Prospectus dated May 1, 2006
for interests in
Separate Account A
Interests are made available under
MAJESTIC PERFORMANCE VARIABLE UNIVERSAL LIFE
a flexible premium variable universal life insurance policy issued by
JOHN HANCOCK LIFE INSURANCE COMPANY (U.S.A.)
("John Hancock USA")
The policy provides fixed account options with fixed rates of return declared
by John Hancock USA
and the following investment accounts:
Science & Technology
Pacific Rim
Health Sciences
Emerging Growth
Small Cap Growth
Emerging Small Company
Small Cap
Small Cap Index
Dynamic Growth
Mid Cap Stock
Natural Resources
All Cap Growth
Strategic Opportunities
Financial Services
International Opportunities
International Small Cap
International Equity Index B
Overseas Equity
American International
International Value
International Core
Quantitative Mid Cap
Mid Cap Index
Mid Cap Core
Global
Capital Appreciation
American Growth
U.S. Global Leaders Growth
Quantitative All Cap
All Cap Core
Large Cap Growth
Total Stock Market Index
Blue Chip Growth
U.S. Large Cap
Core Equity
Strategic Value
Large Cap Value
Classic Value
Utilities
Real Estate Securities
Small Cap Opportunities
Small Cap Value
Small Company Value
Special Value
Mid Value
Mid Cap Value
Value
All Cap Value
Growth & Income
500 Index B
Fundamental Value
Large Cap
Quantitative Value
American Growth-Income
Equity-Income
American Blue Chip Income and Growth
Income & Value
Managed
PIMCO VIT All Asset
Global Allocation
High Yield
U.S. High Yield Bond
Strategic Bond
Strategic Income
Global Bond
Investment Quality Bond
Total Return
American Bond
Real Return Bond
Bond Index B
Core Bond
Active Bond
U.S. Government Securities
Short-Term Bond
Money Market B
Lifestyle Aggressive
Lifestyle Growth
Lifestyle Balanced
Lifestyle Moderate
Lifestyle Conservative
Brandes International Equity
Turner Core Growth Equity
Frontier Capital Appreciation
Business Opportunity Value
* * * * * * * * * * * *
Please note that the Securities and Exchange Commission ("SEC") has not
approved or disapproved these securities, or determined if this prospectus is
truthful or complete. Any representation to the contrary is a criminal offense.
GUIDE TO THIS PROSPECTUS
This prospectus is arranged in the following way:
. Starting on the next page is a Table of Contents for this prospectus.
. The section after the Table of Contents is called "Summary of Benefits and
Risks". It contains a summary of the benefits available under the policy
and of the principal risks of purchasing the policy. You should read this
section before reading any other section of this prospectus.
. Behind the Summary of Benefits and Risks section is a section called "Fee
Tables" that describes the fees and expenses you will pay when buying,
owning and surrendering the policy.
. Behind the Fee Tables section is a section called "Detailed Information".
This section gives more details about the policy. It may repeat certain
information contained in the Summary of Benefits and Risks section in
order to put the more detailed information in proper context.
. Finally, on the back cover of this prospectus is information concerning
the Statement of Additional Information (the "SAI") and how the SAI,
personalized illustrations and other information can be obtained.
Prior to making any investment decisions, you should carefully review this
product prospectus and all applicable supplements in conjunction with the
prospectuses for the underlying funds that we make available as investment
options under the policies. The funds' prospectuses describe the investment
objectives, policies and restrictions of, and the risks relating to, investment
in the funds. In the case of any of the portfolios that are operated as "feeder
funds", the prospectus for the corresponding "master fund" is also provided. If
you need to obtain additional copies of any of these documents, please contact
your John Hancock representative or contact our Service Office at the address
and telephone number on the back page of this product prospectus.
2
TABLE OF CONTENTS
Page No.
---------
SUMMARY OF BENEFITS AND RISKS ......................... 4
The nature of the policy .............................. 4
Summary of policy benefits ............................ 4
Death benefit ...................................... 4
Surrender of the policy ............................ 4
Withdrawals ........................................ 4
Policy loans ....................................... 4
Optional supplementary benefit riders .............. 5
Investment options ................................. 5
Summary of policy risks ............................... 5
Lapse risk ......................................... 5
Investment risk .................................... 5
Transfer risk ...................................... 5
Early surrender risk ............................... 5
Market timing risk ................................. 5
Tax risks .......................................... 6
FEE TABLES ............................................ 7
DETAILED INFORMATION .................................. 15
Your investment options ............................... 15
Description of John Hancock USA ....................... 26
Description of Separate Account A ..................... 26
The fixed account options ............................. 26
The death benefit ..................................... 27
Limitations on payment of death benefit ............ 27
Base Face Amount vs. Supplemental Face
Amount .......................................... 27
The minimum death benefit .......................... 28
When the insured person reaches 121 ................ 29
Requesting an increase in coverage ................. 29
Requesting a decrease in coverage .................. 29
Change of death benefit option ..................... 29
Tax consequences of coverage changes ............... 29
Your beneficiary ................................... 29
Ways in which we pay out policy proceeds ........... 30
Changing a payment option .......................... 30
Tax impact of payment option chosen ................ 30
Premiums .............................................. 30
Planned premiums ................................... 30
Minimum initial premium ............................ 30
Maximum premium payments ........................... 30
Processing premium payments ........................ 31
Ways to pay premiums ............................... 31
Lapse and reinstatement ............................... 31
Lapse .............................................. 31
No-Lapse Guarantee ................................. 31
Cumulative premium test ............................ 32
Death during grace period .......................... 32
Reinstatement ...................................... 32
The policy value ...................................... 33
Allocation of future premium payments .............. 33
Transfers of existing policy value ................. 33
Surrender and Withdrawals ............................. 34
Surrender .......................................... 34
Withdrawals ........................................ 34
Policy loans .......................................... 35
Repayment of policy loans .......................... 35
Effects of policy loans ............................ 35
Description of charges at the policy level ............ 36
Deduction from premium payments .................... 36
Deductions from policy value ....................... 36
Additional information about how certain policy
charges work .................................... 37
Sales expenses and related charges ................. 37
Effect of premium payment pattern .................. 37
Method of deduction ................................ 37
Reduced charges for eligible classes ............... 38
Other charges we could impose in the future ........ 38
Description of charges at the portfolio level ......... 38
Other policy benefits, rights and limitations ......... 38
Optional supplementary benefit riders you can
add ............................................. 38
Variations in policy terms ......................... 40
Procedures for issuance of a policy ................ 40
Commencement of insurance coverage ................. 41
Backdating ......................................... 41
Temporary coverage prior to policy delivery ........ 41
Monthly deduction dates ............................ 41
Changes that we can make as to your policy ......... 41
The owner of the policy ............................ 42
Policy cancellation right .......................... 42
Reports that you will receive ...................... 42
Assigning your policy .............................. 42
When we pay policy proceeds ........................ 42
General ............................................ 42
Delay to challenge coverage ........................ 43
Delay for check clearance .......................... 43
Delay of separate account proceeds ................. 43
Delay of general account surrender proceeds ........ 43
How you communicate with us ........................ 43
General rules ...................................... 43
Telephone, facsimile and internet transactions ..... 44
Distribution of policies ........................... 44
Tax considerations .................................... 45
General ............................................ 45
Policy death benefit proceeds ...................... 46
Other policy distributions ......................... 46
Policy loans ....................................... 47
Diversification rules and ownership of the
Account ......................................... 47
7-pay premium limit and modified endowment
contract status ................................. 47
Corporate and H.R. 10 retirement plans ............. 48
Withholding ........................................ 48
Life insurance purchases by residents of Puerto
Rico ............................................ 48
Life insurance purchases by non-resident aliens..... 48
Financial statements reference ........................ 48
Registration statement filed with the SEC ............. 49
Independent registered public accounting firm ......... 49
3
SUMMARY OF BENEFITS AND RISKS
The nature of the policy
The policy's primary purpose is to provide lifetime protection against
economic loss due to the death of the insured person. The policy is unsuitable
as a short-term savings vehicle because of the substantial policy-level
charges. We are obligated to pay all amounts promised under the policy. The
value of the amount you have invested under the policy may increase or decrease
daily based upon the investment results of the investment accounts that you
choose. The amount we pay to the policy's beneficiary upon the death of the
insured person (we call this the "death benefit") may be similarly affected.
That's why the policy is referred to as a "variable" life insurance policy. We
call the investments you make in the policy "premiums" or "premium payments".
The amount we require as your first premium depends upon the specifics of your
policy and the insured person. Except as noted in the "Detailed Information"
section of this prospectus, you can make any other premium payments you wish at
any time. That's why the policy is called a "flexible premium" policy.
Summary of policy benefits
Death benefit
When the insured person dies, we will pay the death benefit minus any
outstanding loans and accrued interest. There are two ways of calculating the
death benefit (Option 1 and Option 2). You choose which one you want in the
application. The two death benefit options are:
. Option 1 - The death benefit will equal the greater of (1) the Total Face
Amount, or (2) the minimum death benefit (as described under "The minimum
death benefit" provision in the "Detailed Information" section of this
prospectus).
. Option 2 - The death benefit will equal the greater of (1) the Total Face
Amount plus the policy value on the date of death, or (2) the minimum
death benefit.
Surrender of the policy
You may surrender the policy in full at any time. If you do, we will pay
you the policy value less any outstanding policy debt and less any surrender
charge that then applies. This is called your "net cash surrender value". You
must return your policy when you request a surrender.
If you have not taken a loan on your policy, the "policy value" of your
policy will, on any given date, be equal to:
. the amount you invested,
. gain or loss of the investment experience of the investment options
you've chosen,
. minus all charges we deduct, and
. minus all withdrawals you have made.
If you take a loan on your policy, your policy value will be computed
somewhat differently. See "Effects of policy loans".
Withdrawals
You may make a withdrawal of part of your surrender value. Generally, each
withdrawal must be at least $500. We reserve the right to charge a fee of up to
$25 for each withdrawal. Your policy value is automatically reduced by the
amount of the withdrawal and the fee. We reserve the right to refuse a
withdrawal if it would reduce the net cash surrender value or the Total Face
Amount below certain minimum amounts.
Policy loans
You may borrow from your policy at any time by completing the appropriate
form. Generally, the minimum amount of each loan is $500. The maximum amount
you can borrow is determined by a formula (see the section entitled "Policy
loans" for the formula). Interest is charged on each loan. You can pay the
interest or allow it to become part of the outstanding loan balance. You can
repay all or part of a loan at any time. If there is an outstanding loan when
the insured person dies, it will be deducted from the death benefit. Policy
loans permanently affect the calculation of your policy value, and may also
result in adverse tax consequences.
4
Optional supplementary benefit riders
When you apply for the policy, you can request any of the optional
supplementary benefit riders that we make available. Availability of riders
varies from state to state. Charges for most riders will be deducted monthly
from the policy value.
Investment options
The policy offers a number of investment options, as listed on the cover
of this prospectus. We currently offer two "fixed account" options - the
standard fixed account option, and the enhanced yield fixed account option
offered as a supplementary benefit rider. The rest of the options have returns
that vary depending upon the investment results of underlying portfolios. These
options are referred to in this prospectus as "investment accounts". The fixed
accounts and the investment accounts are sometimes collectively referred to in
this prospectus as the "accounts". The investment accounts cover a broad
spectrum of investment styles and strategies. Although the portfolios of the
Series Funds that underly those investment accounts operate like publicly
traded mutual funds, there are important differences between the investment
accounts and publicly-traded mutual funds. On the plus side, you can transfer
money from one investment account to another without tax liability. Moreover,
any dividends and capital gains distributed by each underlying portfolio are
automatically reinvested and reflected in the portfolio's value and create no
taxable event for you. On the negative side, if and when policy earnings are
distributed (generally as a result of a surrender or withdrawal), they will be
treated as ordinary income instead of as capital gains. Also, you must keep in
mind that you are purchasing an insurance policy and you will be assessed
charges at the policy level as well as at the fund level. Such policy level
charges, in aggregate, are significant and will reduce the performance of your
policy.
Summary of policy risks
Lapse risk
If the net cash surrender value is insufficient to pay the charges when
due and the no-lapse guarantee is not in effect, your policy can terminate
(i.e. "lapse"). This can happen because you haven`t paid enough premiums or
because the investment performance of the investment accounts you've chosen has
been poor or because of a combination of both factors. You'll be given a "grace
period" within which to make additional premium payments to keep the policy in
effect. If lapse occurs, you'll be given the opportunity to reinstate the
policy by making the required premium payments and satisfying certain other
conditions.
Since withdrawals reduce your policy value, withdrawals increase the risk
of lapse. Policy loans also increase the risk of lapse.
Investment risk
As mentioned above, the investment performance of any investment account
may be good or bad. Your policy value will rise or fall based on the investment
performance of the investment accounts you've chosen. Some investment accounts
are riskier than others. These risks (and potential rewards) are discussed in
detail in the attached prospectuses of the underlying portfolios.
Transfer risk
There is a risk that you will not be able to transfer your policy value
from one investment account to another because of limitations on the dollar
amount or frequency of transfers you can make. The limitations on transfers out
of the fixed account options are more restrictive than those that apply to
transfers out of investment accounts.
Early surrender risk
There are surrender charges assessed if you surrender your policy in the
first 10 policy years. Depending on the policy value at the time you are
considering surrender, there may be little or no surrender value payable to
you.
Market timing risk
Variable investment accounts in variable life insurance products can be a
prime target for abusive transfer activity because these products value their
investment accounts on a daily basis and allow transfers among investment
accounts without immediate tax consequences. As a result, some investors may
seek to frequently transfer into and out of investment
5
accounts in reaction to market news or to exploit a perceived pricing
inefficiency. Whatever the reason, long-term investors in an investment account
can be harmed by frequent transfer activity since such activity may expose the
investment account's underlying portfolio to increased portfolio transaction
costs and/or disrupt the portfolio manager's ability to effectively manage the
portfolio's investments in accordance with the portfolio's investment
objectives and policies, both of which may result in dilution with respect to
interests held for long-term investment.
To discourage disruptive frequent trading activity, we impose restrictions
on transfers (see "Transfers of existing policy value") and reserve the right
to change, suspend or terminate telephone, facsimile and internet transaction
privileges (see "How you communicate with us"). In addition, we reserve the
right to take other actions at any time to restrict trading, including, but not
limited to: (i) restricting the number of transfers made during a defined
period, (ii) restricting the dollar amount of transfers, and (iii) restricting
transfers into and out of certain investment accounts. We also reserve the
right to defer a transfer at any time we are unable to purchase or redeem
shares of the underlying portfolio.
While we seek to identify and prevent disruptive frequent trading
activity, it may not always be possible to do so. Therefore, no assurance can
be given that the restrictions we impose will be successful in preventing all
disruptive frequent trading and avoiding harm to long-term investors.
Tax risks
In order for you to receive the tax benefits extended to life insurance
under the Internal Revenue Code, your policy must comply with certain
requirements of the Code. We will monitor your policy for compliance with these
requirements, but a policy might fail to qualify as life insurance in spite of
our monitoring. If this were to occur, you would be subject to income tax on
the income credited to your policy for the period of disqualification and all
subsequent periods. The tax laws also contain a so-called "7 pay limit" that
limits the amount of premium that can be paid in relation to the policy's death
benefit. If the limit is violated, the policy will be treated as a "modified
endowment contract", which can have adverse tax consequences. There are also
certain Treasury Department rules referred to as the "investor control rules"
that determine whether you would be treated as the "owner" of the assets
underlying your policy. If that were determined to be the case, you would be
taxed on any income or gains those assets generate. In other words, you would
lose the value of the so-called "inside build-up" that is a major benefit of
life insurance.
In general, you will be taxed on the amount of distributions that exceed
the premiums paid under the policy. Any taxable distribution will be treated as
ordinary income (rather than as capital gains) for tax purposes. If you have
elected the Long-Term Care Acceleration Rider, you may be deemed to have
received a distribution for tax purposes each time a deduction is made from
your policy value to pay the rider charge. The tax laws are not clear on this
point.
There is a tax risk associated with policy loans. Although no part of a
loan is treated as income to you when the loan is made unless your policy is a
"modified endowment contract", surrender or lapse of the policy would result in
the loan being treated as a distribution at the time of lapse or surrender.
This could result in a considerable tax bill. Under certain circumstances
involving large amounts of outstanding loans and an insured person of advanced
age, you might find yourself having to choose between high premium requirements
to keep your policy from lapsing and a significant tax burden if you allow the
lapse to occur.
Tax consequences of ownership or receipt of policy proceeds under federal,
state and local estate, inheritance, gift and other tax laws can vary greatly
depending upon the circumstances of each owner or beneficiary. There can also
be unfavorable tax consequences on such things as the change of policy
ownership or assignment of ownership interests. For these and all the other
reasons mentioned above, we recommend you consult with a qualified tax adviser
before buying the policy and before exercising certain rights under the policy.
6
FEE TABLES
This section contains five tables that describe all of the fees and
expenses that you will pay when buying and owning the policy. In the first
three tables, certain entries show the minimum charge, the maximum charge and
the charge for a representative insured person. Other entries show only the
maximum charge we can assess and are labeled as such. Except where necessary to
show a rate greater than zero, all rates shown in the tables have been rounded
to two decimal places as required by prospectus disclosure rules. Consequently,
the actual rates charged may be slightly higher or lower than those shown in
the tables.
The first table below describes the fees and expenses that you will pay at
the time that you pay a premium, withdraw policy value, surrender the policy,
lapse the policy or transfer policy value between investment accounts.
Transaction Fees
Charge When Charge is Deducted
Maximum premium charge Upon payment of premium
Maximum withdrawal fee Upon making a withdrawal
Surrender charge(3) Upon surrender, policy lapse or any reduction
in Base Face Amount
Maximum surrender charge
Minimum surrender charge
Surrender charge for
respresentative insured person
Maximum transfer fee Upon each transfer into or out of an
investment account beyond an annual limit of
not less than 12
Charge Amount Deducted
Maximum premium charge 8% of all premiums(1)
Maximum withdrawal fee lesser of 2% of withdrawal amount or
$25 (currently $0)(2)
Surrender charge(3)
Maximum surrender charge $125.44 per thousand dollars of Base
Face Amount
Minimum surrender charge $2.72 per thousand dollars of Base Face
Amount
Surrender charge for $13.82 per thousand dollars of Base
respresentative insured person Face Amount
Maximum transfer fee $25 (currently $0)(1)
(1) The amount stated in the table is the maximum premium charge in all policy
years. Currently, a premium charge of 6.4% is deducted from each premium
paid up to the Target Premium in each of the first 5 policy years. A
premium charge of 2% is deducted from each premium in excess of Target
Premium for the first 5 policy years, and a charge of 2% is deducted from
all premiums paid in policy years 6 and after. If the premium received in
the first policy year is less than the Target Premium, the premium
received in the second policy year will be treated as if received in the
first policy year until premiums received equal the Target Premium. The
"Target Premium" will appear in the "Policy Specifications" section of the
policy.
(2) This fee is not currently imposed, but we reserve the right to do so in the
policy.
(3) A surrender charge is applicable for 10 policy years from the policy date
and is calculated as a percentage of the lesser of the sum of the premiums
paid in the first two policy years or the Target Premium stated in the
Policy Specifications page of your policy. If the premium received in the
first policy year is less than the Target Premium, the premium received in
the second policy year will be treated as if received in the first policy
year until premiums received equal the Target Premium. The percentage
applied to the calculation starts out at 100% and reduces over the
surrender charge period. The Target Premium varies by the sex, issue age
and underwriting risk class of the insured person. The maximum charge
shown in the table is for a 90 year old male substandard smoker
underwriting risk, the minimum charge shown is for a 0 year old female
standard non-smoker underwriting risk, and the charge for a representative
insured person is for a 45 year old male standard non-smoker underwriting
risk.
