funded through the Trust.
As a result of their consideration, the Trustees, in the exercise of their
business judgment, unanimously approved the proposed amendment to the John
Hancock 1988 Agreement as being in the best interests of the International
Equity Index Fund and owners of its shares.
The Proposed Amendment
The proposed amendment would delete current provisions in the John Hancock 1988
Management Agreement that require John Hancock to reimburse the International
Equity Index Fund for certain operating expenses when the expenses exceed an
amount equal to 0.10% of the Fund's average daily net assets. In all other
respects, the John Hancock 1988 Management Agreement will remain unchanged with
respect to the Fund. Appendix A to this proxy statement provides additional
information about the John Hancock 1988 Management Agreement.
The following table provides a comparison of the Fund's actual expense ratios
for 2003 with expense ratios that would have resulted if the proposed amendment
for the International Equity Index Fund had been in effect during the year 2003.
The table is based on the International Equity Index Fund's average net assets
during the year 2003 and shows (1) the current annualized level of all fees and
operating expenses for the International Equity Index Fund [through November 30,
2003]; and (2) the pro-forma annualized level of all fees and operating expenses
that would have been incurred by the Fund [through November 30, 2003] under the
proposed amendment. The table does not reflect separate account expenses,
including sales load and other contract-level expenses. The table also does not
reflect anticipated reductions in the Fund's expenses as a result of
renegotiated custodial fees./26/
- -----------------------------------------------------------------------
Current Pro-Forma
------- ----------
Management fees [0.17%] [0.17%]
------- -------
Distribution and Service (12b-1) Fees None None
Other Operating Expenses Absent Reimbursement [0.20%] [0.20%]
------- -------
Total Fund Expenses Absent Reimbursement [0.37]% [0.37]%
- -----------------------------------------------------------------------
- ----------
/26/ John Hancock estimates that renegotiated custodial fees may result in
future annual reductions in operating expenses for the Fund ranging from [0.04%]
to [0.06%] based on the Fund's net assets at December 31. 2003. Actual expense
reductions for any period, if any, may be greater, equal to, or less than those
within the range estimated by John Hancock.
46
- --------------------------------------------------------------------
Expense Reimbursement (including fee waivers) [(0. 10%)] (0.00%)
---------- -------
Total Fund Expenses After Reimbursement [0.27%] [0.37%]
-------
- --------------------------------------------------------------------
Example: The following Example is intended to help compare the cost of investing
in the International Equity Index Fund under the current management fee schedule
with the cost of investing in the International Equity Index Fund under the
proposed amendment. The Example assumes that $10,000 is invested in the
International Equity Index Fund at the beginning of the time period indicated,
that the investment has a 5% return each year, and that the International Equity
Index Fund's operating expenses remain the same./27/
One Three Five Ten
Year Years Years Years
---- ----- ----- -----
Although actual costs may be higher or lower, under the current
Management Agreement, the costs would be: $ $ $ $
Although actual costs may be higher or lower, under the proposed
amendment to the Management Agreement, the costs would be: $ $ $ $
The Example does not reflect any charges imposed under a variable insurance or
variable annuity product. If these charges were included, the costs shown would
be higher. The Example also does not reflect anticipated reductions in the
Fund's expenses as a result of renegotiated custodial fees. If these reductions
were included, the costs shown would be lower.
Additional Information
See Proposal 1 and Appendix B of this proxy statement for further information
about John Hancock, its Board of Directors and executive officers, and
management fees for comparable funds managed by John Hancock. Appendix E to this
statement contains further information about SSgA's policies in placing
portfolio transactions on behalf of the Fund.
Trustees' Recommendation
The Board unanimously believes that the amendment to the investment management
agreement is in the best interests of the International Equity Index Fund and
owners of its shares.
THE BOARD UNANIMOUSLY RECOMMENDS THAT OWNERS OF THE INTERNATIONAL EQUITY INDEX
FUND GIVE INSTRUCTIONS TO VOTE FOR APPROVAL OF:
PROPOSAL 6 - AN AMENDMENT TO THE JOHN HANCOCK 1988 MANAGEMENT
AGREEMENT
- ----------
27 Because shares of the International Equity Index Fund are bought and sold
without sales charges, the costs shown in the Example would be the same at the
end of the time period indicated, whether or not the shares were redeemed at
that time.
47
PROPOSAL 7 - GLOBAL BOND FUND
APPROVAL OF AN AMENDMENT TO THE MANAGEMENT AGREEMENT FOR
THE GLOBAL BOND FUND
At its December 10, 2003 meeting, the Trust's Board of Trustees ("Board")
unanimously approved, and recommended that owners approve, an amendment to the
management agreement with John Hancock for the Global Bond Fund. The proposed
amendment would delete John Hancock's contractual obligation to reimburse the
Global Bond Fund when certain expenses of the Fund exceed 0.10% per annum of the
Fund's average daily net assets.
The proposed amendment to the management agreement must be approved by
shareholders of the Fund before it can go into effect.
If the amendment to the management agreement had been in effect during 2003 for
the Fund, the ratio of total expenses to average daily net assets [through
November 30, 2003] would have been 0.97% rather than 0.95%. However, the 0.97%
ratio would still compare favorably to the total expense ratios currently
incurred by funds that support other variable insurance products, that have
similar investment focus, and that are of a size comparable to the Global Bond
Fund (i.e., less than $250 million in assets). The average total expense ratio
for all such funds is 1.05% (1.04% for funds with less than $100 million in
assets)./28/
John Hancock's Management Agreement with the Trust
John Hancock serves as the overall investment manager for the Global Bond Fund
pursuant to an investment management agreement with the Trust dated March 14,
1996, as amended ("John Hancock 1996 Agreement"). As the investment manager,
John Hancock, among other things, advises the Trust in connection with policy
decisions of the Fund; provides administration of the Fund's day-to-day
operations; provides personnel, office space, equipment and supplies for the
Fund; maintains records required by the Investment Company Act of 1940;
recommends retention (or termination) of sub-managers to the Fund, as it deems
advisable; supervises activities of the sub-manager; and supervises the
activities of other providers of services to the Trust. For the services it
provides, John Hancock receives compensation from the Global Bond Fund at the
annual rate of 0.85% of the first $150 million of the Fund's average daily net
assets, 0.80% of the next $150 million, 0.75% of the next $200 million, plus
0.70% of all additional amounts.
Under the John Hancock 1996 Agreement, John Hancock is solely responsible for
the payment of all fees to sub-managers. Also, for any year in which the normal
operating costs and expenses of the Fund (exclusive of the management fees,
interest expense, brokerage commissions, taxes and extraordinary expenses
outside the control of John Hancock) exceed 0.10% of the Global
- ----------
/28/ The foregoing analysis is based upon a John Hancock study using data as of
September 30, 2003 that was collected by Morningstar, Inc., an independent
statistical service that tracks expense data on variable insurance funds.
Appendix C to this statement contains additional information on John Hancock's
calculation of average total fund expenses.
48
Bond Fund's average daily net assets, the John Hancock 1996 Agreement provides
that John Hancock will reimburse that Fund in an amount equal to such excess.
The John Hancock 1996 Agreement was last approved by the shareholders of the
Global Bond Fund on October 20, 2000 in connection with a proposal to increase
the management fees paid to John Hancock. That proposal arose in the context of
the Fund's hiring of Capital Guardian as its sub-manager.
John Hancock's Reasons for Proposed Change in the Management Agreement
After conducting a review of the Global Bond Fund's operating expenses in
comparison with other funds, John Hancock noted the following:
.. Funds that invest primarily in foreign securities generally incur higher
operating expenses than domestic funds due to a variety of factors, such as
the use of foreign custodians and depositories, foreign trading practices,
and lower volume of trades in less developed markets.
.. John Hancock's contractual obligation to reimburse the Fund for normal
operating expenses associated with foreign investments is unusual, and many
of the Fund's peers that are not part of the Trust do not have an expense
cap.
.. Other expenses directly incurred by John Hancock, such as those associated
with client servicing and communication, have increased with the
development of internet-based information systems and asset allocation
tools.
As a result of this review and analysis, John Hancock discussed with the Board
the need to make it more economically advantageous for John Hancock to continue
to offer the Global Bond Fund of the Trust as an investment option in the
Insurers' variable products. Specifically, John Hancock proposed that the John
Hancock 1996 Management Agreement be amended to eliminate John Hancock's
obligation to reimburse the Fund for "other Fund operating expenses" over the
0.10% expense cap. In making this proposal, John Hancock noted that the
elimination of its contractual obligation to reimburse the Fund for certain
operating expenses would not preclude John Hancock from making such
reimbursements on a voluntary basis in the future, although it has no current
plans to do so.
Basis for the Trustees' Recommendation
At its meeting held on December 10, 2003, the Board, including all of the
Trustees who are not associated with John Hancock (the "Independent Trustees"),
unanimously approved the proposed amendment to the John Hancock 1996 Management
Agreement for the Global Bond Fund, and also recommended that owners approve the
amendment.
In evaluating and approving the amendment, the Board, including the independent
Trustees and with the assistance of outside counsel to the Trust, requested and
evaluated information from John Hancock that was relevant to whether the
amendment would be in the best interests of the Global Bond Fund and the owners
of its shares.
49
In making its decision to approve the proposed amendment, the Board considered
factors bearing on the nature, scope, quality and profitability to John Hancock
of the services provided to the Global Bond Fund, with a view toward making a
business judgment as to whether the proposed elimination of John Hancock's
contractual obligation to reimburse the Fund is, under all of the circumstances,
in the best interests of the Fund and owners of its shares.
In approving the change, the Trustees considered various factors and, in their
business judgment, reached various conclusions, principally including the
following:
.. The nature, quality and breadth of investment management services provided
by John Hancock to the Fund over the years has been favorable, as
demonstrated by:
(a) John Hancock's significantly increased commitment of personnel and
resources, since the inception of the Fund, to support the investment
management services provided to the Fund; and
(b) the increased sophistication of the sub-manager evaluation and
monitoring process used by John Hancock on behalf of the Fund.
.. The Trustees believed that there is a need to allow John Hancock to retain
sufficient revenues to incentivize John Hancock, within the competitive
variable insurance marketplace, to promote the Fund as a funding medium for
variable insurance products that the Insurers may market in the future.
