S-6/A 1 0001.txt MVL EDGE PRE-EFFECTIVE AMENDMENT #2 As filed with the Securities and Exchange Commission on March 5, 2001 Registration No. 333-52128 -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ----------------------- FORM S-6 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [_] PRE-EFFECTIVE AMENDMENT NO. 2 [X] POST-EFFECTIVE AMENDMENT NO. [_] ---------------------- JOHN HANCOCK VARIABLE LIFE ACCOUNT U (Exact name of trust) JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY (Name of depositor) JOHN HANCOCK PLACE INSURANCE & SEPARATE ACCOUNTS DEPT. - LAW SECTOR BOSTON, MASSACHUSETTS 02117 (Complete address of depositor's principal executive offices) -------------------- RONALD J. BOCAGE, ESQ. INSURANCE & SEPARATE ACCOUNTS DEPT. - LAW SECTOR JOHN HANCOCK LIFE INSURANCE COMPANY JOHN HANCOCK PLACE, BOSTON, 02117 (Name and complete address of agent for service) -------------------- Copy to: THOMAS C. LAUERMAN, ESQ. Foley & Lardner 3000 K. Street N.W. Washington, D.C. 20007 -------------------- Approximate date of proposed public offering: as soon as practicable after the effective date of this Registration Statement. Title and amount of securities being registered: interests under flexible premium variable universal life contracts. The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the Registration Statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine. CROSS-REFERENCE TABLE Form N-8B-2 Item Caption in Prospectus ---------------- --------------------- 1, 2 Cover, The Account and The Series Fund or Funds, JHVLICO and John Hancock 3 Inapplicable 4 Cover, Distribution of Policies 5,6 The Account and The Series Fund or Funds, State Regulation 7, 8, 9 Inapplicable 10(a),(b),(c),(d),(e) Policy Provisions and Benefits 10(f) Voting Privileges 10(g),(h) Changes that JHVLICO Can Make 10(i) Appendix--Other Policy Provisions, The Account and The Series Fund or Funds 11, 12 Summary, The Account and The Series Fund or Funds, Distribution of Policies 13 Charges and expenses, Appendix-- Illustration of Death Benefits, Account Values, Surrender Values and Accumulated Premiums 14, 15 Summary, Distribution of Policies, Premiums 16 The Account and The Series Fund or Funds 17 Summary, Policy Provisions and Benefits 18 The Account and The Series Fund or Funds, Tax Considerations 19 Reports 20 Changes that JHVLICO Can Make 21, 22 Policy Provisions and Benefits 23 Distribution of Policies 24 Not Applicable 25 JHVLICO and John Hancock 26 Not Applicable 27,28,29,30 JHVLICO and John Hancock, Board of Directors and Executive Officers of JHVLICO 31,32,33,34 Not Applicable 35 JHVLICO and John Hancock 37 Not Applicable 38,39,40,41(a) Distribution of Policies, JHVLICO and John Hancock, Charges and Expenses 42, 43 Not Applicable 44 The Account and The Series Fund or Funds, Policy Provisions, Appendix--Illustration of Death Benefits, Account Values, Surrender Values and Accumulated Premiums 45 Not Applicable 46 The Account and The Series Fund or Funds, Policy Provisions, Appendix--Illustration of Death Benefits, Account Values, Surrender Values and Accumulated Premiums 47 Not Applicable 48,49,50 Not Applicable 51 Policy Provisions and Benefits, Appendix--Other Policy Provisions 52 The Account and The Series Fund or Funds, Changes that JHVLICO Can Make 53,54,55 Not Applicable 56,57,58,59 Not Applicable PROSPECTUS DATED MARCH 12, 2001 -------------------------------------------------------------------------------- MEDALLION VARIABLE UNIVERSAL LIFE EDGE -------------------------------------------------------------------------------- a flexible premium variable universal life insurance policy issued by JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY ("JHVLICO") The policy provides an investment option with fixed rates of return declared by JHVLICO and the following variable investment options:
----------------------------------------------------------------------------------------------------------------------- VARIABLE INVESTMENT OPTION MANAGED BY -------------------------- ---------- Managed........................................................ Independence Investment Associates, Inc. and Capital Guardian Trust Company Growth & Income................................................ Independence Investment Associates, Inc. and Putnam Investment Management, Inc. Fidelity VIP Contrafund/(R)/................................... Fidelity Management and Research Company Equity Index................................................... State Street Global Advisors Large Cap Value................................................ T. Rowe Price Associates, Inc. Large Cap Growth............................................... Independence Investment Associates, Inc. Large Cap Aggressive Growth.................................... Alliance Capital Management L.P. Fidelity VIP Growth............................................ Fidelity Management and Research Company AIM V.I. Value................................................. A I M Advisors, Inc. Janus Aspen Global Technology.................................. Janus Capital Corporation Mid Cap Growth................................................. Janus Capital Corporation Fundamental Growth............................................. Putnam Investment Management, Inc. Real Estate Equity............................................. Independence Investment Associates, Inc. and Morgan Stanley Dean Witter Investment Management Inc. Small/Mid Cap CORE /(SM)/...................................... Goldman Sachs Asset Management Small/Mid Cap Growth........................................... Wellington Management Company, LLP Small Cap Equity............................................... Capital Guardian Trust Company Small Cap Growth............................................... John Hancock Advisers, Inc. MFS New Discovery.............................................. MFS Investment Management/(R)/ Global Balanced................................................ Capital Guardian Trust Company Janus Aspen Worldwide Growth................................... Janus Capital Corporation Templeton International Securities............................. Templeton Investment Counsel, Inc. International Equity Index..................................... Independence International Associates, Inc. International Opportunities.................................... T. Rowe Price International, Inc. Emerging Markets Equity........................................ Morgan Stanley Dean Witter Investment Management Inc. Short-Term Bond................................................ Independence Investment Associates, Inc. Bond Index..................................................... Mellon Bond Associates, LLP Active Bond.................................................... John Hancock Advisers, Inc. Global Bond.................................................... Capital Guardian Trust Company High Yield Bond................................................ Wellington Management Company, LLP Money Market................................................... John Hancock Life Insurance Company -----------------------------------------------------------------------------------------------------------------------
The variable investment options shown on page 1 are those available as of the date of this prospectus. We may add, modify or delete variable investment options in the future. When you select one or more of these variable investment options, we invest your money in the corresponding investment option(s) of one or more of the following: the John Hancock Variable Series Trust I, the AIM Variable Insurance Funds, Inc., Fidelity's Variable Insurance Products Fund and Variable Insurance Products Fund II, the Janus Aspen Series (Service Shares Class), and the MFS Variable Insurance Trust (together, "the Trusts"). In this prospectus, the investment options of the Trusts are referred to as "funds". In the prospectuses for the Trusts, the investment options may be referred to as "funds", "portfolios" or "series". Each Trust is a so-called "series" type mutual fund registered with the Securities and Exchange Commission ("SEC"). The investment results of each variable investment option you select will depend on those of the corresponding fund of one of the Trusts. Each of the funds is separately managed and has its own investment objective and strategies. Attached at the end of this prospectus is a prospectus for each Trust. The Trust prospectuses contain detailed information about each available fund. Be sure to read those prospectuses before selecting any of the variable investment options shown on page 1. * * * * * * * * * * * * Please note that the 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. * * * * * * * * * * * * JHVLICO LIFE SERVICING OFFICE ----------------------------- Express Delivery U.S. Mail ---------------- --------- 529 Main Street (X-4) P.O. Box 111 Charlestown, MA 02129 Boston, MA 02117 Phone: 1-800-732-5543 Fax: 1-617-886-3048 2 GUIDE TO THIS PROSPECTUS This prospectus contains information that you should know before you buy a policy or exercise any of your rights under the policy. However, please keep in mind that this is a prospectus - - it is not the policy. The prospectus --- simplifies many policy provisions to better communicate the policy's essential features. Your rights and obligations under the policy will be determined by the language of the policy itself. When you receive your policy, read it carefully. This prospectus is arranged in the following way: . The section which follows is called "Basic Information". It contains basic information about the policy in a question and answer format. You should read the Basic Information before reading any other section of the prospectus. . Behind the Basic Information section are illustrations of hypothetical policy benefits that help clarify how the policy works. These start on page 25. . Behind the illustrations is a section called "Additional Information." This section gives more details about the policy. It generally does not repeat information contained in the Basic --- Information section. A table of contents for the Additional Information section appears on page 32. . Behind the Additional Information section are the financial statements for us and for the Separate Account that we use for this policy. These start on page 47. . Finally, there is an Alphabetical Index of Key Words and Phrases at the back of the prospectus on page 120. After the Alphabetical Index of Key Words and Phrases, this prospectus ends and the prospectuses for the Trusts begin. 3 BASIC INFORMATION This "Basic Information" section provides answers to commonly asked questions about the policy. Here are the page numbers where the questions and answers appear:
Question Beginning on page -------- ----------------- .What is the policy?............................................................................. 5 .Who owns the policy?............................................................................ 5 .How can you invest money in the policy?......................................................... 5 .Is there a minimum amount you must invest?...................................................... 6 .How will the value of your investment in the policy change over time?........................... 8 .What charges will we deduct from your investment in the policy?................................. 9 .What charges will the Trusts deduct from your investment in the policy?......................... 11 .What other charges can we impose in the future?................................................. 14 .How can you change your policy's investment allocations?........................................ 14 .How can you access your investment in the policy?............................................... 15 .How much will we pay when the insured person dies?.............................................. 17 .Can you add additional benefit riders?.......................................................... 18 .How can you change your policy's insurance coverage?............................................ 20 .Can you cancel your policy after it's issued?................................................... 21 .Can you choose the form in which we pay out policy proceeds?.................................... 21 .To what extent can we vary the terms and conditions of the policies in particular cases?........ 22 .How will your policy be treated for income tax purposes?........................................ 23 .How do you communicate with us?................................................................. 23
4 WHAT IS THE POLICY? The policy's primary purpose is to provide lifetime protection against economic loss due to the death of the insured person. If the life insurance protection is provided under a master group policy, the term "policy" as used in this prospectus refers to the certificate you will be issued and not to the master group policy. The value of the amount you have invested under the policy may increase or decrease daily based upon the investment results of the variable investment options that you choose. The amount we pay to the policy's beneficiary if the insured person dies (we call this the "death benefit") may be similarly affected. 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 investment options . Borrow or withdraw amounts you have in the investment options . 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 surrender value . Choose the form in which we will pay out the death benefit or other proceeds Most of these options are subject to limits that are explained later in this prospectus. 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 investment options 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. HOW CAN YOU INVEST MONEY IN THE POLICY? Premium Payments 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 below, you can make any other premium payments you wish at any time. That's why the policy is called a "flexible premium" policy. 5 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 the maximum. 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 begins on page 40. Also, we may refuse to accept any amount of an additional premium if: . that amount of 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. In no event, however, will we refuse to accept any premium necessary to prevent the policy from terminating or to keep the guaranteed death benefit feature in effect. 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 Variable Life Insurance Company." Premiums after the first must be sent to the JHVLICO Life Servicing Office at the appropriate address shown on page 2 of this prospectus. We will also accept premiums: . by wire or by exchange from another insurance company, . via an electronic funds transfer program (any owner interested in making monthly premium payments must use this method), or ------- . if we agree to it, through a salary deduction plan with your employer. You can obtain information on these other methods of premium payment by contacting your JHVLICO representative or by contacting the JHVLICO Life Servicing Office. IS THERE A MINIMUM AMOUNT YOU MUST INVEST? Planned Premiums The Policy Specifications page of your policy will show the "Planned Premium" for the policy. You choose this amount in the policy application. You will also choose how often to pay premiums-- annually, semi-annually, quarterly or monthly. 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 "Guaranteed death benefit feature" on page 7 and "Lapse and reinstatement" on page 8). 6 Guaranteed death benefit feature This feature guarantees that your Basic Sum Insured will not terminate (i.e., "lapse"), regardless of adverse investment performance, if on each "grace period testing date" the amount of cumulative premiums you have paid (less all withdrawals from the policy and all outstanding loans) equals or exceeds the sum of all Guaranteed Death Benefit Premium ("GDB Premium") due to date. For the first 5 policy years, the same applies to any amount of Additional Sum Insured. If the Guaranteed Death Benefit test is not satisfied on any grace period testing date, the guaranteed death benefit feature will not be "in effect" on that date. We currently test on a quarterly basis, but reserve the right to test on each monthly deduction date. (The term "monthly deduction date" is defined on page 35 under "Procedures for issuance of a policy".) Your policy will show three types of GDB Premium (or such other types as permitted by your state): . 5 Year GDB Premium - This is used on each grace period testing date until the 5th policy anniversary. The total GDB Premium that is "due to date" on any grace period testing date during this period is equal to the 5 Year GDB Premium times the number of elapsed policy months from the policy's date of issue through the grace period testing date. . Age 65/10 Year GDB Premium - This is used on each grace period testing date that occurs on and after the 5th policy anniversary until the later of (i) the policy anniversary nearest the insured person's 65th birthday or (ii) the 10th policy anniversary. The total GDB Premium that is "due to date" on any grace period testing date during this period is equal to the Age 65/10 Year GDB Premium times the number of elapsed policy months from the policy's date of issue through the grace period testing date. . Age 100 GDB Premium - This is used on each grace period testing date that occurs on and after the policy anniversary nearest the insured person's 65th birthday (or, if later, the 10th policy anniversary) until the policy anniversary nearest the insured person's 100th birthday. The total GDB Premium that is "due to date" on any grace period testing date during this period is equal to the Age 100 GDB Premium times the number of elapsed policy months from the policy's date of issue through the grace period testing date. The Age 100 GDB Premium is higher than the Age 65/10 Year GDB Premium which in turn is higher than the 5 Year GDB Premium, but none of them will ever be greater than the so-called "guideline premium" for the policy as defined in Section 7702 of the Internal Revenue Code. For the first 5 policy years, the guaranteed death benefit feature applies to both the Basic Sum Insured and Additional Sum Insured then in effect. On the 5th policy anniversary and thereafter, the guaranteed death benefit feature applies only to the Basic Sum Insured in effect when we issue the policy and does not apply to any amount of Additional Sum Insured. In any policy year, the guaranteed death benefit feature will cease to be in effect if you increase the Basic Sum Insured (see "How much will we pay when the insured person dies?" on page 17). The amount of the Basic Sum Insured that is guaranteed will be reduced to the extent that we 7 pay it to you under a Living Care Benefit Rider while the insured is living (see "Can you add additional benefit riders?" on page 18). If there are monthly charges that remain unpaid because of this feature, we will deduct such charges when there is sufficient surrender value to pay them. If an insufficient amount of GDB Premium has been paid on a grace period testing date, and your policy would lapse for failure to pay charges then due, we will provide you with a notification as descibed in the next section, "Lapse and reinstatement". Lapse and reinstatement Either your entire policy or the Additional Sum Insured portion of your Total Sum Insured can lapse for failure to pay charges due under the policy. During the first 5 policy years, there can be no lapse of any kind if the guaranteed death benefit feature is in effect. If the guaranteed death benefit feature is in effect after the 5th policy year, the Additional Sum Insured and any additional benefit riders (unless otherwise stated therein) will be in default and may