FOLEY & LARDNER LLP
ATTORNEYS AT LAW
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CLIENT/MATTER NUMBER
303090-0010
, 2004
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John Hancock Variable Series Trust I
197 Clarendon Street
Boston, MA 02117
Re: Federal Income Tax Consequences of Acquisition 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 (the
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"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. Each Acquired Fund and each
Acquiring Fund is a series of JHVST that is treated as a separate corporation
for federal income tax purposes pursuant to Section 851(g) of the Internal
Revenue Code of 1986, as amended (the "Code").
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 voting shares having an aggregate
net asset value equal to the net value of the assets of the Acquired Fund so
transferred; and (ii) immediately after the transfer of assets of the Acquired
Fund, the shares of the Acquired Fund will be cancelled, and the Acquired Fund
will be liquidated.
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
, 2004
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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, all statutory references are to the Code unless
otherwise specified.
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 Transactions
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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 titled 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) Each Transaction will be characterized as involving: (i) a transfer of
all assets of the Acquired Fund to the corresponding Acquiring Fund
solely in exchange for voting shares of the Acquiring Fund and the
assumption by the Acquiring Fund of the liabilities of the Acquired
Fund; and (ii) a distribution of the voting shares of the Acquiring
Fund described in clause (i) by the Acquired Fund to its shareholders
in complete liquidation thereof.
(2) The acquisition by each Acquiring Fund of all the assets of the
corresponding Acquired Fund in a Transaction followed by the deemed
distribution of voting shares of the Acquiring Fund by the Acquired
Fund, as described in paragraph (1) 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.
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John Hancock Variable Series Trust I
, 2004
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(3) 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 and the deemed distribution of voting shares of the
Acquiring Fund to the Acquired Fund's shareholders as described in
paragraph (1) above (Sections 361(a), 357(a), 361(c) of the Code).
(4) No Acquiring Fund will recognize any gain or loss on the receipt of
the assets of the corresponding Acquired Fund in a Transaction
(Section 1032(a) of the Code).
(5) 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).
(6) 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).
(7) 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 in the Transaction Section 354(a) of the Code).
(8) The basis of the voting shares of the Acquiring Fund received by the
shareholders of the corresponding 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).
(9) The holding period of the voting 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 constructively 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).
(10) 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
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John Hancock Variable Series Trust I
, 2004
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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
paragraphs (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 Treasury regulations. The "continuity of business enterprise"
requirement is met if either (i) the acquiring fund uses a significant portion
of the historic business assets of the acquired fund in a business (the "asset
continuity" test), or (ii) the acquiring fund continues the historic business of
the acquired fund (the "business continuity" test). However, we understand that,
with respect to each of the Transactions numbered 1, 2, 3, 5, and 7 in Schedule
A hereto, most of the portfolio securities held by the Acquired Fund will have
been sold prior to the date of the Transaction 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
in the case of the Transactions numbered 1, 2, 3, 5, and 7, the "asset
continuity" test might not be met.
Whether the "business continuity" test is met in the case of the
Transactions numbered 1, 2, 3, 5, and 7 is not completely clear. 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. There is little
additional authority on the applicability of the " business continuity" 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 lines of business as its corresponding Acquiring
Fund, even if those lines of business of the Acquired Fund are evaluated at a
point in time prior to any contemplation of the Transactions in question. The
following summarizes our conclusions on this point:
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John Hancock Variable Series Trust I
, 2004
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Historical Lines of Business of
the Acquired Fund that will be
continued by the corresponding
Transaction Acquired Fund
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1. & 2. Fundamental Growth Fund and Large To be a large capitalization stock
Cap Growth B Fund (formerly Large fund with a growth emphasis that
Cap Aggressive Growth Fund) seeks long-term capital
(Acquired Funds) into Large Cap appreciation, by investing
Growth Fund (Acquiring Fund) primarily in common stocks of
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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3. Fundamental Value B Fund (formerly To be a large capitalization stock
Large Cap Value CORE SM Fund) fund with a value emphasis, by
(Acquired Fund) into Fundamental investing primarily in a
Value Fund (Acquiring Fund) diversified mix of common stocks
of large U.S. companies that are
believed to offer favorable
prospects for increasing dividends
and growth in capital.
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5. Small Cap Growth Fund (Acquired To be a small cap stock fund with
Fund) into Small Cap Emerging a growth emphasis that seeks
Growth Fund (Acquiring Fund) long-term capital appreciation, by
investing primarily in 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. Overseas Equity C Fund (formerly To be a fund that seeks long-term
Emerging Markets Equity Fund) capital appreciation by normally
(Acquired Fund) into Overseas investing at least 80% of its
Equity B Fund (Acquiring Fund) assets in equity securities of
companies 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 is met with respect to each
Acquired Fund and corresponding Acquiring Fund in the Transactions.
Nevertheless, as a result of the above-mentioned lack of authority, complete
certainty on that point in the case of the Transactions numbered 1, 2, 3, 5, and
7 is not possible. The opinion expressed herein is for the exclusive benefit of
the Acquired
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John Hancock Variable Series Trust I
, 2004
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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