.. In view of the above-mentioned information provided to the Trustees about
expense ratios for comparable Funds, the Global Bond Fund would continue to
have an attractive expense profile, even after the proposed change is made.
.. The Trustees considered how the "spread" between the Fund's management fee
and sub-investment management fee would (even if the expense cap were
eliminated) relate to John Hancock's overall objectives and spreads for
other Funds of the Trust.
.. The Trustees considered information from John Hancock about the overall
profitability to the Insurers of the variable insurance products funded
through the Trust, including profits to John Hancock from serving as the
Trust's primary investment manager. They also considered information
provided by John Hancock about the difficulties of quantifying the cost and
profitability of the advisory function separately from the aggregate cost
and profitability of all of the functions performed by the Insurers to
develop, offer, and maintain the products. The Trustees concluded that,
particularly in view of the interdependence of the Fund and the variable
insurance products that it supports, the aggregate profitability
information the Trustees received was appropriate for purposes of their
deliberations.
.. It would be in the best interests of the Global Bond Fund, and Contract
owners participating therein, if John Hancock were able to retain a larger
amount of compensation in connection with management of the Fund.
50
In connection with their deliberations, the Trustees received legal advice from
outside counsel to the Trust regarding the standards and methodology of
evaluation established by the SEC, the courts and the industry for mutual funds
selling shares to the public and the applicability of those standards and
methodology to mutual funds - like the Trust - selling shares to life insurance
company separate accounts. Such legal counsel, through its representation of
John Hancock on certain matters in which the Trust does not have a direct
interest, is also familiar with Insurers' variable insurance products and
Accounts funded through the Trust.
As a result of their consideration, the Trustees, in the exercise of their
business judgment, unanimously approved the proposed amendment to the John
Hancock 1996 Agreement as being in the best interests of the Global Bond Fund
and owners of its shares.
The Proposed Amendment
The proposed amendment would delete current provisions in the John Hancock 1996
Management Agreement that require John Hancock to reimburse the Global Bond Fund
for certain operating expenses when the expenses exceed an amount equal to 0.10%
of the Fund's average daily net assets. In all other respects, the John Hancock
1996 Management Agreement will remain unchanged with respect to the Fund.
Appendix A to this proxy statement provides additional information about the
John Hancock 1996 Management Agreement.
The following table provides a comparison of the Fund's actual expense ratios
for 2003 with expense ratios that would have resulted if the proposed amendment
for the Global Bond Fund had been in effect during the year 2003. The table is
based on the Global Bond Fund's average net assets during the year 2003 and
shows (1) the current annualized level of all fees and operating expenses for
the Global Bond Fund [through November 30, 2003]; and (2) the pro-forma
annualized level of all fees and operating expenses that would have been
incurred by the Fund [through November 30, 2003] under the proposed amendment.
The table does not reflect separate account expenses, including sales load and
other contract-level expenses.
- --------------------------------------------------------------------
Current Pro-Forma
------- ---------
Management fees [0.85%] 0.85%
-----
Distribution and Service (12b-1) Fees None None
Other Operating Expenses Absent Reimbursement [0.12]% [0.12]%
------- -----
Total Fund Expenses Absent Reimbursement [0.97%] [0.97%]
Expense Reimbursement (including fee waivers) [( 0.02%)] (0.00%)
------- -----
Total Fund Expenses After Reimbursement [0.95%] [0.97%]
-----
- -------------------------------------------------------------------
Example: The following Example is intended to help compare the cost of investing
in the Global Bond Fund under the current management fee schedule with the cost
of investing in the Global Bond Fund under the proposed amendment. The Example
assumes that $10,000 is invested in the Global Bond Fund at the beginning of the
time period indicated, that the investment has a 5% return each year, and that
the Global Bond Fund's operating expenses remain the same./29/
- ----------
/29/ Because shares of the Global Bond Fund are bought and sold without sales
charges, the costs shown in the Example would be the same at the end of the time
period indicated, whether or not the shares were redeemed at that time.
51
One Three Five Ten
Year Years Years Years
---- ----- ----- -----
Although actual costs may be higher or lower, under the current
Management Agreement, the costs would be: $ $ $ $
Although actual costs may be higher or lower, under the proposed
amendment to the Management Agreement, the costs would be: $ $ $ $
The Example does not reflect any charges imposed under a variable insurance or
variable annuity product. If these charges were included, the costs shown would
be higher.
Additional Information
See Proposal 1 and Appendix B of this proxy statement for information about John
Hancock, its Board of Directors and executive officers, and management fees for
comparable funds managed by John Hancock. Appendix E to this statement contains
further information about the sub-manager's policies in placing portfolio
transactions on behalf of the Fund.
Trustees' Recommendation
The Board unanimously believes that the amendment to the investment management
agreement is in the best interests of the Global Bond Fund and owners of its
shares.
THE BOARD UNANIMOUSLY RECOMMENDS THAT OWNERS OF THE GLOBAL BOND FUND GIVE
INSTRUCTIONS TO VOTE FOR APPROVAL OF:
PROPOSAL 7 - AN AMENDMENT TO THE JOHN HANCOCK 1996 MANAGEMENT AGREEMENT
52
PROPOSAL 8 - HEALTH SCIENCES FUND
APPROVAL OF AN AMENDMENT TO THE MANAGEMENT AGREEMENT FOR
THE HEALTH SCIENCES FUND
At its December 10, 2003 meeting, the Trust's Board of Trustees ("Board")
unanimously approved, and recommended that owners approve, an amendment to the
management agreement with John Hancock for the Health Sciences Fund. The
proposed amendment would delete John Hancock's contractual obligation to
reimburse the Health Sciences Fund when certain expenses of the Fund exceed
0.10% per annum of the Fund's average daily net assets.
The proposed amendment to the management agreement must be approved by
shareholders of the Fund before it can go into effect.
If the amendment to the management agreement had been in effect during 2003 for
the Fund (through November 30, 2003), the ratio of total expenses to average
daily net assets would have been 1.22% rather than 1.10%. However, the 1.22%
ratio would still be within the range of total expense ratios currently incurred
by funds that support other variable insurance products, that have similar
investment focus, and that are of a size comparable to the Health Sciences Fund
(i.e., less than $100 million in assets). The average total expense ratio for
all such funds is 1.30% (1.20% for funds with less than $50 million in
assets)./30/
John Hancock's Management Agreement with the Trust
John Hancock serves as the overall investment manager for the Health Sciences
Fund pursuant to an investment management agreement with the Trust dated April
30, 2001, as amended ("John Hancock 2001 Agreement"). As the investment manager,
John Hancock, among other things, advises the Trust in connection with policy
decisions of the Fund; provides administration of the Fund's day-to-day
operations; provides personnel, office space, equipment and supplies for the
Fund; maintains records required by the Investment Company Act of 1940;
recommends retention (or termination) of sub-managers to the Fund, as it deems
advisable; supervises activities of the sub-manager; and supervises the
activities of other providers of services to the Trust. For the services it
provides, John Hancock receives compensation from the Health Sciences Fund at
the annual rate of 1.00% of the first $250 million of the Fund's average daily
net assets plus 0.95% for all additional amounts.
Under the John Hancock 2001 Agreement, John Hancock is solely responsible for
the payment of all fees to sub-managers. Also, for any year in which the normal
operating costs and expenses of the Fund (exclusive of the management fees,
interest expense, brokerage commissions, taxes and extraordinary expenses
outside the control of John Hancock) exceed 0.10% of the Health Sciences Fund's
average daily net assets, the John Hancock 2001 Agreement provides that John
Hancock will reimburse that Fund in an amount equal to such excess.
- ----------
/30/ The foregoing analysis is based upon a John Hancock study using data as of
September 30, 2003 that was collected by Morningstar, Inc., an independent
statistical service that tracks expense data on variable insurance funds.
Appendix C to this statement contains additional information on John Hancock's
calculation of average total fund expenses.
53
The John Hancock 2001 Agreement was approved by the initial shareholder of the
Health Sciences Fund on May 1, 2001 to satisfy legal requirements applicable to
the organization of the Health Sciences Fund. There have been no votes by
shareholders of the Fund since then with respect to the John Hancock 2001
Agreement.
John Hancock's Reasons for Proposed Change in the Management Agreement
After conducting a review of the Health Sciences Fund's operating expenses in
comparison with other funds, John Hancock noted the following:
.. Funds that invest primarily in an industry sector, such as the Health
Sciences Fund, generally incur higher operating expenses than funds
investing in a broad spectrum of industries. The higher operating expenses
are due to a variety of factors, such as more intensive fundamental
research on companies within the designated sector, sophisticated
investment strategies using "derivatives" to manage investment risk and
potentially lower liquidity of investments focused on start-up companies
within the designated sector.
.. John Hancock's contractual obligation to reimburse the Fund for normal
operating expenses associated with investments in the health sciences
sector is unusual, and many of the Health Science Fund's peers do not have
an expense cap.
.. Over the past two years, John Hancock's reimbursements to the Health
Sciences Fund for certain operating expenses substantially reduced the
management fees retained by John Hancock after payment of the
sub-investment management fee to the Fund's sub-manager.
.. Other expenses directly incurred by John Hancock, such as those associated
with client servicing and communication, have increased with the
development of internet-based information systems and asset allocation
tools.
As a result of this review and analysis, John Hancock discussed with the Board
the need to make it more economically viable for John Hancock to continue use of
the Health Sciences Fund of the Trust as an investment option in John Hancock's
variable products. Specifically, with respect to the Health Sciences Fund, John
Hancock proposed that the John Hancock 2001 Agreement be amended to reflect the
elimination of John Hancock's obligation to reimburse the Fund for "other Fund
operating expenses" over the 0.10% expense cap.
In making this proposal, John Hancock noted that the elimination of its
contractual obligation to reimburse the Fund for certain operating expenses
would not preclude John Hancock from making such reimbursements on a voluntary
basis in the future, although it has no current plans to do so.
Basis for the Trustees' Recommendation
At its meeting held on December 10, 2003, the Board, including all of the
Trustees who are not associated with John Hancock (the "Independent Trustees"),
unanimously approved the proposed
54
amendment to the John Hancock 2001 Management Agreement for the Health Sciences
Fund, and also recommended that owners approve the amendment.