7
The next two tables describe the charges and expenses that you will pay
periodically during the time you own the policy. These tables do not include
fees and expenses paid at the portfolio level. Except for the policy loan
interest rate, all of the charges shown in the tables are deducted from your
policy value. The second table is devoted only to optional supplementary rider
benefits.
Periodic Charges Other Than Fund Operating Expenses
Charge When Charge is Deducted
Cost of insurance charge:(1) Monthly
Minimum charge
Maximum charge
Charge for representative
insured person
Face Amount charge:(2) Monthly for 4 policy
years from the Policy
Date
Minimum charge
Maximum charge
Charge for representative
insured person
Administrative charge Monthly
Asset-based risk charge(3) Monthly
Maximum policy loan interest Accrues daily
rate(4) Payable annually
Amount Deducted
Charge Guaranteed Rate Current Rate
Cost of insurance charge:(1)
Minimum charge $0.02 per $1,000 of NAR $0.02 per $1,000 of NAR
Maximum charge $83.33 per $1,000 of NAR $83.33 per $1,000 of NAR
Charge for representative $0.20 per $1,000 of NAR $0.10 per $1,000 of NAR
insured person
Face Amount charge:(2)
Minimum charge $0.02 per $1,000 of Base Face $0.02 per $1,000 of Base Face
Amount Amount
Maximum charge $1.47 per $1,000 of Base Face $1.47 per $1,000 of Base Face
Amount Amount
Charge for representative $0.14 per $1,000 of Base Face $0.14 per $1,000 of Base Face
insured person Amount Amount
Administrative charge $ 15 $ 15
Asset-based risk charge(3) 0.06% of policy value 0.05% of policy value
Maximum policy loan interest 4.25% 4.25%
rate(4)
(1) The cost of insurance charge is determined by multiplying the amount of
insurance for which we are at risk (the net amount at risk or "NAR") by
the applicable cost of insurance rate. The rates vary widely depending
upon the length of time the policy has been in effect, the insurance risk
characteristics of the insured person and (generally) the gender of the
insured person. The "minimum" rate shown in the table is the rate in the
first policy year for a policy issued to cover a 5 year old female
preferred underwriting risk. The "maximum" rate shown in the table at both
guaranteed and current rates is the rate in the first policy year for a
policy issued to cover a 90 year old male substandard smoker underwriting
risk. This includes the so-called "extra mortality charge". The
"representative insured person" referred to in the table is a 45 year old
male standard non-smoker underwriting risk with a policy in the first
policy year. The charges shown in the table may not be particularly
relevant to your current situation. For more information about cost of
insurance rates, talk to your John Hancock USA representative.
(2) This charge is determined by multiplying the Base Face Amount at issue by
the applicable rate. The rates vary by the sex, issue age and underwriting
risk class of the insured person. The "minimum" rate shown in the table is
for a 0 year old female underwriting risk electing death benefit Option 1.
The "maximum" rate shown in the table is for a 90 year old male standard
non-smoker underwriting risk. The "representative insured person" referred
to in the table is a 45 year old male standard non-smoker underwriting
risk.
(3) This charge only applies to that portion of policy value held in the
investment accounts. The charge determined does not apply to any fixed
account. The percentage amount indicated in the table is the amount
assessed in policy years 1-15. In policy year 16 and after, the guaranteed
rate is 0.02%.
(4) 4.25% is the maximum effective annual interest rate we can charge and
applies only during policy years 1-10. The effective annual interest rate
is 3.0% thereafter (although we reserve the right to increase the rate
after the tenth policy year to as much as 3.25%). The amount of any loan
is transferred from the accounts to a special loan account which earns
interest at an effective annual rate of 3.0%. Therefore, the cost of a
loan is the difference between the loan interest we charge and the
interest we credit to the special loan account.
8
Rider Charges
When Charge is Applied
Charge
Extended No-Lapse Guarantee Rider:(1) Monthly
Minimum charge
Maximum charge
Charge for representative insured person
Acceleration of Death Benefit for Qualified Monthly
Long-Term Care Services Rider:(2)
Minimum charge
Maximum charge
Charge for representative insured person
Residual Life Insurance Benefit and Monthly
Continuation of Acceleration Rider:(3)
Minimum charge
Maximum charge
Charge for representative insured person
Optional Enhanced Surrender Value Rider Upon payment
of premium
Return of Premium Death Benefit Rider:(4) Monthly
Minimum charge
Maximum charge
Charge for representative insured person
Change of Life Insured Rider At exercise of
benefit
Accelerated Benefit Rider At exercise of
benefit
Charge Amount
Extended No-Lapse Guarantee Rider:(1)
Minimum charge $0.02 per $1,000 of Base Face Amount
Maximum charge $0.08 per $1,000 of Base Face Amount
Charge for representative insured person $0.03 per $1,000 of Base Face Amount
Acceleration of Death Benefit for Qualified
Long-Term Care Services Rider:(2)
Minimum charge $0.01 per $1,000 of NAR
Maximum charge $1.80 per $1,000 of NAR
Charge for representative insured person $0.08 per $1,000 of NAR
Residual Life Insurance Benefit and
Continuation of Acceleration Rider:(3)
Minimum charge $2.12 per $1,000 of LMAX Maximum Monthly Benefit Amount
Maximum charge $130.37 per $1,000 of LMAX Maximum Monthly Benefit
Amount
Charge for representative insured person $7.29 per $1,000 of LMAX Maximum Monthly Benefit Amount
Optional Enhanced Surrender Value Rider 2% of the lesser of either the sum of premiums received during
the first 2 policy years or the Target Premium shown in the Policy
Specifications section of your policy
Return of Premium Death Benefit Rider:(4)
Minimum charge $0.02 per $1,000 of NAR
Maximum charge $83.33 per $,1000 of NAR
Charge for representative insured person $0.10 per $1,000 of NAR
Change of Life Insured Rider $250.00(5)
Accelerated Benefit Rider $150.00(6)
(1) The charge for this rider is determined by multiplying the Base Face Amount
by the applicable rate. The rates vary by sex, issue age, and risk
classification of the insured person. The "minimum" rate shown in the
table is for a 0 year old female standard non-smoker underwriting risk.
The "maximum" rate shown in the table is for a 90 year old male standard
smoker underwriting risk. The "representative insured person" referred to
in the table is a 45 year old male standard non-smoker underwriting risk.
(2) The charge for this rider is determined by multiplying the net amount of
insurance for which we are at risk (the net amount at risk or "NAR") by
the applicable rate. The rates vary by the long-term care insurance risk
characteristics of the insured person and the rider benefit level
selected. The "minimum" rate shown in the table is for a 20 year old
female standard non-smoker underwriting risk with a 1% Monthly
Acceleration Percentage. The Monthly Acceleration Percentage is stated in
the Policy Specifications page of your policy. The "maximum" rate shown in
the table is for an 80 year old male substandard smoker underwriting risk
with a 4% Monthly Acceleration Percentage. The "representative insured
person" referred to in the table is a 45 year old male standard non-smoker
underwriting risk with a 4% Monthly Acceleration Percentage.
(3) The charge for this rider is determined by multiplying the LMAX Maximum
Monthly Benefit Amount for this rider by the applicable rate. The LMAX
Maximum Monthly Benefit Amount is stated in the Policy Specifications page
of your policy. The rates vary by the long-term care insurance risk
characteristics of the insured person and the rider benefit level
selected. The "minimum" rate shown in the table is for a 20 year old
female standard non-smoker underwriting risk with a 1% Monthly
Acceleration Percentage. The "maximum" rate shown in the table is for a 80
year old male substandard smoker underwriting class with a 4% Monthly
Acceleration Percentage. The "representative insured person" referred to
in the table is a 45 year old male standard non-smoker underwriting risk
with a 4% Monthly Acceleration Percentage.
(4) The Return of Premium Death Benefit Rider charge is determined by
multiplying the amount of insurance for which we are at risk (the net
amount at risk or "NAR") by the applicable rate. The rates vary depending
upon the insurance risk characteristics of the insured person and
(generally) the gender of the insured person. The "minimum" rate shown in
the table is the rate in the first policy year for a poicy issued to cover
a 0 year old female standard non-smoker underwriting risk. The "maximum"
rate shown in the table is the rate in
9
the first policy year for a policy issued to cover a 90 year old male
substandard smoker underwriting risk. This includes the so-called "extra
mortality charge". The "representative insured person" referred to in the
table is a 45 year old male standard non-smoker underwriting risk with a
policy in the first policy year. The charges shown in the table may not be
particularly relevant to your current situtation.
(5) The charge for this benefit will be assessed separately and will not be
deducted from the policy value.
(6) This charge is not currently imposed, but we reserve the right to do so in
the policy.
The next table describes the minimum and maximum portfolio level fees and
expenses charged by any of the portfolios underlying a variable investment
option offered through this prospectus, expressed as a percentage of average
net assets (rounded to two decimal places). These expenses are deducted from
portfolio assets.
Total Annual Portfolio Operating Expenses Minimum Maximum
Range of expenses, including management fees, distribution and/
or service (12b-1) fees, and other expenses 0.50% 1.53%
The next table describes the fees and expenses for each class of shares of
each portfolio underlying a variable investment option offered through this
prospectus. None of the portfolios charge a sales load or surrender fee. The
fees and expenses do not reflect the fees and expenses of any variable
insurance contract or qualified plan which may use the portfolio as its
underlying investment medium. Except for the American International, American
Growth, American Growth-Income, American Blue Chip Income and Growth, American
Bond and PIMCO VIT All Asset portfolios, all of the portfolios shown in the
table are NAV class shares that are not subject to Rule 12b-1 fees. These NAV
class shares commenced operations on April 29, 2005. The expense ratios shown
in the table for the NAV class shares of a portfolio are estimates for the
current fiscal year. In those cases where a portfolio had a Series I class of
shares in operation during 2005, the NAV class estimates are based upon the
expense ratios of the portfolio's Series I shares for the year ended December
31, 2005 (adjusted to reflect the absence of a Rule 12b-1 fee applicable to the
NAV shares). In the case of the American International, American Growth,
American Growth-Income, American Blue Chip Income and Growth, American Bond,
and PIMCO VIT All Asset portfolios, the expense ratios are based upon the
portfolio's actual expenses for the year ended December 31, 2005.
Portfolio Annual Expenses
(as a percentage of portfolio average net assets, rounded to two decimal
places)
Management Other Total
Portfolio Fees 12b-1 Fees Expenses Annual Expenses
- ----------------------------------------- ------------ ------------ ---------- ----------------
Science & Technology ................... 1.04%A N/A 0.07% 1.11%
Pacific Rim ............................ 0.80% N/A 0.28% 1.08%
Health Sciences ........................ 1.05%A N/A 0.11% 1.16%
Emerging Growth ........................ 0.80% N/A 0.07% 0.87%
Small Cap Growth ....................... 1.08% N/A 0.07% 1.15%
Emerging Small Company ................. 1.00% N/A 0.06% 1.06%
Small Cap .............................. 0.85% N/A 0.07% 0.92%
Small Cap Index ........................ 0.49% N/A 0.03% 0.52%
Dynamic Growth ......................... 0.95% N/A 0.07% 1.02%
Mid Cap Stock .......................... 0.86% N/A 0.05% 0.91%
Natural Resources ...................... 1.01% N/A 0.07% 1.08%
All Cap Growth ......................... 0.89% N/A 0.06% 0.95%
Strategic Opportunities ................ 0.80% N/A 0.07% 0.87%
Financial ServicesF .................... 0.88%F N/A 0.08% 0.96%
International Opportunities ............ 0.90% N/A 0.20% 1.06%
International Stock .................... 0.90% N/A 0.16% 1.06%
International Small Cap ................ 1.00% N/A 0.19% 1.19%
International Equity Index B G ......... 0.55% N/A 0.04% 0.59%
Overseas Equity ........................ 1.05% N/A 0.09% 1.14%
American International E ............... 0.54% 0.60% 0.08% 1.22%
International Value .................... 0.87%D N/A 0.15% 1.02%
Quantitative Mid Cap ................... 0.75% N/A 0.09% 0.84%
10
Management Other Total
Portfolio Fees 12b-1 Fees Expenses Annual Expenses
- ----------------------------------------- ------------ ------------ ---------- ----------------
Mid Cap Index .......................... 0.49% N/A 0.03% 0.52%
Mid Cap Core ........................... 0.90% N/A 0.16% 1.06%
Global ................................. 0.85%D N/A 0.15% 1.00%
Capital Appreciation ................... 0.85% N/A 0.07% 0.92%
American Growth E ...................... 0.35% 0.60% 0.03% 0.98%
U.S. Global Leaders Growth ............. 0.71% N/A 0.73% 1.44%C
Quantitative All Cap ................... 0.71% N/A 0.05% 0.76%
All Cap Core ........................... 0.80% N/A 0.07% 0.87%
Large Cap Growth ....................... 0.85% N/A 0.06% 0.91%
Total Stock Market Index ............... 0.49% N/A 0.03% 0.52%
Blue Chip Growth ....................... 0.82%A N/A 0.04% 0.86%
U.S. Large Cap ......................... 0.82% N/A 0.06% 0.88%
Core Equity ............................ 0.85% N/A 0.06% 0.91%
Strategic Value ........................ 0.85% N/A 0.09% 0.94%
Large Cap Value ........................ 0.85% N/A 0.13% 0.98%
Classic Value .......................... 0.80% N/A 0.56% 1.36%C
Utilities .............................. 0.85% N/A 0.25% 1.10%
Real Estate Securities ................. 0.70% N/A 0.05% 0.75%
Small Cap Opportunities ................ 1.00% N/A 0.08% 1.08%
Small Cap Value ........................ 1.08% N/A 0.08% 1.16%
Small Company Value .................... 1.04%A N/A 0.01% 1.05%
Special Value .......................... 1.00% N/A 0.28% 1.28%
Mid Value .............................. 1.01%A N/A 0.07% 1.08%
Mid Cap Value .......................... 0.87% N/A 0.05% 0.92%
Value .................................. 0.74% N/A 0.06% 0.80%
All Cap Value .......................... 0.84% N/A 0.06% 0.90%
Growth & Income II ..................... 0.68% N/A 0.03% 0.71%
500 Index B G .......................... 0.47% N/A 0.03% 0.50%
Fundamental ValueF ..................... 0.84%F N/A 0.05% 0.89%
Growth & Income I ...................... 0.76% N/A 0.04% 0.80%
Large Cap .............................. 0.85% N/A 0.15% 1.00%
Quantitative Value ..................... 0.70% N/A 0.08% 0.78%
American Growth-Income E ............... 0.29% 0.60% 0.03% 0.92%
Equity-Income .......................... 0.81%A N/A 0.05% 0.86%
American Blue Chip Income and Growth E . 0.45% 0.60% 0.05% 1.10%
Income & Value ......................... 0.79% N/A 0.04% 0.83%
Managed ................................ 0.69% N/A 0.04% 0.73%
PIMCO VIT All Asset Portfolio .......... 0.20% 0.25% 1.08% 1.53%H
Global Allocation ...................... 0.85% N/A 0.20% 1.05%
High Yield ............................. 0.68% N/A 0.07% 0.75%
U.S. High Yield Bond ................... 0.75% N/A 0.21% 0.96%
Strategic Bond ......................... 0.70% N/A 0.08% 0.78%
Strategic Income ....................... 0.73% N/A 0.46% 1.19%
Global Bond ............................ 0.70% N/A 0.10% 0.80%
Investment Quality Bond ................ 0.60% N/A 0.09% 0.69%
Total Return ........................... 0.70% N/A 0.05% 0.75%
American BondE ......................... 0.44% 0.60% 0.04% 1.08%
Real Return Bond ....................... 0.70% N/A 0.07% 0.77%
Bond Index B G ......................... 0.47% N/A 0.03% 0.50%
11
Management Other Total
Portfolio Fees 12b-1 Fees Expenses Annual Expenses
- ----------------------------------------- ------------ ------------ ---------- ----------------
Core Bond .............................. 0.69% N/A 0.21% 0.90%
Active Bond ............................ 0.61% N/A 0.04% 0.65%
U.S. Government Securities ............. 0.62% N/A 0.07% 0.69%
Short-Term Bond ........................ 0.58% N/A 0.05% 0.63%
Money Market B G ....................... 0.49% N/A 0.04% 0.53%
Lifestyle Aggressive 1000B ............. 0.05% N/A 1.02% 1.07%
Lifestyle Growth 820B .................. 0.05% N/A 0.95% 1.00%
Lifestyle Balanced 640B ................ 0.05% N/A 0.90% 0.95%
Lifestyle Moderate 460B ................ 0.05% N/A 0.87% 0.92%
Lifestyle Conservative 280B ............ 0.05% N/A 0.79% 0.84%
Brandes International Equity ........... 0.70% N/A 0.22%J 0.92%
Turner Core Growth Equity .............. 0.45% N/A 0.21%J 0.66%
Frontier Capital Appreciation .......... 0.90% N/A 0.19%J 1.09%
Business Opportunity Value ............. 0.65% N/A 0.62%J 1.27%
A The Adviser has voluntarily agreed to waive a portion of its management fee
for the Science & Technology, Health Sciences, Blue Chip Growth, Equity-Income,
Small Company Value and Mid Value portfolios. If the management fee waiver were
reflected, it is estimated that the management fees for these portfolios would
be as follows (as a percentage of the portfolio's net assets for the fiscal
year ended December 31, 2004).
Science & Technology ......... 1.02%
Health Sciences .............. 1.03%
Blue Chip Growth ............. 0.80%
Equity-Income ................ 0.79%
Mid Value .................... 0.99%
Small Company Value .......... 1.02%
The Adviser's voluntary fee waiver is based upon the combined assets of these
six portfolios, together with the other portfolios managed by the Adviser on
behalf of our affiliates, exceeding specified levels. This fee waiver may be
terminated at any time by the Adviser.
B Each of the Lifestyle portfolios may invest in all the other Trust portfolios
except American Growth, the American International, the American Blue Chip
Income and Growth, the American Growth-Income and the American Bond.
"Other Expenses" reflects the expenses of the underlying portfolios as well as
the expenses of the Lifestyle portfolio. The Adviser is currently paying a
portion of the expenses of each Lifestyle portfolio. The expenses above do not
reflect this expense reimbursement.
If such expense reimbursement were reflected, it is estimated that "Other
Expenses" and "Total Annual Expenses" would be:
Other Total
Expenses Annual Expenses
---------- ----------------
Lifestyle Aggressive 1000 ....... 1.01% 1.06%
Lifestyle Growth 820 ............ 0.94% 0.99%
Lifestyle Balanced 640 .......... 0.89% 0.94%
Lifestyle Moderate 460 .......... 0.86% 0.91%
Lifestyle Conservative 280 ...... 0.78% 0.83%
This voluntary expense reimbursement may be terminated at any time.
C For certain portfolios, the Adviser reduces its advisory fee or reimburses
the portfolio if the total of all expenses (excluding advisory fees, Rule 12b-1
fees, transfer agency fees, blue sky fees, taxes, portfolio brokerage
commissions, interest, litigation and indemnification expenses and other
extraordinary expenses not incurred in the ordinary course of the portfolio's
business) exceed certain annual rates. In the case of the U.S. Global Leaders
Growth and Classic Value portfolios, the Adviser reimbursed the portfolio for
certain expenses for the year ended December 31, 2004. If such expense
reimbursement were reflected, it is estimated that "Other Expenses" and "Total
Trust Annual Expenses" would be:
Other Total
Expenses Annual Expenses
---------- ----------------
U.S. Global Leaders Growth ...... 0.50% 1.21%
Classic Value ................... 0.50% 1.30%
12
These voluntary expense reimbursements may be terminated at any time.
D Effective December 9, 2003, due to a decrease in the subadvisory fees for the
Global and International Value portfolios, the Adviser voluntarily agreed to
waive its advisory fees so that the amount retained by the Adviser after
payment of the subadvisory fees for each such portfolio does not exceed 0.35%
of the portfolio's average net assets. For the year ended December 31, 2004,
the effective annual advisory fee for the Global and International Value
portfolios was 0.80% and 0.80%, respectively. These advisory fee waivers may be
rescinded at any time.