lapse if the policy's surrender value is not sufficient to pay the charges on a grace period testing date. If the guaranteed death benefit feature is not in effect, the entire policy will be in default and may lapse if the policy's surrender value is not sufficient to pay the charges on a grace period testing date. In either case, we will notify you of how much you will need to pay to keep the Additional Sum Insured or the policy in force. You will have a 61 day "grace period" to make these payments. If you pay these amounts during the grace period, you may also continue the guaranteed death benefit feature by paying the necessary amount of GDB Premiums. If you don't pay at least the required amount by the end of the grace period, the Additional Sum Insured and any additional benefit riders (unless otherwise stated therein) or your policy, as the case may be, will lapse. If your policy lapses, all coverage under the policy will cease. Even if the policy or the Additional Sum Insured terminates in this way, you can still reactivate (i.e., "reinstate") it within 3 years from the beginning of the grace period. You will have to provide evidence that the insured person still meets our requirements for issuing coverage. You will also have to pay a minimum amount of premium and be subject to the other terms and conditions applicable to reinstatements, as specified in the policy. If the guaranteed death benefit is not in effect and the insured person dies during the grace period, we will deduct any unpaid monthly charges from the death benefit. During a grace period, you cannot make a partial withdrawal or policy loan. HOW WILL THE VALUE OF YOUR INVESTMENT IN THE POLICY CHANGE OVER TIME? From each premium payment you make, we deduct the charges described under "Deductions from premium payments" below. We invest the rest in the investment options you've elected. Special investment rules apply to premiums processed prior to the 20th day after your policy becomes effective. (See "Commencement of investment performance" beginning on page 35.) Over time, the amount you've invested in any variable investment option will increase or decrease the same as if you had invested the same amount directly in the corresponding fund of the Trust and had reinvested all fund dividends and distributions in additional fund shares; 8 except that we will deduct certain additional charges which will reduce your account value. We describe these charges under "What charges will we deduct from your investment in the policy?" below. The amount you've invested in the fixed investment option will earn interest at a rate we declare from time to time. We guarantee that this rate will be at least 4%. If you want to know what the current declared rate is, just call or write to us. The current declared rate will also appear in the annual statement we will send you. Amounts you invest in the fixed investment option will not be subject to the asset-based risk charge described on page 10. Otherwise, the charges applicable to the fixed investment option are the same as those applicable to the variable investment options. At any time, the "account value" of your policy is equal to: . the amount you invested, . plus or minus 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 the policy, however, your account value will be computed somewhat differently. This is discussed beginning on page 37. WHAT CHARGES WILL WE DEDUCT FROM YOUR INVESTMENT IN THE POLICY? Deductions from premium payments . Tax charge - A charge to cover state premium taxes we currently expect to ---------- pay, on average, and the increased Federal income tax burden that we currently expect will result from receipt of premiums. This charge is currently 3.60% of each premium. . Premium sales charge - A charge to help defray our sales costs. The charge is -------------------- 4% of the premium you pay in policy years 1 - 5 and 3% of the premium you pay in policy years 6 and thereafter. We currently intend to stop making this charge on premiums received after the 10th policy year, but this is not guaranteed. Because policies of this type were first offered for sale in the year 2001, no termination of this charge has yet occurred. Deductions from account value . Issue charge - A monthly charge to help defray our sales and administrative ------------ costs. The charge is a percentage of the "Target Premium" and will be the same regardless of the amount of premium actually paid. The Target Premium is determined at the time the policy is issued and appears in the "Policy Specifications" section of the policy. In general, the greater the proportion of Additional Sum Insured at issue, the lower the 9 Target Premium. The percentage will vary by the gender, issue age and risk class of the insured person, the death benefit option selected and the duration of the policy. . Administrative charge - A monthly charge to help defray our administrative --------------------- costs. This is a flat dollar charge of up to $31 (currently $29) during the first policy year and up to $11 (currently $9) during policy years 2 and thereafter. . Insurance charge - A monthly charge for the cost of insurance. To determine ---------------- the charge, we multiply the amount of insurance for which we are at risk by a cost of insurance rate. The rate is derived from an actuarial table and the ratio of Basic Sum Insured to Additional Sum Insured on the date we issue your policy. 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. We will review the cost of insurance rates at least every 5 years and may change them from time to time. However, those rates will never be more than the maximum rates shown in the policy. The table of rates we use will depend on the insurance risk characteristics and (usually) gender of the insured person, the Total Sum Insured 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.) We currently apply three "bands" of insurance rates, based on a policy's Total Sum Insured (excluding any Premium Cost Recovery Benefit) on the date of issue, but continuation of that practice is not guaranteed. The lowest band of rates is for policies of $1 million or more, next lower for policies between $250,000 to $999,999, and the highest band is for policies between $100,000 to $249,999. The insurance charge for death benefit Option B will tend to be higher than the insurance charge for death benefit Option A (see "How much will we pay when the insured person dies?" on page 17). . Extra 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 for mortality and expense risks we ----------------------- assume. The charge is a percentage of that portion of your account value allocated to variable investment options. The current percentage on the first $25,000 of account value allocated to variable investment options is .067%. We guarantee that this percentage will never exceed .067%. The current percentages on the account value allocated to the variable investment options in excess of $25,000 are 0.067 for policy years 1 through 5, 0.021% for policy years 6 through 10, 0.013% for policy years 11 through 15, and .004% for policy years 16 and thereafter. We guarantee that these percentages will never exceed .067 % for policy years 1 through 5 and .033% for policy years 6 and thereafter. This charge does not apply to the fixed investment option. . Optional benefits charge - Monthly charges for certain optional insurance ------------------------ benefits added to the policy by means of a rider. Some of the riders we currently offer are described under "Can you add additional benefit riders?" on page 18. . ASI reduction charge - A charge we deduct if you decrease the Additional Sum -------------------- Insured during the first 20 policy years. A table in your policy will state the maximum rate for the charge per $1,000 of Additional Sum Insured surrendered, based on the insured 10 person's issue age, insurance risk characteristics and (usually) gender. The rates are shown in the policy and generally range from less than $1 per $1,000 for issue age 40 or less, and increase for issue ages thereafter, to over $10 per $1,000 for issue ages after 70. We do not deduct this charge if the Additional Sum Insured is reduced because of a withdrawal of surrender value or surrender of the policy. . Contingent deferred sales charge ("CDSC") - 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 policy year that do not exceed the first year Target Premium, as shown in the following table: POLICY YEAR(S) PERCENTAGE OF FIRST YEAR TARGET PREMIUM -------------- --------------------------------------- 1-3 100% 4-6 95% 7 90% 8 70% 9 40% 10 and later 0% The above table applies only if the insured person is less than attained age 45 at issue. For older issue ages, the maximum is reached earlier and the percentage may decrease to zero in fewer than 10 policy years. Regardless of issue age, there is a further limitation on the CDSC that can be charged if surrender or lapse occurs in the second policy year. A pro-rata portion of the CDSC may also be charged in the case of withdrawals that reduce Basic Sum Insured (see "Partial withdrawals" on page 15) and requested reductions in Basic Sum Insured (see "Decrease in coverage" on page 20). The pro-rata charge is calculated by dividing the reduction in Basic Sum Insured by the Basic Sum Insured immediately prior to the reduction and then multiplying the applicable CDSC by that ratio. . Partial withdrawal charge - A charge for each partial withdrawal of account ------------------------- value to compensate us for the administrative expenses of processing the withdrawal. The charge is equal to the lesser of $20 or 2% of the withdrawal amount. WHAT CHARGES WILL THE TRUSTS DEDUCT FROM YOUR INVESTMENT IN THE POLICY? The Trusts must pay investment management fees and other operating expenses. These fees and expenses are different for each fund and reduce the investment return of each fund. Therefore, they also indirectly reduce the return you will earn on any variable investment options you select. We may receive payments from a fund or its affiliates at an annual rate of up to approximately 0.25% of the average net assets that holders of our variable life insurance policies and variable annuity contracts have invested in that fund. Any such payments do not, however, result in any charge to you in addition to what is disclosed below. The following figures for the funds are based on historical fund expenses, as a percentage (rounded to two decimal places) of each fund's average daily net assets for 1999, except as 11 indicated in the Notes appearing at the end of this table. Expenses of the funds are not fixed or specified under the terms of the policy, and those expenses may vary from year to year.
Total Fund Investment Distribution and Other Operating Operating Other Operating Management Service Expenses With Expenses With Expenses Absent Fund Name Fee (12b-1) Fees Reimbursement Reimbursement Reimbursement --------- ---------- ---------------- --------------- -------------- ---------------- JOHN HANCOCK VARIABLE SERIES TRUST I (NOTE 1): Managed............................... 0.67% N/A 0.03% 0.70% 0.03% Growth & Income....................... 0.67% N/A 0.03% 0.70% 0.03% Equity Index.......................... 0.14% N/A 0.00% 0.14% 0.08% Large Cap Growth...................... 0.36% N/A 0.03% 0.39% 0.03% Large Cap Aggressive Growth........... 0.98% N/A 0.10% 1.08% 0.19% Mid Cap Growth........................ 0.82% N/A 0.10% 0.92% 0.11% Fundamental Growth*................... 0.90% N/A 0.10% 1.00% 0.24% Real Estate Equity.................... 1.01% N/A 0.10% 1.11% 0.10% Small/Mid Cap CORE/SM/................ 0.80% N/A 0.10% 0.90% 0.66% Small/Mid Cap Growth.................. 0.75% N/A 0.10% 0.85% 0.10% Small Cap Equity*..................... 0.90% N/A 0.10% 1.00% 0.16% Small Cap Growth...................... 0.75% N/A 0.10% 0.85% 0.14% Global Balanced*...................... 1.05% N/A 0.10% 1.15% 0.46% International Equity Index............ 0.16% N/A 0.10% 0.26% 0.22% International Opportunities........... 0.87% N/A 0.10% 0.97% 0.29% Emerging Markets Equity............... 1.27% N/A 0.10% 1.37% 2.17% Short-Term Bond....................... 0.30% N/A 0.10% 0.40% 0.13% Bond Index............................ 0.15% N/A 0.10% 0.25% 0.20% Active Bond*.......................... 0.61% N/A 0.03% 0.64% 0.03% Global Bond........................... 0.85% N/A 0.10% 0.95% 0.15% High Yield Bond....................... 0.65% N/A 0.10% 0.75% 0.39% Money Market.......................... 0.25% N/A 0.06% 0.31% 0.06% AIM Variable Insurance Funds, Inc.: AIM V.I. Value........................ 0.61% N/A 0.15% 0.76% 0.15% VARIABLE INSURANCE PRODUCTS FUND - SERVICE CLASS (NOTE 2): Fidelity VIP Growth................... 0.58% 0.10% 0.07% 0.75% 0.09% Variable Insurance Products Fund II - Service Class (Note 2): Fidelity VIP Contrafund/(R)/.......... 0.58% 0.10% 0.07% 0.75% 0.10% FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST - CLASS 2 SHARES (NOTE 3): Templeton International Securities.... 0.69% 0.25% 0.19% 1.13% 0.19% JANUS ASPEN SERIES - SERVICE SHARES CLASS (NOTE 4): Janus Aspen Global Technology......... 0.65% 0.25% 0.13% 1.03% 0.13% Janus Aspen Worldwide Growth.......... 0.65% 0.25% 0.05% 0.95% 0.05% MFS VARIABLE INSURANCE TRUST (NOTE 5): MFS New Discovery..................... 0.90% N/A 0.17% 1.07% 1.59%
12 NOTES TO FUND EXPENSE TABLE (1) John Hancock Variable Series Trust I funds' percentages for "other fund expenses" are based on the allocation methodology and expense reimbursement policy adopted April 23, 1999, and are calculated as if that allocation methodology and expense reimbursement policy had been in effect for all of 1999. Under the expense reimbursement policy, John Hancock Life Insurance Company voluntarily reimburses a fund when the fund's "other fund expenses" exceed 0.10% of the fund's average daily net assets (0.00% for Equity Index). Shareholders of the Managed, Growth & Income, Fundamental Growth, Real Estate Equity, Small Cap Equity, Global Balanced, Active Bond, and Global Bond funds have approved new management fee schedules, which apply to those funds effective November 1, 2000. The investment management fee percentages for each of those funds are calculated as if those new fee schedules had been in effect for all of 1999. The investment management fee percentages for all other funds reflect the investment management fees that were actually payable for 1999. * Fundamental Growth was formerly "Fundamental Mid Cap Growth", Small Cap Equity was formerly "Small Cap Value", Global Balanced was formerly "International Balanced" and Active Bond was formerly "Sovereign Bond". "CORE(SM)" IS A SERVICE MARK OF GOLDMAN, SACHS & CO. (2) A portion of the brokerage commissions that certain of the Fidelity VIP funds pay was used to reduce fund expenses. In addition, through arrangements with certain funds' custodian, credits realized as a result of uninvested cash balances were used to reduce a portion of each applicable fund's expenses. Without these reductions, the operating expenses of the funds would have been higher, as shown in the last column of this table. (3) On February 8, 2000, shareholders of each fund approved a merger and reorganization that combined the Templeton International Equity Fund with the Templeton International Securities Fund, effective May 1, 2000. Shareholders of the Templeton International Securities Fund had approved new management fees, which apply to the combined funds effective May 1, 2000. The table shows restated total expenses for the fund based on the new fees and the assets, as of December 31, 1999, of the Templeton International Securities Fund. However, if the table reflected both the new fees and the combined assets of the Templeton International Equity Fund and the Templeton International Securities Fund, the estimated expenses for the two funds combined after May 1, 2000 would be: Management Fees 0.65%, Distribution and Service Fees 0.25%, Other Expenses 0.20%, and Total Fund Operating Expenses 1.10%. (4) The percentages for the new Service Shares Class of the Janus Aspen Global Technology Fund and the Janus Aspen Worldwide Growth Fund are estimates because the Service Shares Class was not in operation in 1999. All such estimates have been made without regard to the effect of any expense offset arrangements. (5) MFS Variable Insurance Trust Funds have an expense offset arrangement which reduces each fund's custodian fee based upon the amount of cash maintained by the fund with its custodian and dividend disbursing agent. Each fund may enter into other such arrangements and directed brokerage arrangements, which would also have the effect of reducing the fund's expenses. Expenses do not take into account these expense reductions, and are therefore higher than the actual expenses of the fund. MFS Investment Management(R) (also doing business as Massachusetts Financial Services Company) has contractually agreed to bear expense for the New Discovery Fund, subject to reimbursement by the fund, such that such fund's "other fund expenses" shall not exceed 0.15% of the average daily net assets of the fund during the current fiscal year. 13 WHAT OTHER CHARGES COULD WE IMPOSE IN THE FUTURE? Except for the tax charge deducted from premium payments, 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 options. However, we expect that no such charge will be necessary. We also reserve the right to increase the tax 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. 