In evaluating and approving the amendment, the Board, including the independent
Trustees and with the assistance of outside counsel to the Trust, requested and
evaluated information from John Hancock that was relevant to whether the
amendment would be in the best interests of the Health Sciences Fund and the
owners of its shares.
In making its decision to approve the proposed amendment, the Board considered
factors bearing on the nature, scope, quality and profitability to John Hancock
of the services provided to the Health Sciences Fund, with a view toward making
a business judgment as to whether the proposed elimination of John Hancock's
contractual obligation to reimburse the Fund is, under all of the circumstances,
in the best interests of the Fund and owners of its shares.
In approving the change, the Trustees considered various factors and, in their
business judgment, reached various conclusions, principally including the
following:
.. The nature, quality and breadth of investment management services
provided by John Hancock to the Fund over the years has been
favorable, as demonstrated by:
(a) John Hancock's significantly increased commitment of personnel
and resources, since the inception of the Fund, to support the
investment management services provided to the Fund; and
(b) the increased sophistication of the sub-manager evaluation and
monitoring process used by John Hancock on behalf of the Fund.
.. The Trustees believed that there is a need to allow John Hancock to retain
sufficient revenues to incentivize John Hancock, within the competitive
variable insurance marketplace, to promote the Fund as a funding medium for
variable insurance products that the Insurers may market in the future.
.. The Trustees considered how the "spread" between the Fund's management fee
and sub-investment management fee would (even if the expense cap were
eliminated) relate to John Hancock's overall objectives and spreads for
other Funds of the Trust.
.. The Trustees considered information from John Hancock about the overall
profitability to the Insurers of the variable insurance products funded
through the Trust, including profits to John Hancock from serving as the
Trust's primary investment manager. They also considered information
provided by John Hancock about the difficulties of quantifying the cost and
profitability of the advisory function separately from the aggregate cost
and profitability of all of the functions performed by the Insurers to
develop, offer, and maintain the products. The Trustees concluded that,
particularly in view of the interdependence of the Fund and the variable
insurance products that it supports, the aggregate profitability
information the Trustees received was appropriate for purposes of their
deliberations.
55
.. It would be in the best interests of the Health Sciences Fund, and Contract
owners participating therein, if John Hancock were able to retain a larger
amount of compensation in connection with management of the Fund.
In connection with their deliberations, the Trustees received legal advice from
outside counsel to the Trust regarding the standards and methodology of
evaluation established by the SEC, the courts and the industry for mutual funds
selling shares to the public and the applicability of those standards and
methodology to mutual funds - like the Trust - selling shares to life insurance
company separate accounts. Such legal counsel, through its representation of
John Hancock on certain matters in which the Trust does not have a direct
interest, is also familiar with Insurers' variable insurance products and
Accounts funded through the Trust.
As a result of their consideration, the Trustees, in the exercise of their
business judgment, unanimously approved the proposed amendment to the John
Hancock 2001 Agreement as being in the best interests of the Health Sciences
Fund and owners of its shares.
The Proposed Amendment
The proposed amendment would delete current provisions in the John Hancock 2001
Management Agreement that require John Hancock to reimburse the Health Sciences
Fund for certain operating expenses when the expenses exceed an amount equal to
0.10% of the Fund's average daily net assets. In all other respects, the John
Hancock 2001 Management Agreement will remain unchanged with respect to the
Fund. Appendix A to this proxy statement provides additional information about
the John Hancock 2001 Management Agreement.
The following table provides a comparison of the Fund's actual expense ratios
for 2003 with expense ratios that would have resulted if the proposed amendment
for the Health Sciences Fund had been in effect during the year 2003. The table
is based on the Health Sciences Fund's average net assets during the year 2003
and shows (1) the current annualized level of all fees and operating expenses
for the Health Sciences Fund through [November 30, 2003]; and (2) the pro-forma
annualized level of all fees and operating expenses through [November 30, 2003
]that would have been incurred by the Fund under the proposed amendment. The
table does not reflect separate account expenses, including sales load and other
contract-level expenses.
- -------------------------------------------------------------------------------
Current Pro-Forma
------- ---------
Management fees [1.00]% [1.00]%
Distribution and Service (12b-1) Fees None None
Other Operating Expenses Absent Reimbursement [0.22%] [0.22%]
------ ------
Total Fund Expenses Absent Reimbursement [1. 22%] [1.22%]
Expense Reimbursement (including fee waivers) [(0.12%)] [(0.00%)]
------ ------
Total Fund Expenses After Reimbursement [1.10%] [1.22%]
------
- ------------------------------------------------------------------------------
Example: The following Example is intended to help compare the cost of investing
in the Health Sciences Fund under the current management fee schedule with the
cost of investing in the Health Sciences Fund under the proposed amendment. The
Example assumes that $10,000 is invested in the Health Sciences Fund at the
beginning of the time period indicated, that the
56
investment has a 5% return each year, and that the Health Sciences Fund's
operating expenses remain the same./31/
One Three Five Ten
Year Years Years Years
---- ----- ----- -----
Although actual costs may be higher or lower, under the current
Management Agreement, the costs would be: $ $ $ $
Although actual costs may be higher or lower, under the proposed
amendment to the Management Agreement, the costs would be: $ $ $ $
The Example does not reflect any charges imposed under a variable insurance or
variable annuity product. If these charges were included, the costs shown would
be higher.
Additional Information
See Proposal 1 and Appendix B of this proxy statement for information about John
Hancock and its Board of Directors and executive officers, and management fees
charged for comparable funds managed by John Hancock. Appendix E to this
statement contains further information about the sub-manager's policies in
placing portfolio transactions on behalf of the Fund.
Trustees' Recommendation
The Board unanimously believes that the amendment to the investment management
agreement is in the best interests of the Health Sciences Fund and owners of its
shares.
THE BOARD UNANIMOUSLY RECOMMENDS THAT OWNERS OF THE HEALTH SCIENCES FUND GIVE
INSTRUCTIONS TO VOTE FOR APPROVAL OF:
PROPOSAL 8 - AN AMENDMENT TO THE JOHN HANCOCK 2001 MANAGEMENT AGREEMENT
- ----------
/31/ Because shares of the Health Sciences Fund are bought and sold without
sales charges, the costs shown in the Example would be the same at the end of
the time period indicated, whether or not the shares were redeemed at that time.
57
PROPOSAL 9 - LARGE CAP VALUE CORE(SM) FUND
APPROVAL OF AN AMENDMENT TO THE MANAGEMENT AGREEMENT FOR
THE LARGE CAP VALUE CORE(SM) FUND
At its December 10, 2003 meeting, the Trust's Board of Trustees ("Board")
unanimously approved John Hancock's recommendations to change the sub-manager of
the Fund and the Fund's investment strategies to match those of the Trust's
Fundamental Value Fund. Subsequently, at its [February 11, 2004] meeting, the
Board [approved] and [recommended that owners approve], an amendment to the
management agreement with John Hancock for the Large Cap Value CORE(SM) Fund.
The proposed amendment would change the management fee paid by the Trust to John
Hancock for the Large Cap Value CORE SM Fund to equal the higher rate paid by
the Trust to John Hancock for the Fundamental Value Fund. It is proposed that
all of the changes for the Fund that the Board approved at these meetings, which
are explained in more detail on the balance of this Proposal 9, would take
effect on or about May 3, 2004.
If the amendment to the management agreement had been in effect during 2003 for
the Large Cap Value CORE SM Fund, (i) the Fund would have paid a management fee
to John Hancock of $ , rather than the $ paid under the current
------- --------
investment management agreement, without reduction for expense reimbursements
paid by John Hancock to the Fund (a % increase), and (ii) the ratio of total
----
expenses to average daily net assets [through November 30, 2003] would have been
[1.00%] rather than [0.85%]. However, the 1.00% ratio would still be similar to
the total expense ratios currently incurred by funds that support other variable
insurance products, that have similar investment focus, and that are of a size
comparable to the Large Cap Value CORE(SM) Fund (i.e., less than $100 million in
assets). The average total expense ratio for all such funds is 0.98%./32/
John Hancock's Management Agreement with the Trust
John Hancock serves as the overall investment manager for the Large Cap Value
CORE(SM) Fund pursuant to an investment management agreement with the Trust
dated July 28, 1999, as amended ("John Hancock 1999 Agreement"). As the
investment manager, John Hancock, among other things, advises the Trust in
connection with policy decisions of the Fund; provides administration of the
Fund's day-to-day operations; provides personnel, office space, equipment and
supplies for the Fund; maintains records required by the Investment Company Act
of 1940; recommends retention (or termination) of sub-managers to the Fund, as
it deems advisable; supervises activities of the sub-manager; and supervises the
activities of other providers of services to the Trust.
Under the John Hancock 1999 Agreement, John Hancock is solely responsible for
the payment of all fees to sub-managers. Also, for any year in which the normal
operating costs and expenses of the Fund (exclusive of the management fees,
interest expense, brokerage commissions, taxes
- ----------
/32/ The foregoing analysis is based upon a John Hancock study using data as of
September 30, 2003 that was collected by Morningstar, Inc., an independent
statistical service that tracks expense data on variable insurance funds.
Appendix C to this statement contains additional information on John Hancock's
calculation of average total fund expenses.
58
and extraordinary expenses outside the control of John Hancock) exceed 0.10% of
the Large Cap Value CORE(SM) Fund's average daily net assets, the John Hancock
1999 Agreement provides that John Hancock will reimburse that Fund in an amount
equal to such excess.
The John Hancock 1999 Agreement was approved by the initial shareholder of the
Large Cap Value CORE(SM) Fund on August 31, 1999 to satisfy legal requirements
applicable to the organization of the Fund. There have been no votes by
shareholders of the Large Cap Value CORE(SM) Fund since then with respect to the
John Hancock 1999 Agreement.
John Hancock's Reasons for Proposed Change in the Management Agreement
The proposed change to the John Hancock 1999 Agreement arises from John
Hancock's review of the Fund's operations and a review of John Hancock's
activities with respect to its management of the Fund.
At the Board meeting on December 10, 2003, John Hancock discussed with the Board
(i) John Hancock's concern about the Fund's relative inability to attract new
investors and (ii) John Hancock's belief that, under all the circumstances, a
new investment program for the Fund with Wellington Management Company, LLP
("Wellington Management")is the most attractive option that is available to the
Fund at this time.