E Reflects the aggregate annual operating expenses of Series I of each
portfolio and its corresponding master fund of the American Fund Insurance
Series. In the case of the American Growth, American International, American
Blue Chip Income and Growth, American Growth-Income and American Bond
portfolios, Capital Research Management Company (the adviser to the American
Growth, American International, American Blue Chip Income and Growth, American
Growth-Income and American Bond portfolios) voluntarily reduced investment
advisory fees to rates provided by amended agreement effective April 1, 2005.
This waiver is currently 10% and will continue at this level until further
review. These advisory fee waivers may be terminated at any time.
F The Adviser has voluntarily agreed to reduce its advisory fee for the
Financial Services and Fundamental Value portfolios to the amounts shown below.
These advisory fee waivers may be terminated at any time.
Between $50 million Excess Over
Portfolio First $50 million* and $500 million* $500 million*
- ------------------------------ -------------------- --------------------- --------------
Financial Services ......... 0.85% 0.80% 0.75%
Fundamental Value .......... 0.85% 0.80% 0.75%
* as a percentage of average annual net assets.
If such advisory fee waiver were reflected, it is estimated that the advisory
fees for these portfolios would have been as follows:
Financial Services ......... 0.83%
Fundamental Value .......... 0.79%
G The Trust sells these portfolios only to certain variable life insurance and
variable annuity separate accounts of John Hancock Life Insurance Company and
its affiliates. Each portfolio is subject to an expense cap pursuant to an
agreement between the Trust and the Adviser. The expense cap is as follows: the
Adviser has agreed to waive its advisory fee (or, if necessary, reimburse
expenses of the portfolio) in an amount so that the rate of the portfolio's
"Annual Operating Expenses" does not exceed the rate noted in the table under
"Total Annual Expenses". If this expense cap were included, the Total Annual
Expenses for these portfolios would be reduced by 0.25%. A portfolio's "Annual
Operating Expenses" includes all of its operating expenses including advisory
fees and Rule 12b-1 fees, but excludes taxes, brokerage commissions, interest,
litigation and indemnification expenses and extraordinary expenses of the
portfolio not incurred in the ordinary course of the portfolio`s business.
Under the Agreement, the Adviser's obligation to provide the expense cap with
respect to a particular portfolio terminates only if the Trust, without the
prior written consent of the Adviser, sells shares of the portfolio to (or has
shares of the portfolio held by) any person other than the variable life
insurance or variable annuity insurance separate accounts of John Hancock Life
Insurance Company or any of its affiliates that are specified in the agreement.
H The PIMCO VIT All Asset Portfolio may invest in any of a number of underlying
funds offered by the PIMCO Funds (the "PIMS Funds"). Underlying PIMS Fund
expenses for the portfolio are estimated based upon an allocation of the
portfolio's assets among the underlying PIMS Funds and upon the total annual
operating expenses of the Institutional Class shares of these underlying PIMS
Funds. Underlying PIMS Fund expenses will vary with changes in the expenses of
the underlying PIMS Funds, as well as allocation of the portfolio's assets, and
may be higher or lower than those shown above. The underlying PIMS Fund net
operating expenses for the most recent fiscal year range from 0.32% to 0.85%.
PIMCO has contractually agreed, for the portfolio's current fiscal year, to
reduce its Management Fee to the extent that the underlying PIMS fund expenses
attributable to management and administrative fees exceed 0.60%. This fee
reduction is not reflected in the expenses set out in the portfolio fee table.
PIMCO may recoup these waivers in future periods, not exceeding three years,
provided total expenses, including each recoupment, do not exceed the annual
expense limit.
I On October 17, 2005, shareholders voted in favor of a Management Fee
increase. The Management Fees for the Growth & Income portfolio are noted
below. The expense information in the table has been restated to reflect
current fees.
First $500 million Between $500 million Between $1 billion Excess of $2.5 billion
of Aggregate Net and $1 billion of and $2.5 billion of of Aggregate
Assets Aggregate Net Assets Aggregate Net Assets Net Assets
- -------------------- ---------------------- ---------------------- -----------------------
0.78% 0.76% 0.75% 0.74%
For the purposes of determining Aggregate Net Assets, the following net assets
are included: (a) the Growth & Income portfolio, a series of John Hancock Trust
(b) that portion of the net assets of the Managed portfolio, a series of John
Hancock Trust, that is managed by Grantham, Mayo, Van Otterloo & Co. LLC (c)
U.S. Core portfolio, a series of John Hancock Funds III (d) Growth & Income
portfolio, a series of John Hancock Funds II and (e) that portion of the net
assets of the Managed portfolio, a series of John Hancock Funds, II, that is
managed by Grantham, Mayo, Van Otterloo & Co. LLC.
13
The amount of the Management Fee is determined by applying the daily equivalent
of an annual fee rate to the net assets for the Growth & Income portfolio. The
annual fee rate is calculated each day by applying the annual percentage rates
in the table above to the applicable portions of Aggregate Net Assets shown in
the table and dividing the sum of the amounts so determined by Aggregate Net
Assets. The term Aggregate Net Assets includes the net assets of the Growth &
Income portfolio as well as the other portfolios managed by the subadviser to
the Growth & Income portfolio set forth in the notes to the table, but only for
the period during which the subadviser for the Growth & Income portfolio also
serves as the subadviser to the other portfolios.
The Management Fee is accrued and paid daily and is calculated for each day by
multiplying the daily equivalent of the annual percentage rate for the Growth &
Income portfolio by the value of the net assets of the portfolio at the close
of business on the previous business day of the Trust.
J For the period ending May 1, 2005 to April 30, 2006, the adviser has
contractually agreed to reimburse the Fund for any expense (other than advisory
fees, brokerage or othe rportfolio transaction expenses or expenses for
litigation, indemnification, taxes or other extraordinary expenses) to the
extent that such expenses exceed 0.25% of the Fund's annualized average daily
net assets.
14
DETAILED INFORMATION
This section of the prospectus provides additional detailed information
that is not contained in the Summary of Benefits and Risks section.
Your investment options
The assets of each sub-account of the Account (except those invested in
the American Growth, American International, American Blue Chip Income and
Growth, American Growth-Income, American Bond, PIMCO All Asset, Brandes
International Equity, Turner Core Growth, Frontier Capital Appreciation, and
Business Opportunity Value portfolios) are invested in the NAV shares of a
corresponding investment portfolio of the John Hancock Trust (the "Trust"). The
Trust is registered under the Investment Company Act of 1940 ("1940 Act")as an
open-end management investment company. John Hancock Investment Management
Services, LLC ("JHIMS LLC") provides investment advisory services to the Trust
and receives investment management fees for doing so. JHIMS LLC pays a portion
of its investment management fees to sub-investment advisors that actually
manage the portfolio assets. These sub-investment managers are the entities
identified in the table below as "Portfolio Managers". Our affiliates own JHIMS
LLC and, therefore, we indirectly benefit from any investment management fees
JHIMS LLC retains.
Each of the American Growth, American International, American
Growth-Income, American Blue Chip Income and Growth, and American Bond
subaccounts invests in Series I shares of the corresponding investment
portfolio of the Trust and are subject to a 0.60% Rule 12b-1 fee.
The PIMCO VIT All Asset portfolio is a series of the PIMCO Variable
Insurance Trust (the "PIMCO Trust") which is registered under the 1940 Act as
an open-end management investment company. The assets of the PIMCO VIT All
Asset subaccount are invested in Class M shares of the PIMCO VIT All Asset
portfolio which is subject to a 0.45% Rule 12b-1 fee. The PIMCO Trust receives
investment advisory services from Pacific Investment Management Company LLC
("PIMCO") and pays investment management fees to PIMCO.
The Brandes International Equity, Turner Core Growth, Frontier Capital
Appreciation and Business Opportunity Value portfolios are series of M Fund,
Inc. (the "M Fund"), an open-end management investment company registered as
such under the 1940 Act. The assets of the Brandes International Equity, Turner
Core Growth, Frontier Capital Appreciation and Business Opportunity Value
subaccounts are invested in the corresponding portfolios of the M Fund. M
Financial Investment Advisers, Inc. ("M Financial") is the investment adviser
for all portfolios of the M Fund. The entities shown in the table below as
"Portfolio Managers" of the the M Fund portfolios are sub-investment advisors
selected by M Financial and are the entities that actually manage the
portfolios assets.
In this prospectus, the Trust and the PIMCO Trust are each referred to as
a "Series Fund" and are collectively referred to as the "Series Funds". In this
prospectus the various series of the Series Funds are referred to as "funds" or
"portfolios." In the prospectuses for the Series Funds, the series may be
referred to by other terms such as "trusts" or "series".
The portfolios pay us or certain of our affiliates compensation for some
of the distribution, administrative, shareholder support, marketing and other
services we or our affiliates provide to the portfolios. The amount of this
compensation is based on a percentage of the assets of the portfolios
attributable to the variable insurance products that we and our affiliates
issue. These percentages may differ from portfolio to portfolio and among
classes of shares within a portfolio. In some cases, the compensation is
derived from the Rule 12b-1 fees which are deducted from a portfolio's assets
for the services we or our affiliates provide to that portfolio. In addition,
compensation payments of up to 0.45% of assets may be made by a portfolio's
investment advisors or its affiliates. We pay American Funds Distributors,
Inc., the principal underwriter for the American Fund Insurance Series, a
percentage of some or all of the amounts allocated to the "American" portfolios
of the Trust for the marketing support services it provides (see "Distribution
of Policies"). None of these compensation payments, however, result in any
charge to you in addition to what is shown in the table(s) under "Fee Tables."
The following table contains a general description of the portfolios that
underlie the variable investment options we make available under the policy.
You can find a full description of each portfolio, including the investment
objectives, policies and restrictions of, and the risks relating to investment
in the portfolio, in the prospectus for that portfolio. You should read the
portfolio's prospectus carefully before investing in the corresponding variable
investment option.
The subaccounts in the Separate Account are NOT publicly traded mutual
funds. The subaccounts are only available to you as investment options in the
policies or, in some cases, through other variable annuity contracts or
variable life insurance
15
policies issued by us or by other life insurance companies. In some cases, the
Series Funds also may be available through participation in certain qualified
pension or retirement plans.
The Series Funds' investment advisers and managers (i.e., subadvisers) may
manage publicly traded mutual funds with similar names and investment
objectives. However, the subaccounts are NOT directly related to any publicly
traded mutual fund. You should not compare the performance of any subaccounts
described in this prospectus with the performance of a publicly traded mutual
fund. The performance of any publicly traded mutual fund could differ
substantially from that of any of the subaccounts of our Separate Account.
Portfolio Portfolio Manager
================================= ====================================
Science & Technology T. Rowe Price Associates, Inc.
Pacific Rim MFC Global Investment
Management (U.S.A.) Limited
Health Sciences T. Rowe Price Associates, Inc.
Emerging Growth Sovereign Asset Management
Company
Emerging Small Company RCM Capital Management LLC.
Small Cap Independence Investment LLC
Small Cap Index MFC Global Investment
Management (U.S.A.) Limited
Portfolio Investment Description
================================= ===================================================================
Science & Technology Seeks long-term growth of capital by investing, under
normal market condition, at least 80% of its net assets (plus
any borrowings for investment purposes) in common stocks
of companies expected to benefit from the development,
advancement, and use of science and technology. Current
income is incidental to the portfolio's objective.
Pacific Rim Seeks long-term growth of capital by investing in a
diversified portfolio that is comprised primarily of common
stocks and equity-related securities of corporations
domiciled in countries in the Pacific Rim region.
Health Sciences Seeks long-term capital appreciation by investing, under
normal market conditions, at least 80% of its net assets
(plus any borrowings for investment purposes) in common
stocks of companies engaged in the research, development,
production, or distribution of products or services related to
health care, medicine, or the life sciences (collectively
termed "health sciences").
Emerging Growth Seeks superior long-term rates of return through capital
appreciation by investing, under normal circumstances,
primarily in high quality securities and convertible
instruments of small-cap U.S. companies.
Emerging Small Company Seeks long-term growth of capital by investing, under
normal market conditions, at least 80% of its net assets
(plus any borrowings for investment purposes) in common
stock equity securities of companies with market
capitalizations that approximately match the range of
capitalization of the Russell 2000 Growth Index* at the
time of purchase. RCM defines these as companies with
market capitalizations of not less than 50% and not more
than 200% of the weighted average market capitalization of
the Russell 2000 Index (the range of capitalization of
companies in this index is $105 million to $4.4 billion as of
December 31, 2005).
Small Cap Seeks maximum capital appreciation consistent with
reasonable risk to principal by investing, under normal
market conditions, at least 80% of its net assets in equity
securities of companies whose market capitalization is
under $2 billion.
Small Cap Index Seeks to approximate the aggregate total return of a small
cap U.S. domestic equity market index by attempting to
track the performance of the Russell 2000 Index (the range
of capitalization of companies in this index is $105 million
to $4.4 billion as of December 31, 2005).
16
Portfolio Portfolio Manager
================================= ====================================
Small Company American Century Investment
Mangement, Inc.
Dynamic Growth Deutsche Asset Management
Mid Cap Stock Wellington Management Company,
LLP
Natural Resources Wellington Management Company,
LLP
All Cap Growth AIM Capital Management, Inc.
Strategic Opportunities Fidelity Management & Research
Company
Financial Services Davis Advisors
International Opportunities Marisco Capital Management, LLC
International Stock Deutsche Asset Management
Investment Services Ltd.
International Small Cap Franklin Templeton
Portfolio Investment Description
================================= ===================================================================
Small Company Seeks long-term capital growth by investing, under normal
market conditions, primarily in equity securities of smaller-
capitzation U.S. companies. The subadviser uses
quantitative, computer-driven models to construct th
eportfolio of stocks for the Small Company portfolio.
Dynamic Growth Seeks long-term growth of capital by investing in stocks
and other equity securities of medium-sized U.S. companies
with strong growth potential.
Mid Cap Stock Seeks long-term growth of capital by investing primarily in
equity securities of mid-size companies with significant
capital appreciation potential.
Natural Resources Seeks long-term total return by investing, under normal
market conditions, primarily in equity and equity-related
securities of natural resource-related companies worldwide.
All Cap Growth Seeks long-term capital appreciation by investing the
portfolio's assets under normal market conditions,
principally in common stocks of companies that are likely
to benefit from new or innovative products, services or
processes, as well as those that have experienced above
average, long-term growth in earnings and have excellent
prospects for future growth.
Strategic Opportunities Seeks growth of capital by investing primarily in common
stocks. Investments may include securities of domestic and
foreign issuers, and growth or value stocks or a
combination of both.
Financial Services Seeks growth of capital by investing primarily in common
stocks of financial companies. During normal market
conditions, at least 80% of the portfolio's net assets (plus
any borrowings for investment purposes) are invested in
companies that are principally engaged in financial
services. A company is "principally engaged" in financial
services if it owns financial services-related assets
constituting at least 50% of the value of its total assets, or if
at least 50% of its revenues are derived from its provision
of financial services.
International Opportunities Seeks long-term growth of capital by investing, under
normal market conditions, at least 65% of its assets in
common stocks of foreign companies that are selected for
their long-term growth potential. The portfolio may invest
in companies of any size throughout the world. The
portfolio normally invests in issuers from at least three
different countries not including the U.S. The portfolio may
invest in common stocks of companies operating in
emerging markets.
International Stock Seeks long-term growth of capital by investing in stocks
and other securities with equity characteristics of
companies located in the developed countries that make up
the MSCI EAFE Index (The range of capitalization of
companies in this index is $419 million to $219.5 billion as
of December 31, 2005).
International Small Cap Seeks capital appreciation by investing primarily in the
common stock of companies located outside the U.S. which
have total stock market capitalization or annual revenues of
$1.5 billion or less ("small company securities").
17
Portfolio Portfolio Manager
================================= ====================================
International Equity Index A SSgA Funds Management, Inc.
Overseas Equity Capital Guardian Trust Company
American International Capital Research Management
Company
International Value Franklin Templeton
International Core Grantham, May, VanOtterloo & Co.
LLC
Quantitative Mid Cap MFC Global Investment
Management (U.S.A.) Limited
Mid Cap Index MFC Global Investment
Management (U.S.A.) Limited
Mid Cap Core AIM Capital Management, Inc.
Global Frankline Templeton
Capital Appreciation Jennison Associates LLC
Portfolio Investment Description
================================= ===================================================================
International Equity Index A Seeks to track the performance of broad-based equity
indices of foreign companies in developed and emerging
market by attempting to track the performance of the MSCI
All Country World ex-US Index*. (The range of
capitalization of companies in this index is $419 million to
$219.5 billion as of December 31, 2005.)
Overseas Equity Seeks long-term capital appreciation by investing, under
normal market conditions, at least 80% of its assets in
equity securities of companies outside the U.S. in a
diversified mix of large established and medium-sized
foreign companies located primarily in developed countries
and, to a lesser extent, in emerging markets.
American International Invests all of its assets in Class 2 shares of the International
Fund, a series of American Fund Insurance Series. The
International Fund invests primarily in common stocks of
companies located outside the United States.
International Value Seeks long-term growth of capital by investing, under
normal market conditions, primarily in equity securities of
companies located outside the U.S., including emerging
markets.
International Core Seeks long-term growth of capital by investing in stocks
and other securities with equity characteristics of
companies located in the developed countries that make up
the MSC EAFE Index (the range of capitalization of
companies in this index is $419 million to $219.5 billion as
of December 31, 2005).
Quantitative Mid Cap Seeks long-term growth of capital by investing, under
normal market conditions, at least 80% of its total assets
(plus any borrowings for investment purposes) in U.S. mid-
cap stocks, convertible preferred stocks, convertible bonds
and warrants.
Mid Cap Index Seeks to approximate the aggregate total return of a mid
cap U.S. domestic equity market index by attempting to
track the performance of the S&P Mid Cap 400 Index*
(The range of capitalization of companies in this index is
$423 million to $14.6 billion as of December 31, 2005).
Mid Cap Core Seeks long-term growth of capital by investing, normally, at
least 80% of its assets in equity securities, including
convertible securities, of mid-capitalization companies.
Global Seeks long-term capital appreciation by investing, under
normal market conditions, at least 80% of its net assets
(plus any borrowings for investment purposes) in equity
securities of companies located anywhere in the world,
including emerging markets.
Capital Appreciation Seeks long-term capital growth by investing at least 65% of
its total assets in equity-related securities of companies that
exceed $1 billion in market capitalization and that the
subadviser believes have above-average growth prospects.
These companies are generally medium-to-large
capitalization companies.
18
Portfolio Portfolio Manager
================================= ====================================
American Growth Capital Research Management
Company
U.S. Global Leaders Growth Sustainable Growth Advisers, L.P.
Quantitative All Cap MFC Global Investment
Management (U.S.A.) Limited
All Cap Core Deutsche Asset Management Inc.
Large Cap Growth Fidelity Management & Research
Company
Total Stock Market Index MFC Global Investment
Management (U.S.A.) Limited
Blue Chip Growth T. Rowe Price Associates, Inc.
U.S. Large Cap Capital Guardian Trust Company
Core Equity Legg Mason Funds Management,
Inc.
Strategic Value MFS Investment Management
Large Cap Value Mercury Advisors
Portfolio Investment Description
================================= ===================================================================
American Growth Invests all of its assets in Class 2 shares of the Growth
Fund, a series of American Fund Insurance Series. The
Growth Fund invests primarily in common stocks of
companies that appear to offer superior opportunities for
growth of capital.
U.S. Global Leaders Growth Seeks long-term growth of capital by investing, under
normal market conditions, primarily in common stocks of
"U.S. Global Leaders."