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. HOW CAN YOU CHANGE YOUR POLICY'S INVESTMENT ALLOCATIONS? Future premium payments At any time, you may change the investment options 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 account value You may also transfer your existing account value from one investment option 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. Without our approval, the maximum amount you may transfer to or from any investment option in any policy year is $1,000,000. Under our current rules, you can make transfers out of any variable investment option anytime you wish. However, we reserve the right to impose limits on the number and frequency of transfers into or out of variable investment options and to impose a charge of up to $25 for any transfer beyond an annual limit (which will not be less than 12). Transfers under the dollar cost averaging program or the asset rebalancing program would not be counted toward any such limit. Transfers out of the fixed investment option are currently subject to the following restrictions: . You can only make such a transfer once in each policy year. . The most you can transfer at any one time is the greater of $500 or 20% of the assets in your fixed investment option. We reserve the right to impose limits on: . the minimum amount of each transfer out of the fixed investment option; and 14 . the maximum amount of any transfer into the fixed investment option after the second policy year. Dollar cost averaging This is a program of automatic monthly transfers out of the Money Market investment option into one or more of the other variable investment options. You choose the investment options and the dollar amount and timing of the transfers. The program is designed to reduce the risks that result from market fluctuations. It does this by spreading out the allocation of your money to investment options over a longer period of time. This allows you to reduce the risk of investing most of your money at a time when market prices are high. Obviously, the success of this strategy depends on market trends and is not guaranteed. Asset Rebalancing This is a program that automatically re-sets the percentage of your account value allocated to the variable investment options. Over time, the variations in the investment results for each variable investment option you've elected will shift the percentage allocations among them. The rebalancing program will periodically transfer your account value among the variable investment options to reestablish the preset percentages you have chosen. Rebalancing would usually result in transferring amounts from a variable investment option with relatively higher investment performance since the last rebalancing to one with relatively lower investment performance. However, rebalancing can also result in transferring amounts from a variable investment option with relatively lower current investment performance to one with relatively higher current investment performance. Rebalancing and dollar cost averaging cannot be in effect at the same time. HOW CAN YOU ACCESS YOUR INVESTMENT IN THE POLICY? Full surrender You may surrender your policy in full at any time. If you do, we will pay you the account value, less any policy loans and less any CDSC charge that then applies. This is called your "surrender value." You must return your policy when you request a full surrender. Partial withdrawals You may make a partial withdrawal of your surrender value at any time after the first policy year. Each partial withdrawal must be at least $1,000. There is a charge (usually $20) for each partial withdrawal. We will automatically reduce the account value of your policy by the amount of the withdrawal and the related charge. Unless we agree otherwise, each investment option will be reduced in the same proportion as the account value is then allocated among them. We will not permit a partial withdrawal if it would cause your surrender value to fall below 3 months' worth of monthly charges (see "Deductions from account value" on page 9). We also reserve the right to refuse any partial withdrawal that would cause the policy's Total Sum Insured to fall below $100,000, or the policy's Basic Sum Insured to fall below $100,000. Under the Option A death benefit, the reduction of your account value occasioned by a partial withdrawal could cause the minimum insurance amount to become less than your Total Sum Insured (see "How 15 much will we pay when the insured person dies?" on page 17). If that happens, we will automatically reduce your Total Sum Insured. The calculation of that reduction is explained in the policy, and will be implemented by first reducing any Additional Sum Insured in effect. If the reduction in Total Sum Insured would cause your policy to fail the Internal Revenue Code's definition of life insurance, we will not permit the partial withdrawal. If the withdrawal results in a reduction in Basic Sum Insured, a pro-rata portion of the applicable CDSC will be deducted from the account value (see "Contingent deferred sales charge ('CDSC')" on page 11). Policy loans You may borrow from your policy at any time after it has been in effect for 1 year by completing a form satisfactory to us or, if the telephone transaction authorization form has been completed, by telephone. The maximum amount you can borrow is determined as follows: . We first determine the surrender value of your policy. . We then subtract an amount equal to 12 times the monthly charges then being deducted from account value. . We then multiply the resulting amount by .75% in policy years 1 through 10, .50% in policy years 11 through 20, and 0% thereafter (although we reserve the right to increase the percentage after policy year 20 to as much as .25%). . We then subtract the third item above from the result of the second item above. The minimum amount of each loan is $300. The interest charged on any loan is an effective annual rate of 4.75% in the first 10 policy years, 4.50% in policy years 11 through 20, and 4.0% thereafter. However, we reserve the right to increase the percentage after policy year 20 to as much as 4.25%. Accrued interest will be added to the loan daily and will bear interest at the same rate as the original loan amount. The amount of the loan is deducted from the investment options in the same proportion as the account value is then allocated among them and is placed in a special loan account. This special loan account will earn interest at an effective annual rate of 4.0%. 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 decrease the rate credited on the special loan account to a rate that would, in our reasonable judgement, result in the transaction being treated as a loan under Federal tax law. You can repay all or part of a loan at any time. Unless we agree otherwise, each repayment will be allocated among the investment options as follows: . The same proportionate part of the loan as was borrowed from the fixed investment option will be repaid to the fixed investment option. . The remainder of the repayment will be allocated among the investment options in the same way a new premium payment would be allocated. 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. 16 HOW MUCH WILL WE PAY WHEN THE INSURED PERSON DIES? 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 Sum Insured" of insurance. Total Sum Insured is composed of the Basic Sum Insured and any Additional Sum Insured you elect. The maximum amount of Additional Sum Insured you can have when we issue the policy is generally limited to 400% of the Basic Sum Insured. The application may also give you the option of electing among various patterns of scheduled increases in Additional Sum Insured. There are a number of factors you should consider in determining whether to elect coverage in the form of Basic Sum Insured or in the form of Additional Sum Insured. These factors are discussed under "Basic Sum Insured vs. Additional Sum Insured" on page 35. When the insured person dies, we will pay the death benefit minus any outstanding loans. There are two ways of calculating the death benefit. You choose which one you want in the application. The two death benefit options are: . Option A - The death benefit will equal the greater of (1) the Total Sum Insured or (2) the minimum insurance amount under the "guideline premium and cash value corridor test" or under the "cash value accumulation test" (as described below). . Option B - The death benefit will equal the greater of (1) the Total Sum Insured amount plus your policy's account value on the date of death, or (2) the minimum insurance amount under the "guideline premium and cash value corridor test". For the same premium payments, the death benefit under Option B will tend to be higher than the death benefit under Option A. On the other hand, the monthly insurance charge will be higher under Option B to compensate us for the additional insurance risk. Because of that, the account value will tend to be higher under Option A than under Option B for the same premium payments. The minimum insurance amount 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 account value. There are two tests that can be applied under Federal tax law -- the "guideline premium and cash value corridor test" and the "cash value accumulation test." When you elect the Option A death benefit, you must elect which test you wish to have applied. If you elect the Option B death benefit, the guideline premium and cash value corridor test will automatically be applied. Under the guideline premium and cash value corridor test, we compute the minimum insurance amount each business day by multiplying the account value on that date by the so-called "corridor factor" applicable on that date. The corridor factors are derived by applying the "guideline premium and cash value corridor test." The corridor factor starts out at 2.50 for ages at or below 40 and decreases as attained age increases, reaching a low of 1.0 at age 95. A table showing the factor for each age will appear in the policy. Under the cash value accumulation test, we compute the minimum insurance amount each business day by multiplying the account value on that date by the so-called "death benefit factor" applicable on that date. The death benefit factors are derived 17 by applying the "cash value accumulation test." The death benefit 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 if you elect the Option A death benefit. 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" beginning on page 40). The guideline premium and cash value corridor test may be preferable if you want the account value under the policy to increase without increasing the death benefit as quickly as might otherwise be required. When the insured person reaches 100 On the policy anniversary nearest the insured person's 100th birthday, the death benefit will become equal to the account value on the date of death. Death benefit Options A and B (as described above) will cease to apply. Also, we will stop deducting any monthly charges (other than the asset-based risk charge) and will stop accepting any premium payments. In the next section, we describe an optional Age 100 Waiver of Charges Rider that provides for continuation of the Total Sum Insured after the insured person reaches 100. CAN YOU ADD ADDITIONAL BENEFIT RIDERS? When you apply for a policy, you can request any of the additional benefit riders that we then make available. Availability and rider benefits may vary by state. Charges for the selected rider will generally increase the monthly deductions from your policy's account value. We may change the rates of these charges, but not above the maximum amounts that will be stated in the Policy Specifications page of your policy. Charges for the Long-Term Care Acceleration Rider, as described below, may be considered a "distribution" for federal income tax purposes (see "Tax considerations," beginning on page 40). Our rules and procedures will govern eligibility for the riders, or any changes to these benefits. Each rider contains specific details that you should review if you desire to choose the additional benefit. We may add to, delete from, or modify the following list of additional benefit riders: . Disability Waiver of Charges Rider - Provides for the waiver of monthly deductions if the insured person becomes totally and permanently disabled, as defined in the rider, prior to age 60. If the insured person becomes totally and permanently disabled after age 60, monthly deductions are only waived until age 65. Benefits under this rider do not reduce the Guaranteed Death Benefit Premium payment requirements described on page 7 that are necessary for the guaranteed death benefit feature to remain in effect. . Living Care Benefit Rider - Provides for an advance payment to you of a portion of the death benefit if the insured person becomes terminally ill, as defined in the rider, with death expected within 24 months. Advances under the rider are discounted for interest at the rates specified in the rider, and we may use a portion of any advance to repay loans under your policy. The maximum advance is $1,000,000. . Age 100 Waiver of Charges Rider - Provides for the continuation of the Total Sum Insured in force when the insured person attains age 100, without charge, if the policy's 18 account value at the time is greater than the sum of 1 plus the amount of any surrender charges then existing. The monthly charge for this rider currently begins in the 6th policy year. . Children's Insurance Benefit Rider - Provides term insurance up through age 21 on each covered child of the insured person. A child must be more than 14 days old and less than 15 years old to begin coverage. . Accidental Death Benefit Rider - Provides for an additional insurance benefit if the insured person's death is due to accidental causes between the policy anniversaries nearest the insured person's 5th and 70th birthdays. . Long-Term Care Acceleration Rider - intended only for policies where the death benefit is determined under Option A and the "cash value accumulation test" described on page 17 is elected. 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 eligibility 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 partial withdrawal of account 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's account value. If you have a policy loan, we will use a portion of each death benefit advance to repay indebtedness. We restrict your account 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 or waiving monthly deductions, we will transfer all account value from the variable investment options to the fixed investment option. (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 account value or allocate any additional premium payment to a variable investment option while rider benefits are paid. Your participation in any of the automatic investment plans will also be suspended during this period. 19 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 existing account value in the variable investment options. (The restriction on transfers from the fixed account described on page 14 will continue to apply.) Benefits under this rider do not reduce the Guaranteed Death Benefit Premium payment requirements described on page 7 that may be necessary for the guaranteed death benefit feature 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. HOW CAN YOU CHANGE YOUR POLICY'S INSURANCE COVERAGE? Increase in coverage You may request an increase in the Additional Sum Insured. As to when such an increase would take effect, see "Effective date of other policy transactions" on page 37). 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. Unless we consent otherwise, you may not increase the Additional Sum Insured if the increase would cause the entire Additional Sum Insured to equal or exceed 800% of the Basic Sum Insured. Decrease in coverage After the first policy year, you may request a reduction in the Total Sum Insured at any time, but only if: . the remaining Basic Sum Insured will be at least $100,000, and . the remaining Additional Sum Insured will not exceed 800% of the Basic Sum Insured, and . the remaining Total Sum Insured will at least equal the minimum required by the tax laws to maintain the policy's life insurance status. As to when any reduction in Total Sum Insured would take effect, see "Effective date of other policy transactions" on page 37. Any reduction in Total Sum Insured will be implemented by first reducing any Additional Sum Insured. If there is any reduction in Basic Sum Insured, a pro-rata portion of the applicable CDSC will be deducted from the account value (see "Contingent deferred sales charge ('CDSC')" on page 11). 20 Change of death benefit option If the "guideline premium and cash value corridor test" applies to your policy, you may change your coverage from death benefit Option A to Option B or vice-versa on any policy anniversary, but only if there is no change in the Federal tax law test used to determine the minimum insurance amount. If you change from Option A to Option B, we will require evidence that the insured person still meets our requirements for issuing coverage. This is because such a change increases our insurance risk exposure. If the "cash value accumulation test" applies to your policy, you can never change to either Option A under the "guideline premium and cash value corridor test" or to Option B. Please read "The minimum insurance amount" starting on page 17 for more information about the "guideline premium and cash value corridor test" and the "cash value accumulation test." Tax consequences Please read "Tax considerations" starting on page 40 to learn about possible tax consequences of changing your insurance coverage under the policy. CAN YOU CANCEL YOUR POLICY AFTER IT'S ISSUED? You have the right to cancel your policy within 10 days (or longer in some states) after you receive it. This is often referred to as the "free look" period. To cancel your policy, simply deliver or mail the policy to: . JHVLICO at one of the addresses shown on page 2, or . the JHVLICO representative who delivered the policy to you. In most states, you will receive a refund of any premiums you've paid. In some states, the refund will be your account value on the date of cancellation plus all charges deducted by JHVLICO or the Trust prior to that date. The date of cancellation will be the date of such mailing or delivery. CAN YOU CHOOSE THE FORM IN WHICH WE PAY OUT POLICY PROCEEDS? Choosing a payment option You may choose to receive proceeds from the policy as a single sum. This includes proceeds that become payable because of death or full surrender. Alternatively, you can elect to have proceeds of $1,000 or more applied to any of a number of other payment options, including the following: . Option 1 - Proceeds left with us to accumulate with interest 21 . Option 2A - Equal monthly payments of a specified amount until all proceeds are paid out . Option 2B - Equal monthly payments for a specified period of time . Option 3 - Equal monthly payments for life, but with payments guaranteed for a specific number of years . Option 4 - Equal monthly payments for life with no refund . Option 5 - Equal monthly payments for life with a refund if all of the proceeds haven't been paid out 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. We will credit interest on each of the above options. For options 1 and 2A, the interest will be at least an effective annual rate of 3 1/2%. 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 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. TO WHAT EXTENT CAN WE VARY THE TERMS AND CONDITIONS OF OUR POLICIES IN PARTICULAR CASES? Listed below are some variations we can make in the terms of our policies. Any variation will be made only in accordance with uniform rules that we apply fairly to all of our customers. State law insurance requirements 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. Variations in expenses or risks 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 22 "Reduced charges for eligible classes" on page 38. No variation in any charge will exceed any maximum stated in this prospectus with respect to that charge. HOW WILL YOUR POLICY BE TREATED FOR INCOME TAX PURPOSES? Generally, death benefits paid under policies such as yours are not subject to income tax. Earnings on your account value are 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 account value upon surrender or partial withdrawal, all or part of that distribution should generally be treated as a return of the premiums you've paid and should not be subject to income tax. 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 more than a certain amount of premiums that is prescribed by the tax laws. Additional taxes and penalties may be payable for policy distributions of any kind. For further information about the tax consequences of owning a policy or adding the Long-Term Care Acceleration Rider, please read "Tax considerations" beginning on page 40. HOW DO YOU COMMUNICATE WITH US? General Rules You should mail or express all checks and money orders for premium payments and loan repayments to the JHVLICO Life Servicing Office at the appropriate address shown on page 2. Certain requests must be made in writing and be signed and dated by you. They include the following: . loans, surrenders or partial withdrawals . transfers of account value among investment options . change of allocation among investment options for new premium payments . change of death benefit option . increase or decrease in Total Sum Insured . change of beneficiary . election of payment option for policy proceeds . tax withholding elections . election of telephone transaction privilege. You should mail or express these requests to our Life Servicing Office at the appropriate address shown on page 2. You should also send notice of the insured person's death and related 23 documentation to our Life Servicing Office. We don't 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. We have special forms that should be used for a number of the requests mentioned above. You can obtain these forms from our Life Servicing Office or your JHVLICO 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 Standard Time, but special circumstances (such as suspension of trading on a major exchange) may dictate an earlier closing time. Telephone Transactions If you complete a special authorization form, you can request loans, transfers among investment options and changes of allocation among investment options simply by telephoning us at 1-800-732-5543 or by faxing us at 1-617-886-3048. Any fax request should include your name, daytime telephone number, policy number and, in the case of transfers and changes of allocation, the names of the investment options involved. We will honor telephone 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 transactions. There is also a risk that you will be unable to place your request due to equipment malfunction or heavy phone line usage. If this occurs, you should submit your request in writing. The policies are not designed for professional market timing organizations or other persons or entities that use programmed or frequent transfers among investment options. For reasons such as that, we reserve the right to change our telephone transaction policies or procedures at any time. We also reserve the right to suspend or terminate the privilege altogether with respect to all policies like yours or with respect to any class of such policies. 