As recommended, Wellington Management will follow an investment strategy for the
Large Cap Value CORE(SM) Fund that is substantially the same as the investment
strategy it now pursues for the Trust's Fundamental Value Fund. Under that
strategy, the Large Cap Value CORE(SM) Fund will continue to invest primarily in
a mix of common stocks of U.S. companies that are believed to offer favorable
prospects for increasing dividends and growth in capital, which may be measured
by factors such as dividend yields and price/book ratios. Under Wellington
Management, John Hancock anticipates that the Large Cap Value CORE(SM) Fund's
investment program will be somewhat more oriented toward a mix of "large cap"
and "mid-cap" value investing and less oriented to "large cap" value investing.
In this regard, the Fund will normally invest at least 80% of its assets in
companies with market capitalizations that are within the range of
capitalizations of companies in the Russell 1000(R) Value Index or the Russell
1000(R) Index./33/ In keeping with the Fund's modified investment program, John
Hancock anticipates that the Fund will have somewhat more potential exposure to
risks inherent in investing in smaller or mid-sized companies.
As part of its recommendation, John Hancock also proposed that John Hancock
would pay a sub-investment management fee to Wellington Management for the Large
Cap Value CORE SM Fund at a rate substantially similar to that paid by John
Hancock to Wellington Management for the Trust's Fundamental Value Fund. At the
Fund's current size, that fee is also substantially similar
- ----------
/33/ The range of the market capitalization of the companies included in these
two indexes was from [$194] million to [$280 billion] at [December 31, 2002].
59
to that currently paid by John Hancock to the current sub-manager for the Large
Cap Value CORE(SM) Fund./34/
The Board, upon John Hancock's recommendation, (a) decided that the Fund's
relationship with GSAM should be terminated effective on or about May 3, 2004
and (b) approved a new-sub investment management agreement, as proposed by John
Hancock, with Wellington Management as a successor sub-investment manager./35/
In addition, John Hancock reviewed the investment management fee it receives
from the Trust on the Large Cap Value CORE Fund. As part of its review, John
Hancock noted the following:
.. Since the inception of the Large Cap Value CORE Fund, there has been a
substantial increase in the commitment of qualified personnel, resources
and sophisticated information systems and technology by John Hancock to
support its increasingly complex investment management activities on behalf
of the Trust.
.. Expenses directly incurred by John Hancock, such as those associated with
client servicing and communication, have increased with the development of
internet-based information systems and asset allocation tools.
.. The current investment management fee and operating expense levels of the
Fund compare favorably with the average management fee and operating
expense levels for other mutual funds within the variable insurance
products marketplace having similar investment focus and asset size.
.. The historical investment record of John Hancock in managing the Fund
compares favorably to other funds having similar investment focus and asset
types within the current variable insurance marketplace that are not
advised or managed by John Hancock.
.. The "spread" between the current investment management fee the Fund pays
John Hancock and the sub-investment management fee that John Hancock will
pay to Wellington Management is less for the Fund than for certain other
Funds of the Trust. Moreover, John Hancock has been required to reimburse
this Fund for substantial amounts of its other operating expenses, pursuant
to John Hancock's commitment to cap such expenses at an annual rate of .10%
per annum of the Fund's average daily net assets. .
- ----------
/34/ John Hancock pays the Fund's current sub-manager, Goldman Sachs Asset
Management, LLP, a sub-investment management fee for the Large Cap Value CORESM
Fund equal to 0.40% per annum on the first $50 million of the Fund's average
daily net assets, 0.30% on the next $150 million, 0.25% on the next $800 million
plus 0.20% on any additional amounts. John Hancock will pay Wellington
Management a sub-investment management fee for the Fund equal to 0.40% on the
first $100 million of the Fund's average daily net assets plus 0.30% on any
additional amounts.
/35/ We are not asking you to vote on a new sub-management agreement because,
like many other mutual funds, the Trust has obtained an order from the
Securities and Exchange Commission that generally makes such votes unnecessary
for sub-managers that are not affiliated with John Hancock. The SEC order
requires John Hancock and the Trust to provide owners with an information
statement that describes the reasons for a change in sub-managers. The
applicable information statement will be sent to owners under separate cover.
60
.. These factors have contributed to a situation in which John Hancock's level
of compensation is not high enough to allow John Hancock to continue to
support the Fund on a long term basis in the manner that it has in the
past.
[As a result of this review and analysis, John Hancock discussed with the Board
the need to restructure this Fund to make it more economically viable component
of the large/mid cap value Funds that John Hancock offers as investment options
in the Insurer's variable products. Specifically, at the Board's February 11,
2004 meeting, John Hancock proposed that the John Hancock 1999 Management
Agreement should be amended to increase the investment management fees paid to
John Hancock for the Large Cap Value CORE(SM) Fund. The rates proposed by John
Hancock for the Large Cap Value CORE(SM) Fund would equal the investment
management fee rates of the Fundamental Value Fund. ]
This Proposal 9 seeks your approval only of the above-mentioned amendment to the
John Hancock 1999 Management Agreement. The new sub-management agreement with
Wellington Management does not require shareholder approval.
Possible Future Plans for the Large Cap Value CORE(SM) Fund
After shareholders have voted on this Proposal 9, the Board currently intends,
at a future meeting, to make a decision whether to combine the assets of the
Large Cap Value CORE(SM) Fund with the assets of the Fundamental Value Fund of
the Trust (together, the "Combining Funds").
The Combining Funds will be substantially identical to each other if the
shareholders of the Large Cap Value CORE(SM) Fund approve this Proposal 9.
Specifically, each of the Combining Funds will (a) be sub-managed by Wellington
Management, (b) be following substantially identical investment programs, and
(c) have substantially identical investment management and sub-management
agreements (including the management and sub-investment management fees payable
thereunder).
Under such circumstances, a combination of the two Funds would offer potential
cost savings and other advantages to investors in the Large Cap Value CORE(SM)
Fund. Such cost savings could result from the fact that the combined Funds would
be larger than either of the Combining Funds would be alone. (As of December 31,
2003, the net assets of the Large Cap Value CORE(SM) and Fundamental Value Funds
totaled approximately $ million and $ million, respectively.) The
----- ------
operating expenses of the Combining Funds would be lower (as a percentage of the
combined net assets) than if the Funds remained separate. Also, the larger Fund
that resulted from combining such assets could make it easier for Wellington
Management to formulate and implement investment decisions on the most effective
and efficient basis for the Fund.
John Hancock and the Board, however, have made no decision whether to pursue the
combination of the Combining Funds; and the Board and John Hancock will consider
all relevant facts and circumstances at the time in reaching any conclusion in
that regard. This will include,
61
among other things, whether this Proposal 9 is approved. Nevertheless, John
Hancock and the Board reserve the option of proceeding with a combination of the
Combining Funds, regardless of whether such proposal is approved. Moreover, it
is possible that any such combination could be accomplished under circumstances
where the affected Funds' shareholders have no right to vote on that
combination.
Basis for the Trustees' Recommendation
At its meeting held on [February 11, 2004], the Board, including all of the
Trustees who are not associated with John Hancock (the "Independent Trustees"),
unanimously [approved] the proposed amendment to the John Hancock 1999
Management Agreement for the Large Cap Value CORE(SM) Fund, and [also
recommended that owners approve the amendment. ]
In evaluating and approving the amendment, the Board, including the independent
Trustees and with the assistance of outside counsel to the Trust, [requested and
evaluated information from John Hancock that was relevant to whether the
amendment would be in the best interests of the Large Cap Value CORE(SM) Fund
and the owners of its shares. ]
In making its decision to approve the proposed amendment, the Board considered
factors [bearing on the nature, scope, quality and profitability to John Hancock
of the services provided to the Large Cap Value CORE(SM) Fund, with a view
toward making a business judgment as to whether the proposed fee increase is,
under all of the circumstances, in the best interests of the Fund and owners of
its shares. ]
In [approving] a new management fee schedule, which involves the retention of an
additional amount of "spread" by John Hancock, the Trustees considered various
factors and, in their business judgment, reached various conclusions,
principally including the following:
.. [The nature, quality and breadth of investment management services provided
by John Hancock to the Fund over the years has been favorable, as
demonstrated by:
(a) John Hancock's significantly increased commitment of personnel and
resources, since the inception of the Fund, to support the investment
management services provided to the Fund, and
(b) the increased sophistication of the sub-manager evaluation and
monitoring process used by John Hancock on behalf of the Fund.]
.. [The Trustees believed that there is a need to allow John Hancock to retain
sufficient revenues to incentivize John Hancock, within the competitive
variable insurance marketplace, to promote the Fund either as a discrete
series of the Trust or in combination with other large cap value-oriented
series of the Trust, as a funding medium for variable insurance products
that the Insurers may market in the future.]
.. [The Trustees considered information from John Hancock about the overall
profitability to the Insurers of the variable insurance products funded
through the Trust, including profits to John Hancock from serving as the
Trust's primary investment manager. They also considered information
provided by John Hancock about the difficulties of
62
quantifying the cost and profitability of the advisory function separately
from the aggregate cost and profitability of all of the functions performed
by the Insurers to develop, offer, and maintain the products. The Trustees
concluded that, particularly in view of the interdependence of the Fund and
the variable insurance products that it supports, the aggregate
profitability information the Trustees received was appropriate for
purposes of their deliberations.]
.. [The Trustees considered how the "spread" between the Fund's management fee
and sub-investment management fee would relate to John Hancock's overall
objectives and spreads for other Funds of the Trust. In particular, the
proposed new fee structure for the Large Cap Value CORE(SM) Fund would be
substantially similar to that of the Fundamental Value Fund. The Trustees
considered this to be appropriate in view of the fact that it is now
proposed that the two Funds be managed by the same sub-investment manager,
using substantially the same personnel and investment program.]
.. [It would be in the best interest of the Large Cap Value CORE(SM) Fund, and
the Contract owners participating therein, if John Hancock were able to
retain a larger amount of compensation in connection with its management of
the Fund.]
.. [The similarity of the investment strategy currently utilized by Wellington
Management for the Fundamental Value Fund to the investment strategy that
has now been approved by the Board for the Large Cap Value CORE(SM) Fund
may provide attractive opportunities in the future for these Funds to
combine assets (as discussed above under "Possible Future Plans for the
Large Cap Value CORE(SM) Fund"). ]
In connection with their deliberations, [the Trustees received legal advice from
outside counsel to the Trust regarding the standards and methodology of
evaluation established by the SEC, the courts and the industry for mutual funds
selling shares to the public and the applicability of those standards and
methodology to mutual funds - like the Trust - selling shares to life insurance
company separate accounts. Such legal counsel, through its representation of
John Hancock on certain matters in which the Trust does not have a direct
interest, is also familiar with Insurers' variable insurance products and
Accounts funded through the Trust.]