Quantitative All Cap Seeks long-term growth of capital by investing, under
normal circumstances, primarily in equity securities of U.S.
companies. The portfolio will generally focus on equity
securities of U.S. companies across the three market
capitalization ranges of large, mid and small.
All Cap Core Seeks long-term growth of capital by investing primarily in
common stocks and other equity securities within all asset
classes (small, mid and large cap) primarily those within
the Russell 3000 Index (The range of capitalization of
companies in this index is $26 million to $370 billion as of
December 31, 2005).
Large Cap Growth Seeks long-term growth of capital by investing, under
normal market conditions, at least 80% of its net assets
(plus any borrowings for investment purposes) in equity
securities of companies with large market capitalizations.
Total Stock Market Index Seeks to approximate the aggregate total return of a broad
U.S. domestic equity market index by attempting to track
the performance of the Wilshire 5000 Equity Index* (The
range of capitalization of companies in this index is $1
million to $370 billion as of December 31, 2005).
Blue Chip Growth Seeks to achieve long-term growth of capital (current
income is a secondary objective) by investing, under
normal market conditions, at least 80% of the portfolio's
total assets in the common stocks of large and medium-
sized blue chip growth companies. Many of the stocks in
the portfolio are expected to pay dividends.
U.S. Large Cap Seeks long-term growth of capital and income by investing
the portfolio's assets, under normal market conditions,
primarily in equity and equity-related securities of
companies with market capitalization greater than $500
million.
Core Equity Seeks long-term capital growth by investing, under normal
market conditions, primarily in equity securities that, in the
subadviser's opinion, offer the potential for capital growth.
The subadviser Seeks to purchase securities at large
discounts to the subadviser's assessment of their intrinsic
value.
Strategic Value Seeks capital appreciation by investing, under normal
market conditions, at least 65% of its net assets in common
stocks and related securities of companies which the
subadviser believes are undervalued in the market relative
to their long term potential.
Large Cap Value Seeks long-term growth of capital by investing, under
normal market conditions, primarily in a diversified
portfolio of equity securities of large cap companies located
in the U.S.
19
Portfolio Portfolio Manager
================================= ====================================
Classic Value Pzena Investment Management,
LLC
Utilities MFS Investment Management
Real Estate Securities RREEF America L.L.C.
Small Cap Opportunities Munder Capital Management
Small Company Value T. Rowe Price Associates, Inc.
Special Value Salomon Brothers Asset
Management Inc
Mid Value T. Rowe Price Associates, Inc.
Mid Cap Value Lord, Abbett & Co
Portfolio Investment Description
================================= ===================================================================
Classic Value Seeks long-term growth of capital by investing, under
normal market conditions, at least 80% of its net assets in
domestic equity securities.
Utilities Seeks capital growth and current income (income above
that available from a portfolio invested entirely in equity
securities) by investing, under normal market conditions, at
least 80% of the portfolio's net assets (plus any borrowings
for investment purposes) in equity and debt securities of
domestic and foreign companies in the utilities industry.
Real Estate Securities Seeks to achieve a combination of long-term capital
appreciation and current income by investing, under normal
market conditions, at least 80% of its net assets (plus any
borrowings for investment purposes) in equity securities of
real estate investment trusts ("REITS") and real estate
companies.
Small Cap Opportunities Seeks long-term capital appreciation by investing, under
normal circumstances, at least 80% of its assets in equity
securities of companies with market capitalizations within
the range of the companies in the Russell 2000 Index (The
range of capitalization of companies in this index is $105
million to $4.4 billion as of December 31, 2005).
Small Company Value Seeks long-term growth of capital by investing, under
normal market conditions, primarily in small companies
whose common stocks are believed to be undervalued.
Under normal market conditions, the portfolio will invest at
least 80% of its net assets (plus any borrowings for
investment purposes) in companies with a market
capitalization that does not exceed the maximum market
capitalization of any security in the Russell 2000 Index* at
the time of purchase (The range of capitalization of
companies in this index is $26 million to $4.4 billion as of
December 31, 2005).
Special Value Seeks long-term capital growth by investing, under normal
circumstances, at least 80% of its net assets in common
stocks and other equity securities of companies whose
market capitalization at the time of investment is no greater
than the market capitalization of companies in the Russell
2000 Value Index (The range of capitalization of companies
in this index is $41 million to $3.5 billion as of December
31, 2005).
Mid Value Seeks long-term capital appreciation by investing, under
normal market conditions, primarily in a diversified mix of
common stocks of mid size U.S. companies that are
believed to be undervalued by various measures and offer
good prospects for capital appreciation.
Mid Cap Value Seeks capital appreciation by investing, under normal
market conditions, at least 80% of the portfolio's net assets
(plus any borrowings for investment purposes) in mid-sized
companies, with market capitalization of roughly $500
million to $10 billion.
20
Portfolio Portfolio Manager
================================= ====================================
Value Van Kampen
All Cap Value Lord, Abbett & Co
Growth & Income Independence Investment LLC
500 Index B MFC Global Investment
Management (U.S.A.) Limited
Fundamental Value Davis Advisors
U.S. Core Grantham, Mayo, VanLtterloo &
Co., LLP
Large Cap UBS Global Asset Management
Quantitative Value MFC Global Investment
Management (U.S.A.) Limited
American Growth -Income Capital Research Management
Company
Equity-Income T. Rowe Price Associates, Inc.
Portfolio Investment Description
================================= ===================================================================
Value Seeks to realize an above-average total return over a market
cycle of three to five years, consistent with reasonable risk,
by investing primarily in equity securities of companies
with capitalizations similar to the market capitalization of
companies in the Russell Midcap Value Index (The range of
capitalization of companies in this index is $582 million to
$18.2 billion as of December 31, 2005).
All Cap Value Seeks capital appreciation by investing in equity securities
of U.S. and multinational companies in all capitalization
ranges that the subadviser believes are undervalued.
Growth & Income Seeks income and long-term capital appreciation by
investing, under normal market conditions, primarily in a
diversified mix of common stocks of large U.S. companies.
500 Index B Seeks to approximate the aggregate total return of a broad
U.S. domestic equity market index. Invests, under normal
market conditions, at least 80% of its net assets (plus any
borrowings for investment purposes) in (a) the common
stocks that are included in the S&P 500 Index and (b)
securities (which may or may not be included in the S&P
500 Index) the MFC Global (U.S.A.) believes as a group
will behave in a manner similar to the index (The range of
capitalization of companies in this index is $768 million to
$370 billion as of December 31, 2005).
Fundamental Value Seeks growth of capital by investing, under normal market
conditions, primarily in common stocks of U.S. companies
with market capitalizations of at least $5 billion that the
subadviser believes are undervalued. The portfolio may also
invest in U.S. companies with smaller capitalizations.
U.S. Core Seeks long-term growth of capital and income, consistent
wtih prudent investment risk, by investing primarily in a
diversified portfolio of common stocks of U.S. issuers
which the subadviser believes are of high quality.
Large Cap Seeks to maximize total return, consisting of capital
appreciation and current income by investing, under normal
circumstances, at least 80% of its net assets (plus
borrowings for investment purposes, if any) in equity
securities of U.S. large capitalization companies.
Quantitative Value Seeks long-term capital appreciation by investing primarily
in large-cap U.S. securities with the potential for long-term
growth of capital.
American Growth -Income Invests all of its assets in Class 2 shares of the Growth-
Income Fund, a series of American Fund Insurance Series.
The Growth-Income Fund invests primarily in common
stocks or other securities which demonstrate the potential
for appreciation and/or dividends.
Equity-Income Seeks to provide substantial dividend income and also long-
term capital appreciation by investing primarily in
dividend-paying common stocks, particularly of established
companies with favorable prospects for both increasing
dividends and capital appreciation.
21
Portfolio Portfolio Manager
================================= ====================================
American Blue Chip Income Capital Research Management
and Growth Company
Income & Value Capital Guardian Trust Company
Managed Declaration Research LLC
PIMCO VIT All Asset (only Pacific Investment Management
Class M is available for sale) Company
Global Allocation UBS Global Asset Management
High Yield Western Asset Management Co.
U.S. High Yield Bond Wells Fargo Fund Management,
LLC
Strategic Bond Western Asset Management Co.
Strategic Income Sovereign Asset Management
Global Bond Pacific Investment Management
Company
Portfolio Investment Description
================================= ===================================================================
American Blue Chip Income Invests all of its assets in Class 2 shares of the Blue Chip
and Growth Income and Growth Fund, a series of American Fund
Insurance Series. The Blue Chip Income and Growth Fund
invests primarily in common stocks of larger, more
established companies based in the U.S. with market
capitalizations of $4 billion and above.
Income & Value Seeks the balanced accomplishment of (a) conservation of
principal and (b) long-term growth of capital and income
by investing the portfolio's assets in both equity and fixed-
income securities. The subadviser has full discretion to
determine the allocation between equity and fixed income
securities.
Managed A balanced stock and bond portfolio investing primarily in
a diversified mix of: (a) common stocks of large and mid
sized U.S. companies, and (b) bonds with an overall
intermediate term average maturity.
PIMCO VIT All Asset (only Invests primarily in a diversified mix of: (a) common
Class M is available for sale) stocks of large and mid sized U.S. companies, and (b)
bonds with an overall intermediate term average maturity.
Global Allocation Seeks total return, consisting of long-term capital
appreciation and current income, by investing in equity and
fixed income securities of issuers located within and
outside the U.S.
High Yield Seeks to realize an above-average total return over a market
cycle of three to five years, consistent with reasonable risk,
by investing primarily in high yield debt securities,
including corporate bonds and other fixed-income
securities.
U.S. High Yield Bond Seeks total return with a high level of current income by
investing, under normal market conditions, primarily in
below investment-grade debt securities (sometimes referred
to as "junk bonds" or high yield securities). The portfolio
also invests in corporate debt securities and may buy
preferred and other convertible securities and bank loans.
Strategic Bond Seeks a high level of total return consistent with
preservation of capital by giving its subadviser broad
discretion to deploy the portfolio's assets among certain
segments of the fixed income market as the subadviser
believes will best contribute to achievement of the
portfolio's investment objective.
Strategic Income Seeks a high level of current income by investing, under
normal market conditions, primarily in foreign government
and corporate debt securities from developed and emerging
markets; U.S. Government and agency securities; and U.S.
high yield bonds.
Global Bond Seeks to realize maximum total return, consistent with
preservation of capital and prudent investment management
by investing the portfolio's assets primarily in fixed income
securities denominated in major foreign currencies, baskets
of foreign currencies (such as the ECU), and the U.S.
dollar.
22
Portfolio Portfolio Manager
================================= ====================================
Investment Quality Bond Wellington Management Company,
LLP
Total Return Pacific Investment Management
Company
American Bond Capital Research Management
Company
Real Return Bond Pacific Investment Management
Company
Bond Index B Declaration Management &
Research, LLC
Core Bond Wells Capital Management, Inc.
Active Bond Declaration Management &
Research LLC, Sovereign John
Hancock Advisers, LLC
U.S. Government Securities Salomon Brothers Asset
Management Co..
Portfolio Investment Description
================================= ===================================================================
Investment Quality Bond Seeks a high level of current income consistent with the
maintenance of principal and liquidity, by investing in a
diversified portfolio of investment grade bonds and tends to
focus its investment on corporate bonds and U.S.
Government bonds with intermediate to longer term
maturities. The portfolio may also invest up to 20% of its
assets in non-investment grade fixed income securities.
Total Return Seeks to realize maximum total return, consistent with
preservation of capital and prudent investment management
by investing, under normal market conditions, at least 65%
of the portfolio's assets in a diversified portfolio of fixed
income securities of varying maturities. The average
portfolio duration will normally vary within a three- to six-
year time frame based on the subadviser's forecast for
interest rates.
American Bond Seeks to maximize current income and preserve capital
Real Return Bond Seeks to realize maximum total return, consistent with
preservation of capital and prudent investment management
by investing, under normal market conditions, at least 65%
of the portfolio's assets in a diversified portfolio of fixed
income securities of varying maturities. The average
portfolio duration will normally vary within a three-to six-
year time frame based on the subadviser's forecast for
interest rates.
Bond Index B Seeks to track the performance of the Lehman Brothers
Aggregate Index (which represents the U.S. investment
grade bond market) by investing, under normal market
conditions, at lease 80% of its assets in securities listed in
the Lehman Index.
Core Bond Seeks total return consisting of income and capital
appreciation by investing, under normal market conditions,
in a broad range of investment-grade debt securities. the
subadviser invests in debt securities that the subadviser
believes offer attractive yields and are undervalued relative
to issues of similar credit quality and interest rate
sensitivity. From time to time, the portfolio may also invest
in unrated bonds that the subadviser believes are
comparable to investment-grade debt securities. Under
normal circumstances, the subadviser expects to maintain
an overall effective duration range between 4 and 5 1/2
years.
Active Bond Seeks income and capital appreciation by investing at least
80% of its assets in a diversified mix of debt securities and
instruments.
U.S. Government Securities Seeks a high level of current income consistent with
preservation of capital and maintenance of liquidity, by
investing in debt obligations and mortgage-backed
securities issued or guaranteed by the U.S. Government, its
agencies or instrumentalities and derivative securities such
as collateralized mortgage obligations backed by such
securities.
23
Portfolio Portfolio Manager
================================= ====================================
Money Market MFC Global Investment
Management (U.S.A.) Limited
Lifestyle Aggressive MFC Global Investment
Management (U.S.A.) Limited .
Lifestyle Growth MFC Global Investment
Management (U.S.A.) Limited
Lifestyle Balanced MFC Global Investment
Management (U.S.A.) Limited
Lifestyle Moderate MFC Global Investment
Management (U.S.A.) Limited
Lifestyle Conservative MFC Global Investment
Management (U.S.A.) Limited .
Brandes International Equity Brandes Investment Partners, LLC
Turner Core Growth Turner Investment Partners, LLC
Frontier Capital Appreciation Frontier Capital Management
Company, LLC
Business Opportunity Value Iridian Asset Management, LLC
Portfolio Investment Description
================================= ===================================================================
Money Market Seeks maximum current income consistent with
preservation of principal and liquidity by investing in high
quality money market instruments with maturities of 397
days or less, issued primarily by U.S. entities.
Lifestyle Aggressive Seeks to provide long-term growth of capital (current
income is not a consideration) by investing 100% of the
Lifestyle Trust's assets in other portfolios of the Trust
("Underlying Portfolios") which invest primarily in equity
securities.
Lifestyle Growth Seeks to provide long-term growth of capital with
consideration also given to current income by investing
approximately 20% of the Lifestyle Trust's assets in
Underlying Portfolios which invest primarily in fixed
income securities and approximately 80% of its assets in
Underlying Portfolios which invest primarily in equity
securities.
Lifestyle Balanced Seeks to provide a balance between a high level of current
income and growth of capital with a greater emphasis given
to capital growth by investing approximately 40% of the
Lifestyle Trust's assets in Underlying Portfolios which
invest primarily in fixed income securities and
approximately 60% of its assets in Underlying Portfolios
which invest primarily in equity securities.
Lifestyle Moderate Seeks to provide a balance between a high level of current
income and growth of capital with a greater emphasis given
to current income by investing approximately 60% of the
Lifestyle Trust's assets in Underlying Portfolios which
invest primarily in fixed income securities and
approximately 40% of its assets in Underlying Portfolios
which invest primarily in equity securities.
Lifestyle Conservative Seeks to provide a high level of current income with some
consideration also given to growth of capital by investing
approximately 80% of the Lifestyle Trust's assets in
Underlying Portfolios which invest primarily in fixed
income securities and approximately 20% of its assets in
Underlying Portfolios which invest primarily in equity
securities.
Brandes International Equity Seeks long-term capital appreciation through investment in
equity securities of foreign issuers, including common
stocks, preferred stocks and securities that are convertible
into common stocks.
Turner Core Growth Seeks long-term capital appreciation through investment
mainly in common stocks of US companies that the
portfolio manager believes have strong earnings-growth
potential.
Frontier Capital Appreciation Seeks maximum capital appreciation through investment in
common stock of US companies of all states, with
emphasis on stocks with capitalizations consistent with the
capitalizations of those companies found in the Russell
2500.
Business Opportunity Value Seeks long-term capital appreciation through investment
primarily in equity securities of US issuers in the large-to-
medium capitalization segment of the US stock market.
24
*"Standard & Poor's (Reg. TM)," "S&P 500 (Reg. TM)," "Standard and Poor's 500
(Reg. TM)" and "S&P Mid Cap 400 (Reg. TM)" are trademarks of The McGraw-Hill
Companies, Inc. "Russell 2000 (Reg. TM)," "Russell 2000 (Reg. TM) Growth,"
"Russell 2500 (Reg. TM)" and "Russell 3000 (Reg. TM)" are trademarks of Frank
Russell Company. "Wilshire 5000 (Reg. TM)" is a trademark of Wilshire
Associates. "MSCI All Country World ex US Index" and "EAFE (Reg. TM)" are
trademarks of Morgan Stanley & Co. Incorporated. None of the Index Trusts are
sponsored, endorsed, managed, advised, sold or promoted by any of these
companies, and none of these companies make any representation regarding the
advisability of investing in the Trust.
You bear the investment risk of any portfolio you choose as an investment
option for your contract. A full description of each portfolio, including the
investment objectives, policies and restrictions of, and the risks relating to
investments in, each portfolio is contained in the portfolio prospectuses. The
portfolio prospectuses should be read carefully before allocating purchase
payments to a sub-account.
If the shares of a portfolio are no longer available for investment or in
our judgment investment in a portfolio becomes inappropriate, we may eliminate
the shares of a portfolio and substitute shares of another portfolio of the
Trust or another open-end registered investment company. Substitution may be
made with respect to both existing investments and the investment of future
purchase payments. However, we will make no such substitution without first
notifying you and obtaining approval of the appropriate insurance regulatory
authorities and the SEC (to the extent required by the 1940 Act).
We will purchase and redeem Series Fund shares for the Account at their
net asset value without any sales or redemption charges. Shares of a Series
Fund represent an interest in one of the funds of the Series Fund which
corresponds to a subaccount of the Account. Any dividend or capital gains
distributions received by the Account will be reinvested in shares of that same
fund at their net asset value as of the dates paid.
On each business day, shares of each fund are purchased or redeemed by us
for each subaccount based on, among other things, the amount of net premiums
allocated to the subaccount, distributions reinvested, and transfers to, from
and among subaccounts, all to be effected as of that date. Such purchases and
redemptions are effected at each fund's net asset value per share determined
for that same date. A "business day" is any date on which the New York Stock
Exchange is open for trading. We compute policy values for each business day as
of the close of that day (usually 4:00 p.m. Eastern Time).
We will vote shares of the portfolios held in the Account at the
shareholder meetings according to voting instructions received from persons
having the voting interest under the contracts. We will determine the number of
portfolio shares for which voting instructions may be given not more than 90
days prior to the meeting. Proxy material will be distributed to each person
having the voting interest under the contract together with appropriate forms
for giving voting instructions. We will vote all portfolio shares that we hold
(including our own shares and those we hold in the Account for contract owners)
in proportion to the instructions so received.
We determine the number of a fund`s shares held in a subaccount
attributable to each owner by dividing the amount of a policy's account value
held in the subaccount by the net asset value of one share in the fund.
Fractional votes will be counted. We determine the number of shares as to which
the owner may give instructions as of the record date for a Series Fund's
meeting. Owners of policies may give instructions regarding the election of the
Board of Trustees or Board of Directors of a Series Fund, ratification of the
selection of independent auditors, approval of Series Fund investment advisory
agreements and other matters requiring a shareholder vote. We will furnish
owners with information and forms to enable owners to give voting instructions.
However, we may, in certain limited circumstances permitted by the SEC's
rules, disregard voting instructions. If we do disregard voting instructions,
you will receive a summary of that action and the reasons for it in the next
semi-annual report to owners.
