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CLIENT/MATTER NUMBER
303090-0010
July , 2004
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John Hancock Variable Series Trust I
197 Clarendon Street
Boston, MA 02117
Re: Federal Income Tax Consequences of Merger of Funds Under
Agreement and Plan of Reorganization of John Hancock
Variable Series Trust I dated as of , 2004
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Ladies and Gentlemen:
You have requested our opinion, in our capacity as counsel to John Hancock
Variable Series Trust I ("JHVST"), a Massachusetts business trust, concerning
certain federal income tax consequences of the anticipated transactions under
the Agreement and Plan of Reorganization, dated as of , 2004
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(the "Agreement"), by and between JHVST, on behalf of its Fundamental Growth,
Large Cap Growth B, Fundamental Value B, Mid Cap Value, Small Cap Growth,
Overseas Equity, and Overseas Equity C Funds (each an "Acquired Fund") and its
Large Cap Growth, Fundamental Value, Mid Cap Value B, Small Cap Emerging Growth,
and Overseas Equity B Funds (each an "Acquiring Fund"), and John Hancock Life
Insurance Company, a Massachusetts corporation.
Background
The following transactions (as to each constituent pair of Funds, a
"Transaction") are contemplated under the Agreement: (i) each Acquired Fund will
transfer all of its assets to the corresponding Acquiring Fund, listed opposite
its name on Schedule A to this letter, solely in exchange for the assumption by
the Acquiring Fund of the liabilities of the Acquired Fund and delivery by JHVST
directly to the holders of record of the issued and outstanding shares of the
Acquired Fund of a number of Acquiring Fund shares having an aggregate net asset
value equal to the net value of the assets of the Acquired Fund so transferred.
Except as otherwise provided, all terms not defined herein shall have the
meanings ascribed to them (or defined by reference) in the Agreement. For
purposes of this opinion, the term "Code" means the Internal Revenue Code of
1986, as amended, and all statutory references are to the Code unless otherwise
specified.
BRUSSELS DETROIT MILWAUKEE SAN DIEGO/DEL MAR TAMPA
CHICAGO JACKSONVILLE ORLANDO SAN FRANCISCO TOKYO
DENVER LOS ANGELES SACRAMENTO SILICON VALLEY WASHINGTON, D.C.
MADISON SAN DIEGO TALLAHASSEE WEST PALM BEACH
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John Hancock Variable Series Trust I
July , 2004
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Scope and Basis of Opinion
The opinion expressed herein is rendered only with respect to the specific
matters discussed herein. We express no opinion with respect to any other
federal, state, local or foreign income tax or legal aspect of the Transaction,
and no inference should be drawn with respect to any matter not expressly opined
upon.
In connection with the preparation of this opinion, we have reviewed and
relied on the Proxy Statement and Prospectus filed on , 2004 by
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JHVST with the Securities and Exchange Commission with respect to the
Transactions (the "Proxy Statement"), the Agreement, certain representations
concerning the Transactions made to us by JHVST in an officer's certificate
dated , 2004, and such other documents concerning the Transaction
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as we have deemed necessary. We have assumed for all purposes that the
Transactions will be effected as set forth above and as described in the
Agreement and the Proxy Statement. We have not made any independent
investigation of the representations in connection with the Transactions.
Our opinion expressed herein is based upon existing law, regulations,
administrative pronouncements, and judicial authority, all as in effect as of
today's date.
Opinion
Subject to the conditions and limitations included in the portion of this
letter entitled Scope and Basis of Opinion and in the paragraphs following
numbered paragraph (9), below, we are of the opinion that for federal income tax
purposes:
(1) The acquisition by each Acquiring Fund of all the assets of the
corresponding Acquired Fund in a Transaction solely in exchange for
the assumption by the Acquiring Fund of the liabilities of the
Acquired Fund and direct delivery of shares of the Acquiring Fund to
shareholders of the Acquired Fund, as described above, will qualify as
a reorganization within the meaning of Section 368(a)(1) of the Code.
Each of the Acquiring Fund and the Acquired Fund will be "a party to a
reorganization" within the meaning of Section 368(b) of the Code.
(2) No gain or loss will be recognized by any Acquired Fund upon the
transfer of all its assets to the corresponding Acquiring Fund in a
Transaction solely in exchange for the assumption by the Acquiring
Fund of the liabilities of the Acquired Fund and the direct delivery
of voting shares of the Acquiring Fund to shareholders of the Acquired
Fund (Sections 361(a), 357(b), 361(c) of the Code).
(3) No Acquiring Fund will recognize any gain or loss on the receipt of
the assets of the corresponding Acquired Fund in a Transaction solely
in exchange for the Acquiring Fund's voting shares and the Acquiring
Fund's assumption of the Acquired Fund's liabilities, if any (Section
1032(a) of the Code).
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John Hancock Variable Series Trust I
July , 2004
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(4) The basis of the assets of an Acquired Fund in the hands of the
corresponding Acquiring Fund in a Transaction will be the same as the
basis of those assets in the hands of the Acquired Fund immediately
prior to the Transaction (Section 362(b) of the Code).
(5) Each Acquiring Fund's holding period for the corresponding Acquired
Fund's assets acquired in a Transaction will include the period during
which the Acquired Fund held such assets (Section 1223(2) of the
Code).
(6) No gain or loss will be recognized by the shareholders of any Acquired
Fund on the receipt of voting shares of the corresponding Acquiring
Fund solely in exchange for their shares in the Acquired Fund (Section
354(a) of the Code).
(7) The basis of the shares of the Acquiring Fund received by the
shareholders of an Acquired Fund in a Transaction will be the same as
the basis of the shares of the Acquired Fund constructively
surrendered in exchange therefor (Section 358(a)(1) of the Code).