As a result of their consideration, the Trustees, in the exercise of their
business judgment, unanimously approved the proposed amendment to the John
Hancock 1999 Agreement as being in the best interests of the Large Cap Value
CORE(SM) Fund and owners of its shares.
The Proposed Amendment
For the services it provides, John Hancock currently receives compensation from
the Large Cap Value CORE(SM) Fund at the annual rate of 0.75% of the first $50
million of the Fund's average daily net assets, 0.65% of the next $150 million,
plus 0.60% of all additional amounts. Under the proposed amendment, the Fund's
management fees would increase to the following annual levels: 0.95% of the
first $25 million of the Fund's average daily net assets, 0.85% of the next $25
million, 0.75% of the next $50 million, plus 0.65% of any additional amounts. In
all other respects, the John Hancock 1999 Management Agreement will remain
unchanged, including John Hancock's obligation to reimburse the Large Cap Value
CORE(SM) Fund for certain operating
63
expenses when the expenses exceed an amount equal to 0.10% of the Fund's average
daily net assets. Appendix A to this proxy statement provides additional
information about the John Hancock 1999 Management Agreement.
The following table provides a comparison of the Fund's actual expense ratios
for 2003 with expense ratios that would have resulted if the proposed amendment
for the Large Cap Value CORE(SM) Fund had been in effect during the year 2003.
The table is based on the Large Cap Value CORE(SM) Fund's average net assets
during the year 2003 and shows (1) the current annualized level of all fees and
operating expenses for the Large Cap Value CORE(SM) Fund [through November 30,
2003]; and (2) the pro-forma annualized level of all fees and operating expenses
that would have been incurred by the Fund [through November 30, 2003] under the
proposed amendment. The table does not reflect separate account expenses,
including sales load and other contract-level expenses.
- ------------------------------------------------------------------------
Current Pro-Forma
------- ---------
Management fees [0.75%] [ 0.90%]
------
Distribution and Service (12b-1) Fees None None
Other Operating Expenses Absent Reimbursement [ %] [ %]
------ ------
Total Fund Expenses Absent Reimbursement [ ]% [ ]%
------ ------
Expense Reimbursement (including fee waivers) [( %)] ( %)
----- ------
Total Fund Expenses After Reimbursement [0.85%] [1.00%]
- ------------------------------------------------------------------------
Example: The following Example is intended to help compare the cost of investing
in the Large Cap Value CORE(SM) Fund under the current management fee schedule
with the cost of investing in the Large Cap Value CORE(SM) Fund under the
proposed amendment. The Example assumes that $10,000 is invested in the Large
Cap Value CORE(SM) Fund at the beginning of the time period indicated, that the
investment has a 5% return each year, and that the Large Cap Value CORE(SM)
Fund's operating expenses remain the same./36/
One Three Five Ten
Year Years Years Years
---- ----- ----- -----
Although actual costs may be higher or lower, under the current
Management Agreement, the costs would be: $ $ $ $
Although actual costs may be higher or lower, under the proposed
amendment to the Management Agreement, the costs would be: $ $ $ $
The Example does not reflect any charges imposed under a variable insurance or
variable annuity product. If these charges were included, the costs shown would
be higher.
Additional Information
- ----------
/36/ Because shares of the Large Cap Value CORE Fund are bought and sold without
sales charges, the costs shown in the Example would be the same at the end of
the time period indicated, whether or not the shares were redeemed at that time.
64
See Proposal 1 and Appendix B of this proxy statement for further information
about John Hancock, its Board of Directors and executive officers, and
management fees charged for comparable funds managed by John Hancock. Appendix E
to this statement contains further information about Wellington Management's
policies in placing portfolio transactions on behalf of the Fund.
Trustees' Recommendation
The Board unanimously believes that the amendment to the investment management
agreement is in the best interests of the Large Cap Value CORE(SM) Fund and
owners of its shares.
THE BOARD UNANIMOUSLY RECOMMENDS THAT OWNERS OF THE LARGE CAP VALUE CORE(SM)
FUND GIVE INSTRUCTIONS TO VOTE FOR APPROVAL OF:
PROPOSAL 9 - AN AMENDMENT TO THE JOHN HANCOCK 1999 MANAGEMENT AGREEMENT
65
GENERAL SOLICITATION AND VOTING INFORMATION
Information about the Solicitation
This solicitation is being made of all shares of the Fundamental Growth, Large
Cap Growth B, International Opportunities, Emerging Markets Equity, Overseas
Equity, International Equity Index, Global Bond, Health Sciences, and Large Cap
Value CORE(SM) Funds ("Affected Funds") of the Trust that are attributable to
interests in John Hancock Variable Life Accounts U, UV, V and S; and John
Hancock Variable Annuity Accounts U, V, JF, H and I (collectively, the
"Accounts"). The cost of preparing, printing and mailing this notice and proxy
statement and the accompanying voting instructions form will be borne by each of
the Affected Funds in the proportion that the Fund's assets bear to the
aggregate assets of the Affected Funds. Any other expenses of the solicitation
will be borne by John Hancock. In addition to solicitations by mail, certain
John Hancock employees may solicit voting instructions in person or by
telephone; such employees will not be compensated for such services.
Voting Instructions
Although John Hancock and its subsidiary John Hancock Variable Life Insurance
Company (together, the "Insurers"), through the Accounts, legally own all of the
Trust's shares, they will vote all of such shares in accordance with
instructions given by owners of variable life insurance policies and variable
annuity contracts, as discussed below. For this purpose, the owner of a variable
annuity contract during the period after annuity payments have commenced is the
annuitant.
Any authorized voting instructions will also be valid for any adjournment of the
Meeting and will be revocable only at the direction of the owner executing them.
If an insufficient number of affirmative votes are obtained to approve any item,
the Meeting may be adjourned as to any of the Affected Funds to permit the
solicitation of additional votes. Shares will be voted for any such adjournment
in the discretion of the Insurer in whose Account the shares are held.
Whether a proposal is approved depends upon whether a sufficient number of votes
are cast for the proposal. Accordingly, an instruction to abstain from voting on
any proposal has the same practical effect as an instruction to vote against
that proposal.
Any person giving voting instructions may revoke them at any time prior to their
exercise by submitting a superseding voting instruction form or a notice of
revocation to the Trust. In addition, although mere attendance at the Meeting
will not revoke voting instructions, an owner present at the Meeting may
withdraw his/her voting instruction form and give voting instructions in person.
The Insurers will vote Trust shares in accordance with all properly executed and
unrevoked voting instructions received in time for the Meeting or properly given
at the Meeting. Each Account holds the Trust shares of a Fund in a corresponding
"sub-account." The Insurers will vote the shares held in their respective
Accounts' sub-accounts which are attributable to the Contracts from owners
participating in that sub-account. An Account's shares in a Fund which
66
are not attributable to Contracts or for which no timely voting instructions are
received will be represented and voted by the Insurers in the same proportion as
the voting instructions which are received from all owners participating in the
Fund through that Account. (Fund shares which are not attributable to Contracts
include shares purchased with contributions made as "seed money" to the Fund by
the Insurers.)
Please refer to Appendix D to this statement if you wish additional information
about the number of shares of the Fund that are outstanding.
Required Voting
In order for the shareholders of a Fund to approve the respective proposal
contained in this proxy statement for that Fund, the proposal must receive the
favorable vote of a majority of the outstanding shares of that Fund. When used
in this proxy statement, a "majority vote of the outstanding voting shares"
means the affirmative vote of more than 50% of the outstanding shares of the
respective Fund or, if it is less, 67% or more of the shares of that Fund that
are present or represented at the Meeting.
- --------------------------------------------------------------------------------
WHETHER OR NOT YOU EXPECT TO BE PRESENT AT THE MEETING, YOU ARE URGED TO DATE,
SIGN AND RETURN THE ENCLOSED PROXY FOR EACH FUND YOU ARE USING IN THE
ACCOMPANYING STAMPED ENVELOPE. IN ORDER TO AVOID UNNECESSARY DELAY, WE ASK YOUR
COOPERATION IN MAILING THE PROXY OR PROXIES PROMPTLY. YOU MAY STILL VOTE IN
PERSON IF YOU ATTEND THE MEETING.
- --------------------------------------------------------------------------------
67
Appendix A
SUMMARY OF SUB- MANAGEMENT AND MANAGEMENT AGREEMENTS
Proposals 1 and 2 - Sub-Management Agreements for the Fundamental Growth Fund
and the Large Cap Growth B Fund (formerly, "Large Cap Aggressive Growth" Fund)
The proposed sub-management agreements by and among the Trust, John Hancock and
Independence Investment are summarized below.
The sub-management agreements contain the agreement of Independence Investment
to act as a sub- manager (i.e., as an investment adviser and manager) to the
Fundamental Growth or Large Cap Growth B Fund, as the case may be. Under each
agreement, Independence Investment will provide the applicable Fund with a
continuing and suitable investment program for that Fund.
Pursuant to the proposed agreements, Independence Investment is required to
adhere to the investment policies, guidelines and restrictions of the respective
Fund, as established by the Trust and John Hancock from time to time when
managing the investment and reinvestment of that Fund's assets. At its own
expense, Independence Investment agrees to provide specific services, including:
(a) advising the Trust in connection with investment policy decisions to be made
by its Board of Trustees or any committee thereof regarding the respective Fund
and, upon request, furnishing the Trust with research, economic and statistical
data in connection with that Fund's investments and investment policies; (b)
submitting reports and information as John Hancock or the Trust' s Board of
Trustees may reasonably request, to assist the custodian in its determination of
the market value of securities held in the respective Fund (to the extent such
securities are not otherwise priceable using an approved pricing service); (c)
placing orders for purchases and sales of portfolio investments for the
respective Fund; (d) maintaining and preserving the records relating to its
activities required by the 1940 Act to be maintained and preserved by the Trust,
to the extent not maintained by the custodian, transfer agent or John Hancock;
and (e) absent specific instructions to the contrary provided to it by John
Hancock and subject to its receipt of all necessary voting materials, voting all
proxies with respect to investments for the respective Fund in accordance with
the sub-manager's proxy voting policy as most recently provided to John Hancock.