24 ILLUSTRATION OF DEATH BENEFITS, ACCOUNT VALUES, SURRENDER VALUES AND ACCUMULATED PREMIUMS The following tables illustrate the changes in death benefit, account value and surrender value of the policy under certain hypothetical circumstances that we assume solely for this purpose. Each table separately illustrates the operation of a policy for a specified issue age, premium payment schedule and Total Sum Insured. The amounts shown are for the end of each policy year and assume that all of the account value is invested in funds that achieve investment returns at constant annual rates of 0%, 6% and 12% (i.e., before any fees or expenses deducted from Trust assets). After the deduction of average fees and expenses at the Trust level (as described below) the corresponding net annual rates of return would be -0.80%, 5.15% and 11.11%. Investment return reflects investment income and all realized and unrealized capital gains and losses. The tables assume annual Planned Premiums that are paid at the beginning of each policy year for an insured person who is a 35 year old male standard non-smoker underwriting risk when the policy is issued. Tables are provided for each of the two death benefit options. The tables headed "Current Charges" assume that the current rates for all charges deducted by JHVLICO will apply in each year illustrated, including the intended waiver of the premium sales charge after the tenth policy year. The tables headed "Maximum Charges" are the same, except that the maximum permitted rates for all years are used for all charges. The tables do not reflect any charge that we reserve the right to make but are not currently making. The tables assume that no optional rider benefits and no Additional Sum Insured have been elected and that no loans or withdrawals are made. With respect to fees and expenses deducted from assets of the Trusts, the amounts shown in all tables reflect (1) investment management fees equivalent to an effective annual rate of 0.71%, and (2) an assumed average asset charge for all other operating expenses of the Trusts equivalent to an effective annual rate of 0.9%. These rates are the arithmetic average for all funds that are available as investment options. In other words, they are based on the hypothetical assumption that policy account values are allocated equally among the variable investment options. The actual rates associated with any policy will vary depending upon the actual allocation of policy values among the investment options. The charge shown above for all other operating expenses of the Trusts reflects reimbursements to certain funds as described in the footnotes to the table beginning on page 12. We currently expect those reimbursement arrangements to continue indefinitely, but that is not guaranteed. Without those arrangements, the assumed average asset charge for all other operating expenses shown above would be higher. This would result in lower values than those shown in the following tables. The second column of each table shows the amount you would have at the end of each policy year if an amount equal to the assumed Planned Premiums were invested to earn interest, after taxes, at 5% compounded annually. This is not a policy value. It is included for comparison purposes only. Because your circumstances will no doubt differ from those in the illustrations that follow, values under your policy will differ, in most cases substantially. Upon request, we will furnish you with a comparable illustration reflecting your proposed insured person's issue age, sex and underwriting risk classification, and the Basic Sum Insured, Additional Sum Insured and annual Planned Premium amount requested. 25 FLEXIBLE PREMIUM VARIABLE LIFE $100,000 TOTAL SUM INSURED AT ISSUE MALE, ISSUE AGE 35, STANDARD NONSMOKER UNDERWRITING RISK CLASS OPTION A DEATH BENEFIT GUIDELINE PREMIUM AND CASH VALUE CORRIDOR TEST PLANNED PREMIUM: $ 927* USING CURRENT CHARGES
Death Benefit Account Value Surrender Value ----------------------------- ----------------------------- ----------------------------- Premiums Assuming Hypothetical Gross Assuming Hypothetical Gross Assuming Hypothetical Gross End of Accumulated Annual Investment Return of: Annual Investment Return of: Annual Investment Return of: Policy At 5% Interest ----------------------------- ----------------------------- ----------------------------- Year Per Year 0% Gross 6% Gross 12% Gross 0% Gross 6% Gross 12% Gross 0% Gross 6% Gross 12% Gross ------ -------------- -------- -------- --------- -------- -------- --------- -------- -------- ----------- 1 973 100,000 100,000 100,000 189 219 249 0 0 0 2 1,995 100,000 100,000 100,000 605 684 768 0 0 0 3 3,068 100,000 100,000 100,000 1,005 1,160 1,330 78 233 403 4 4,195 100,000 100,000 100,000 1,388 1,645 1,938 507 765 1,057 5 5,378 100,000 100,000 100,000 1,894 2,286 2,748 1,014 1,406 1,867 6 6,621 100,000 100,000 100,000 2,532 3,098 3,787 1,651 2,217 2,907 7 7,925 100,000 100,000 100,000 3,149 3,934 4,923 2,315 3,100 4,089 8 9,295 100,000 100,000 100,000 3,744 4,795 6,163 3,095 4,146 5,515 9 10,733 100,000 100,000 100,000 4,318 5,681 7,519 3,948 5,310 7,148 10 12,243 100,000 100,000 100,000 4,869 6,591 9,000 4,869 6,591 9,000 11 13,828 100,000 100,000 100,000 5,424 7,555 10,649 5,424 7,555 10,649 12 15,493 100,000 100,000 100,000 5,953 8,544 12,452 5,953 8,544 12,452 13 17,241 100,000 100,000 100,000 6,455 9,558 14,423 6,455 9,558 14,423 14 19,076 100,000 100,000 100,000 6,928 10,597 16,579 6,928 10,597 16,579 15 21,003 100,000 100,000 100,000 7,372 11,659 18,939 7,372 11,659 18,939 16 23,027 100,000 100,000 100,000 7,782 12,743 21,521 7,782 12,743 21,521 17 25,152 100,000 100,000 100,000 8,159 13,850 24,350 8,159 13,850 24,350 18 27,383 100,000 100,000 100,000 8,498 14,976 27,458 8,498 14,976 27,458 19 29,725 100,000 100,000 100,000 8,797 16,120 30,893 8,797 16,120 30,893 20 32,185 100,000 100,000 100,000 9,054 17,282 34,691 9,054 17,282 34,691 25 46,455 100,000 100,000 100,000 9,435 23,121 60,699 9,435 23,121 60,699 30 64,668 100,000 100,000 128,492 8,686 29,605 105,321 8,686 29,605 105,321 35 87,913 100,000 100,000 208,855 5,947 36,568 180,047 5,947 36,568 180,047 40 117,580 ** 100,000 326,320 ** 43,365 304,972 ** 43,365 304,972 45 155,444 ** 100,000 541,041 ** 49,522 515,277 ** 49,522 515,277
--------- * The illustrations assume that Planned Premiums are equal to the Target Premium and are paid at the start of each Policy Year. The Death Benefit and Surrender Value will differ if premiums are paid in different amounts or frequencies, if policy loans are taken, or if Additional Sum Insured or optional rider benefits are elected. ** Policy lapses unless additional premium payments are made. THE HYPOTHETICAL INVESTMENT RESULTS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF PAST OR FUTURE INVESTMENT RESULTS. ACTUAL INVESTMENT RESULTS MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING INVESTMENT ALLOCATIONS MADE BY THE OWNER. THE DEATH BENEFIT, ACCOUNT VALUE AND SURRENDER VALUE FOR A POLICY WOULD BE DIFFERENT FROM THOSE SHOWN IF THE ACTUAL GROSS RATES OF INVESTMENT RETURN AVERAGED 0%, 6% OR 12% OVER A PERIOD OF YEARS, BUT ALSO FLUCTUATED ABOVE OR BELOW THE AVERAGE FOR INDIVIDUAL POLICY YEARS. WE CAN MAKE NO REPRESENTATION THAT THESE HYPOTHETICAL INVESTMENT RESULTS CAN BE ACHIEVED FOR ANY ONE YEAR OR CONTINUED OVER ANY PERIOD OF TIME. IN FACT, FOR ANY GIVEN PERIOD OF TIME, THE INVESTMENT RESULTS COULD BE NEGATIVE. 26 FLEXIBLE PREMIUM VARIABLE LIFE $100,000 TOTAL SUM INSURED AT ISSUE MALE, ISSUE AGE 35, STANDARD NONSMOKER UNDERWRITING RISK CLASS OPTION A DEATH BENEFIT GUIDELINE PREMIUM AND CASH VALUE CORRIDOR TEST PLANNED PREMIUM: $ 927* USING MAXIMUM CHARGES
Death Benefit Account Value Surrender Value ----------------------------- ----------------------------- ----------------------------- Premiums Assuming Hypothetical Gross Assuming Hypothetical Gross Assuming Hypothetical Gross End of Accumulated Annual Investment Return of: Annual Investment Return of: Annual Investment Return of: Policy At 5% Interest ----------------------------- ----------------------------- ----------------------------- Year Per Year 0% Gross 6% Gross 12% Gross 0% Gross 6% Gross 12% Gross 0% Gross 6% Gross 12% Gross ------ -------------- -------- -------- --------- -------- -------- --------- -------- -------- ----------- 1 973 100,000 100,000 100,000 165 194 223 0 0 0 2 1,995 100,000 100,000 100,000 558 634 714 0 0 0 3 3,068 100,000 100,000 100,000 935 1,083 1,245 8 156 318 4 4,195 100,000 100,000 100,000 1,294 1,540 1,819 414 659 939 5 5,378 100,000 100,000 100,000 1,778 2,152 2,591 898 1,271 1,711 6 6,621 100,000 100,000 100,000 2,250 2,785 3,438 1,369 1,905 2,558 7 7,925 100,000 100,000 100,000 2,698 3,430 4,356 1,864 2,595 3,522 8 9,295 100,000 100,000 100,000 3,122 4,086 5,352 2,474 3,437 4,703 9 10,733 100,000 100,000 100,000 3,522 4,753 6,433 3,151 4,382 6,062 10 12,243 100,000 100,000 100,000 3,896 5,429 7,606 3,896 5,429 7,606 11 13,828 100,000 100,000 100,000 4,241 6,113 8,879 4,241 6,113 8,879 12 15,493 100,000 100,000 100,000 4,556 6,803 10,261 4,556 6,803 10,261 13 17,241 100,000 100,000 100,000 4,841 7,499 11,764 4,841 7,499 11,764 14 19,076 100,000 100,000 100,000 5,093 8,197 13,398 5,093 8,197 13,398 15 21,003 100,000 100,000 100,000 5,309 8,896 15,174 5,309 8,896 15,174 16 23,027 100,000 100,000 100,000 5,487 9,594 17,107 5,487 9,594 17,107 17 25,152 100,000 100,000 100,000 5,623 10,285 19,212 5,623 10,285 19,212 18 27,383 100,000 100,000 100,000 5,710 10,963 21,501 5,710 10,963 21,501 19 29,725 100,000 100,000 100,000 5,742 11,623 23,992 5,742 11,623 23,992 20 32,185 100,000 100,000 100,000 5,712 12,256 26,707 5,712 12,256 26,707 25 46,455 100,000 100,000 100,000 4,407 14,766 44,765 4,407 14,766 44,765 30 64,668 100,000 100,000 100,000 209 15,094 74,562 209 15,094 74,562 35 87,913 ** 100,000 145,077 ** 10,242 125,067 ** 10,242 125,067 40 117,580 ** ** 221,679 ** ** 207,176 ** ** 207,176 45 155,444 ** ** 359,053 ** ** 341,956 ** ** 341,956
--------- * The illustrations assume that Planned Premiums are equal to the Target Premium and are paid at the start of each Policy Year. The Death Benefit and Surrender Value will differ if premiums are paid in different amounts or frequencies, if policy loans are taken, or if Additional Sum Insured or optional rider benefits are elected. ** Policy lapses unless additional premium payments are made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
Death Benefit Account Value Surrender Value ----------------------------- ----------------------------- ----------------------------- Premiums Assuming Hypothetical Gross Assuming Hypothetical Gross Assuming Hypothetical Gross End of Accumulated Annual Investment Return of: Annual Investment Return of: Annual Investment Return of: Policy At 5% Interest ----------------------------- ----------------------------- ----------------------------- Year Per Year 0% Gross 6% Gross 12% Gross 0% Gross 6% Gross 12% Gross 0% Gross 6% Gross 12% Gross ------ -------------- -------- -------- --------- -------- -------- --------- -------- -------- ----------- 1 973 100,000 100,000 100,000 31 56 80 0 0 0 2 1,995 100,000 100,000 100,000 291 351 414 0 0 0 3 3,068 100,000 100,000 100,000 537 647 769 0 0 0 4 4,195 100,000 100,944 101,149 766 944 1,149 0 64 268 5 5,378 101,279 101,550 101,872 1,279 1,550 1,872 398 669 991 6 6,621 101,924 102,327 102,819 1,924 2,327 2,819 1,043 1,447 1,938 7 7,925 102,548 103,127 103,851 2,548 3,127 3,851 1,713 2,293 3,017 8 9,295 103,149 103,948 104,975 3,149 3,948 4,975 2,500 3,299 4,326 9 10,733 103,727 104,790 106,200 3,727 4,790 6,200 3,356 4,419 5,830 10 12,243 104,281 105,653 107,534 4,281 5,653 7,534 4,281 5,653 7,534 11 13,828 104,836 106,565 109,018 4,836 6,565 9,018 4,836 6,565 9,018 12 15,493 105,364 107,497 110,632 5,364 7,497 10,632 5,364 7,497 10,632 13 17,241 105,864 108,448 112,390 5,864 8,448 12,390 5,864 8,448 12,390 14 19,076 106,331 109,415 114,303 6,331 9,415 14,303 6,331 9,415 14,303 15 21,003 106,766 110,399 116,384 6,766 10,399 16,384 6,766 10,399 16,384 16 23,027 107,165 111,394 118,647 7,165 11,394 18,647 7,165 11,394 18,647 17 25,152 107,526 112,400 121,108 7,526 12,400 21,108 7,526 12,400 21,108 18 27,383 107,846 113,413 123,783 7,846 13,413 23,783 7,846 13,413 23,783 19 29,725 108,122 114,429 126,695 8,122 14,429 26,695 8,122 14,429 26,695 20 32,185 108,350 115,444 129,882 8,350 15,444 29,882 8,350 15,444 29,882 25 46,455 108,498 120,151 150,722 8,498 20,151 50,722 8,498 20,151 50,722 30 64,668 107,422 124,574 184,314 7,422 24,574 84,314 7,422 24,574 84,314 35 87,913 104,289 127,640 238,168 4,289 27,640 138,168 4,289 27,640 138,168 40 117,580 ** 127,120 324,042 ** 27,120 224,042 ** 27,120 224,042 45 155,444 ** 120,203 461,882 ** 20,203 361,882 ** 20,203 361,882
--------- * The Planned Premium shown is less than the Target Premium of $1,550. The illustrations assume that Planned Premiums are paid at the start of each Policy Year. The Death Benefit and Surrender Value will differ if premiums are paid in different amounts or frequencies, if policy loans are taken, or if Additional Sum Insured or optional rider benefits are elected. ** Policy lapses unless additional premium payments are made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
Death Benefit Account Value Surrender Value ----------------------------- ----------------------------- ----------------------------- Premiums Assuming Hypothetical Gross Assuming Hypothetical Gross Assuming Hypothetical Gross End of Accumulated Annual Investment Return of: Annual Investment Return of: Annual Investment Return of: Policy At 5% Interest ----------------------------- ----------------------------- ----------------------------- Year Per Year 0% Gross 6% Gross 12% Gross 0% Gross 6% Gross 12% Gross 0% Gross 6% Gross 12% Gross ------ -------------- -------- -------- --------- -------- -------- --------- -------- -------- ----------- 1 973 100,000 100,000 100,000 7 31 55 0 0 0 2 1,995 100,000 100,000 100,000 244 300 360 0 0 0 3 3,068 100,000 100,000 100,000 466 570 685 0 0 0 4 4,195 100,000 100,000 101,031 673 840 1,031 0 0 150 5 5,378 101,163 101,416 101,716 1,163 1,416 1,716 283 535 836 6 6,621 101,639 102,011 102,466 1,639 2,011 2,466 759 1,130 1,585 7 7,925 102,090 102,613 103,273 2,090 2,613 3,273 1,256 1,779 2,438 8 9,295 102,515 103,223 104,143 2,515 3,223 4,143 1,866 2,574 3,494 9 10,733 102,914 103,839 105,081 2,914 3,839 5,081 2,543 3,468 4,711 10 12,243 103,285 104,458 106,093 3,285 4,458 6,093 3,285 4,458 6,093 11 13,828 103,625 105,079 107,181 3,625 5,079 7,181 3,625 5,079 7,181 12 15,493 103,933 105,700 108,352 3,933 5,700 8,352 3,933 5,700 8,352 13 17,241 104,208 106,318 109,613 4,208 6,318 9,613 4,208 6,318 9,613 14 19,076 104,448 106,931 110,970 4,448 6,931 10,970 4,448 6,931 10,970 15 21,003 104,649 107,533 112,428 4,649 7,533 12,428 4,649 7,533 12,428 16 23,027 104,809 108,123 113,995 4,809 8,123 13,995 4,809 8,123 13,995 17 25,152 104,924 108,695 115,678 4,924 8,695 15,678 4,924 8,695 15,678 18 27,383 104,987 109,239 117,478 4,987 9,239 17,478 4,987 9,239 17,478 19 29,725 104,991 109,747 119,401 4,991 9,747 19,401 4,991 9,747 19,401 20 32,185 104,930 110,210 121,452 4,930 10,210 21,452 4,930 10,210 21,452 25 46,455 103,428 111,493 133,885 3,428 11,493 33,885 3,428 11,493 33,885 30 64,668 ** 109,700 150,605 ** 9,700 50,605 ** 9,700 50,605 35 87,913 ** 101,618 171,564 ** 1,618 71,564 ** 1,618 71,564 40 117,580 ** ** 195,016 ** ** 95,016 ** ** 95,016 45 155,444 ** ** 214,538 ** ** 114,538 ** ** 114,538
--------- * The Planned Premium shown is less than the Target Premium of $1,550. The illustrations assume that Planned Premiums are paid at the start of each Policy Year. The Death Benefit and Surrender Value will differ if premiums are paid in different amounts or frequencies, if policy loans are taken, or if Additional Sum Insured or optional rider benefits are elected. ** Policy lapses unless additional premium payments are made. THE HYPOTHETICAL INVESTMENT RESULTS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF PAST OR FUTURE INVESTMENT RESULTS. ACTUAL INVESTMENT RESULTS MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING INVESTMENT ALLOCATIONS MADE BY THE OWNER. THE DEATH BENEFIT, ACCOUNT VALUE AND SURRENDER VALUE FOR A POLICY WOULD BE DIFFERENT FROM THOSE SHOWN IF THE ACTUAL GROSS RATES OF INVESTMENT RETURN AVERAGED 0%, 6% OR 12% OVER A PERIOD OF YEARS, BUT ALSO FLUCTUATED ABOVE OR BELOW THE AVERAGE FOR INDIVIDUAL POLICY YEARS. WE CAN MAKE NO REPRESENTATION THAT THESE HYPOTHETICAL INVESTMENT RESULTS CAN BE ACHIEVED FOR ANY ONE YEAR OR CONTINUED OVER ANY PERIOD OF TIME. IN FACT, FOR ANY GIVEN PERIOD OF TIME, THE INVESTMENT RESULTS COULD BE NEGATIVE. 29 FLEXIBLE PREMIUM VARIABLE LIFE $100,000 TOTAL SUM INSURED AT ISSUE MALE, ISSUE AGE 35, STANDARD NONSMOKER UNDERWRITING RISK CLASS OPTION A DEATH BENEFIT CASH VALUE ACCUMULATION TEST PLANNED PREMIUM: $ 927* USING CURRENT CHARGES
Death Benefit Account Value Surrender Value ----------------------------- ----------------------------- ----------------------------- Premiums Assuming Hypothetical Gross Assuming Hypothetical Gross Assuming Hypothetical Gross End of Accumulated Annual Investment Return of: Annual Investment Return of: Annual Investment Return of: Policy At 5% Interest ----------------------------- ----------------------------- ----------------------------- Year Per Year 0% Gross 6% Gross 12% Gross 0% Gross 6% Gross 12% Gross 0% Gross 6% Gross 12% Gross ------ -------------- -------- -------- --------- -------- -------- --------- -------- -------- ----------- 1 973 100,000 100,000 100,000 189 219 249 0 0 0 2 1,995 100,000 100,000 100,000 605 684 768 0 0 0 3 3,068 100,000 100,000 100,000 1,005 1,160 1,330 78 233 403 4 4,195 100,000 100,000 100,000 1,388 1,645 1,938 507 765 1,057 5 5,378 100,000 100,000 100,000 1,894 2,286 2,748 1,014 1,406 1,867 6 6,621 100,000 100,000 100,000 2,532 3,098 3,787 1,651 2,217 2,907 7 7,925 100,000 100,000 100,000 3,149 3,934 4,923 2,315 3,100 4,089 8 9,295 100,000 100,000 100,000 3,744 4,795 6,163 3,095 4,146 5,515 9 10,733 100,000 100,000 100,000 4,318 5,681 7,519 3,948 5,310 7,148 10 12,243 100,000 100,000 100,000 4,869 6,591 9,000 4,869 6,591 9,000 11 13,828 100,000 100,000 100,000 5,424 7,555 10,649 5,424 7,555 10,649 12 15,493 100,000 100,000 100,000 5,953 8,544 12,452 5,953 8,544 12,452 13 17,241 100,000 100,000 100,000 6,455 9,558 14,423 6,455 9,558 14,423 14 19,076 100,000 100,000 100,000 6,928 10,597 16,579 6,928 10,597 16,579 15 21,003 100,000 100,000 100,000 7,372 11,659 18,939 7,372 11,659 18,939 16 23,027 100,000 100,000 100,000 7,782 12,743 21,521 7,782 12,743 21,521 17 25,152 100,000 100,000 100,000 8,159 13,850 24,350 8,159 13,850 24,350 18 27,383 100,000 100,000 100,000 8,498 14,976 27,458 8,498 14,976 27,458 19 29,725 100,000 100,000 100,000 8,797 16,120 30,893 8,797 16,120 30,893 20 32,185 100,000 100,000 100,000 9,054 17,282 34,691 9,054 17,282 34,691 25 46,455 100,000 100,000 120,966 9,435 23,121 60,535 9,435 23,121 60,535 30 64,668 100,000 100,000 179,390 8,686 29,605 102,761 8,686 29,605 102,761 35 87,913 100,000 100,000 264,388 5,947 36,568 170,827 5,947 36,568 170,827 40 117,580 ** 100,000 389,593 ** 43,365 279,418 ** 43,365 279,418 45 155,444 ** 100,000 579,746 ** 49,522 452,396 ** 49,522 452,396