The voting privileges described above reflect our understanding of
applicable Federal securities law requirements. To the extent that applicable
law, regulations or interpretations change to eliminate or restrict the need
for such voting privileges, we reserve the right to proceed in accordance with
any such revised requirements. We also reserve the right, subject to compliance
with applicable law, including approval of owners if so required, (1) to
transfer assets determined by John Hancock USA to be associated with the class
of policies to which your policy belongs from the Account to another separate
account or subaccount, (2) to deregister the Account under the 1940 Act, (3) to
substitute for the fund shares held by a subaccount any other investment
permitted by law, and (4) to take any action necessary to comply with or obtain
any exemptions from the 1940 Act. Any such change will be made only if, in our
judgement, the change would best serve the interests of owners of policies in
your policy class or would be appropriate in carrying out the purposes of such
policies. We would notify owners of any of the foregoing changes and, to the
extent legally required, obtain approval of affected owners and any regulatory
body prior thereto. Such notice and approval, however, may not be legally
required in all cases.
25
Description of John Hancock USA
We are a stock life insurance company incorporated in Maine on August 20,
1955 by a special act of the Maine legislature and redomesticated under the
laws of Michigan. We are a licensed life insurance company in the District of
Columbia and all states of the United States except New York. Our ultimate
parent is Manulife Financial Corporation ("MFC"), a publicly traded company,
based in Toronto, Canada. MFC is the holding company of John Hancock USA and
its subsidiaries. John Hancock USA is one of the largest life insurance
companies in North America and ranks among the 60 largest life insurers in the
world as measured by assets. However, neither John Hancock USA nor any of its
affiliated companies guarantees the investment performance of the Account.
We have received the following ratings from independent rating
agencies:
A++ A.M. Best
Superior companies have a very strong ability to meet their obligations;
1st category of 16
AA+ Fitch Ratings
Very strong capacity to meet policyholder and contract obligations; 2nd
category of 24
AA+ Standard & Poor's
Very strong financial security characteristics; 2nd category of 21
Aa2 Moody's
Excellent in financial strength; 3rd category of 21
These ratings, which are current as of the date of this prospectus and are
subject to change, are assigned as a measure of our ability to honor any
guarantees provided by the policy and any applicable optional riders, but do
not specifically relate to its products, the performance (return) of these
products, the value of any investment in these products upon withdrawal or to
individual securities held in any portfolio. These ratings do not apply to the
safety and performance of the Separate Account.
Description of Separate Account A
The investment accounts shown on page 1 are in fact subaccounts of
Separate Account A (the "Account"), a separate account established under
Pennsylvania law and operated by us under Michigan law. The Account meets the
definition of "separate account" under the Federal securities laws and is
registered as a unit investment trust under the 1940 Act. Such registration
does not involve supervision by the SEC of the management of the Account or of
us.
The Account's assets are our property. Each policy provides that amounts
we hold in the Account pursuant to the policies cannot be reached by any other
persons who may have claims against us and can't be used to pay any
indebtedness of John Hancock USA other than those arising out of policies that
use the Account.
New subaccounts may be added and made available to policy owners from time
to time. Existing subaccounts may be modified or deleted at any time.
The fixed account options
Our obligations under any fixed account options are backed by our general
account assets. Our general account consists of assets owned by us other than
those in the Account and in other separate accounts that we may establish.
Subject to applicable law, we have sole discretion over the investment of
assets of the general account and policy owners do not share in the investment
experience of, or have any preferential claim on, those assets. Instead, we
guarantee that the policy value allocated to any fixed account will accrue
interest daily at an effective annual rate that we determine without regard to
the actual investment experience of the general account. We currently offer two
fixed account options - the standard fixed account, and the enhanced yield
fixed account offered as a supplementary benefit rider. The effective annual
rate we declare for the fixed account options will never be less than 3%. We
reserve the right to offer one or more additional fixed accounts with
characteristics that differ from those of the current fixed account options,
but we are under no obligation to do so.
Because of exemptive and exclusionary provisions, interests in our fixed
account options have not been and will not be registered under the Securities
Act of 1933 ("1933 Act") and our general account has not been registered as an
investment company under the 1940 Act. Accordingly, neither the general account
nor any interests therein are subject to the provisions of these acts, and we
have been advised that the staff of the SEC has not reviewed the disclosure in
this prospectus relating to
26
any fixed account. Disclosure regarding fixed accounts may, however, be subject
to certain generally-applicable provisions of the Federal securities laws
relating to accuracy and completeness of statements made in prospectuses.
The death benefit
In your application for the policy, you will tell us how much life
insurance coverage you want on the life of the insured person. This is called
the "Total Face Amount". Total Face Amount is composed of the Base Face Amount
and any Supplemental Face Amount you elect. The Supplemental Face Amount you
can have generally cannot exceed 400% of the Base Face Amount at the Issue
Date. Thereafter, increases to the Supplemental Face Amount cannot exceed 400%
of the Total Face Amount at the Issue Date. There are a number of factors you
should consider in determining whether to elect coverage in the form of Base
Face Amount or in the form of Supplemental Face Amount. These factors are
discussed under "Base Face Amount vs. Supplemental Face Amount" below.
When the insured person dies, we will pay the death benefit minus any
outstanding loans, accrued interest and unpaid fees and charges. There are two
ways of calculating the death benefit. You must choose which one you want in
the application. The two death benefit options are:
. Option 1 - The death benefit will equal the greater of (1) the Total Face
Amount, or (2) the minimum death benefit (as described below).
. Option 2 - The death benefit will equal the greater of (1) the Total Face
Amount plus the policy value on the date of death, or (2) the minimum
death benefit.
For the same premium payments, the death benefit under Option 2 will tend
to be higher than the death benefit under Option 1. On the other hand, the
monthly insurance charge will be higher under Option 2 to compensate us for the
additional insurance risk. Because of that, the policy value will tend to be
higher under Option 1 than under Option 2 for the same premium payments.
Limitations on payment of death benefit
If the insured person commits suicide within certain time periods, the
amount of death benefit we pay will be limited as described in the policy.
Also, if an application misstated the age or gender of the insured person, we
will adjust the amount of any death benefit as described in the policy.
27
Base Face Amount vs. Supplemental Face Amount
As noted above, you should consider a number of factors in determining
whether to elect coverage in the form of Base Face Amount or in the form of
Supplemental Face Amount.
For the same amount of premiums paid, the amount of the premium charge on
premium payments and the face amount charge deducted from policy value and the
amount of compensation paid to the selling insurance agent will generally be
less if coverage is included as Supplemental Face Amount, rather than as Base
Face Amount. On the other hand, the amount of any Supplemental Face Amount may
be subject to a shorter No-Lapse Guarantee Period (see "No-Lapse Guarantee").
Also, the amount of any Supplemental Face Amount coverage expires on the policy
anniversary nearest the insured person's 121st birthday.
If your priority is to reduce your face amount charges and the premium
charge on your premiums, you may wish to maximize the proportion of the
Supplemental Face Amount. However, if your priority is to take advantage of the
No-Lapse Guarantee feature after the 2nd policy year or to maximize the death
benefit when the insured person reaches 121, then you may wish to maximize the
proportion of the Base Face Amount.
If you want to purchase Supplemental Face Amount coverage, you may select
either a level amount of coverage or an amount of coverage that increases each
year up to a prescribed limit. If you elect to forego any scheduled increase in
coverage, we reserve the right to discontinue scheduled increases for all
following years.
The minimum death benefit
In order for a policy to qualify as life insurance under Federal tax law,
there has to be a minimum amount of insurance in relation to policy value.
There are two tests that can be applied under Federal tax law - the "guideline
premium test" and the "cash value accumulation test". When you elect the death
benefit option, you must also elect which test you wish to have applied. Once
elected, the test cannot be changed without our approval. Under the guideline
premium test, we compute the minimum death benefit each business day by
multiplying the policy value on that date by the death benefit factor
applicable on that date. In this case, the factors are derived by applying the
guideline premium test. Factors for some ages are shown in the table below:
Attained Age Applicable Factor
- ------------------------ ------------------
40 and under ......... 250%
45 ................... 215%
50 ................... 185%
55 ................... 150%
60 ................... 130%
65 ................... 120%
70 ................... 115%
75 ................... 105%
90 ................... 105%
95 and above ......... 100%
A table showing the factor for each age will appear in the policy.
Under the cash value accumulation test, we compute the minimum death
benefit each business day by multiplying the policy value on that date by the
death benefit factor applicable on that date. In this case, the factors are
derived by applying the cash value accumulation test. The factor decreases as
attained age increases. A table showing the factor for each age will appear in
the policy.
As noted above, you have to elect which test will be applied when you
elect the death benefit option. The cash value accumulation test may be
preferable if you want an increasing death benefit in later policy years and/or
want to fund the policy at the "7 pay" limit for the full 7 years (see "Tax
considerations"). The guideline premium test may be preferable if you want the
policy value under the policy to increase without increasing the death benefit
as quickly as might otherwise be required.
To the extent that the calculation of the minimum death benefit under the
selected life insurance qualification test causes the death benefit to exceed
our limits, we reserve the right to return premiums or distribute a portion of
the policy value so that the resulting amount of insurance is maintained within
our limits. Alternatively, if we should decide to accept the additional amount
of insurance, we may require additional evidence of insurability.
28
When the insured person reaches 121
At and after the policy anniversary nearest the insured person's 121st
birthday, the following will occur:
. Any Supplemental Face Amount will be discontinued (see "Base Face
Amount vs. Supplemental Face Amount").
. We will stop deducting any monthly deductions.
. We will stop accepting any premium payments.
Requesting an increase in coverage
After the first policy year, we may approve an unscheduled increase in the
Supplemental Face Amount at any time, subject to the maximum limit stated in
the policy. Generally, each such increase must be at least $50,000. However,
you will have to provide us with evidence that the insured person still meets
our requirements for issuing insurance coverage. An approved increase will take
effect on the policy anniversary on or next following the date we approve the
request.
Requesting a decrease in coverage
After the first policy year, we may approve a reduction in the Base Face
Amount or the Supplemental Face Amount, but only if:
. the remaining Total Face Amount and Base Face Amount will each be at
least $100,000, and
. the remaining Total Face Amount will at least equal the minimum
required by the tax laws to maintain the policy's life insurance
status.
A pro-rata portion of the surrender charge will be payable upon any
requested reduction in the Base Face Amount (see "Surrender charge"). An
approved decrease will take effect on the monthly deduction date on or next
following the date we approve the request. We reserve the right to require that
the Supplemental Face Amount be fully depleted before the Base Face Amount can
be reduced.
Change of death benefit option
Under our current administrative rules, we permit the death benefit option
to be changed from Option 2 to Option 1, after the first policy year. We
reserve the right to limit a request for a change if the change would cause the
policy to fail to qualify as life insurance for tax purposes.
A change in the death benefit option will result in a change in the
policy's Total Face Amount, in order to avoid any change in the amount of the
death benefit.
. The new Total Face Amount will be equal to the Total Face Amount prior to
the change plus the policy value as of the date of the change. The change
will take effect on the monthly deduction date on or next following the
date the written request for the change is received at our Service Office.
If you change the death benefit option, the Federal tax law test
("guideline premium test" or "cash value accumulation test") that you elected
at issue will continue to apply. Please read "The minimum death benefit" for
more information about these Federal tax law tests.
Tax consequences of coverage changes
A change in the death benefit option or Total Face Amount will often
change the policy's limits under the life insurance qualification test that you
elected. To avoid having the policy cease to qualify as life insurance for tax
purposes, we reserve the right to (i) refuse or limit a change in the death
benefit option or Total Face Amount and (ii) change the Guideline Single
Premium or Guideline Level Premium, as applicable. Please read "Tax
considerations" to learn about possible tax consequences of changing your
insurance coverage under the policy.
Your beneficiary
You name your beneficiary when you apply for the policy. The beneficiary
is entitled to the proceeds we pay following the insured person's death. You
may change the beneficiary during the insured person's lifetime. Such a change
requires the consent of any named irrevocable beneficiary. A new beneficiary
designation is effective as of the date you sign it, but will not affect any
payments we make before we receive it. If no beneficiary is living when the
insured person dies, we will pay the insurance proceeds to the owner or the
owner's estate.
29
Ways in which we pay out policy proceeds
You may choose to receive proceeds from the policy as a single sum. This
includes proceeds that become payable because of death or surrender.
Alternatively, you can elect to have proceeds of $1,000 or more applied to any
of the other payment options we may offer at the time. You cannot choose an
option if the monthly payments under the option would be less than $50. We will
issue a supplementary agreement when the proceeds are applied to any
alternative payment option. That agreement will spell out the terms of the
option in full. If no alternative payment option has been chosen, proceeds will
be paid as a single sum.
Changing a payment option
You can change the payment option at any time before the proceeds are
payable. If you haven't made a choice, the payee of the proceeds has a
prescribed period in which he or she can make that choice.
Tax impact of payment option chosen
There may be tax consequences to you or your beneficiary depending upon
which payment option is chosen. You should consult with a qualified tax adviser
before making that choice.
Premiums
Planned premiums
The Policy Specifications page of your policy will show the "Planned
Premium" for the policy. You will also choose how often to pay premiums -
annually, semi-annually or quarterly. You may also choose to pay premiums by
monthly electronic funds transfers. The premium reminder notice we send you is
based on the amount and period you choose. However, payment of Planned Premiums
is not necessarily required. You need only invest enough to keep the policy in
force (see "Lapse and reinstatement").
Minimum initial premium
The minimum initial premium is set forth in the Policy Specifications page
of your policy. After the payment of the initial premium, premiums may be paid
at any time and in any amount until the insured person reaches age 121, subject
to the limitations on premium amount described below.
Maximum premium payments
Federal tax law limits the amount of premium payments you can make
relative to the amount of your policy's insurance coverage. We will not
knowingly accept any amount by which a premium payment exceeds this limit. If
you exceed certain other limits, the law may impose a penalty on amounts you
take out of your policy. More discussion of these tax law requirements is
provided under "Tax considerations".
Large premium payments may expose us to unanticipated investment risk. In
order to limit our investment risk exposure under certain market conditions, we
may refuse to accept additional premium payments. This may be the case, for
example, in an environment of decreasing interest rates, where we may not be
able to acquire investments for our general account that will sufficiently
match the liabilities we are incurring under our fixed account guarantees.
Excessive allocations may also interfere with the effective management of our
variable investment account portfolios, if we are unable to make an orderly
investment of the additional premium into the portfolios. Also, we may refuse
to accept an amount of additional premium if the amount of the additional
premium would increase our insurance risk exposure, and the insured person
doesn't provide us with adequate evidence that he or she continues to meet our
requirements for issuing insurance.
We will notify you in writing of our refusal to accept additional premium
under these provisions within three days following the date that it is received
by us, and will promptly thereafter take the necessary steps to return the
premium to you. Notwithstanding the foregoing limits on the additional premium
that we will accept, we will not refuse to accept any premium necessary to
prevent the policy from terminating.
30
Processing premium payments
No premiums will be accepted prior to our receipt of a completed
application at our Service Office. All premiums received prior to the Issue
Date of the policy will be held in the general account and credited with
interest from the date of receipt at the rate of return then being earned on
amounts allocated to the Money Market B investment account. After the Issue
Date but prior to the Allocation Date, premiums received are allocated to the
Money Market B investment account.The "Allocation Date" of the policy is the
10th day after the Issue Date. The Issue Date is shown on the Policy
Specifications page of the policy. On the Allocation Date, the Net Premiums
paid plus interest credited, if any, will be allocated among the investment
accounts or the fixed account in accordance with the policy owner's
instructions. The "Net Premium" is the premium paid less the premium charge we
deduct from it.
Any Net Premium received on or after the Allocation Date will be allocated
among investment accounts or any fixed account option as of the business day on
or next following the date the premium is received at the Service Office.
Monthly deductions are normally due on the Policy Date and at the beginning of
each policy month thereafter. However, if the monthly deductions are due prior
to the Contract Completion Date, they will be deducted from policy value on the
Contract Completion Date instead of the dates they were due (see "Procedures
for issuance of a policy" for the definition of "Contract Completion Date").
Payment of premiums will not guarantee that the policy will stay in force.
Conversely, failure to pay premiums will not necessarily cause the policy to
lapse. However, in states where permitted, the policy will have a No-Lapse
Guarantee which would prevent the policy from lapsing during the guarantee
period, provided certain criteria are satisfied.
Ways to pay premiums
If you pay premiums by check or money order, they must be drawn on a U.S.
bank in U.S. dollars and made payable to "John Hancock". We will not accept
credit card checks. We will not accept starter or third party checks if they
fail to satisfy our administrative requirements. Premiums after the first must
be sent to the John Hancock USA Service Office at the appropriate address shown
on the back cover of this prospectus.
We will also accept premiums:
. by wire or by exchange from another insurance company, or
. via an electronic funds transfer program (any owner interested in
making monthly premium payments must use this method).
Lapse and reinstatement
Lapse
Unless the No-Lapse Guarantee is in effect, a policy will go into default
if at the beginning of any policy month the policy's net cash surrender value
would be zero or below after deducting the monthly deductions then due.
Therefore, a policy could lapse eventually if increases in policy value (prior
to deduction of policy charges) are not sufficient to cover policy charges. A
lapse could have adverse tax consequences as described under "Tax
considerations". We will notify you of the default and will allow a 61 day
grace period in which you may make a premium payment sufficient to bring the
policy out of default. The required payment will be equal to the amount
necessary to bring the net cash surrender value to zero, if it was less than
zero on the date of default, plus the monthly deductions due at the date of
default and payable at the beginning of each of the two policy months
thereafter, plus any applicable premium charge. If the required payment is not
received by the end of the grace period, the policy will terminate (i.e.,
"lapse") with no value.
No-Lapse Guarantee
In those states where it is permitted, as long as the cumulative premium
test is satisfied during the No-Lapse Guarantee Period, as described below, we
will guarantee that the policy will not go into default, even if adverse
investment experience or other factors should cause the policy's surrender
value to fall to zero or below during such period.
The Monthly No-Lapse Guarantee Premium is one-twelfth of the No-Lapse
Guarantee Premium.
The No-Lapse Guarantee Premium is set at issue on the basis of the Face
Amount and reflects the age, sex and risk class of the proposed insured, as
well as any additional rating and supplementary benefits, if applicable. It is
subject to change if (i) the Face Amount of the policy is changed, (ii) there
is a death benefit option change, (iii) there is a decrease in the Face
31
Amount of insurance due to a withdrawal, (iv) there is any change in the
supplementary benefits added to the policy or in the risk classification of the
insured person or (v) a temporary additional rating is added (due to a Face
Amount increase).
The No-Lapse Guarantee Period is set at issue and is stated in the policy.
The No-Lapse Guarantee Period for any Supplemental Face Amount is the first 2
policy years. Certain state limitations may apply, but generally the No-Lapse
Guarantee Period for the Base Face Amount is (i) the lesser of twenty years or
to age 75 or (ii) 5 years if the insured person's issue age is 70 or older. The
No-Lapse Guarantee Period for the Base Face Amount under any policy that has
elected an increasing Supplemental Face Amount or a Return of Premium rider,
however, is limited to the first 2 policy years.
While the No-Lapse Guarantee is in effect, we will determine at the
beginning of the policy month that your policy would otherwise be in default,
whether the cumulative premium test, described below, has been met. If the test
has not been satisfied, we will notify you of that fact and allow a 61-day
grace period in which you may make a premium payment sufficient to keep the
policy from going into default. This required payment, as described in the
notification, will be equal to the lesser of:
(a) the outstanding premium requirement to satisfy the cumulative premium
test at the date of default, plus the monthly No-Lapse Guarantee
Premium due for the next 3 policy months, or
(b) the amount necessary to bring the net cash surrender value to zero
plus the monthly deductions due, plus the next 3 monthly deductions
plus the applicable premium charge.