The services provided by Independence Investment are subject to the overall
supervision, direction, control and review of John Hancock and the Board of
Trustees of the Trust.
Each party to a sub-management agreement bears the costs and expenses of
performing its obligations thereunder. In this regard, the Trust specifically
agrees to assume the expense of: (a) brokerage commissions for transactions in
the portfolio investments of the Trust and similar fees and charges for the
acquisition, disposition, lending or borrowing of such portfolio investments;
(b) custodian fees and expenses; (c) all taxes, including issuance and transfer
taxes, and reserves for taxes payable by the Trust to federal, state or other
governmental agencies; and (d) interest payable on the Trust's borrowings.
Nothing in either agreement, however, alters the allocation of expenses and
costs agreed upon between the Trust and John Hancock in the respective Fund's
primary investment management agreement, or in any other agreement to which they
are parties.
A-1
For its investment management and advisory services, Independence Investment is
paid a fee by John Hancock at the specified rate, which may vary by Fund.
Neither the Funds nor the Trust have any obligation or liability for payment of
this fee.
In connection with the investment and reinvestment of the Fund assets that it
manages, Independence Investment is authorized to select the brokers or dealers
that will execute purchase and sale transactions for the respective Fund and to
seek to obtain the best available price and most favorable execution with
respect to all such purchases and sales of such assets. Independence Investment
has the right, to the extent authorized by the Securities Exchange Act of 1934,
to follow a policy of selecting brokers who furnish brokerage and research
services to the respective Fund or to Independence Investment, and who charge a
higher commission rate to the Fund than may result when allocating brokerage
solely on the basis of seeking the most favorable price and execution.
Independence Investment is required to determine in good faith that its higher
cost was reasonable in relation to the value of the brokerage and research
services provided, and each may combine orders for the sale or purchase of
portfolio securities of the respective Fund with those for other accounts
managed by Independence Investment or its affiliates, if orders are allocated in
a manner deemed equitable by Independence Investment among the accounts and at a
price approximately averaged.
Independence Investment is not permitted to receive any tender offer
solicitation fees or similar payments in connection with the tender of
investments of the respective Fund.
No provision of the sub-management agreements protects Independence Investment
or John Hancock against any liability to the Trust or its shareholders to which
it might otherwise be subject by reason of any willful misfeasance, bad faith or
negligence in the performance of its duties or the reckless disregard of its
obligations and duties. However, Independence Investment is only obligated to
perform the services described in the respective agreement, and has made no
representation or warranty that any level of investment performance or level of
investment results will be achieved.
Unless modified or terminated, each sub-management agreement will continue with
respect to a Fund for an initial 2 year period and from year to year after that,
but only so long as such continuance is specifically approved at least annually
by (a) a majority of the Independent Trustees, cast in person at a meeting
called for the purpose of voting on such approval, and (b) either a vote of the
Board of Trustees or a majority of the outstanding voting shares of the Fund.
The sub-management agreements also provide that they may be terminated at any
time without penalty by the Trust's Board of Trustees, by majority vote of the
outstanding voting shares of the respective Fund or, on 60 days' notice, by John
Hancock or Independence Investment. Each sub-management agreement automatically
terminates in the event of its assignment or if the investment management
agreement between the Trust and John Hancock for the respective Fund is
terminated.
A-2
Proposals 3, 4, 5, 6, 7, 8 and 9 - Investment Management Agreements between the
Trust and John Hancock
This section summarizes the following investment management agreements between
the Trust and John Hancock:
- ------------------------------------------------------------------
Proposal - Applicable Fund Applicable Agreement
- ------------------------------------------------------------------
3 - International Opportunities Fund John Hancock 1998 Agreement
- ------------------------------------------------------------------
4 - Emerging Markets Equity Fund John Hancock 1998 Agreement
- ------------------------------------------------------------------
5 - Overseas Equity Fund John Hancock 1996 Agreement
- ------------------------------------------------------------------
6 - International Equity Index Fund John Hancock 1998 Agreement
- ------------------------------------------------------------------
7 - Global Bond Fund John Hancock 1996 Agreement
- ------------------------------------------------------------------
8 - Health Sciences Fund John Hancock 2001 Agreement
- ------------------------------------------------------------------
9 - Large Cap Value CORE(SM) Fund John Hancock 1999 Agreement
- ------------------------------------------------------------------
General Duties
Pursuant to the management agreements, John Hancock advises each Fund in
connection with policy decisions; supervises activities of the Fund's
sub-manager; provides personnel, office space, equipment and supplies for the
Trust; and (to the extent that those services are not provided by other service
providers to the Trust) provides administration of the Fund's day-to-day
operations and maintains records required by the Investment Company Act of 1940.
For its investment management and advisory services, John Hancock is paid a fee
by the applicable Fund(s) at a specified rate that varies by Fund.
Current Expense "Cap"
The investment management agreements provide that, for any fiscal year in which
the normal operating costs and expenses of a Fund (exclusive of its investment
management fees, interest, brokerage commissions, taxes and extraordinary
expenses outside the control of John Hancock) exceed 0.10% of the Fund's average
daily net assets, John Hancock will reimburse the Fund promptly after the end of
the fiscal year in an amount equal to such excess.
Under Proposals 3, 4, 5, 6, 7 and 8, this "cap" would be eliminated for,
respectively, the International Opportunities, Emerging Markets Equity, Overseas
Equity, International Equity Index, Global Bond and Health Sciences Funds.
Allocation of expenses
Under the investment management agreements, John Hancock assumes certain Trust
expenses. These expenses include, for example:
.. the expenses of shareholders' meetings; trustees' meetings; printing and
distributing Prospectuses and statements of additional information related
to the Fund's initial class of shares to prospective and existing owners;
.. preparing, printing, and distributing any advertising or sales literature
to such prospective and existing owners; and any other activity and related
legal services primarily intended to result in the sale of the such shares;
.. the expense of furnishing each shareholder statements of account; and
.. the cost of any errors and omissions insurance or other liability insurance
covering the Trust and/or its officers, directors and employees.
John Hancock's obligation to cover these expenses is not affected by any of the
Proposals.
A-3
The Trust bears all of its expenses not specifically assumed by John Hancock.
These include, but are not limited to, taxes, custodian and auditing fees,
brokerage commissions, investment management fees payable to John Hancock, the
compensation of unaffiliated Trustees, the cost of the Trust's fidelity bond,
the cost of printing and distributing to owners the Trust's annual and
semi-annual reports, the cost of printing, distributing to owners, and
tabulating proxy materials, compensation paid for certain accounting, valuation
and compliance services, legal fees, securities registration expenses,
organizational expenses, association dues and other expenses related to the
Trust's operations.
Indemnification
John Hancock also indemnifies each member of the Board of Trustees against
losses by reason of failure (other than through willful misfeasance, bad faith,
gross negligence or reckless disregard of duties) to take any action relating to
the investment or reinvestment of assets in the Trust, including failure to seek
or retain investment advice or management in addition to or in place of that
provided by John Hancock or the sub-managers.
Term and Termination
Unless modified or terminated, each management agreement will continue with
respect to a Fund from year to year but only so long as such continuance is
specifically approved at least annually by (a) a majority of the Independent
Trustees, cast in person at a meeting called for the purpose of voting on such
approval, and (b) either a vote of the Board of Trustees or a majority of the
outstanding voting shares of the Fund. Each management agreement also provides
that it may, on 60 days' notice, be terminated at any time without penalty by
the Board of Trustees, by majority vote of the outstanding voting shares of the
Fund, or by John Hancock. Each management agreement automatically terminates in
the event of its assignment.
A-4
Appendix B
FURTHER INFORMATION ABOUT JOHN HANCOCK
AND INDEPENDENCE INVESTMENT
JOHN HANCOCK - Directors and Executive Officers
John Hancock is managed by its Board of Directors. The business address of all
directors and executive officers of John Hancock is John Hancock Place, Boston,
Massachusetts 02117.
The directors and executive officers of John Hancock are as follows:
Directors Principal Occupation
- ------------------------ -----------------------------------------------------
David F. D'Alessandro Chairman of the Board, President and Chief Executive
Officer, John Hancock
Foster L. Aborn Director, formerly Vice Chairman of the Board and
Chief Investment Officer, John Hancock
Wayne A. Budd Executive Vice President and General Counsel, John
Hancock
John M. Connors, Jr. Chairman and Chief Executive Officer and Director,
Hill, Holliday, Connors, Cosmopoulos, Inc.
(advertising)
John M. DiCiccio Executive Vice President and Chief Investment
Officer, John Hancock
Robert E. Fast Senior Partner, Hale and Dorr (law firm)
Kathleen F. Feldstein President, Economic Studies, Inc. (economic
consulting).
Thomas P. Glynn Chief Operating Officer, Partners HealthCare System,
Inc. (health care)
Michael C. Hawley Retired Chairman and Chief Executive Officer, The
Gillette Company (razors, etc.)
Edward H. Linde President and Chief Executive Officer, Boston
Properties, Inc. (real estate)
Judith A. McHale President and Chief Operating Officer, Discovery
Communications, Inc. (multimedia communications)
R. Robert Popeo Chairman, Mintz, Levin, Cohn, Ferris, Glovsky and
Popeo (law firm)
Richard F. Syron Chairman, President and Chief Executive Officer,
Thermo Electron Corp. (scientific and industrial
instruments)
Robert J. Tarr, Jr. Formerly Chairman, President and Chief Executive
Officer, HomeRuns.com (online grocer)
Other Executive Officers
- ------------------------
Thomas E. Moloney Senior Executive Vice President and Chief Financial
Officer
Michael Bell Senior Executive Vice President - Retail; Founder and
Director of Monitor Company (management consulting)
Derek Chilvers Executive Vice President; Chairman and Chief
Executive Officer of John Hancock International
Holdings, Inc.
Maureen Ford Goldfarb Executive Vice President; Chairman and Chief
Executive Officer of John Hancock Funds, Inc.