--------- * The illustrations assume that Planned Premiums are equal to the Target Premium and are paid at the start of each Policy Year. The Death Benefit and Surrender Value will differ if premiums are paid in different amounts or frequencies, if policy loans are taken, or if Additional Sum Insured or optional rider benefits are elected. ** Policy lapses unless additional premium payments are made. THE HYPOTHETICAL INVESTMENT RESULTS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF PAST OR FUTURE INVESTMENT RESULTS. ACTUAL INVESTMENT RESULTS MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING INVESTMENT ALLOCATIONS MADE BY THE OWNER. THE DEATH BENEFIT, ACCOUNT VALUE AND SURRENDER VALUE FOR A POLICY WOULD BE DIFFERENT FROM THOSE SHOWN IF THE ACTUAL GROSS RATES OF INVESTMENT RETURN AVERAGED 0%, 6% OR 12% OVER A PERIOD OF YEARS, BUT ALSO FLUCTUATED ABOVE OR BELOW THE AVERAGE FOR INDIVIDUAL POLICY YEARS. WE CAN MAKE NO REPRESENTATION THAT THESE HYPOTHETICAL INVESTMENT RESULTS CAN BE ACHIEVED FOR ANY ONE YEAR OR CONTINUED OVER ANY PERIOD OF TIME. IN FACT, FOR ANY GIVEN PERIOD OF TIME, THE INVESTMENT RESULTS COULD BE NEGATIVE. 30 FLEXIBLE PREMIUM VARIABLE LIFE $100,000 TOTAL SUM INSURED AT ISSUE MALE, ISSUE AGE 35, STANDARD NONSMOKER UNDERWRITING RISK CLASS OPTION A DEATH BENEFIT CASH VALUE ACCUMULATION TEST PLANNED PREMIUM: $ 927* USING MAXIMUM CHARGES
Death Benefit Account Value Surrender Value ----------------------------- ----------------------------- ----------------------------- Premiums Assuming Hypothetical Gross Assuming Hypothetical Gross Assuming Hypothetical Gross End of Accumulated Annual Investment Return of: Annual Investment Return of: Annual Investment Return of: Policy At 5% Interest ----------------------------- ----------------------------- ----------------------------- Year Per Year 0% Gross 6% Gross 12% Gross 0% Gross 6% Gross 12% Gross 0% Gross 6% Gross 12% Gross ------ -------------- -------- -------- --------- -------- -------- --------- -------- -------- ----------- 1 973 100,000 100,000 100,000 165 194 223 0 0 0 2 1,995 100,000 100,000 100,000 558 634 714 0 0 0 3 3,068 100,000 100,000 100,000 935 1,083 1,245 8 156 318 4 4,195 100,000 100,000 100,000 1,294 1,540 1,819 414 659 939 5 5,378 100,000 100,000 100,000 1,778 2,152 2,591 898 1,271 1,711 6 6,621 100,000 100,000 100,000 2,250 2,785 3,438 1,369 1,905 2,558 7 7,925 100,000 100,000 100,000 2,698 3,430 4,356 1,864 2,595 3,522 8 9,295 100,000 100,000 100,000 3,122 4,086 5,352 2,474 3,437 4,703 9 10,733 100,000 100,000 100,000 3,522 4,753 6,433 3,151 4,382 6,062 10 12,243 100,000 100,000 100,000 3,896 5,429 7,606 3,896 5,429 7,606 11 13,828 100,000 100,000 100,000 4,241 6,113 8,879 4,241 6,113 8,879 12 15,493 100,000 100,000 100,000 4,556 6,803 10,261 4,556 6,803 10,261 13 17,241 100,000 100,000 100,000 4,841 7,499 11,764 4,841 7,499 11,764 14 19,076 100,000 100,000 100,000 5,093 8,197 13,398 5,093 8,197 13,398 15 21,003 100,000 100,000 100,000 5,309 8,896 15,174 5,309 8,896 15,174 16 23,027 100,000 100,000 100,000 5,487 9,594 17,107 5,487 9,594 17,107 17 25,152 100,000 100,000 100,000 5,623 10,285 19,212 5,623 10,285 19,212 18 27,383 100,000 100,000 100,000 5,710 10,963 21,501 5,710 10,963 21,501 19 29,725 100,000 100,000 100,000 5,742 11,623 23,992 5,742 11,623 23,992 20 32,185 100,000 100,000 100,000 5,712 12,256 26,707 5,712 12,256 26,707 25 46,455 100,000 100,000 100,000 4,407 14,766 44,765 4,407 14,766 44,765 30 64,668 100,000 100,000 128,552 209 15,094 73,639 209 15,094 73,639 35 87,913 0 100,000 180,922 0 10,242 116,897 0 10,242 116,897 40 117,580 0 0 250,963 0 0 179,992 0 0 179,992 45 155,444 0 0 345,222 0 0 269,389 0 0 269,389
--------- * The illustrations assume that Planned Premiums are equal to the Target Premium and are paid at the start of each Policy Year. The Death Benefit and Surrender Value will differ if premiums are paid in different amounts or frequencies, if policy loans are taken, or if Additional Sum Insured or optional rider benefits are elected. ** Policy lapses unless additional premium payments are made. THE HYPOTHETICAL INVESTMENT RESULTS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF PAST OR FUTURE INVESTMENT RESULTS. ACTUAL INVESTMENT RESULTS MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING INVESTMENT ALLOCATIONS MADE BY THE OWNER. THE DEATH BENEFIT, ACCOUNT VALUE AND SURRENDER VALUE FOR A POLICY WOULD BE DIFFERENT FROM THOSE SHOWN IF THE ACTUAL GROSS RATES OF INVESTMENT RETURN AVERAGED 0%, 6% OR 12% OVER A PERIOD OF YEARS, BUT ALSO FLUCTUATED ABOVE OR BELOW THE AVERAGE FOR INDIVIDUAL POLICY YEARS. WE CAN MAKE NO REPRESENTATION THAT THESE HYPOTHETICAL INVESTMENT RESULTS CAN BE ACHIEVED FOR ANY ONE YEAR OR CONTINUED OVER ANY PERIOD OF TIME. IN FACT, FOR ANY GIVEN PERIOD OF TIME, THE INVESTMENT RESULTS COULD BE NEGATIVE. 31 ADDITIONAL INFORMATION This section of the prospectus provides additional detailed information that is not contained in the Basic Information section on pages 4 through 24. CONTENTS OF THIS SECTION BEGINNING ON PAGE ------------------------ ----------------- Description of us............................................. 33 How we support the policy and investment options.............. 33 Procedures for issuance of a policy........................... 34 Basic Sum Insured vs. Additional Sum Insured.................. 35 Commencement of investment performance........................ 35 How we process certain policy transactions.................... 36 Effects of policy loans....................................... 37 Additional information about how certain policy charges work.. 38 How we market the policies.................................... 39 Tax considerations............................................ 40 Reports that you will receive................................. 42 Voting privileges that you will have.......................... 42 Changes that we can make as to your policy.................... 43 Adjustments we make to death benefits......................... 43 When we pay policy proceeds................................... 43 Other details about exercising rights and paying benefits..... 44 Legal matters................................................. 44 Registration statement filed with the SEC..................... 44 Accounting and actuarial experts.............................. 44 Financial statements of JHVLICO and the Account............... 45 List of our Directors and Executive Officers of JHVLICO....... 46 32 DESCRIPTION OF US We are JHVLICO, a stock life insurance company chartered in 1979 under Massachusetts law. We are authorized to transact a life insurance and annuity business in all states other than New York and in the District of Columbia. We began selling variable life insurance policies in 1980. We are regulated and supervised by the Massachusetts Commissioner of Insurance, who periodically examines our affairs. We also are subject to the applicable insurance laws and regulations of all jurisdictions in which we are authorized to do business. We are required to submit annual statements of our operations, including financial statements, to the insurance departments of the various jurisdictions in which we do business for purposes of determining solvency and compliance with local insurance laws and regulations. The regulation to which we are subject, however, does not provide a guarantee as to such matters. We are a wholly-owned subsidiary of John Hancock Life Insurance Company ("John Hancock"), a Massachusetts stock life insurance company. On February 1, 2000, John Hancock Mutual Life Insurance Company (which was chartered in Massachusetts in 1862) converted to a stock company by "demutualizing" and changed its name to John Hancock Life Insurance Company. As part of the demutualization process, John Hancock became a subsidiary of John Hancock Financial Services, Inc., a newly formed publicly-traded corporation. John Hancock's home office is at John Hancock Place, Boston, Massachusetts 02117. As of December 31, 1999, John Hancock's assets were approximately $71 billion and it had invested approximately $575 million in JHVLICO in connection with JHVLICO's organization and operation. It is anticipated that John Hancock will from time to time make additional capital contributions to JHVLICO to enable us to meet our reserve requirements and expenses in connection with our business. John Hancock is committed to make additional capital contributions if necessary to ensure that we maintain a positive net worth. HOW WE SUPPORT THE POLICY AND INVESTMENT OPTIONS Separate Account U The variable investment options shown on page 1 are in fact subaccounts of Separate Account U (the "Account"), a separate account established by us under Massachusetts law. The Account meets the definition of "separate account" under the Federal securities laws and is registered as a unit investment trust under the Investment Company Act of 1940 ("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. The assets in each subaccount are invested in the corresponding fund of one of the Trusts. New subaccounts may be added as new funds are added to the Trusts and made available to policy owners. Existing subaccounts may be deleted if existing funds are deleted from the Trusts. We will purchase and redeem Trust shares for the Account at their net asset value without any sales or redemption charges. Shares of a Trust represent an interest in one of the funds of the Trust 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 33 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 Standard Time). Our general account Our obligations under the policy's fixed investment option 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 account value allocated to the fixed investment option will accrue interest daily at an effective annual rate of at least 4% without regard to the actual investment experience of the general account. Because of exemptive and exclusionary provisions, interests in our fixed investment option have not been registered under the Securities Act of 1933 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 the fixed investment option. Disclosure regarding the fixed investment option may, however, be subject to certain generally-applicable provisions of the Federal securities laws relating to accuracy and completeness of statements made in prospectuses. PROCEDURES FOR ISSUANCE OF A POLICY Generally, the policy is available with a minimum Basic Sum Insured at issue of $100,000. At the time of issue, the insured person must have an attained age of no more than 85. 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. The illustrations set forth in this prospectus are sex-distinct and, therefore, may not reflect the rates, charges, or values that would apply to such policies. Minimum Initial Premium The Minimum Initial Premium must be received by us at our Life Servicing Office in order for the policy to be in full force and effect. There is no grace period for the payment of the Minimum Initial Premium. The Minimum Initial Premium is determined by us based on the characteristics of the insured person, the Basic Sum Insured and the Additional Sum Insured at issue, and the policy options you have selected. 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 rate class should be. After we approve an application for a policy and assign an appropriate insurance rate class, 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 insurance coverage prior to policy delivery" on page 35). 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 still meets our health criteria for issuing insurance. 34 If all of the above conditions are satisfied, the policy will take effect on the date shown in the policy as the "date of issue." That is the date on which we begin to deduct monthly charges. Policy months, policy years and policy anniversaries are all measured from the date of issue. Backdating In order to preserve a younger age at issue for the insured person, we can designate a date of issue that is up to 60 days earlier than the date that would otherwise apply. This is referred to as "backdating" and is allowed under state insurance laws. Backdating can also be used in certain corporate-owned life insurance cases involving multiple policies to retain a common monthly deduction date. The conditions for coverage described above under "Commencement of insurance coverage" must still be satisfied, but in a backdating situation the policy always takes effect retroactively. Backdating results in a lower insurance charge (if it is used to preserve the insured person's younger age at issue), but monthly charges begin earlier than would otherwise be the case. Those monthly charges will be deducted as soon as we receive premiums sufficient to pay them. 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 application for the policy, including limits on amount and duration of coverage. Monthly deduction dates Each charge that we deduct monthly is assessed against your account value or the subaccounts at the close of business on the date of issue and at the close of the first business day in each subsequent policy month. BASIC SUM INSURED VS. ADDITIONAL SUM INSURED As noted earlier in this prospectus, you should consider a number of factors in determining whether to elect coverage in the form of Basic Sum Insured or in the form of Additional Sum Insured. For the same amount of premiums paid, the amount of the issue charge deducted from account value and the amount of compensation paid to the selling insurance agent will generally be less if coverage is included as Additional Sum Insured rather than as Basic Sum Insured. On the other hand, the amount of any Additional Sum Insured is not included in the guaranteed death benefit feature after the 5th policy year. Therefore, if the policy's surrender value is insufficient to pay the monthly charges as they fall due (including the charges for the Additional Sum Insured) after the 5th policy year, the Additional Sum Insured coverage will lapse, even if the Basic Sum Insured stays in effect pursuant to the guaranteed death benefit feature. Generally, you will incur lower issue charges and have more flexible coverage with respect to the Additional Sum Insured than with respect to the Basic Sum Insured. If this is your priority, you may wish to maximize the proportion of the Additional Sum Insured. However, if your priority is to take advantage of the guaranteed death benefit feature after the 5th policy year, the proportion of the Policy's Total Sum Insured that is guaranteed can be increased by taking out more coverage as Basic Sum Insured at the time of policy issuance. Any decision you make to modify the amount of Additional Sum Insured coverage after issue can have significant tax consequences (see "Tax Considerations" beginning on page 40). COMMENCEMENT OF INVESTMENT PERFORMANCE Any premium payment processed prior to the twentieth day after the policy's date of issue will 35 automatically be allocated to the Money Market investment option. On the later of the date such payment is received or the twentieth day following the date of issue, the portion of the Money Market investment option attributable to such payment will be reallocated automatically among the investment options you have chosen. All other premium payments will be allocated among the investment options you have chosen as soon as they are processed. HOW WE PROCESS CERTAIN POLICY TRANSACTIONS Premium payments We will process any premium payment as of the day we receive it, unless one of the following exceptions applies: (1) We will process a payment received prior to a policy's date of issue as if received on the date of issue. (2) If the Minimum Initial Premium is not received prior to the date of issue, we will process each premium payment received thereafter as if received on the business day immediately preceding the date of issue until all of the Minimum Initial Premium is received. (3) We will process the portion of any premium payment for which we require evidence of the insured person's continued insurability only after we have received such evidence and found it satisfactory to us. (4) If we receive any premium payment that we think will cause a policy to become a modified endowment or will cause a policy to lose its status as life insurance under the tax laws, we will not accept the excess portion of that premium payment and will immediately notify the owner. We will refund the excess premium when the premium payment check has had time to clear the banking system (but in no case more than two weeks after receipt), except in the following circumstances: . The tax problem resolves itself prior to the date the refund is to be made; or . The tax problem relates to modified endowment status and we receive a signed acknowledgment from the owner prior to the refund date instructing us to process the premium notwithstanding the tax issues involved. In the above cases, we will treat the excess premium as having been received on the date the tax problem resolves itself or the date we receive the signed acknowledgment. We will then process it accordingly. (4) If a premium payment is received or is otherwise scheduled to be processed (as specified above) on a date that is not a business day, the premium payment will be processed on the business day next following that date. Transfers among investment options Any reallocation among investment options must be such that the total in all investment options after reallocation equals 100% of account value. Transfers out of any investment option will be effective at the end of the business day in which we receive at our Life Servicing Office notice satisfactory to us. We have the right to defer transfers of amounts out of the fixed investment option for up to six months. Dollar cost averaging Scheduled transfers under this option may be made from the Money Market investment option to not more than nine other variable investment options. However, the amount transferred to any one investment option must be at least $100. Once we receive the election in form satisfactory to us at our Life Servicing Office, transfers will begin on the second monthly deduction date following its receipt. If you have any questions with respect to this provision, call 1-800-732-5543. Once elected, the scheduled monthly transfer option will remain in effect for so long as you have at 36 least $2,500 of your account value in the Money Market investment option, or until we receive written notice from you of cancellation of the option or notice of the death of the insured person. The dollar cost averaging and rebalancing options cannot be in effect at the same time. We reserve the right to modify, terminate or suspend the dollar cost averaging program at any time. Asset Rebalancing This option can be elected in the application or by sending the appropriate form to our Life Servicing Office. You must specify the frequency for rebalancing (quarterly, semi-annually or annually), the preset percentage for each variable investment option and a future beginning date. The first rebalancing will