If the required payment is not received by the end of the grace period,
the No-Lapse Guarantee and the policy will terminate.
Cumulative premium test
The Cumulative Premium Test is satisfied if, as of the beginning of the
policy month that your policy would otherwise be in default, the sum of all
premiums paid to date less any withdrawals taken on or before the date of the
test and less any policy debt is equal to or exceeds the sum of the Monthly
No-Lapse Guarantee Premiums due from the policy date to the date of the test.
Death during grace period
If the insured person should die during the grace period, the policy value
used in the calculation of the death benefit will be the policy value as of the
date of default and the insurance benefit will be reduced by any outstanding
monthly deductions due at the time of death.
Reinstatement
You can reinstate a policy that has gone into default and terminated at
any time within 21 days following the date of termination without furnishing
evidence of insurability, subject to the following conditions:
(a) The insured person's risk classification is standard or preferred, and
(b) The insured person's attained age is less than 46.
By making a written request, you can reinstate a policy that has gone into
default and terminated at any time within the three-year period following the
date of termination subject to the following conditions:
(a) You must provide to us evidence of the insured person's insurability
that is satisfactory to us; and
(b) You must pay a premium equal to the amount that was required to bring
the policy out of default immediately prior to termination, plus the
amount needed to keep the policy in force to the next scheduled date
for payment of the Planned Premium.
If the reinstatement is approved, the date of reinstatement will be the
later of the date we approve your request or the date the required payment is
received at our Service Office. In addition, any surrender charges will be
reinstated to the amount they were at the date of default. The policy value on
the date of reinstatement, prior to the crediting of any Net Premium paid in
connection with the reinstatement, will be equal to the policy value on the
date the policy terminated. Any policy debt not paid upon termination of a
policy will be reinstated if the policy is reinstated.
Generally, the suicide exclusion and incontestability provision will apply
from the effective date of the reinstatement. Your policy will indicate if this
is not the case. A surrendered policy cannot be reinstated.
32
The policy value
From each premium payment you make, we deduct the premium charge described
under "Deduction from premium payments". We invest the rest (known as the "Net
Premium") in the accounts (fixed or investment) you've elected. Special
investment rules apply to premiums processed prior to the Allocation Date. (See
"Processing premium payments".)
Over time, the amount you've invested in any investment account will
increase or decrease the same as if you had invested the same amount directly
in the corresponding underlying portfolio and had reinvested all portfolios'
dividends and distributions in additional portfolio shares; except that we will
deduct certain additional charges which will reduce your policy value. We
describe these charges under "Description of charges at the policy level".
The amount you've invested in a fixed account option will earn interest at
the rates we declare from time to time. We guarantee that this rate will be at
least 3%. If you want to know what the current declared rate is for a fixed
account, just call or write to us. Amounts you invest in a fixed account will
not be subject to the asset-based risk charge described under "Deductions from
policy value". Otherwise, the policy level charges applicable to any fixed
account are the same as those applicable to the investment accounts.
Allocation of future premium payments
At any time, you may change the accounts (fixed or investment) in which
future premium payments will be invested. You make the original allocation in
the application for the policy. The percentages you select must be in whole
numbers and must total 100%.
Transfers of existing policy value
You may also transfer your existing policy value from one account (fixed
or investment) to another. To do so, you must tell us how much to transfer,
either as a whole number percentage or as a specific dollar amount. A
confirmation of each transfer will be sent to you. Without our approval, the
maximum amount you may transfer to or from any account in any policy is
$1,000,000.
The policies are not designed for professional market timing organizations
or other persons or entities that use programmed or frequent transfers among
investment accounts. As a consequence, we have reserved the right to impose
limits on the number and frequency of transfers into and out of investment
accounts and to impose a fee of up to $25 for any transfer beyond an annual
limit (which will not be less than 12). No transfer fee will be imposed on any
transfer from an investment account into a fixed account if the transfer occurs
during the following periods:
. within 18 months after the policy's Issue Date, or
. within 60 days after the later of the effective date of a material
change in the investment objectives of any investment account or the
date you are notified of the change.
Subject to the restrictions that we've specified, you may transfer existing
policy value into or out of investment accounts. Transfers out of a fixed
account are subject to additional limitations noted below.
Our current practice is to restrict transfers into or out of investment
accounts to two per calendar month (except with respect to those policies
described in the following paragraph). For purposes of this restriction, and in
applying the limitation on the number of free transfers, transfers made during
the period from the opening of a business day (usually 9:00 a.m. Eastern Time)
to the close of that business day (usually 4:00 p.m. Eastern Time) are
considered one transfer. You may, however, transfer to the Money Market B
investment account even if the two transfer per month limit has been reached,
but only if 100% of the account value in all investment accounts is transferred
to the Money Market B investment account. If such a transfer to the Money
Market B investment account is made, then, for the 30 calendar day period after
such transfer, no transfers from the Money Market B investment account to any
other investment accounts (variable or fixed) may be made. If your policy
offers a dollar cost averaging or automatic asset allocation rebalancing
program, any transfers pursuant to such program are not considered transfers
subject to these restrictions on frequent trading. The restrictions described
in this paragraph will be applied uniformly to all policy owners subject to the
restrictions.
Policies such as yours may be purchased by a corporation or other entity
as a means to informally finance the liabilities created by an employee benefit
plan, and to this end the entity may aggregately manage the policies purchased
to match its liabilities under the plan. Policies sold under these
circumstances are subject to special transfer restrictions. In lieu of the two
transfers per month restriction, we will allow the policy owner under these
circumstances to rebalance the investment options in its policies within the
following limits: (i) during the 10 calendar day period after any policy values
are transferred from
33
one investment account into a second investment account, the values can only be
transferred out of the second investment account if they are transferred into
the Money Market B investment account; and (ii) any policy values that would
otherwise not be transferable by application of the 10 day limit described
above and that are transferred into the Money Market B investment account may
not be transferred out of the Money Market B investment account into any other
accounts (fixed or investment) for 30 calendar days. The restrictions described
in this paragraph will be applied uniformly to all policy owners subject to the
restrictions.
The most you can transfer at any one time out of the enhanced yield fixed
account is the greater of (i) the fixed account maximum transfer amount of
$2,000, or (ii) the enhanced yield fixed account maximum transfer percentage of
10% multiplied by the amount in the enhanced yield fixed account on the
immediately preceding policy anniversary. Transfers out of the standard fixed
account option are limited to the greater of (i) $2,000, or (ii) the standard
fixed account maximum transfer percentage of 15% multiplied by the amount in
the standard fixed account on the immediately preceding policy anniversary. Any
transfer which involves a transfer out of a fixed account option may not
involve a transfer to the Money Market B investment account.
We reserve the right to impose a minimum amount limit on transfers out of
a fixed account. We also reserve the right to impose different restrictions on
any additional fixed account that we may offer in the future.
Dollar cost averaging. We may offer policy owners a dollar cost averaging
("DCA") program. Under the DCA program, the policy owner will designate an
amount which will be transferred monthly from the Money Market B investment
account into any other investment account(s) or any fixed account. If
insufficient funds exist to effect a DCA transfer, the transfer will not be
effected and you will be so notified. No fee is charged for this program.
We reserve the right to cease to offer this program as of 90 days after
written notice is sent to you.
Asset allocation balancer transfers. Under the asset allocation balancer
program the policy owner will designate an allocation of policy value among
investment accounts. At six-month intervals beginning six months after the
policy date, we will move amounts among the investment accounts as necessary to
maintain your chosen allocation. A change to your premium allocation
instructions will automatically result in a change in asset allocation balancer
instructions so that the two are identical unless you either instruct us
otherwise or have elected the dollar cost averaging program. No fee is charged
for this program.
We reserve the right to cease to offer this program as of 90 days after
written notice is sent to you.
Surrender and Withdrawals
Surrender
You may surrender your policy in full at any time. If you do, we will pay
you the policy value less any policy debt and surrender charge that then
applies. This is called your "net cash surrender value". You must return your
policy when you request a surrender. We will process surrenders on the day we
receive the surrender request (unless such day is not a business day, in which
case we will process surrenders as of the business day next following the date
of the receipt).
Withdrawals
You you may make a withdrawal of part of your net cash surrender value
once in each policy month. Generally, each withdrawal must be at least $500. If
the withdrawal results in a reduction in Base Face Amount, a charge equal to a
pro-rata portion of any surrender charge will be applied. In addition, we
reserve the right to charge a withdrawal fee of up to $25. We will
automatically reduce the policy value of your policy by the amount of the
withdrawal and the related charges. Unless otherwise specified by you, each
account (fixed and investment) will be reduced in the same proportion as the
policy value is then allocated among them. We will not permit a withdrawal if
it would cause your surrender value to fall below 3 months' worth of monthly
deductions (see "Deductions from policy value"). We also reserve the right to
refuse any withdrawal that would cause the policy's Total Face Amount or the
Base Face Amount to fall below $100,000.
Because it reduces the policy value, any withdrawal will reduce your death
benefit under either Option 1 or Option 2 (see "The Death Benefit"). Under
Option 1, such a withdrawal may also reduce the Total Face Amount. Any such
reduction in the Total Face Amount will be implemented by first reducing any
Supplemental Face Amount then in effect. The Base Face Amount will be reduced
only after the Supplemental Face Amount has been reduced to zero. If such a
reduction in Total Face Amount would cause the policy to fail the Internal
Revenue Code's definition of life insurance, we will not permit the
34
withdrawal. As noted, above, if the withdrawal results in a reduction in Base
Face Amount, a pro-rata portion of the applicable surrender charge will be
deducted from the policy value (see "Surrender charge"). We reserve the right
to waive the pro-rata surrender charge on any reduction in Base Face Amount if
the withdrawal is designed to serve certain administrative purposes (such as
the payment of fees associated with the provision of asset management
services).
For example, assume a policy owner that has elected death benefit Option 1
requests a withdrawal of $25,000 on a policy with a Base Face Amount of
$200,000 and a current surrender charge of $10,000. The $25,000 withdrawal
would reduce the Base Face Amount from $200,000 to $175,000. The reduction in
Base Face Amount would trigger a partial surrender charge equal to the
surrender charge times the proportionate reduction in Base Face Amount, in this
case equal to $10,000 X (25,000/200,000) or $1,250. The surrender charge after
the withdrawal would be equal to $10,000 - $1,250 or $8,750. If the policy
owner had instead purchased a policy with $200,000 of Base Face Amount and
$100,000 of Supplemental Face Amount, the withdrawal of $25,000 would reduce
the Supplemental Face Amount from $100,000 to $75,000. Since the Base Face
Amount would remain at $200,000, no partial surrender charge would be deducted.
Policy loans
You may borrow from your policy at any time by completing a form
satisfactory to us. The maximum amount you can borrow is the greater of (i) 90%
of net cash surrender value and (ii) the amount determined as follows:
. We first determine the net cash surrender value of your policy.
. We then subtract an amount equal to the monthly deductions then being
deducted from policy value times the number of full policy months until
the next policy anniversary.
. We then multiply the resulting amount by 1.25% in policy years 1
through 10 and 0% thereafter (although we reserve the right to increase
the percentage after the tenth policy year to as much as .25%).
. We then subtract the third item above from the second item above.
The minimum amount of each loan is $500. The interest charged on any loan
is an effective annual rate of 4.25% in the first 10 policy years and 3.0%
thereafter. However, we reserve the right to increase the percentage after the
tenth policy year to as much as 3.25%. Accrued interest will be added to the
loan daily and will bear interest at the same rate as the original loan amount.
Unless otherwise specified by you, the amount of the loan is deducted from the
accounts (fixed and investment) in the same proportion as the policy value is
then allocated among them. The amount of the loan is then placed in a special
loan account. This special loan account will earn interest at an effective
annual rate of 3.0%. However, if we determine that a loan will be treated as a
taxable distribution because of the differential between the loan interest rate
and the rate being credited on the special loan account, we reserve the right
to increase the rate charged on the loan to a rate that would, in our
reasonable judgement, result in the transaction being treated as a loan under
Federal tax law. The right to increase the rate charge on the loan is
restricted in some states. Please see your John Hancock USA for details. We
process policy loans as of the business day on or next following the day we
receive the loan request.
Repayment of policy loans
You can repay all or part of a loan at any time. Each repayment will be
allocated among the accounts as follows:
. The same proportionate part of the loan as was borrowed from any fixed
account option will be repaid to that fixed account.
. The remainder of the repayment will be allocated among the accounts in
the same way a new premium payment would be allocated (unless otherwise
specified by you).
If you want a payment to be used as a loan repayment, you must include
instructions to that effect. Otherwise, all payments will be assumed to be
premium payments. We process loan repayments as of the day we receive the
repayment.
Effects of policy loans
The policy value, the net cash surrender value, and any death benefit are
permanently affected by any loan, whether or not it is repaid in whole or in
part. This is because the amount of the loan is deducted from the accounts and
placed in a special loan account. The accounts and the special loan account
will generally have different rates of investment return.
The amount of the outstanding loan (which includes accrued and unpaid
interest) is subtracted from the amount otherwise payable when the policy
proceeds become payable.
35
Taking out a loan on the policy increases the risk that the policy may
lapse because of the difference between the interest rate charged on the loan
and the interest rate credited to the special loan account. Also, whenever the
outstanding loan equals or exceeds your policy value at and after the insured
person reaches age 121, the policy will terminate 31 days after we have mailed
notice of termination to you (and to any assignee of record at such assignee's
last known address) specifying the amount that must be paid to avoid
termination, unless a repayment of at least the amount specified is made within
that period. Policy loans may also result in adverse tax consequences under
certain circumstances (see "Tax considerations").
Description of charges at the policy level
Deduction from premium payments
. Premium charge - A charge to help defray our sales costs and related
taxes. The maximum premium charge is 8% in all policy years. Currently,
however, we plan to assess a premium charge of 6.4% upon each premium paid
up to the Target Premium in each of the first 5 policy years. (If the
premium received in the first policy year is less than the Target Premium,
then premium received in the second policy year will be treated as if
received in the first policy year up to the point that total premium
received equals the Target Premium.) A premium charge of 2% of premium
will be deducted from each premium in excess of Target Premium for the
first 5 policy years, and a charge of 2% will be deducted from all
premiums paid in policy years 6 and later. The "Target Premium" is
determined at the time the policy is issued and will appear in the "Policy
Specification" section of the policy.
. Optional enhanced surrender value rider charge - A charge imposed if you
elect this rider. The charge is 2% of the lesser of either the sum of
premiums paid in the first two policy years or the Target Premium.
Deductions from policy value
. Administrative charge - A monthly charge to help cover our administrative
costs. This is a flat dollar charge of $15.
. Face Amount charge - A monthly charge to primarly help cover sales costs.
The duration of the face amount charge is 10 years from the policy date.
The charge is determined by multiplying the Base Face Amount by the
applicable rate. The rate will vary based upon sex, age and underwriting
risk class of the insured person.
. Cost of insurance charge - A monthly charge for the cost of insurance. To
determine the charge, we multiply the net amount of insurance for which we
are then at risk by a cost of insurance rate. The rate is derived from an
actuarial table. The table in your policy will show the maximum cost of
insurance rates. The cost of insurance rates that we currently apply are
generally less than the maximum rates. The current rates will never be
more than the maximum rates shown in the policy. The cost of insurance
rates we use will depend on the age at issue, the underwriting risk class
and (usually) gender of the insured person, and the length of time the
policy has been in effect. Regardless of the table used, cost of insurance
rates generally increase each year that you own your policy, as the
insured person's attained age increases. (The insured person's "attained
age" on any date is his or her age on the birthday nearest that date.) For
death benefit Option 1, the net amount at risk is equal to the greater of
zero, or the result of (a) minus (b) where:
(a) is the death benefit as of the first day of the policy month, divided
by 1.0024663; and
(b) is the policy value as of the first day of the policy month after the
deduction of all other monthly deductions.
Since the net amount at risk for death benefit Option 1 is based on a
formula that includes as factors the death benefit and the policy value,
the net amount at risk is affected by the investment performance of the
investment accounts chosen, payment of premiums and charges assessed.
If the minimum death benefit is greater than the Total Face Amount, the
cost of insurance charge will reflect the amount of that additional
benefit.
For death benefit Option 2, the net amount at risk is equal to the Total
Face Amount of insurance divided by 1.0024663.
. Additional mortality charge - A monthly charge specified in your policy
for additional mortality risk if the insured person is subject to certain
types of special insurance risk.
. Asset-based risk charge - A monthly charge to help cover sales,
administrative and other costs. The charge is a percentage of that portion
of your policy value allocated to investment accounts. This charge does
not apply to the current fixed account options.
36
. Supplementary benefits charges - Monthly charges for any supplementary
insurance benefits added to the policy by means of a rider.
. Withdrawal fee - A fee for each withdrawal of policy value to compensate
us for the administrative expenses of processing the withdrawal. The
charge is equal to the lesser of $25 or 2% of the withdrawal amount. This
charge is not currently imposed, but we reserve the right to do so.
. Surrender charge - A charge we deduct if the policy lapses or is
surrendered within the first 10 policy years. We deduct this charge to
compensate us for sales expenses that we would otherwise not recover in
the event of early lapse or surrender. The charge is a percentage of the
premiums we received in the first two policy years that do not exceed the
Target Premium stated in the Policy Specifications page of your policy.
The percentage applied is dependent upon the policy year during which
lapse or surrender occurs, as shown in the following table:
Policy Year Percentage Applied
- ----------------------- -------------------
1-4 ................. 100%
5-6 ................. 95%
7 ................... 90%
8 ................... 70%
9 ................... 50%
10 .................. 30%
11 or later ......... 0%
If lapse or surrender occurs during the surrender charge period, the
percentage is graded down proportionately at the beginning of each policy
month until the next level is reached. The above table applies only if the
insured person is less than age 45 at issue. For older issue ages, the
percentages in the above table may be reduced. A pro rata portion of the
surrender charge may also be charged in the case of any reduction in Base
Face Amount Amount (see "Withdrawals" and "Requesting a decrease in
coverage"). The pro rata charge is calculated by dividing the reduction in
Base Face Amount by the Base Face Amount immediately prior to the
reductions and then multiplying the applicable surrender charge by that
ratio.
Additional information about how certain policy charges work
Sales expenses and related charges
The premium charges help to compensate us for the cost of selling our
policies. (See "Description of charges at the policy level"). The amount of the
charges in any policy year does not specifically correspond to sales expenses
for that year. We expect to recover our total sales expenses over the life of
the policies. To the extent that the premium charges do not cover total sales
expenses, the sales expenses may be recovered from other sources, including
gains from the asset-based risk charge and other gains with respect to the
policies, or from our general assets. Similarly, administrative expenses not
fully recovered by the administrative charge may also be recovered from such
other sources.
Effect of premium payment pattern
You may structure the timing and amount of premium payments to minimize
the premium charges, although doing so involves certain risks. Paying less than
one Target Premium in the first policy year or paying more than one Target
Premium in any policy year could reduce your total premium charges over time.
For example, if the Target Premium was $10,000 and you paid a premium of
$10,000 in each of the first ten policy years, you would pay total premium
charges of $4,200. If you paid $20,000 (i.e., two times the Target Premium
amount) in every other policy year up to and including the ninth policy year,
you would pay total premium charges of only $3,320. However, delaying the
payment of Target Premiums to later policy years could increase the risk that
the policy value will be insufficient to pay monthly policy charges as they
come due. As a result, the policy or any Supplemental Face Amount may lapse and
eventually terminate. Conversely, accelerating the payment of Target Premiums
to earlier policy years could cause aggregate premiums paid to exceed the
policy's 7-pay premium limit and, as a result, cause the policy to become a
modified endowment contract, with adverse tax consequences to you upon receipt
of policy distributions. (see "Tax considerations".)
Method of deduction
We deduct the monthly deductions described in the Fee Tables section from
your policy's accounts (fixed and investment) in proportion to the amount of
policy value you have in each, unless otherwise specified by you.