Robert F. Walters Executive Vice President and Chief Information
Officer
The following employees of John Hancock (or an affiliate) are also Trustees
or principal officers of the John Hancock Variable Series Trust I (the "Trust"):
B-1
Michele G. Van Leer Chairman of the Board of the Trust
Kathleen F. Driscoll President and Vice Chairman of the Board of the Trust
Raymond F. Skiba Treasurer of the Trust
Karen Q. Visconti Secretary of the Trust
Jude Curtis Compliance Officer of the Trust
Ronald J. Bocage Chief Legal Officer of the Trust
JOHN HANCOCK - Comparable Funds
The Trust is the only mutual fund for which John Hancock serves as an investment
manager. The following table contains information concerning other series of the
Trust managed by John Hancock that have an investment objective similar to the
Affected Funds shown below:
- -------------------------------------------------------------------------------------------------------------------
Comparable Fund
--------------------------------------------------------------------------------
Proposal - Affected Fund Current Fee Schedule Net Assets at
Net Assets at * (as a % of Average Net *
--- Name Assets) --------
- -------------------------------------------------------------------------------------------------------------------
3 - International Opportunities Overseas Equity Fund/37/ 1.05% on the first $150 million
Fund (international fund) 0.95% on the next $150 million
$ 0.80% on the next $200 million
---------- 0.75% on amounts over $500
million
Emerging Markets Equity 1.65% on the first $10 million
Fund (international fund)B/38/ 1.45% on the next $140 million
1.35% on amounts over $150
million
- -------------------------------------------------------------------------------------------------------------------
4 - Emerging Markets Equity International Opportunities 1.30% on the first $20 million
Fund Fund 1.15% on the next $30 million
$ (international fund) 1.05% on amounts over $50
---------- million
Overseas Equity Fund/36/ 1.05% on the first $150 million
(international fund) 0.95% on the next $150 million
0.80% on the next $200 million
0.75% on amounts over $500
million
- -------------------------------------------------------------------------------------------------------------------
5 - Overseas Equity Fund International Opportunities 1.30% on the first $20 million
$ Fund 1.15% on the next $30 million
---------- (international fund) 1.05% on amounts over $50
million
Emerging Markets Equity 1.65% on the first $10 million
Fund (international fund)/37/ 1.45% on the next $140 million
1.35% on amounts over $150
- -------------------------------------------------------------------------------------------------------------------
- ----------
/37/ Under Proposal 5, the investment management fee for the Overseas Equity
Fund is proposed to change to equal 1.30% per annum on the first $20 million of
Fund assets, 1.15% on the next $30 million, and 1.05% on amounts over $50
million of this Fund's assets.
/38/ Under Proposal 4, the investment management fee for the Emerging markets
Equity Fund is proposed to change to equal to 1.300% per annum on the first $20
million of Fund assets, 1.15% on the next $30 million, and 1.05% on amounts over
$50 million of this Fund's assets.
B-2
- -------------------------------------------------------------------------------------------------------------------
million
6 - International Equity Index Equity Index Fund 1.50% on the first $75 million
Fund (index fund) 1.40% on the next $50 million
$ 1.30% on amounts over $125
---------- million
Bond Index Fund 1.50% on the first $100 million
(index fund) 1.30% on the next $150 million
1.10% on amounts over $250
million
- -------------------------------------------------------------------------------------------------------------------
7 Global Bond Fund Short-Term Bond Fund 0.60% on all amounts
$ (bond fund)
----------
Active Bond Fund 0.70% on the first $100 million
(bond fund) 0.65% on the next $150 million
0.61% on the next $250 million
0.58% on the next $500 million
0.55% on amounts over $1
billion
- -------------------------------------------------------------------------------------------------------------------
8 - Health Sciences Fund Real Estate Equity Fund 1.10% on the first $50 million
$ (sector fund) 1.00% on the next $50 million
---------- 0.90% on the next $100 million
0.80% on amounts over $200
million
Financial Industries Fund 0.80% on all amounts
(sector fund)
- -------------------------------------------------------------------------------------------------------------------
9 - Large Cap Value CORE(SM) Fund Large Cap Value Fund 0.75% on all amounts
$
---------- Fundamental Value Fund 0.95% on the first $25 million
0.85% on the next $25 million
0.75% on the next $50 million
0.65% on amounts over $100
million
- -------------------------------------------------------------------------------------------------------------------
* 000's omitted
B-3
INDEPENDENCE INVESTMENT - Directors
Independence Investment is managed by its Board of Directors, whose members are
shown in the following table:
Name/Title Principal Occupation Address
- --------------------- ---------------------------------------- -------------
John M. DeCiccio Executive Vice President and Chief John Hancock Place
Director Investment Officer, John Hancock P.O. Box 111
Financial Services, Inc.; Director, Boston, MA 02117
Executive Vice President and Chief
Investment Officer, John Hancock;
Chairman of the Committee of Finance of
John Hancock; Director, JH Subsidiaries,
Hancock Natural Resource Group,
Independence Investment LLC, Declaration
Management, JH Advisers, Berkeley, John
Hancock Funds, LLC, Massachusetts
Business Development Corporation.
Joanne P. Acford Senior Vice President and Deputy General John Hancock Place
Director Counsel, John Hancock P.O. Box 111
Boston, MA 02117
Maureen Ford Goldfarb Executive Vice President, John Hancock 101 Huntington Avenue
Director Financial Services, Inc. and John Boston, MA 02199-7603
Hancock; Chairman and Chief Executive
Officer, John Hancock Funds, Inc.
Ronald J. McHugh Senior Vice President and Treasurer, John Hancock Place
Director John Hancock Financial Services, Inc. P.O. Box 111
and John Hancock Boston, MA 02117
Mark C. Lapman Chairman, President and Director, 53 State Street
Chairman and Director Independence Investment Boston, MA 02109
Klaus O. Shigley Senior Vice President, John Hancock John Hancock Place
Director Financial Services, Inc.; Senior Vice P.O. Box 111
President and Corporate Actuary, John Boston, MA 02117
Hancock
B-4
INDEPENDENCE INVESTMENT - Comparable Funds
The following table contains information about "Comparable Funds." For these
purposes, a "Comparable Fund" is a mutual fund, or a series of a mutual fund,
that: (a) receives investment advisory services from Independence Investment,
and (b) has an investment objective similar to that of the Affected Fund shown.
The only Comparable Funds for the Affected Funds shown below are series of the
John Hancock Variable Series Trust I ("Trust"), and Independence Investment
provides investment advisory services to these Comparable Funds only in its
capacity as a sub-manager.
Comparable Fund
---------------------------------------------------------------------------------
Proposal - Affected Fund Name Current Fee Schedule
Net Assets at (as a % of Average Net Net Assets at
---- Assets)
----------
- --------------------------------------------------------------------------------------------------------------------
1 - Fundamental Growth Fund Large Cap Growth B Fund of the 0.30% on the first $500 million,
$ Trust 0.2625% on the next $500
---------- million and 0.225% on any
additional amounts
Large Cap Growth Fund of the 0.30% on the first $500
Trust million, 0.2625% on the next
$500 million and 0.225% on any
additional amounts
- --------------------------------------------------------------------------------------------------------------------
2 - Large Cap Growth B Fund Fundamental Growth Fund of the 0.30% on the first $500
$ Trust million, 0.2625% on the next
---------- $500 million and 0.225% on any
additional amounts
Large Cap Growth Fund of the 0.30% on the first $500
Trust million, 0.2625% on the next
$500 million and 0.2250% on any
additional amounts
- --------------------------------------------------------------------------------------------------------------------
* in thousands
B-5
Appendix C
John Hancock's Calculation of Average Total Fund Expenses
Proposal 6 - International Equity Index Fund
John Hancock selected all insurance company separate accounts listed within the
Morningstar Foreign Large Blend investment category. It next selected all
accounts investing in insurance funds that were "passively" managed (i.e., index
funds) and deleted accounts that were not appropriately categorized (such as
enhanced index funds). This resulted in a universe of 135 accounts, which John
Hancock averaged on a simple average basis (i.e., unweighted by asset size)
based on Morningstar data provided as of [September 30, 2003.] John Hancock used
all 135 accounts, without regard to asset size, in order to obtain a meaningful
comparison with an appropriate number of accounts.
Proposal 7 - Global Bond Fund
John Hancock selected all insurance company separate accounts listed within the
Morningstar World Bond investment category. It next selected all accounts
investing in insurance funds that were both (i) "actively" managed (i.e., no
index funds) and (ii) of a comparable size to the Global Bond Fund (i.e., less
than $250 million of assets). This resulted in a set of 230 accounts that John
Hancock averaged on a simple average basis (i.e., unweighted by asset size),
based on Morningstar data provided as of [September 30, 2003.]
Proposal 8 - Health Sciences Fund
John Hancock selected all insurance company separate accounts listed within the
Morningstar Specialty Health investment category. It next selected all accounts
investing in insurance funds that were both (i) "actively" managed (i.e., no
index funds) and (ii) of comparable size to the Health Sciences Fund (i.e., less
than $50 million of assets and less than $100 million of assets). Next, John
Hancock deleted accounts with unusually high expense ratios. This resulted in a
set of 55 accounts for accounts of less than $50 million of assets and 199
accounts of less than $100 million of assets that John Hancock averaged on a
simple average basis (i.e., unweighted by asset size), based on Morningstar data
provided as of [September 30, 2003.]
Proposal 9 - Large Cap Value CORE Fund
John Hancock selected all insurance company separate accounts listed within the
Morningstar Large Value investment category. It next selected all accounts
investing in insurance funds that were both (i) "actively" managed (i.e., no
index funds) and (ii) of a comparable size to the Large Cap Value CORE Fund
(i.e., less than $ 250 million of assets). Next, John Hancock deleted accounts
with unusually high expense ratios or that were not appropriately categorized
(such as specialty financial or balanced funds within broader universes). This
resulted in a set of 1,208 accounts that John Hancock averaged on a simple
average basis (i.e., unweighted by asset size), based on Morningstar data
provided as of [September 30, 2003.]