occur on the monthly deduction date that occurs on or next follows the beginning date you select. Once elected, rebalancing will continue until we receive notice of cancellation of the option or notice of the death of the insured person. If you cancel rebalancing, you will have to wait 30 days before you can start it again. The fixed investment option does not participate in and is not affected by rebalancing.The rebalancing and dollar cost averaging options cannot be in effect at the same time. We reserve the right to modify, terminate or suspend the rebalancing program at any time. Telephone transfers and policy loans Once you have completed a written authorization, you may request a transfer or policy loan by telephone or by fax. If the fax request option becomes unavailable, another means of telecommunication will be substituted. If you authorize telephone transactions, you will be liable for any loss, expense or cost arising out of any unauthorized or fraudulent telephone 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, and which are reasonably designed to confirm that instructions received by telephone are genuine. These procedures include requiring personal identification, tape recording calls, and providing written confirmation to the owner. If we do not employ reasonable procedures to confirm that instructions communicated by telephone are genuine, we may be liable for any loss due to unauthorized or fraudulent instructions. Effective date of other policy transactions The following transactions take effect on the policy anniversary on or next following the date we approve your request: . Additional Sum Insured increases. . Change of death benefit Option from A to B. A change of death benefit Option from B to A is effective on the policy anniversary on or next following the date we receive the request. The following transactions take effect on the monthly deduction date on or next following the date we approve your request: . Total Sum Insured decreases . Reinstatements of lapsed policies We process loans, surrenders, partial withdrawals and loan repayments as of the day we receive such request or repayment. EFFECTS OF POLICY LOANS The account value, the surrender value, and any death benefit above the Total Sum Insured 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 investment options and placed in a special loan account. The investment options 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 37 from the amount otherwise payable when the policy proceeds become payable. Whenever the outstanding loan equals or exceeds the surrender value, 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 minimum amount that must be paid to avoid termination, unless a repayment of at least the amount specified is made within that period. Also, 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. Policy loans may also result in adverse tax consequences under certain circumstances (see "Tax considerations" beginning on page 40). ADDITIONAL INFORMATION ABOUT HOW CERTAIN POLICY CHARGES WORK Sales expenses and related charges The sales charges (i.e., the premium sales charge and the CDSC) help to compensate us for the cost of selling our policies. (See "What charges will we deduct from your investment in the policy?" in the Basic Information section of this prospectus.) 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 sales charges do not cover total sales expenses, the sales expenses may be recovered from other sources, including gains from the charge for mortality and expense risks and other gains with respect to the policies, or from our general assets. (See "How we market the policies" on page 39.) Similarly, administrative expenses not fully covered by the issue charge and the administrative charge may also be recovered from such other sources. Effect of premium payment pattern You may structure the timing of premium payments to minimize the sales charges, although doing so involves certain risks. Paying less premium in the first 5 policy years and more in later years could reduce your total sales charges. For example, if the Target premium was $2,000 and you paid $1,500 in each of the first 10 policy years, you would pay total sales charges of $525 and be subject to a maximum CDSC of $1,500. If you paid $1,000 in each of the first 5 policy years and $2,000 in each of policy years 6 through 10, you would pay total sales charges of only $500 and be subject to a maximum CDSC of only $1,000. However, delaying the payment of premiums to later policy years could increase the risk that the guaranteed death benefit feature will not be in effect and the surrender value will be insufficient to pay policy charges. As a result, the policy or any Additional Sum Insured may lapse and eventually terminate. Monthly charges Unless we agree otherwise, we will deduct the monthly charges described in the Basic Information section from your policy's investment options in proportion to the amount of account value you have in each. For each month that we cannot deduct any charge because of insufficient account value, the uncollected charges will accumulate and be deducted when and if sufficient account value becomes available. The insurance under the policy continues in full force during any grace period but, if the insured person dies during the policy grace period, the amount of unpaid monthly charges is deducted from the death benefit otherwise payable. 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 38 follows: the nature of any 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 any 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. HOW WE MARKET THE POLICIES John Hancock Funds, Inc. ("JHFI") and Signator Investors, Inc.("Signator") act as principal distributors of the policies sold through this prospectus. JHFI and Signator are each registered as a broker-dealer under the Securities Exchange Act of 1934, and each is a member of the National Association of Securities Dealers, Inc. JHFI's address is 101 Huntington Avenue, Boston, Massachusetts 02199. Signator's address is 200 Clarendon Street, John Hancock Place, Boston, Massachusetts 02117. JHFI and Signator are subsidiaries of John Hancock. You can purchase a policy through representatives of broker-dealers and certain financial institutions who have entered into selling agreements with JHFI and us, or with Signator and us. We pay compensation to these broker-dealers for promoting, marketing and selling our products through their representatives who are authorized by applicable law to sell variable life insurance policies. In turn, the broker-dealers pay a portion of the compensation to these representatives, under their own arrangements. The most common schedule of gross commissions (inclusive of any expense allowance payments paid to such broker-dealers and financial institutions) is as follows: . 80% of first year premiums paid up to the Target Premium plus 3% of any excess premium payments, . 3% of total premiums paid in policy years 2 through 5, and . 0.15% of account value less loans in policy years 2 and thereafter. In some situations where the broker dealer provides some or all of the marketing services required, we may pay an additional gross first year commission of up to 20% of premiums paid up to the Target Premium. In such instances, we may also pay an additional gross renewal commission. The additional gross renewal commission would not be expected to exceed 0.10% of account value less loans in policy years 2 and thereafter. For limited periods of time, we may pay additional compensation to broker-dealers as part of special sales promotions. Signator also pays its branch office principals, who are also independent general agents of ours, for sales of the policies to Signator customers. In turn, the branch office principals pay a portion of their compensation to their assigned marketing representatives, under their own arrangments. The most common schedule of gross commission (inclusive of overrides and expense allowance payments paid to such branch office principals) is as follows: . [50%] of the Target Premium paid in the first policy year, [6%] of the Target Premium paid in the second through fourth policy years, and [3%] of the Target Premium paid in each policy year thereafter, and . [3%] on any premium paid in any policy year in excess of the Target Premium. Representatives who meet certain productivity and persistency standards may be eligible for additional compensation. From time to time, JHFI and Signator, at their expense, may provide significant additional compensation to financial services firms which sell or arrange for the sale of the policies. Such 39 compensation may include, for example, financial assistance to financial services firms in connection with their 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 the public, advertising and sales campaigns regarding the policies, and/or other financial services firms-sponsored events or activities. We offer these contracts on a continuous basis, but neither JHFI nor Signator is obligated to sell any particular amount of policies. JHFI and Signator also serve as principal underwriters for John Hancock Variable Annuity Accounts U, I and V, John Hancock Mutual Variable Life Insurance Account UV and John Hancock Variable Life Accounts V and S, all of which are registered under the 1940 Act. Signator is also the principal underwriter for the John Hancock Variable Series Trust I, and JHFI is the principal underwriter for the John Hancock Declaration Funds. We reimburse JHFI and Signator for certain direct and indirect expenses actually incurred in connection with the marketing of these contracts. John Hancock (on behalf of JHVLICO) performs insurance underwriting and determines whether to accept or reject the application for a policy and each insured person's risk classification. Officers and employees of John Hancock and JHVLICO are covered by a blanket bond by a commercial carrier in the amount of $25 million. 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 advisor. 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. Policy proceeds We believe the policy will 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 life insurance for federal tax purposes. If certain standards are met at issue and over the life of the policy, the policy will satisfy that definition. We will monitor compliance with these standards. If the policy complies with the definition of life insurance, we believe the death benefit proceeds under the policy will be excludable from the beneficiary's gross income under the Code. In addition, if you have elected the Long-Term Care Acceleration 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 Sections 101 and/or Section 7702B of the Code. We have designed the rider to meet these standards. Other policy distributions Increases in account value as a result of interest or investment experience will not be subject to federal income tax unless and until values are actually received through distributions. In general, the owner will be taxed on the amount of distributions that exceed the premiums paid under the policy. But under certain circumstances within the first 15 policy years, the owner may be taxed on a distribution even if total withdrawals do not exceed total premiums paid. Any taxable distribution will be ordinary income to the owner (rather than capital gains). Distributions for tax purposes can 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 Long-- 40 Term Care Acceleration Rider, as described beginning on page 19, you may be deemed to have received a distribution for tax purposes each time a deduction is made from your policy's account value to pay the rider charge. We also believe that, except as noted below, 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. It is possible that, despite our monitoring, a policy might fail to qualify as life insurance 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 and gains under the policy for the period of the disqualification and for subsequent periods. In the past, the United States Treasury Department has stated that it anticipated issuing guidelines prescribing circumstances in which the ability of a policy owner to direct his or her investment to particular funds may cause the policy owner, rather than the insurance company, to be treated as the owner of the shares of those funds. In that case, any income and gains attributable to those shares would be included in your current gross income for federal income tax purposes. Under current law, however, we believe that we, and not the owner of a policy, would be considered the owner of the fund's shares for tax purposes. Tax consequences of ownership or receipt of policy proceeds under federal, state and local estate, inheritance, gift and other tax laws depend on the circumstances of each owner or beneficiary. 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. 7-pay premium limit 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", which can have adverse tax consequences. The owner will be taxed on distributions and loans from a "modified endowment" to the extent of any income (gain) to the owner (on an income-first basis). The distributions and loans affected will be those made on or after, and within the two year period prior to, the time the policy becomes a modified endowment. Additionally, a 10% penalty tax may be imposed on taxable portions of such distributions or loans that are made before the owner attains age 591/2. Furthermore, any time there is a "material change" in a policy (such as an increase in the Additional Sum Insured, the addition of certain other policy benefits after issue, a change in death benefit 41 option, or reinstatement of a lapsed policy), the policy will have a new 7-pay limit as if it were a newly-issued policy. If a prescribed portion of the policy's then account value, plus all other premiums paid within 7 years after the material change, at any time exceed the new 7-pay limit, the policy will become a modified endowment. Moreover, if benefits under a policy are reduced (such as a reduction in the Total Sum Insured or 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 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. All modified endowments issued by the same insurer (or its affiliates) to the owner during any calendar year generally will be treated as one contract for the purpose of applying the modified endowment rules. A policy received in exchange for a modified endowment will itself also be a modified endowment. 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 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. REPORTS THAT YOU WILL RECEIVE At least annually, we will send you a statement setting forth the following information as of the end of the most recent reporting period: the amount of the death benefit, the Basic Sum Insured and the Additional Sum Insured, the account value, the portion of the account value in each investment option, the surrender value, premiums received and charges deducted from premiums since the last report, and any outstanding policy loan (and interest charged for the preceding policy year). Moreover, you also will receive confirmations of premium payments, transfers among investment options, policy loans, partial withdrawals and certain other policy transactions. Semiannually we will send you a report containing the financial statements of the Trusts, including a list of securities held in each fund. VOTING PRIVILEGES THAT YOU WILL HAVE All of the assets in the subaccounts of the Account are invested in shares of the corresponding funds of the Trusts. We will vote the shares of each of the funds of a Trust which are deemed attributable to variable life insurance policies at regular and special meetings of the Trust's shareholders in accordance with instructions received from owners of such policies. Shares of the Trust held in the Account which are not attributable to such policies, as well as shares for which instructions from owners are not received, will be represented by us at the meeting. We will vote such shares for and against each matter in the same proportions as the votes based upon the instructions received from the owners of such policies. 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 Trust's meeting. Owners of policies may give instructions regarding the election of the Board of Trustees or Board of Directors of a Trust, ratification of the selection of independent auditors, approval of Trust 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. 42 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. CHANGES THAT WE CAN MAKE AS TO YOUR POLICY Changes relating to a Trust or the Account The voting privileges described in this prospectus 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 JHVLICO to be associated with the class of policies to which your policy belongs from the Account to another separate account or subaccount, (2) to operate the Account as a "management-type investment company" under the 1940 Act, or in any other form permitted by law, the investment adviser of which would be JHVLICO, John Hancock, or an affiliate of either, (3) to deregister the Account under the 1940 Act, (4) to substitute for the fund shares held by a subaccount any other investment permitted by law, and (5) to take any action necessary to comply with or obtain any exemptions from the 1940 Act. We would notify owners of any of the foregoing changes and, to the extent legally required, obtain approval of owners and any regulatory body prior thereto. Such notice and approval, however, may not be legally required in all cases. Other permissible changes 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 investment options . 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. ADJUSTMENTS WE MAKE TO DEATH BENEFITS 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. WHEN WE PAY POLICY PROCEEDS General We will 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 have information about the desired manner of payment within 7 days after the date we receive notification of the insured person's death, we will pay the proceeds as a single sum, normally within 7 days thereafter. 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 43 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 account 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 a variable investment option 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 account value; or (3) the SEC by order permits the delay for the protection of owners. Transfers and allocations of account value among the investment options 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. OTHER DETAILS ABOUT EXERCISING RIGHTS AND PAYING BENEFITS Joint ownership If more than one person owns a policy, all owners must join in most requests to exercise rights under the policy. 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 notice of the assignment in good order. Nor are we responsible for the validity of the assignment. An absolute assignment is a change of ownership. All collateral assignees of record must consent to any full surrender, partial withdrawal or loan from 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 irrevocable named 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. LEGAL MATTERS The legal validity of the policies described in this prospectus has been passed on by Ronald J. Bocage, Vice President and Counsel for JHVLICO. Messrs. Freedman, Levy, Kroll & Simonds, Washington, D.C., have advised us on certain Federal securities law matters in connection with the policies. 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. ACCOUNTING AND ACTUARIAL EXPERTS Certain of the financial statements of JHVLICO and the Account included in this prospectus have been audited by Ernst & Young LLP, independent auditors, for the periods indicated in their reports thereon which appear elsewhere herein and have been included in reliance on their reports given on 44 their authority as experts in accounting and auditing. Actuarial matters included in this prospectus have been examined by Todd G. Engelsen, F.S.A., Vice President and Actuary of JHVLICO and Second Vice President of John Hancock. FINANCIAL STATEMENTS OF JHVLICO AND THE ACCOUNT The financial statements of JHVLICO included herein should be distinguished from the financial statements of the Account and should be considered only as bearing upon the ability of JHVLICO to meet its obligations under the policies. In addition to those financial statements of JHVLICO and the Account included herein that have been audited by Ernst & Young LLP, this prospectus also contains unaudited financial statements of both JHVLICO and the Account for a period subsequent to the audited financial statements. 45 LIST OF DIRECTORS AND EXECUTIVE OFFICERS OF JHVLICO The Directors and Executive Officers of JHVLICO and their principal occupations during the past five years are as follows:
Directors and Executive Officers Principal Occupations -------------------------------- --------------------- David F. D'Alessandro............... Chairman of the Board and Chief Executive Officer of JHVLICO; President and Chief Executive Officer, John Hancock Life Insurance Company. Michele G. Van Leer................. Vice Chairman of the Board and President of JHVLICO; Senior Vice President, John Hancock Life Insurance Company. Ronald J. Bocage.................... Director, Vice President and Counsel of JHVLICO; Vice President and Counsel, John Hancock Life Insurance Company. Bruce M. Jones...................... Director and Vice President of JHVLICO; Vice President, John Hancock Life Insurance Company. Thomas J. Lee....................... Director and Vice President of JHVLICO; Vice President, John Hancock Life Insurance Company. Barbara L. Luddy.................... Director, Vice President and Actuary of JHVLICO; Senior Vice President, John Hancock Life Insurance Company. Robert S. Paster.................... Director and Vice President of JHVLICO; Vice President, John Hancock Life Insurance Company. Robert R. Reitano................... Director and Vice President of JHVLICO; Vice President, John Hancock Life Insurance Company. Paul Strong......................... Director and Vice President of JHVLICO; Vice President, John Hancock Life Insurance Company. Daniel L. Ouellette................. Vice President, Marketing, of JHVLICO; Senior Vice President, John Hancock Life Insurance Company. Edward P. Dowd...................... Vice President, Investments, of JHVLICO; Senior Vice President, John Hancock Life Insurance Company Roger G. Nastou..................... Vice President, Investments, of JHVLICO; Vice President, John Hancock Life Insurance Company Todd G. Engelsen.................... Vice President and Illustration Actuary of JHVLICO; Second Vice President, John Hancock Life Insurance Company Julie H. Indge...................... Treasurer of JHVLICO; Financial Officer, John Hancock Life Insurance Company Patrick J. Gill..................... Controller of JHVLICO; Senior Associate Controller, John Hancock Life Insurance Company. Peter Scavongelli................... Secretary of JHVLICO; State Compliance Officer, John Hancock Life Insurance Company
The business address of all Directors and officers of JHVLICO is John Hancock Place, Boston, Massachusetts 02117. 46 UNAUDITED FINANCIAL STATEMENTS FOR JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY THIRD QUARTER 2000 47 JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY STATEMENTS OF FINANCIAL POSITION
(UNAUDITED) SEPTEMBER 30 DECEMBER 31 2000 1999 ------------ ----------- (IN MILLIONS) ASSETS Bonds........................................... $ 1,378.1 $ 1,216.3 Preferred stocks................................ 40.9 35.9 Common stocks................................... 1.9 3.2 Investment in affiliates........................ 81.5 80.7 Mortgage loans on real estate................... 478.2 433.1 Real estate..................................... 24.7 25.0 Policy loans.................................... 205.3 172.1 Cash Items: Cash in banks.................................. 7.7 27.2 Temporary cash investments..................... 242.6 222.9 --------- --------- 250.3 250.1 Premiums due and deferred....................... 33.4 29.9 Investment income due and accrued............... 45.6 33.2 Other general account assets.................... 27.9 65.3 Assets held in separate accounts................ 8,618.1 8,268.2 --------- --------- TOTAL ASSETS.................................. $11,185.9 $10,613.0 ========= ========= OBLIGATIONS AND STOCKHOLDER'S EQUITY OBLIGATIONS Policy reserves................................. $ 2,116.9 $ 1,866.6 Federal income and other taxes payable.......... 29.8 67.3 Other general account obligations............... 209.8 219.0 Transfers from separate account, net............ (232.7) (221.6) Asset valuation reserve......................... 22.4 23.1 Obligations related to separate accounts........ 8,611.2 8,261.6 --------- --------- TOTAL OBLIGATIONS............................. 10,757.4 10,216.0 STOCKHOLDER'S EQUITY Common Stock, $50 par value; authorized 50,000 shares; issued and outstanding 50,000 shares... 2.5 2.5 Paid-in capital................................. 572.4 572.4 Unassigned deficit.............................. (146.4) (177.9) --------- --------- TOTAL STOCKHOLDER'S EQUITY.................... 428.5 397.0 --------- --------- TOTAL OBLIGATIONS AND STOCKHOLDER'S EQUITY.... $11,185.9 $10,613.0 ========= =========
See condensed notes to the financial statements (unaudited). 48 JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY STATEMENTS OF OPERATIONS AND UNASSIGNED DEFICIT
(UNAUDITED) THREE MONTHS ENDED NINE MONTHS ENDED SEPTEMBER 30 SEPTEMBER 30 ------------------ ----------------- 2000 1999 2000 1999 ---- ---- ---- ---- (IN MILLIONS) INCOME Premiums............................................................... $ 217.9 $ 236.9 $ 704.9 $ 689.1 Net investment income.................................................. 45.1 35.0 128.1 99.4 Other, net............................................................. 124.9 162.9 367.4 424.8 ------- ------- -------- -------- 387.9 434.8 1,200.4 1,213.3 BENEFITS AND EXPENSES Payments to policyholders and beneficiaries............................ 86.1 91.5 268.5 265.9 Additions to reserves to provide for future payments to policyholders and beneficiaries..................................................... 189.3 223.0 619.0 659.8 Expenses of providing service to policyholders and obtaining new insurance............................................................. 85.1 71.8 239.0 225.3 State and miscellaneous taxes.......................................... 3.2 5.0 16.5 15.9 ------- ------- -------- -------- 363.7 391.3 1,143.0 1,166.9 ------- ------- -------- -------- GAIN FROM OPERATIONS BEFORE FEDERAL INCOME TAXES AND NET REALIZED CAPITAL GAINS (LOSSES)............................. 24.2 43.5 57.4 46.4 Federal income taxes.................................................... 2.8 20.8 19.7 20.4 ------- ------- -------- -------- GAIN FROM OPERATIONS BEFORE NET REALIZED CAPITAL GAINS (LOSSES).............................................. 21.4 22.7 37.7 26.0 Net realized capital gains (losses)..................................... (1.0) 1.4 (0.5) 0.4 ------- ------- -------- -------- NET INCOME........................................................... 20.4 24.1 37.2 26.4 Unassigned deficit at beginning of period............................... (163.4) (52.2) (177.9) (49.2) Net unrealized capital gains (losses) and other adjustments............. (3.2) (0.4) (5.2) (3.5) Provision for litigation reserve........................................ 0.0 (194.9) 0.0 (194.9) Other reserves and adjustments.......................................... (0.2) (1.0) (0.5) (3.2) ------- ------- -------- -------- UNASSIGNED DEFICIT AT END OF PERIOD.................................. $(146.4) $(224.4) $ (146.4) $ (224.4) ------- ------- -------- --------
See condensed notes to the financial statements (unaudited). 49 JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY STATEMENTS OF CASH FLOWS
(UNAUDITED) NINE MONTHS ENDED SEPTEMBER 30 ------------------ 2000 1999 ---- ---- (IN MILLIONS) CASH FLOWS FROM OPERATING ACTIVITIES: Insurance premiums........................................................................ $ 709.2 $ 691.1 Net investment income..................................................................... 115.4 92.1 Benefits to policyholders and beneficiaries............................................... (249.3) (358.0) Dividends paid to policyholders........................................................... (19.5) (19.0) Insurance expenses and taxes.............................................................. (264.8) (268.1) Net transfers to separate accounts........................................................ (379.5) (519.4) Other, net................................................................................ 317.4 386.7 ------- ------- NET CASH PROVIDED FROM OPERATIONS....................................................... 228.9 5.4 ------- ------- CASH FLOWS USED IN INVESTING ACTIVITIES: Bond purchases............................................................................ (386.2) (194.8) Bond sales................................................................................ 140.4 61.2 Bond maturities and scheduled redemptions................................................. 56.7 57.5 Bond prepayments.......................................................................... 23.8 16.6 Stock purchases........................................................................... (5.9) (1.2) Proceeds from stock sales................................................................. 1.4 3.6 Real estate purchases..................................................................... (0.3) (1.9) Real estate sales......................................................................... 0.1 17.8 Other invested assets purchases........................................................... (3.6) (4.5) Proceeds from the sale of other invested assets........................................... 0.9 0.0 Mortgage loans issued..................................................................... (71.7) (48.0) Mortgage loan repayments.................................................................. 26.1 19.6 Other, net................................................................................ (10.4) 13.3 ------- ------- NET CASH USED IN INVESTING ACTIVITIES................................................... (228.7) (60.8) ------- ------- CASH FLOWS FROM FINANCING ACTIVITIES: Capital contribution...................................................................... 0.0 170.4 Net increase (decrease) in short-term note payable........................................ 0.0 (62.1) ------- ------- NET CASH PROVIDED FROM FINANCING ACTIVITIES............................................. 0.0 108.3 ------- ------- INCREASE (DECREASE) IN CASH AND TEMPORARY CASH INVESTMENTS.............................. 0.2 52.9 Cash and temporary cash investments at beginning of year................................... 250.1 19.9 ------- ------- CASH AND TEMPORARY CASH INVESTMENTS AT THE END OF PERIOD................................ $ 250.3 $ 72.8 ======= =======
See condensed notes to the financial statements (unaudited). 50 JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY STATEMENTS OF STOCKHOLDER'S EQUITY
COMMON PAID-IN UNASSIGNED STOCK CAPITAL DEFICIT TOTAL --------- --------- ----------- --------- (IN MILLIONS) FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999 (UNAUDITED) Balance at January 1, 1999......................................... $2.5 $377.5 $ (49.2) $ 330.8 1999 TRANSACTIONS: Capital contribution.............................................. 170.4 170.4 Net income........................................................ 26.4 26.4 Net unrealized capital gains and other adjustments................ (3.5) (3.5) Provision for litigation reserve.................................. (194.9) (194.9) Other reserves and adjustments.................................... (3.2) (3.2) ---- ------ ------- ------- Balance at September 30, 1999...................................... $2.5 $547.9 $(224.4) $ 326.0 ==== ====== ======= ======= FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000 (UNAUDITED) Balance at January 1, 2000......................................... $2.5 $572.4 $(177.9) $ 397.0 2000 TRANSACTIONS: Capital contribution Net income........................................................ 37.2 37.2 Net unrealized capital gains and other adjustments................ (5.2) (5.2) Provision for litigation reserve.................................. 0.0 0.0 Other reserves and adjustments.................................... (0.5) (0.5) ---- ------ ------- ------- Balance at September 30, 2000...................................... $2.5 $572.4 $(146.4) $ 428.5 ==== ====== ======= =======
See condensed notes to the financial statements (unaudited). 51 JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY CONDENSED NOTES TO FINANCIAL STATEMENTS (UNAUDITED) NOTE 1--BASIS OF PRESENTATION The accompanying unaudited interim financial statements have been prepared on the basis of accounting practices prescribed or permitted by the Commonwealth of Massachusetts Division of Insurance and in conformity with the practices of the National Association of Insurance Commissioners (NAIC), which practices differ from generally accepted accounting principles (GAAP). Pursuant to Financial Accounting Standard Board Interpretation 40, "Applicability of General Accepted Accounting Principles to Mutual Life Insurance and Other Enterprises" (FIN 40), as amended which was effective for 1996 financial statements, financial statements based on statutory accounting practices can no longer be described as prepared in conformity with GAAP. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the nine-month period ending September 30, 2000 are not necessarily indicative of the results that may be expected for the year ended December 31, 2000. 52 REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS To the Directors and Policyholders John Hancock Variable Life Insurance Company We have audited the accompanying statutory-basis statements of financial position of John Hancock Variable Life Insurance Company as of December 31, 1999 and 1998, and the related statutory-basis statements of operations and unassigned deficit and cash flows for the years then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. As described in Note 1 to the financial statements, the Company presents its financial statements in conformity with accounting practices prescribed or permitted by the Commonwealth of Massachusetts Division of Insurance, which practices differ from accounting principles generally accepted in the United States. The variances between such practices and accounting principles generally accepted in the United States also are described in Note 1. The effects on the financial statements of these variances are not reasonably determinable but are presumed to be material. In our opinion, because of the effects of the matter described in the preceding paragraph, the financial statements referred to above do not present fairly, in conformity with accounting principles generally accepted in the United States, the financial position of John Hancock Variable Life Insurance Company at December 31, 1999 and 1998, or the results of its operations or its cash flows for the years then ended. However, in our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of John Hancock Variable Life Insurance Company at December 31, 1999 and 1998, and the results of its operations and its cash flows for the years then ended in conformity with accounting practices prescribed or permitted by the Commonwealth of Massachusetts Division of Insurance. ERNST & YOUNG LLP Boston, Massachusetts March 10, 2000 53 JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY STATUTORY-BASIS STATEMENTS OF FINANCIAL POSITION
DECEMBER 31, ---------------------- 1999 1998 ---------- ---------- (IN MILLIONS) ASSETS Bonds--Note 6...................................................................... $ 1,216.3 $ 1,185.8 Preferred stocks................................................................... 35.9 36.5 Common stocks...................................................................... 3.2 3.1 Investment in affiliates........................................................... 80.7 81.7 Mortgage loans on real estate--Note 6.............................................. 433.1 388.1 Real estate........................................................................ 25.0 41.0 Policy loans....................................................................... 172.1 137.7 Cash items: Cash in banks.................................................................... 27.2 11.4 Temporary cash investments....................................................... 222.9 8.5 ---------- ---------- 250.1 19.9 Premiums due and deferred.......................................................... 29.9 32.7 Investment income due and accrued.................................................. 33.2 29.8 Other general account assets....................................................... 65.3 47.5 Assets held in separate accounts................................................... 8,268.2 6,595.2 ---------- ---------- Total assets........................................................... $ 10,613.0 $ 8,599.0 ========== ========== OBLIGATIONS AND STOCKHOLDER'S EQUITY Obligations Policy reserves.................................................................. $ 1,866.6 $ 1,652.0 Federal income and other taxes payable--Note 1................................... 67.3 44.3 Other general account obligations................................................ 219.0 150.9 Transfers from separate accounts, net............................................ (221.6) (190.3) Asset valuation reserve--Note 1.................................................. 23.1 21.9 Obligations related to separate accounts......................................... 8,261.6 6,589.4 ---------- ---------- Total obligations...................................................... 10,216.0 8,268.2 Stockholder's equity Common Stock, $50 par value; authorized 50,000 shares; issued and outstanding 50,000 shares.......................................... 2.5 2.5 Paid-in capital.................................................................. 572.4 377.5 Unassigned deficit--Note 10...................................................... (177.9) (49.2) ---------- ---------- Total stockholder's equity....................................................... 397.0 330.8 ---------- ---------- Total obligations and stockholder's equity............................. $ 10,613.0 $ 8,599.0 ========== ==========
The accompanying notes are an integral part of the statutory-basis financial statements. 54 JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY STATUTORY-BASIS STATEMENTS OF OPERATIONS AND UNASSIGNED DEFICIT