(8) The holding period of shares of an Acquiring Fund received in a
Transaction by the shareholders of the corresponding Acquired Fund
will include the period during which such shareholders held the shares
of the Acquired Fund surrendered in exchange therefor, provided that
the Acquired Fund's shareholders held the shares of the Acquired Fund
as a capital asset on the date of the Transaction (Section 1223(1) of
the Code).
(9) Pursuant to Section 381(a) of the Code, each Acquiring Fund in a
Transaction will succeed to and take into account the items of the
corresponding Acquired Fund described in Section 381(c) of the Code,
subject to the provisions and limitations specified in Sections 381,
382, 383, and 384 of the Code, and the Treasury Regulations
thereunder. Pursuant to Section 1.381(b)-1 of the Treasury
Regulations, the taxable year of each Acquired Fund will end on the
date of the Transaction.
This opinion represents our best legal judgment as to the matters addressed
herein, but is not binding on the Internal Revenue Service ("IRS") or the
courts. Accordingly, no assurance can be given that the opinion expressed
herein, if contested, would be sustained by a court. Furthermore, the
authorities upon which we rely may be changed at any time, potentially with
retroactive effect. No assurances can be given as to the effect of any such
changes on the conclusions expressed in this opinion.
In order for a Transaction to have the tax consequences described in (1) -
(9) above, there must be, among other things, "continuity" of the Acquired
Fund's "business enterprise," as those terms are used in the applicable IRS
regulations. Most commonly, in the mutual fund context,
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John Hancock Variable Series Trust I
July , 2004
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such continuity is established by reliance on IRS guidance to the effect that
such continuity will exist if the acquiring fund will use at least 34% of the
acquired fund's historic business assets in the acquiring fund's business.
However, we understand that, prior to the Transactions numbered 1, 2, 3, 5, and
7 in Schedule A hereto, most of the portfolio securities held by the Acquired
Fund will be, or will have been, sold in order to reinvest the proceeds of such
sales in the portfolio securities selected under the criteria adopted by the
corresponding Acquiring Fund. As a result of such sales, it is possible that the
aforementioned "continuity of business assets" test might not be met. If not,
the "continuity of business enterprise" test will be met only if the "historic
business," as that term is used in the applicable IRS regulations, of the
Acquired Fund is deemed to be carried on by the corresponding Acquiring Fund.
In Revenue Ruling 87-76, 1987-2 C.B. 84, the IRS held that the "continuity
of business enterprise" requirement was not met in the case of an acquisition of
the assets of an investment company that invested in corporate stocks and bonds
by another investment company that invested in municipal bonds. In that ruling,
the IRS concluded that the business of investing in corporate stocks and bonds
is not the same line of business as investing in municipal bonds. The
uncertainty arises because there is little additional precedent on the
applicability the "continuity of historic business" test on facts similar to
those at hand.
Nevertheless, unlike the facts in Revenue Ruling 87-76, each of the
Acquired Funds, in Transactions numbered 1, 2, 3, 5, and 7 in Schedule A, would,
in our opinion, be in the same line of business as its corresponding Acquiring
Fund, even if that line of business were evaluated at a point in time prior to
any contemplation of the Transaction in question. The following summarizes our
conclusions on this point:
Transaction Common Historical Line of Business
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1. & 2. Fundamental Growth and To be a large capitalization stock fund
Large Cap Growth B Funds with a growth emphasis that seeks
(Acquired Funds) into Large long-term capital appreciation, by
Cap Growth Fund (Acquiring investing primarily in common stocks of
Fund) large, established U.S. companies that are
believed to offer above-average potential
for long-term growth in revenues and
earnings.
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July , 2004
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Transaction Common Historical Line of Business
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3. Fundamental Value B Fund To be a large capitalization stock fund
(formerly Large Cap Value CORE with a value emphasis, by investing
Fund) (Acquired Fund) into primarily in a diversified mix of common
Fundamental Value Fund stocks of large U.S. companies that are
(Acquiring Fund) believed to offer favorable prospects for
increasing dividends and growth in
capital.
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5. Small Cap Growth Fund To be a small cap stock fund with a growth
(Acquired Fund) into Small Cap emphasis that seeks long-term capital
Emerging Growth Fund appreciation, by investing primarily in
(Acquiring Fund) common stocks of small U.S. companies that
are believed to offer above-average
potential for growth in revenues and
earnings.
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7. Emerging Markets Equity Fund To be a fund that seeks long-term capital
(Acquired Fund) into Overseas appreciation by normally investing at
Equity B Fund (Acquiring Fund) least 80% of its assets outside the U.S.
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In view of these and other considerations, we are of the opinion that the
"continuity of business enterprise" requirement should be deemed to be met with
respect to each Acquired Fund and corresponding Acquiring Fund in these
Transactions. Nevertheless, as a result of the lack of authority on this issue,
complete certainty is not possible as to whether the "continuity of business
enterprise" requirement will be deemed to be met in the case of Transactions 1,
2, 3, 5, and 7 in Schedule A.
The opinion expressed herein is for the exclusive benefit of the Acquired
Funds, the Acquiring Funds, and their respective shareholders. No other person
shall be entitled to rely on this opinion.
Very truly yours,
FOLEY & LARDNER LLP
Schedule A
Acquired Fund Corresponding Acquiring Fund
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1. Fundamental Growth Fund 1. Large Cap Growth Fund
2. Large Cap Growth B Fund 2. Large Cap Growth Fund
3. Fundamental Value B Fund 3. Fundamental Value Fund
4. Mid Cap Value Fund 4. Mid Cap Value B Fund
5. Small Cap Growth Fund 5. Small Cap Emerging Growth Fund
6. Overseas Equity Fund 6. Overseas Equity B Fund
7. Overseas Equity C Fund 7. Overseas Equity B Fund