C-1
Appendix D
RECORD DATE AND VOTING SHARES
As of the close of business on January 20, 2004 (the "record date" for the
Funds listed below), the following shares were outstanding:
- ----------------------------------------------
Name of Fund Number of Shares
- ----------------------------------------------
Fundamental Growth
- ----------------------------------------------
Large Cap Growth B
- ----------------------------------------------
International Opportunities
- ----------------------------------------------
Emerging Markets Equity
- ----------------------------------------------
Overseas Equity
- ----------------------------------------------
International Equity Index
- ----------------------------------------------
Global Bond
- ----------------------------------------------
Health Sciences
- ----------------------------------------------
As of the close of business on [February 11, 2004] (the "record date" for the
Fund listed below), the following shares were outstanding:
- ----------------------------------------------
Name of Fund Number of Shares
- ----------------------------------------------
Large Cap Value CORE(SM)
- ----------------------------------------------
Each Trust share is entitled to one vote, and fractional votes will be counted.
The number of Trust shares attributable to each owner of a variable life
insurance policy ("policy") is determined by dividing, as of the record date of
the Meeting, a policy's cash (or account) value (less any outstanding
indebtedness) in the designated subaccount of the applicable Account by the net
asset value of one share in the corresponding Fund in which the assets of the
subaccount are invested. The number of Trust shares attributable to each owner
of a variable annuity contract ("contract") is determined by dividing, as of the
record date of the Meeting, the value of the Accumulation Shares under a
contract (or for each contract under which annuity payments have commenced, the
equivalent determined by dividing the contract reserves by the value of one
Accumulation Share) in the designated subaccount of the applicable Account by
the net asset value of one share in the corresponding Fund in which the assets
of the subaccount are invested.
As of the close of business on the applicable record date, the Insurers had in
the aggregate the following numbers of shares representing their "seed money"
contributions and other amounts in the Accounts that are in excess of the
amounts attributable to policies and contracts:
- --------------------------------------------------------------------
Percentage of Total
Name of Fund Number of Shares Shares Outstanding
- --------------------------------------------------------------------
Fundamental Growth
- --------------------------------------------------------------------
Large Cap Growth B
- --------------------------------------------------------------------
International Opportunities
- --------------------------------------------------------------------
Emerging Markets Equity
- --------------------------------------------------------------------
Overseas Equity
- --------------------------------------------------------------------
International Equity Index
- --------------------------------------------------------------------
D-1
- --------------------------------------------------------------------
Global Bond
- --------------------------------------------------------------------
Health Sciences
- --------------------------------------------------------------------
Large Cap Value CORE(SM)
- --------------------------------------------------------------------
D-2
Appendix E [NEW]
SUMMARY OF ORDER PLACING PROCEDURES
FOR PORTFOLIO TRANSACTIONS OF
THE FUNDS OF THE TRUST
Each sub-manager places orders for portfolio transactions for Fund assets that
it manages through brokers and dealers that it believes will offer best overall
price and quality of execution for the affected Fund. When it can be done
consistently with that policy and applicable law, each sub-manager may (1) place
such orders with brokers-dealers who supply research, market and statistical
information to the Fund or to that sub-manager and/or (2) cause the Fund to pay
a brokerage commission in excess of that which another broker might charge for
executing the same transaction, in consideration of research or research related
products or services that benefit the sub-manager's advisory clients. Any
particular research, market or statistical information supplied to a
sub-manager, however, may or may not benefit the Fund.
Assistance typically furnished by brokers or dealers includes analysts' reports
on companies and industries, market forecasts, and economic analyses. Brokers or
dealers may also provide reports on pertinent federal and state legislative
developments and changes in accounting practices; direct access by telephone or
meetings with, and services related to investment matters of particular interest
to the sub-manager from, leading research and industry analysts throughout the
financial community, corporate management personnel, industry experts, leading
economists and government officials; comparative performance and evaluation and
technical performance measurement services; portfolio optimization software; and
quotation services. The foregoing services may comprise the use of or be
delivered by computer systems whose software and hardware components may be
provided to the sub-manager as part of the services. In any case in which such
items are used for both research and non-research purposes, the sub-manager
makes an appropriate allocation of those uses and will permit brokers and
dealers to provide only the portion to be used for research purposes. Costs
which are allocable to non-research purposes will be paid directly by the
sub-manager.
No sub-manager will at any time make a commitment pursuant to an agreement with
a broker because of research or research related services provided. Whenever a
sub-manager seeks to direct certain amounts to broker-dealers that provide
research or research-related services, it will establish and maintain internal
procedures. These internal procedures do not mandate that any amount of business
be directed to any broker-dealer, and in no event will a broker-dealer be used
unless the sub-manager believes that the broker-dealer also will provide the
best overall price and execution for the Fund (after taking into account the
research, market and statistical information and related services mentioned
above).
In selecting brokers and dealers with which to place portfolio transactions for
the Fund, no sub-manager will consider sales of shares of funds advised by that
sub-manager as a decision-making
E-1
factor, although a sub-manager may place such transactions with brokers and
dealers that sell share of funds advised by that sub-manager.
The Trust also has entered into an arrangement with State Street Global Markets
LLC ("SSGM") under which a Fund receives a credit on a trade-by-trade basis for
part of brokerage commissions paid by that Fund on its portfolio transactions
that its sub-manager directs to one of a network of broker-dealer firms that
SSGM has organized for this purpose. SSGM uses any such credit to benefit the
affected Funds, by applying it to pay other non-distribution related expenses of
the Fund (including the Fund's share of the Trust's custodial fee). Therefore,
when it can be done consistently with the Trust's policy of seeking best overall
price and quality of execution, sub-managers may favor broker-dealers within
SSGM's network.
E-2
VOTING INSTRUCTION FORM
PLEASE SIGN, DATE AND RETURN ALL VOTING
INSTRUCTION FORMS RECEIVED IN THE ENCLOSED
POSTAGE-PAID ENVELOPE.
THESE VOTING INSTRUCTIONS
ARE SOLICITED BY THE TRUSTEES FOR THE
SPECIAL MEETING OF SHAREHOLDERS ON
THURSDAY, MARCH 18, 2004 - 11:00 A.M. EASTERN TIME,
197 CLARENDON STREET, BOSTON, MASSACHUSETTS
[FUND NAME PRINTS HERE]
JOHN HANCOCK VARIABLE SERIES TRUST I
Special Meeting of Shareholders
To Be Held on March 18, 2004
A Special Meeting of Shareholders of the John Hancock Variable Series Trust I
(the "Trust") for the Fund shown above will be held at the office of John
Hancock Life Insurance Company ("John Hancock"), 197 Clarendon Street, Boston,
Massachusetts, (telephone 1-800-732-5543) at 11:00 a.m. Eastern Time, on
Thursday, March 18, 2004. By signing and dating below, you instruct the record
holder to, and such record holder will, vote the shares attributable to your
variable life insurance or variable annuity contract as marked or, if not
marked, to vote "FOR" the applicable proposal on the reverse side of this form,
and to use its discretion to vote any other matter incident to the conduct of
the Special Meeting. If you do not intend to personally attend the Special
Meeting, please complete, detach and mail this form in the enclosed envelope at
once.
The record owner is hereby instructed to vote the shares of the above named Fund
that are attributable to the undersigned's contract at the Special Meeting of
Shareholders and at any adjournment thereof.
Date , 2004
-----------
PLEASE BE SURE TO SIGN AND DATE THIS CARD
--------------------------------------------------------
Signature(s) of Shareholder(s) (Sign in the box)
NOTE: Signature(s) should agree with the name(s) printed hereon. When signing as
attorney, executor, administrator, trustee or guardian, please give your full
name as such. If a corporation, please sign in full corporate name by president
or other authorized officer. If a partnership, please sign in partnership name
by authorized person.
Please fill in box(es) as shown using black or blue ink or number 2 pencil.
PLEASE DO NOT USE FINE POINT PENS. [X]
VOTING INSTRUCTION FORM
PLEASE SIGN, DATE AND RETURN ALL VOTING
INSTRUCTION FORMS RECEIVED IN THE ENCLOSED
POSTAGE-PAID ENVELOPE.
THESE VOTING INSTRUCTIONS
ARE SOLICITED BY THE TRUSTEES FOR THE
SPECIAL MEETING OF SHAREHOLDERS ON
THURSDAY, MARCH 18, 2004 - 11:00 A.M. EASTERN TIME,
197 CLARENDON STREET, BOSTON, MASSACHUSETTS
If this card is executed, but you give no direction, the shares will be voted
"FOR" the applicable proposal.
- -----------------------------------------------------------------------------------------
FOR AGAINST ABSTAIN
- -----------------------------------------------------------------------------------------
1. FUNDAMENTAL GROWTH FUND only: To approve [ ] [ ] [ ] 1.
a new Sub-Management Agreement among the Trust, John
Hancock and Independence Investment LLC.
- -----------------------------------------------------------------------------------------
2. LARGE CAP GROWTH B FUND only: To approve a [ ] [ ] [ ] 2.
new Sub-Management Agreement among the Trust, John
Hancock and Independence Investment LLC.
- -----------------------------------------------------------------------------------------
3. INTERNATIONAL OPPORTUNITIES FUND only: To [ ] [ ] [ ] 3.
approve an amendment to the current investment
management agreement between the Trust and John
Hancock.
- -----------------------------------------------------------------------------------------
4. EMERGING MARKETS EQUITY FUND only: To [ ] [ ] [ ] 4.
approve an amendment to the current investment
management agreement between the Trust and John
Hancock.
- -----------------------------------------------------------------------------------------
5. OVERSEAS EQUITY FUND only: To approve an [ ] [ ] [ ] 5.
amendment to the current investment management
agreement between the Trust and John Hancock.
- -----------------------------------------------------------------------------------------
6. INTERNATIONAL EQUITY INDEX FUND only: To [ ] [ ] [ ] 6.
approve an amendment to the current investment
management agreement between the Trust and John
Hancock.
- -----------------------------------------------------------------------------------------
7. GLOBAL BOND FUND only: To approve an [ ] [ ] [ ] 7.
amendment to the current investment management
agreement between the Trust and John Hancock.
- -----------------------------------------------------------------------------------------
8. HEALTH SCIENCES FUND only: To approve an [ ] [ ] [ ] 8.
an amendment to the current investment management
agreement between the Trust and John Hancock.
- -----------------------------------------------------------------------------------------
9. LARGE CAP VALUE CORE(SM) FUND only: To approve [ ] [ ] [ ] 9.
an amendment to the current investment management
agreement between the Trust and John Hancock.
- -----------------------------------------------------------------------------------------
PLEASE DO NOT FORGET TO SIGN AND DATE THE REVERSE SIDE OF THIS CARD