37
Reduced charges for eligible classes
The charges otherwise applicable may be reduced with respect to policies
issued to a class of associated individuals or to a trustee, employer or
similar entity where we anticipate that the sales to the members of the class
will result in lower than normal sales or administrative expenses, lower taxes
or lower risks to us. We will make these reductions in accordance with our
rules in effect at the time of the application for a policy. The factors we
consider in determining the eligibility of a particular group for reduced
charges, and the level of the reduction, are as follows: the nature of the
association and its organizational framework; the method by which sales will be
made to the members of the class; the facility with which premiums will be
collected from the associated individuals and the association's capabilities
with respect to administrative tasks; the anticipated lapse and surrender rates
of the policies; the size of the class of associated individuals and the number
of years it has been in existence; the aggregate amount of premiums paid; and
any other such circumstances which result in a reduction in sales or
administrative expenses, lower taxes or lower risks. Any reduction in charges
will be reasonable and will apply uniformly to all prospective policy
purchasers in the class and will not unfairly discriminate against any owner.
Other charges we could impose in the future
Except for a portion of the premium charge, we currently make no charge
for our Federal income taxes. However, if we incur, or expect to incur, income
taxes attributable to any subaccount of the Account or this class of policies
in future years, we reserve the right to make a charge for such taxes. Any such
charge would reduce what you earn on any affected investment accounts. However,
we expect that no such charge will be necessary.
We also reserve the right to increase the premium charge in order to
correspond with changes in the state premium tax levels or in the Federal
income tax treatment of the deferred acquisition costs for this type of policy.
Currently, state premium tax levels range from 0% to 3.5%.
Under current laws, we may incur state and local taxes (in addition to
premium taxes) in several states. At present, these taxes are not significant.
If there is a material change in applicable state or local tax laws, we may
make charges for such taxes.
Description of charges at the portfolio level
The portfolios must pay investment management fees and other operating
expenses. These fees and expenses (shown in the tables of portfolio annual
expenses under "Fee Tables") are different for each portfolio and reduce the
investment return of each portfolio. Therefore, they also indirectly reduce the
return you will earn on any investment accounts you select. We may also receive
payments from a Series Fund or its affiliates at an annual rate of up to
approximately 45% of the average net assets that holders of our variable life
insurance policies and other products have invested in that portfolio. Any such
payments do not, however, result in any charge to you in addition to what is
shown in the tables. Expenses of the portfolios are not fixed or specified
under the terms of the policy, and those expenses may vary from year to year.
Other policy benefits, rights and limitations
Optional supplementary benefit riders you can add
When you apply for a policy, you can request any of the optional
supplementary benefit riders that we then make available. Availability of any
rider, the benefits it provides and the charges for it may vary by state. Our
rules and procedures will govern eligibility for any rider and, in some cases,
the configuration of the actual rider benefits. Each rider contains specific
details that you should review before you decide to choose the rider. Charges
for most riders will be deducted from the policy value. We may change these
charges (or the rates that determine them), but not above any applicable
maximum amount stated in the Policy Specifications page of your policy. We may
add to, delete from or modify the list of optional supplementary benefit
riders.
. Optional Extended No-Lapse Guarantee Rider - This rider extends the
No-Lapse Guarantee Period to the earlier of : (a) termination of the
policy or rider, (b) subject to any applicable state limitations, the
number of years selected by the policy owner and (c) age 121 of the
insured person. The rider may be terminated at any time but cannot be
reinstated once terminated. In order for the Extended No-Lapse Guarantee
to be applicable, the Extended Cumulative Premium Test must be satisfied.
This test is described in the rider. The cost of the rider varies by issue
age and Face Amount and a change in the Face Amount of the policy may
affect the cost of the rider.
38
. Acceleration of Death Benefit for Qualified Long-Term Care Services Rider
- This rider provides for periodic advance payments to you of a portion of
the death benefit if the insured person becomes "chronically ill" so that
such person: (1) is unable to perform at least 2 activities of daily
living without substantial human assistance or has a severe cognitive
impairment; and (2) is receiving certain qualified services described in
the rider.
Benefits under the Long-Term Care Acceleration Rider will not begin until
we receive proof that the insured person qualifies and has received 100
days of "qualified long-term care service" as defined in the rider, while
the policy was in force. You must continue to submit evidence during the
insured person's lifetime of the insured person's eligiblity for rider
benefits.
We determine a maximum amount of death benefit that we will advance for
each month of qualification. This amount, called the "Maximum Monthly
Benefit", is based on the percentage of the policy's death benefit that
you select when you apply for the policy, and the death benefit amount in
effect when the insured person qualifies for benefits. The actual amount
of any advance is based on the expense incurred by the insured person, up
to the Maximum Monthly Benefit, for each day of qualified long-term care
service in a calendar month. The first 100 days of qualified long-term
care service, however, are excluded in any determination of an advance. We
will recalculate the Maximum Monthly Benefit if you make a withdrawal of
policy value, and for other events described in the rider. Each advance
reduces the remaining death benefit under your policy, and causes a
proportionate reduction in your policy value. If you have a policy loan,
we will use a pro-rata portion of each death benefit advance to repay
indebtedness. For example, if current indebtedness is $10,000, the death
benefit is $100,000, and the gross advance is $2,000, then the net advance
would be $1,800 = $2,000 X (1 - ($10,000/ $100,000)). As a result of the
advance, the indebtedness will be reduced by $200.
We restrict your policy value's exposure to market risk when benefits are
paid under the Long-Term Care Acceleration rider. We do this in several
ways. First, before we begin paying any Monthly Benefit, we will transfer
all policy value from the investment accounts to the fixed account. (The
amount to be transferred will be determined on the business day
immediately following the date we approve a request for benefits under the
rider.) In addition, you will not be permitted to transfer policy value or
allocate any additional premium payment to an investment account while
rider benefits are paid. Your participation in any of the automatic
investment plans will also be suspended during this period.
If the insured person no longer qualifies for rider benefits and your
policy remains in force, you will be permitted to invest new premium
payments or transfer existing policy value in the investment accounts.
(The restriction on transfers from the fixed account described on page
will continue to apply.) Benefits under this rider do not reduce the
No-Lapse Guarantee Premium requirements or the Extended No-Lapse Guarantee
Premium requirements that may be necessary for the No-Lapse Guarantee or
Extended No-Lapse Guarantee to remain in effect after a termination of
rider benefits.
If you purchase this rider:
. you and your immediate family will also have access to a national
program designed to help the elderly maintain their independent
living by providing advice about an array of elder care services
available to seniors, and
. you will have access to a list of long-term care providers in your
area who provide special discounts to persons who belong to the
national program.
This rider is sometimes referred to as the "LifeCare Rider".
. Residual Life Insurance Benefit and Continuation of Acceleration Rider -
This rider is available only if you also purchase the Acceleration of
Death Benefit for Qualified Long-Term Care Services Rider. This rider
provides protection against the death benefit being reduced below $25,000.
The rider also provides for a continuation of benefits under the
Acceleration of Death Benefit for Qualified Long-Term Care Services Rider
after such benefits would otherwise have ceased. The monthly maximum
continuation benefit is determined by multiplying the Monthly Acceleration
Percentage specified in the Policy Specifications times the Total Face
Amount. This rider is sometimes referred to as the "LMAX Rider".
. Optional Enhanced Surrender Value Rider - In the application for the
policy, you may elect to purchase the enhanced surrender value rider. This
rider provides an enhanced surrender value benefit (in addition to the
surrender value) if you surrender the policy within the first ten policy
years. The amount of the benefit will be shown in the "Policy
Specifications" section of the policy. The amount available for partial
withdrawals and loans are based on the surrender value and will in no way
be increased due to this rider.
39
. Return of Premium Death Benefit Rider - You may elect to have your policy
issued with an optional Return of Premium Death Benefit rider. This rider
provides an additional death benefit payable upon the death of the life
insured. The Return of Premium Rider death benefit has an initial value
equal to your initial premium times the Percentage of Premium as elected
and shown in the Policy Specifications page for the rider. The Percentage
of Premium will be applied to each subsequent premium and will increase
the coverage at the time of premium payment by that amount. The rider also
provides options to increase or decrease the benefit amount. The
Percentage of Premium is specified in the Policy Specifications page of
your policy and may range between 0% and 5%. This rider is only available
to you if death benefit Option 1 is elected.
The Return of Premium Rider death benefit will not exceed the Maximum
Benefit Amount shown in the Policy Specifications page for the rider. If
the policy owner makes a written request for a partial withdrawal of net
cash surrender value while this rider is in force, the amount of the
Return of Premium Rider death benefit will be reduced by the amount of the
withdrawal.
The No Lapse Guarantee provisions of the policy apply to the Return of
Premium Rider death benefit for the first two policy years only.
. Change of Life Insured Rider - This rider is only available to certain
owners purchasing the policy in connection with the financing of employee
benefit plan obligations. If you elect this rider, you may change the life
insured on or after the second policy anniversary. You must have an
insurable interest in the new life insured, and the new life insured must
consent in writing to the change. We will require evidence which satisfies
us of the new life insured's insurability, and the premiums and charges
after the change date will reflect the new life insured's age, sex, risk
classification and any additional rating which applies. Supplementary
benefits riders on the old life insured will be canceled as of the change
date. Supplementary benefits riders may be added on the new life insured
as of the change date, subject to our normal requirements and restrictions
for such benefits. The validity and suicide provisions of the policy will
apply to the entire Face Amount at the change date.
. Enhanced Yield Fixed Account Rider - You may elect to allocate your
premiums or policy value to the enhanced yield fixed account that we offer
by rider. Obligations under the enhanced yield fixed account are backed by
our general account. We will credit interest at the rate we declare.
Additional transfer restrictions apply to amounts in an enhanced yield
fixed account (see "Transfers of existing policy value").
. Accelerated Benefit Rider - This rider provides for acceleration of
payment of a portion of the death benefit should the insured person become
terminally ill and have a life expectancy of one year or less. Payment of
the accelerated benefits is subject to limits and conditions specified in
the rider.
Variations in policy terms
Insurance laws and regulations apply to us in every state in which our
policies are sold. As a result, various terms and conditions of your insurance
coverage may vary from the terms and conditions described in this prospectus,
depending upon where you reside. These variations will be reflected in your
policy or in endorsements attached to your policy.
We may vary the charges and other terms of our policies where special
circumstances result in sales or administrative expenses, mortality risks or
other risks that are different from those normally associated with the
policies. These include the type of variations discussed under "Reduced charges
for eligible classes". No variation in any charge will exceed any maximum
stated in this prospectus with respect to that charge.
Any variation discussed above will be made only in accordance with uniform
rules that we adopt and that we apply fairly to our customers.
Procedures for issuance of a policy
Generally, the policy is available with a minimum Total Face Amount at
issue of $100,000 and a minimum Base Face Amount at issue of $100,000. At the
time of issue, the insured person must have an attained age of no more than 90.
All insured persons must meet certain health and other insurance risk criteria
called "underwriting standards".
Policies issued in Montana or in connection with certain employee plans
will not directly reflect the sex of the insured person in either the premium
rates or the charges or values under the policy.
40
Commencement of insurance coverage
After you apply for a policy, it can sometimes take up to several weeks
for us to gather and evaluate all the information we need to decide whether to
issue a policy to you and, if so, what the insured person's risk classification
should be. After we approve an application for a policy and assign an
appropriate insurance risk classification, we will prepare the policy for
delivery. We will not pay a death benefit under a policy unless the policy is
in effect when the insured person dies (except for the circumstances described
under "Temporary coverage prior to policy delivery" below).
The policy will take effect only if all of the following conditions are
satisfied:
. The policy is delivered to and received by the applicant.
. The minimum initial premium is received by us.
. The insured person is living and there has been no deterioration in the
insurability of the insured person since the date of the application.
The date all of the above conditions are satisfied is referred to in this
prospectus as the "Contract Completion Date". If all of the above conditions
are satisfied, the policy will take effect on the date shown in the policy as
the "Policy Date". That is the date on which we begin to deduct monthly
charges. Policy months, policy years and policy anniversaries are all measured
from the Policy Date.
Backdating
Under limited circumstances, we may backdate a policy, upon request, by
assigning a Policy Date earlier than the date the application is signed.
However, in no event will a policy be backdated earlier than the earliest date
allowed by state law, which is generally three months to one year prior to the
date of application for the policy. The most common reasons for backdating are
to preserve a younger age at issue for the insured person or to retain a common
monthly deduction date in certain corporate-owned life insurance cases
involving multiple policies issued over time. If used to preserve age,
backdating will result in lower insurance charges. However, monthly deductions
will begin earlier than would otherwise be the case. Monthly deductions for the
period the Policy Date is backdated will actually be deducted from policy value
on the Contract Completion Date.
Temporary coverage prior to policy delivery
If a specified amount of premium is paid with the application for a policy
and other conditions are met, we will provide temporary term life insurance
coverage on the insured person for a period prior to the time coverage under
the policy takes effect. Such temporary term coverage will be subject to the
terms and conditions described in the Temporary Life Insurance Agreement and
Receipt attached to the application for the policy, including conditions to
coverage and limits on amount and duration of coverage.
Monthly deduction dates
Each charge that we deduct monthly is assessed against your policy value
at the close of business on the Policy Date and at the close of the first day
in each subsequent policy month.
Changes that we can make as to your policy
We reserve the right to make any changes in the policy necessary to ensure
the policy is within the definition of life insurance under the Federal tax
laws and is in compliance with any changes in Federal or state tax laws.
In our policies, we reserve the right to make certain changes if they
would serve the best interests of policy owners or would be appropriate in
carrying out the purposes of the policies. Such changes include the following:
. Changes necessary to comply with or obtain or continue exemptions under
the Federal securities laws
. Combining or removing fixed accounts or investment accounts
. Changes in the form of organization of any separate account
Any such changes will be made only to the extent permitted by applicable
laws and only in the manner permitted by such laws. When required by law, we
will obtain your approval of the changes and the approval of any appropriate
regulatory authority.
41
The owner of the policy
Who owns the policy? That's up to the person who applies for the policy.
The owner of the policy is the person who can exercise most of the rights under
the policy, such as the right to choose the accounts in which to invest or the
right to surrender the policy. In many cases, the person buying the policy is
also the person who will be the owner. However, the application for a policy
can name another person or entity (such as a trust) as owner. Whenever we've
used the term "you" in this prospectus, we've assumed that the reader is the
person who has whatever right or privilege is being discussed. There may be tax
consequences if the owner and the insured person are different, so you should
discuss this issue with your tax adviser.
While the insured person is alive, you will have a number of options under
the policy. Here are some major ones:
. Determine when and how much you invest in the various accounts
. Borrow or withdraw amounts you have in the accounts
. Change the beneficiary who will receive the death benefit
. Change the amount of insurance
. Turn in (i.e., "surrender") the policy for the full amount of its net
cash surrender value
. Choose the form in which we will pay out the death benefit or other
proceeds
It is possible to name so-called "joint owners" of the policy. If more
than one person owns a policy, all owners must join in most requests to
exercise rights under the policy.
Policy cancellation right
You have the right to cancel your policy within 10 days after you receive
it (the period may be longer in some states). This is often referred to as the
"free look" period. To cancel your policy, simply deliver or mail the policy
to:
. John Hancock USA at one of the addresses shown on the back cover of
this prospectus, or
. the John Hancock USA representative who delivered the policy to you.
The date of cancellation will be the date of such mailing or delivery. In
most states, you will receive a refund of any premiums you've paid. In some
states, the refund will be your policy value on the date of cancellation.
Reports that you will receive
At least annually, we will send you a statement setting forth at least the
following information as of the end of the most recent reporting period: the
amount of the death benefit, the portion of the policy value in a fixed account
and in each investment account, premiums received and charges deducted from
premiums since the last report, any outstanding policy loan (and interest
charged for the preceding policy year), and any further information required by
law. Moreover, you also will receive confirmations of premium payments,
transfers among accounts, policy loans, partial withdrawals and certain other
policy transactions.
Semiannually we will send you a report containing the financial statements
of the portfolios, including a list of securities held in each portfolio.
Assigning your policy
You may assign your rights in the policy to someone else as collateral for
a loan or for some other reason. Assignments do not require the consent of any
revocable beneficiary. A copy of the assignment must be forwarded to us. We are
not responsible for any payment we make or any action we take before we receive
a copy of the assignment at our Service Office. Nor are we responsible for the
validity of the assignment or its efficacy in meeting your objectives. An
absolute assignment is a change of ownership. All collateral assignees of
record must usually consent to any surrender, withdrawal or loan from the
policy.
When we pay policy proceeds
General
We will ordinarily pay any death benefit, withdrawal, surrender value or
loan within 7 days after we receive the last required form or request (and,
with respect to the death benefit, any other documentation that may be
required). If we don't
42
have information about the desired manner of payment within 7 days after the
date we receive documentation of the insured person's death, we will pay the
proceeds as a single sum.
Delay to challenge coverage
We may challenge the validity of your insurance policy based on any
material misstatements made to us in the application for the policy. We cannot
make such a challenge, however, beyond certain time limits that are specified
in the policy.
Delay for check clearance
We reserve the right to defer payment of that portion of your policy value
that is attributable to a premium payment made by check for a reasonable period
of time (not to exceed 15 days) to allow the check to clear the banking system.
Delay of separate account proceeds
We reserve the right to defer payment of any death benefit, loan or other
distribution that is derived from an investment account if (1) the New York
Stock Exchange is closed (other than customary weekend and holiday closings) or
trading on the New York Stock Exchange is restricted; (2) an emergency exists,
as a result of which disposal of securities is not reasonably practicable or it
is not reasonably practicable to fairly determine the policy value; or (3) the
SEC by order permits the delay for the protection of owners. Transfers and
allocations of policy value among the investment accounts may also be postponed
under these circumstances. If we need to defer calculation of separate account
values for any of the foregoing reasons, all delayed transactions will be
processed at the next values that we do compute.
Delay of general account surrender proceeds
State laws allow us to defer payment of any portion of the net cash
surrender value derived from any fixed account for up to 6 months. These laws
were enacted many years ago to help insurance companies in the event of a
liquidity crisis.
How you communicate with us
General rules
You should mail or express all checks and money orders for premium
payments and loan repayments to the John Hancock USA Service Office at the
appropriate address shown on the back cover.
Under our current rules, certain requests must be made in writing and be
signed and dated by you. They include the following:
. loans
. surrenders or withdrawals
. change of death benefit option
. increase or decrease in Face Amount
. change of beneficiary
. election of payment option for policy proceeds
. tax withholding elections
. election of telephone/internet transaction privilege.
The following requests may be made either in writing (signed and dated by
you) or by telephone or fax or through the Company's secured website, if a
special form is completed (see "Telephone, facsimile and internet transactions"
below):
. transfers of policy value among accounts
. change of allocation among accounts for new premium payments
You should mail or express all written requests to our Service Office at
the appropriate address shown on the back cover. You should also send notice of
the insured person's death and related documentation to our Service Office. We
do not consider that we've "received" any communication until such time as it
has arrived at the proper place and in the proper and complete form.
43
We have special forms that should be used for a number of the requests
mentioned above. You can obtain these forms from our Service Office or your
John Hancock USA representative. Each communication to us must include your
name, your policy number and the name of the insured person. We cannot process
any request that doesn't include this required information. Any communication
that arrives after the close of our business day, or on a day that is not a
business day, will be considered "received" by us on the next following
business day. Our business day currently closes at 4:00 p.m. Eastern Time, but
special circumstances (such as suspension of trading on a major exchange) may
dictate an earlier closing time.
Telephone, facsimile and internet transactions
If you complete a special authorization form, you can request transfers
among accounts and changes of allocation among accounts simply by telephoning
us at 1-800-521-1234 or by faxing us at 617-572-7008 or through the Company's
secured website. Any fax or internet request should include your name, daytime
telephone number, policy number and, in the case of transfers and changes of
allocation, the names of the accounts involved. We will honor telephone and
internet instructions from anyone who provides the correct identifying
information, so there is a risk of loss to you if this service is used by an
unauthorized person. However, you will receive written confirmation of all
telephone/internet transactions. There is also a risk that you will be unable
to place your request due to equipment malfunction or heavy phone line or
internet usage. If this occurs, you should submit your request in writing.
If you authorize telephone or internet transactions, you will be liable
for any loss, expense or cost arising out of any unauthorized or fraudulent
telephone or internet instructions which we reasonably believe to be genuine,
unless such loss, expense or cost is the result of our mistake or negligence.
We employ procedures which provide safeguards against the execution of
unauthorized transactions which are reasonably designed to confirm that
instructions received by telephone or internet are genuine. These procedures
include requiring personal identification, the use of a unique password for
internet authorization, recording of telephone calls, and providing written
confirmation to the owner. If we do not employ reasonable procedures to confirm
that instructions communicated by telephone or internet are genuine, we may be
liable for any loss due to unauthorized or fraudulent instructions.
As stated earlier in this prospectus, the policies are not designed for
professional market timing organizations or other persons or entities that use
programmed or frequent transfers among investment options. To discourage
disruptive frequent trading, we have imposed certain transfer restrictions (see
"Transfers of existing policy value"). In addition, we also reserve the right
to change our telephone, facsimile and internet transaction privileges outlined
in this section at any time, and to suspend or terminate any or all of those
privileges with respect to any owners who we feel are abusing the privileges to
the detriment of other owners.
Distribution of policies
John Hancock Distributors LLC ("JH Distributors"), a Delaware limited
liability company that we control, is the principal distributor and underwriter
of the securities offered through this prospectus and of other annuity and life
insurance products we and our affiliates offer. JH Distributors also acts as
the principal underwriter of the John Hancock Trust, whose securities are used
to fund certain investment accounts under the policies and under other annuity
and life insurance products we offer.
JH Distributors' principal address is 200 Bloor Street East, Toronto,
Canada M4W 1E5 and it also maintains offices with us at 197 Clarendon Street,
Boston, Massachusetts 02116. JH Distributors is a broker-dealer registered
under the Securities Exchange Act of 1934 (the "1934 Act") and is a member of
the National Association of Securities Dealers, Inc. (the "NASD").
We offer the policies for sale through individuals who are licensed as
insurance agents and who are registered representatives of broker-dealers that
have entered into selling agreements with JH Distributors. These broker-dealers
may include our affiliate Signator Investors, Inc.
Through JH Distributors, John Hancock USA pays compensation to
broker-dealers for the promotion and sale of the policies. The registered
representative through whom your policy is sold will be compensated pursuant to
the registered representative's own arrangement with his or her broker-dealer.
Compensation to broker-dealers for the promotion and sale of the policies is
not paid directly by policyowners but will be recouped through the fees and
charges imposed under the policy. (See "Description of charges at the policy
level".)
44
A limited number of broker-dealers may also be paid commissions or
overrides to "wholesale" the policies; that is, to provide marketing support
and training services to the broker-dealer firms that do the actual selling. We
may also provide compensation to a limited number of broker-dealers for
providing ongoing service in relation to policies that have already been
purchased.
Standard compensation. The compensation JH Distributors may pay to
broker-dealers may vary depending on the selling agreement, but compensation
(inclusive of wholesaler overrides and expense allowances) paid to
broker-dealers for sale of the policies (not including riders) is not expected
to exceed 120% of premium paid up to the first tier, and 6.5% of any excess, in
the first policy year. In years 2-5, compensation is not expected to exceed
5.5% of premium paid up to the first tier, and 3.25% of any excess.
Compensation in policy years 6-10 is not expected to exceed 3% of all premiums
paid. The amount and timing of this compensation may differ among
broker-dealers, but would not be expected to materially exceed the foregoing
schedules on a present value basis.
Additional compensation and revenue sharing. To the extent permitted by
SEC and NASD rules and other applicable laws and regulations, selling
broker-dealers may receive, directly or indirectly, additional payments in the
form of cash, other compensation or reimbursement. These additional
compensation or reimbursement arrangements may include, for example, payments
in connection with the firm's "due diligence" examination of the policies,
payments for providing conferences or seminars, sales or training programs for
invited registered representatives and other employees, payment for travel
expenses, including lodging, incurred by registered representatives and other
employees for such seminars or training programs, seminars for public,
advertising and sales campaigns regarding the policies, payments to assist a
firm in connection with its systems, operations and marketing expenses and/or
other events or activities sponsored by the firms. Subject to applicable NASD
rules and other applicable laws and regulations, JH Distributors and its
affiliates may contribute to, as well as sponsor, various educational programs,
sales contests, and/or other promotions in which participating firms and their
sales persons may receive prizes such as merchandise, cash or other rewards.
These arrangements will not be offered to all firms, and the terms of such
arrangements may differ between firms. We provide additional information on
special compensation or reimbursement arrangements involving selling firms and
other financial institutions in the Statement of Additional Information, which
is available upon request. Any such compensation, which may be significant at
times, will not result in any additional direct charge to you by us.
Differential compensation. Compensation negotiated and paid by JH
Distributors pursuant to a selling agreement with a broker-dealer may differ
from compensation levels that the broker-dealer receives for selling other
variable policies or contracts. These compensation arrangements may give us
benefits such as greater access to registered representatives. In addition,
under their own arrangements, broker-dealer firms may pay a portion of any
amounts received under standard or additional compensation or revenue sharing
arrangements to their registered representatives. As a result, registered
representatives may be motivated to sell the policies of one issuer over
another issuer, or one product over another product. You should contact your
registered representative for more information on compensation arrangements in
connection with your purchase of a policy.
Tax considerations
This description of Federal income tax consequences is only a brief
summary and is not intended as tax advice. Tax consequences will vary based on
your own particular circumstances, and for further information you should
consult a qualified tax adviser. Federal, state and local tax laws, regulations
and interpretations can change from time to time. As a result, the tax
consequences to you and the beneficiary may be altered, in some cases
retroactively.
The policy may be used in various arrangements, including non-qualified
deferred compensation or salary continuation plans, split dollar insurance
plans, executive bonus plans, retiree medical benefit plans and others. The tax
consequences of such plans may vary depending on the particular facts and
circumstances of each individual arrangement. Therefore, if the value of using
the policy in any such arrangement depends in part on the tax consequences, a
qualified tax advisor should be consulted for advise.
General
Generally, death benefits paid under policies such as yours are not
subject to income tax. Earnings on your policy value are ordinarily not subject
to income tax as long as we don't pay them out to you. If we do pay out any
amount of your policy value upon surrender or partial withdrawal, all or part
of that distribution would generally be treated as a return of the premiums
you've paid and not subjected to income tax. However certain distributions
associated with a reduction in death
45
benefit or other policy benefits within the first 15 years after issuance of
the policy are ordinarily taxable in whole or in part. (See "Other policy
distributions" below.) Amounts you borrow are generally not taxable to you.
However, some of the tax rules change if your policy is found to be a
modified endowment contract. This can happen if you've paid premiums in excess
of limits prescribed by the tax laws. Additional taxes and penalties may be
payable for policy distributions of any kind. (See "7-pay premium limit and
modified endowment contract status" below.)
Policy death benefit proceeds
We expect the policy to receive the same Federal income and estate tax
treatment as fixed benefit life insurance policies. Section 7702 of the
Internal Revenue Code (the "Code") defines a life insurance contract for
federal tax purposes. For a policy to be treated as a life insurance contract,
it must satisfy either the cash value accumulation test or the guideline
premium test. These tests limit the amount of premium that you may pay into the
policy. We will monitor compliance with these standards. If we determine that a
policy does not satisfy Section 7702, we may take whatever steps are
appropriate and reasonable to bring it into compliance with Section 7702.
If the policy complies with Section 7702, the death benefit proceeds under
the policy should be excludable from the beneficiary's gross income under
Section 101 of the Code. In addition, if you have elected the Acceleration of
Death Benefit for Qualified Long-Term Care Services rider, the rider's benefits
generally will be excludable from gross income under the Code. The tax-free
nature of these accelerated benefits is contingent on the rider meeting
specific requirements under Section 101 and/or Section 7702B of the Code. We
have designed the rider to meet these standards.
Other policy distributions
Increases in policy value as a result of interest or investment experience
will not be subject to Federal income tax unless and until values are received
through actual or deemed distributions. In general, the owner will be taxed on
the amount of distributions that exceed the premiums paid under the policy. An
exception to this general rule occurs in the case of a decrease in the policy's
death benefit or any other change that reduces benefits under the policy in the
first 15 years after the policy is issued and that results in a cash
distribution to the policy owner in order for the policy to continue to comply
with the Section 7702 definitional limits. Changes that reduce benefits include
partial withdrawals and death benefit option changes. For purposes of this rule
any distribution within the two years immediately before a reduction in
benefits will also be treated as if it caused the reduction. A cash
distribution that reduces policy benefits will be taxed in whole or in part (to
the extent of any gain in the policy) under rules prescribed in Section 7702.
The taxable amount is subject to limits prescribed in section 7702(f)(7). Any
taxable distribution will be ordinary income to the owner (rather than capital
gain).
Distributions for tax purposes include amounts received upon surrender or
partial withdrawals. You may also be deemed to have received a distribution for
tax purposes if you assign all or part of your policy rights or change your
policy's ownership. If you have elected the Acceleration of Death Benefit for
Qualified Long-Term Care Services Rider, as described in "Optional
supplementary benefit riders you can add" you may be deemed to have received a
distribution for tax purposes each time a deduction is made from your policy
value to pay the rider charge.
It is possible that, despite our monitoring, a policy might fail to
qualify as a life insurance contract under Section 7702 of the Code. This could
happen, for example, if we inadvertently failed to return to you any premium
payments that were in excess of permitted amounts, or if any of the funds
failed to meet certain investment diversification or other requirements of the
Code. If this were to occur, you would be subject to income tax on the income
credited to the policy from the date of issue to the date of the
disqualification and for subsequent periods.
Tax consequences of ownership or receipt of policy proceeds under Federal,
state and local estate, inheritance, gift and other tax laws will depend on the
circumstances of each owner or beneficiary. If the person insured by the policy
is also its owner, either directly or indirectly through an entity such as a
revocabale trust, the death benefit will be includible in his or her estate for
purposes of the Federal estate tax. If the owner is not the person insured, the
value of the policy will be includible in the owner's estate upon his or her
death. Even if ownership has been transferred, the death proceeds or the policy
value may be includible in the former owner's estate if the transfer occurred
less than three years before the former owner's death or if the former owner
retained certain kinds of control over the policy. You should consult your tax
adviser regarding these possible tax consequences.
Because there may be unfavorable tax consequences (including recognition
of taxable income and the loss of income tax-free treatment for any death
benefit payable to the beneficiary), you should consult a qualified tax adviser
prior to changing the policy's ownership or making any assignment of ownership
interests.
46
Policy loans
We expect that, except as noted below (see "7-pay premium limit and
modified endowment contract status"), loans received under the policy will be
treated as indebtedness of an owner and that no part of any loan will
constitute income to the owner. However, if the policy terminates for any
reason, the amount of any outstanding loan that was not previously considered
income will be treated as if it had been distributed to the owner upon such
termination. This could result in a considerable tax bill. Under certain
circumstances involving large amounts of outstanding loans, you might find
yourself having to choose between high premiums requirements to keep your
policy from lapsing and a significant tax burden if you allow the lapse to
occur.
Diversification rules and ownership of the Account
Your policy will not qualify for the tax benefits of a life insurance
contract unless the Account follows certain rules requiring diversification of
investments underlying the policy. In addition, the rules require that the
policy owner not have "investment control" over the underlying assets.
In certain circumstances, the owner of a variable life insurance policy
may be considered the owner, for Federal income tax purposes, of the assets of
the separate account used to support the policy. In those circumstances, income
and gains from the separate account assets would be includible in the policy
owner's gross income. The Internal Revenue Service ("IRS") has stated in
published rulings that a variable policy owner will be considered the owner of
separate account assets if the policy owner possesses incidents of ownership in
those assets, such as the ability to exercise investment control over the
assets. A Treasury Decision issued in 1986 stated that guidance would be issued
in the form of regulations or rulings on the "extent to which Policyholders may
direct their investments to particular sub-accounts of a separate account
without being treated as owners of the underlying assets." As of the date of
this prospectus, no comprehensive guidance on this point has been issued. In
Rev. Rul. 2003-91, however, the IRS ruled that a contract holder would not be
treated as the owner of assets underlying a variable life insurance or annuity
contract despite the owner's ability to allocate funds among as many as twenty
subaccounts.
The ownership rights under your policy are similar to, but different in
certain respects from, those described in IRS rulings in which it was
determined that policyholders were not owners of separate account assets. Since
you have greater flexibility in allocating premiums and policy values than was
the case in those rulings, it is possible that you would be treated as the
owner of your policy's proportionate share of the assets of the Account.
We do not know what future Treasury Department regulations or other
guidance may require. We cannot guarantee that the funds will be able to
operate as currently described in the Series Funds` prospectuses, or that a
Series Fund will not have to change any fund's investment objectives or
policies. We have reserved the right to modify your policy if we believe doing
so will prevent you from being considered the owner of your policy's
proportionate share of the assets of the Account, but we are under no
obligation to do so.
7-pay premium limit and modified endowment contract status
At the time of policy issuance, we will determine whether the Planned
Premium schedule will exceed the 7-pay limit discussed below. If so, our
standard procedures prohibit issuance of the policy unless you sign a form
acknowledging that fact.
The 7-pay limit is the total of net level premiums that would have been
payable at any time for a comparable fixed policy to be fully "paid-up" after
the payment of 7 equal annual premiums. "Paid-up" means that no further
premiums would be required to continue the coverage in force until maturity,
based on certain prescribed assumptions. If the total premiums paid at any time
during the first 7 policy years exceed the 7-pay limit, the policy will be
treated as a modified endowment contract, which can have adverse tax
consequences.
Policies classified as modified endowment contracts are subject to the
following tax rules:
. First, all partial withdrawals from such a policy are treated as ordinary
income subject to tax up to the amount equal to the excess (if any) of the
policy value immediately before the distribution over the investment in
the policy at such time.
. Second, loans taken from or secured by such a policy and assignments or
pledges of any part of its value are treated as partial withdrawals from
the policy and taxed accordingly. Past-due loan interest that is added to
the loan amount is treated as an additional loan.
47
. Third, a 10% additional income tax is imposed on the portion of any
distribution (including distributions on surrender) from, or loan taken
from or secured by, such a policy that is included in income except where
the distribution or loan:
. is made on or after the date on which the policy owner attains age 59 1/2;
. is attributable to the policy owner becoming disabled; or
. is part of a series of substantially equal periodic payments for the life
(or life expectancy) of the policy owner or the joint lives (or joint life
expectancies) of the policy owner and the policy owner's beneficiary.
These exceptions to the 10% additional tax do not apply in situations
where the policy is not owned by an individual.
Furthermore, any time there is a "material change" in a policy, the policy
will begin a new 7-pay testing period as if it were a newly-issued policy. The
material change rules for determining whether a policy is a modified endowment
contract are complex. In general, however, the determination of whether a
policy will be a modified endowment contract after a material change generally
depends upon the relationship among the death benefit of the policy at the time
of such change, the policy value at the time of the change, and the additional
premiums paid into the policy during the seven years starting with the date on
which the material change occurs.
Moreover, if benefits under a policy are reduced (such as a reduction in
the death benefit or the reduction or cancellation of certain rider benefits)
during the 7 years in which a 7-pay test is being applied, the 7-pay limit will
generally be recalculated based on the reduced benefits. If the premiums paid
to date are greater than the recalculated 7-pay limit, the policy will become a
modified endowment contract.
All modified endowment contracts issued by the same insurer (or its
affiliates) to the same owner during any calendar year generally are required
to be treated as one contract for the purpose of applying the modified
endowment contract rules. A policy received in exchange for a modified
endowment contract will itself also be a modified endowment contract. You
should consult your tax advisor if you have questions regarding the possible
impact of the 7-pay limit on your policy.
Corporate and H.R. 10 retirement plans
The policy may be acquired in connection with the funding of retirement
plans satisfying the qualification requirements of Section 401 of the Code. If
so, the Code provisions relating to such plans and life insurance benefits
thereunder should be carefully scrutinized. We are not responsible for
compliance with the terms of any such plan or with the requirements of
applicable provisions of the Code.
Withholding
To the extent that policy distributions to you are taxable, they are
generally subject to withholding for your Federal income tax liability. However
if you reside in the United States, you can generally choose not to have tax
withheld from distributions.
Life insurance purchases by residents of Puerto Rico
In Rev. Rul. 2004-75, 2004-31 I.R.B. 109, the Internal Revenue Service
ruled that income received by residents of Puerto Rico under life insurance
policy issued by a United States company is U.S.-source income that is subject
to United States Federal income tax.
Life insurance purchases by non-resident aliens
If you are not a U.S. citizen or resident, you will generally be subject
to U.S. Federal withholding tax on taxable distributions from life insurance
policies at a 30% rate, unless a lower treaty rate applies. In addition, you
may be subject to state and/or municipal taxes and taxes imposed by your
country of citizenship or residence. You should consult with a qualified tax
adviser before purchasing a policy.
Financial statements reference
The financial statements of John Hancock USA and the Account can be found
in the Statement of Additional Information. The financial statements of John
Hancock USA should be distinguished from the financial statements of the
Account and should be considered only as bearing upon the ability of John
Hancock USA to meet its obligations under the policies.
48
Registration statement filed with the SEC
This prospectus omits certain information contained in the Registration
Statement which has been filed with the SEC. More details may be obtained from
the SEC upon payment of the prescribed fee.
Independent registered public accounting firm
The consolidated financial statements of John Hancock Life Insurance
Company (U.S.A.) (formerly, The Manufacturers Life Insurance Company (U.S.A.))
at December 31, 2005 and 2004, and for each of the three years in the period
ended December 31, 2005, and the financial statements of Separate Account A of
John Hancock Life Insurance Company (U.S.A.) (formerly, The Manufacturers Life
Insurance Company (U.S.A.)) at December 31, 2005, and for each of the two years
in the period ended December 31, 2005, appearing in the Statement of Additional
Information of the Registration Statement have been audited by Ernst & Young
LLP, independent registered public accounting firm, as set forth in their
reports thereon appearing elsewhere herein, and are included in reliance upon
such reports given on the authority of such firm as experts in accounting and
auditing.
49
In addition to this prospectus, John Hancock USA has filed with the
Securities and Exchange Commission (the "SEC") a Statement of Additional
Information (the "SAI") which contains additional information about John
Hancock USA and the Account. The SAI and personalized illustrations of death
benefits, policy values and surrender values are available, without charge,
upon request. You may obtain the personalized illustrations from your John
Hancock USA representative. The SAI may be obtained by contacting the John
Hancock USA Service Office. You should also contact the John Hancock USA
Service Office to request any other information about your policy or to make
any inquiries about its operation.
SERVICE OFFICE
Express Delivery Mail Delivery
Specialty Products Specialty Products & Distribution
197 Clarendon Street, C-6 P.O. Box 192
Boston, MA 02117 Boston, MA 02117
Phone: Fax:
1-800-521-1234 617-572-7008
Information about the Account (including the SAI) can be reviewed and
copied at the SEC's Public Reference Branch, 100 F Street, NE, Room 1580,
Washington, DC, 20549. Information on the operation of the Public Reference
Room may be obtained by calling the SEC at 202-551-5850. Reports and other
information about the Account are available on the SEC's Internet website at
http://www.sec.gov. Copies of such information may be obtained, upon payment of
a duplicating fee, by writing the Public Reference Section of the SEC at 100 F
Street, NE, Washington, DC 20549-0102.
1940 Act File No. 811-4834 1933 Act File No. 333-131299