YEAR ENDED DECEMBER 31, 1999 1998 ---------- ---------- (IN MILLIONS) INCOME Premiums.................................................... $ 950.8 $ 1,272.3 Net investment income--Note 3............................... 136.0 122.8 Other, net.................................................. 605.4 618.1 ---------- ---------- 1,692.2 2,013.2 BENEFITS AND EXPENSES Payments to policyholders and beneficiaries................. 349.9 301.4 Additions to reserves to provide for future payments to policyholders and beneficiaries.......................... 888.8 1,360.2 Expenses of providing service to policyholders and obtaining new insurance--Note 5............................ 314.4 274.2 State and miscellaneous taxes............................... 20.5 28.1 ---------- ---------- 1,573.6 1,963.9 ---------- ---------- Gain from operations before federal income taxes and net realized capital losses.................... 118.6 49.3 Federal income taxes--Note 1................................ 42.9 33.1 ---------- ---------- Gain from operations before net realized capital losses 75.7 16.2 Net realized capital losses--Note 4......................... (1.7) (0.6) ---------- ---------- Net income................................................ 74.0 15.6 Unassigned deficit at beginning of year..................... (49.2) (58.3) Net unrealized capital losses and other adjustments--Note 4 (3.8) (6.0) Other reserves and adjustments--Note 10..................... (198.9) (0.5) ---------- ---------- Unassigned deficit at end of year....................... $ (177.9) $ (49.2) ========== ==========
The accompanying notes are an integral part of the statutory-basis financial statements. 55 JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY STATUTORY-BASIS STATEMENTS OF CASH FLOWS YEAR ENDED DECEMBER 31, ------------------------- 1999 1998 ------- -------- (IN MILLIONS) Cash flows from operating activities: Insurance premiums............................ $ 958.5 $1,275.3 Net investment income......................... 134.2 118.2 Benefits to policyholders and beneficiaries... (321.6) (275.5) Dividends paid to policyholders.................. (25.6) (22.3) Insurance expenses and taxes..................... (344.8) (296.9) Net transfers to separate accounts............... (705.3) (874.4) Other, net.................................... 540.6 551.3 ------- -------- Net cash provided from operations...... 236.0 475.7 ------- -------- Cash flows used in investing activities: Bond purchases................................ (240.7) (618.8) Bond sales.................................... 108.3 340.7 Bond maturities and scheduled redemptions..... 78.4 111.8 Bond prepayments.............................. 18.7 76.5 Stock purchases............................... (3.9) (23.4) Proceeds from stock sales..................... 3.6 1.9 Real estate purchases......................... (2.2) (4.2) Real estate sales............................. 17.8 2.1 Other invested assets purchases............... (4.5) 0.0 Mortgage loans issued......................... (70.7) (145.5) Mortgage loan repayments...................... 25.3 33.2 Other, net.................................... (68.9) (435.2) ------- -------- Net cash used in investing activities.. (138.8) (660.9) ------- -------- Cash flows from financing activities: Capital contribution.......................... 194.9 Net (decrease) increase in short-term note payable..................................... (61.9) 61.9 ------- -------- Net cash provided from financing activities............................ 133.0 61.9 ------- -------- Increase (decrease) in cash and temporary cash investments............ 230.2 (123.3) Cash and temporary cash investments at beginning of year......................................... 19.9 143.2 ------- -------- Cash and temporary cash investments at end of year........................... $ 250.1 $ 19.9 ======= ======== The accompanying notes are an integral part of the statutory-basis financial statements. 56 JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS 1. NATURE OF OPERATIONS AND SIGNIFICANT ACCOUNTING PRACTICES John Hancock Variable Life Insurance Company (the Company) is a wholly-owned subsidiary of John Hancock Life Insurance Company (formerly John Hancock Mutual Life Insurance Company) (John Hancock). The Company, domiciled in the Commonwealth of Massachusetts, principally writes variable and universal life insurance policies. Those policies primarily are marketed through John Hancock's sales organization, Signator Insurance Agency, which includes a career agency system composed of Company-supported independent general agencies and a direct brokerage system that markets directly to external independent brokers. Policies also are sold through various unaffiliated securities broker-dealers and certain other financial institutions. Currently, the Company writes business in all states except New York. The preparation of financial statements requires management to make estimates and assumptions that affect amounts reported in the financial statements and accompanying notes. Such estimates and assumptions could change in the future as more information becomes known, which could impact the amounts reported and disclosed herein. Basis of Presentation The financial statements have been prepared using accounting practices prescribed or permitted by the Commonwealth of Massachusetts Division of Insurance and in conformity with the practices of the National Association of Insurance Commissioners (NAIC), which practices differ from generally accepted accounting principles (GAAP). The significant differences from GAAP include: (1) policy acquisition costs are charged to expense as incurred rather than deferred and amortized in relation to future estimated gross profits; (2) policy reserves are based on statutory mortality, morbidity, and interest requirements without consideration of withdrawals and Company experience; (3) certain assets designated as "nonadmitted assets" are excluded from the balance sheet by direct charges to surplus; (4) reinsurance recoverables are netted against reserves and claim liabilities rather than reflected as an asset; (5) bonds held as available for sale are recorded at amortized cost or market value as determined by the NAIC rather than at fair value; (6) an Asset Valuation Reserve and Interest Maintenance Reserve as prescribed by the NAIC are not calculated under GAAP. Under GAAP, realized capital gains and losses are reported in the income statement on a pretax basis as incurred and investment valuation allowances are provided when there has been a decline in value deemed other than temporary; (7) investments in affiliates are carried at their net equity value with changes in value being recorded directly to unassigned deficit rather than consolidated in the financial statements; (8) no provision is made for the deferred income tax effects of temporary differences between book and tax basis reporting; and (9) certain items, including modifications to required policy reserves resulting from changes in actuarial assumptions, are recorded directly to unassigned deficit rather than being reflected in income. The effects of the foregoing variances from GAAP have not been determined but are presumed to be material. The significant accounting practices of the Company are as follows: Pending Statutory Standards During March 1998, the NAIC adopted codified statutory accounting principles ("Codification") effective January 1, 2001. Codification will likely change, to some extent, prescribed statutory accounting practices and may result in changes to the accounting practices that the Company uses to prepare its statutory-basis financial statements. Codification will require adoption by the various states before it becomes the prescribed statutory basis of accounting for insurance companies domesticated within those states. Accordingly, before Codification becomes effective for the Company, the Commonwealth of Massachusetts must adopt Codification as the prescribed basis of accounting on which domestic insurers must report their statutory-basis results to the Division 57 JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS--(CONTINUED) of Insurance. At this time, it is anticipated that the Commonwealth of Massachusetts will adopt Codification effective January 1, 2001. The impact of any such changes on the Company's unassigned deficit is not expected to be material. Revenues and Expenses Premium revenues are recognized over the premium-paying period of the policies whereas expenses, including the acquisition costs of new business, are charged to operations as incurred and policyholder dividends are provided as paid or accrued. Cash and Temporary Cash Investments Cash includes currency on hand and demand deposits with financial institutions. Temporary cash investments are short-term, highly-liquid investments both readily convertible to known amounts of cash and so near maturity that there is insignificant risk of changes in value because of changes in interest rates. Valuation of Assets General account investments are carried at amounts determined on the following bases: Bond and stock values are carried as prescribed by the NAIC; bonds generally at amortized amounts or cost, preferred stocks generally at cost and common stocks at fair value. The discount or premium on bonds is amortized using the interest method. Investments in affiliates are included on the statutory equity method. Loan-backed bonds and structured securities are valued at amortized cost using the interest method including anticipated prepayments. Prepayment assumptions are obtained from broker dealer surveys or internal estimates and are based on the current interest rate and economic environment. The retrospective adjustment method is used to value all such securities except for interest-only securities, which are valued using the prospective method. The net interest effect of interest rate and currency rate swap transactions is recorded as an adjustment of interest income as incurred. The initial cost of interest rate cap agreements is amortized to net investment income over the life of the related agreement. Gains and losses on financial futures contracts used as hedges against interest rate fluctuations are deferred and recognized in income over the period being hedged. Mortgage loans are carried at outstanding principal balance or amortized cost. Investment real estate is carried at depreciated cost, less encumbrances. Depreciation on investment real estate is recorded on a straight-line basis. Accumulated depreciation amounted to $1.9 million in 1999 and $3.0 million in 1998. Real estate acquired in satisfaction of debt and real estate held for sale are carried at the lower of cost or fair value. Policy loans are carried at outstanding principal balance, not in excess of policy cash surrender value. 58 JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS--(CONTINUED) Asset Valuation and Interest Maintenance Reserves The Asset Valuation Reserve (AVR) is computed in accordance with the prescribed NAIC formula and represents a provision for possible fluctuations in the value of bonds, equity securities, mortgage loans, real estate and other invested assets. Changes to the AVR are charged or credited directly to the unassigned deficit. The Company also records the NAIC prescribed Interest Maintenance Reserve (IMR) that represents that portion of the after tax net accumulated unamortized realized capital gains and losses on sales of fixed income securities, principally bonds and mortgage loans, attributable to changes in the general level of interest rates. Such gains and losses are deferred and amortized into income over the remaining expected lives of the investments sold. At December 31, 1999, the IMR, net of 1999 amortization of $2.3 million, amounted to $7.4 million, which is included in policy reserves. The corresponding 1998 amounts were $2.4 million and $10.7 million, respectively. Goodwill The excess of cost over the statutory book value of the net assets of life insurance business acquired was $8.9 million and $11.4 million at December 31, 1999 and 1998, respectively, and generally is amortized over a ten-year period using a straight-line method. Separate Accounts Separate account assets and liabilities reported in the accompanying statements of financial position represent funds that are separately administered, principally for variable life insurance policies, and for which the contractholder, rather than the Company, generally bears the investment risk. Separate account obligations are intended to be satisfied from separate account assets and not from assets of the general account. Separate accounts generally are reported at fair value. The operations of the separate accounts are not included in the statement of operations; however, income earned on amounts initially invested by the Company in the formation of new separate accounts is included in other income. Fair Value Disclosure of Financial Instruments Statement of Financial Accounting Standards (SFAS) No. 107, "Disclosure about Fair Value of Financial Instruments," requires disclosure of fair value information about certain financial instruments, whether or not recognized in the statement of financial position, for which it is practicable to estimate the value. In situations where quoted market prices are not available, fair values are based on estimates using present value or other valuation techniques. SFAS No. 107 excludes certain financial instruments and all nonfinancial instruments from its disclosure requirements. Therefore, the aggregate fair value amounts presented do not represent the underlying value of the Company. See Note 11. The methods and assumptions utilized by the Company in estimating its fair value disclosures for financial instruments are as follows: The carrying amounts reported in the statement of financial position for cash and temporary cash investments approximate their fair values. Fair values for public bonds are obtained from an independent pricing service. Fair values for private placement securities and publicly traded bonds not provided by the independent pricing service are estimated by the 59 JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS--(CONTINUED) Company by discounting expected future cash flows using current market rates applicable to the yield, credit quality and maturity of the investments. The fair values for common and preferred stocks, other than its subsidiary investments, which are carried at equity values, are based on quoted market prices. Fair values for futures contracts are based on quoted market prices. Fair values for interest rate swap, cap agreements, and currency swap agreements are based on current settlement values. The current settlement values are based on brokerage quotes that utilize pricing models or formulas using current assumptions. The fair value for mortgage loan is estimated using discounted cash flow analyses using interest rates adjusted to reflect the credit characteristics of the underlying loans. Mortgage loans with similar characteristics and credit risks are engaged into qualitative categories for purposes of the fair value calculations. The carrying amount in the statement of financial position for policy loans approximates their fair value. The fair value for outstanding commitments to purchase long-term bonds and issue real estate mortgages is estimated using a discounted cash flow method incorporating adjustments for the difference in the level of interest rates between the dates the commitments were made and December 31, 1999. Capital Gains and Losses Realized capital gains and losses are determined using the specific identification method. Realized capital gains and losses, net of taxes and amounts transferred to the IMR, are included in net gain or loss. Unrealized gains and losses, which consist of market value and book value adjustments, are shown as adjustments to the unassigned deficit. Policy Reserves Life reserves are developed by actuarial methods and are determined based on published tables using statutorily specified interest rates and valuation methods that will provide, in the aggregate, reserves that are greater than or equal to the minimum or guaranteed policy cash values or the amounts required by the Commonwealth of Massachusetts Division of Insurance. Reserves for variable life insurance policies are maintained principally on the modified preliminary term method using the 1958 and 1980 Commissioner's Standard Ordinary (CSO) mortality tables, with an assumed interest rate of 4% for policies issued prior to May 1, 1983 and 4 1/2% for policies issued on or thereafter. Reserves for single premium policies are determined by the net single premium method using the 1958 CSO mortality table, with an assumed interest rate of 4%. Reserves for universal life policies issued prior to 1985 are equal to the gross account value which at all times exceeds minimum statutory requirements. Reserves for universal life policies issued from 1985 through 1988 are maintained at the greater of the Commissioner's Reserve Valuation Method (CRVM) using the 1958 CSO mortality table, with 4 1/2% interest or the cash surrender value. Reserves for universal life policies issued after 1988 and for flexible variable policies are maintained using the greater of the cash surrender value or the CRVM method with the 1980 CSO mortality table and 5 1/2% interest for policies issued from 1988 through 1992; 5% interest for policies issued in 1993 and 1994; and 4 1/2% interest for policies issued in 1995 through 1999. Federal Income Taxes Federal income taxes are reported in the financial statements based on amounts determined to be payable as a result of operations within the current accounting period. The operations of the Company are consolidated with John Hancock in filing a consolidated federal income tax return basis for the affiliated group. The federal income 60 JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS--(CONTINUED) taxes of the Company are allocated on a separate return basis with certain adjustments. The Company made federal income tax payments of $10.6 million in 1999 and $38.2 million in 1998. Income before taxes differs from taxable income principally due to tax-exempt investment income, the limitation placed on the tax deductibility of policyholder dividends, accelerated depreciation, differences in policy reserves for tax return and financial statement purposes, capitalization of policy acquisition expenses for tax purposes and other adjustments prescribed by the Internal Revenue Code. Amounts for disputed tax issues relating to the prior years are charged or credited directly to policyholders' contingency reserve. Adjustments to Policy Reserves From time to time, the Company finds it appropriate to modify certain required policy reserves because of changes in actuarial assumptions. Reserve modifications resulting from such determinations are recorded directly to stockholder's equity. No such refinements were made during 1999 or 1998. Reinsurance Premiums, commissions, expense reimbursements, benefits and reserves related to reinsured business are accounted for on bases consistent with those used in accounting for the original policies issued and the terms of the reinsurance contracts. Premiums ceded to other companies have been reported as a reduction of premium income. Amounts applicable to reinsurance ceded for future policy benefits, unearned premium reserves and claim liabilities have been reported as reductions of these items. 2. ACQUISITION On June 23, 1993, the Company acquired all of the outstanding shares of stock of Colonial Penn Annuity and Life Insurance Company (CPAL) from Colonial Penn Life Insurance Company for an aggregate purchase price of approximately $42.5 million. At the date of acquisition, assets of CPAL were approximately $648.5 million, consisting principally of cash and temporary cash investments and liabilities were approximately $635.2 million, consisting principally of reserves related to a block of interest sensitive single-premium whole life insurance business assumed by CPAL from Charter National Life Insurance Company (Charter). The purchase price includes contingent payments of up to approximately $7.3 million payable between 1994 and 1998 based on the actual lapse experience of the business in force on June 23, 1993. The Company made the final contingent payment to CPAL of $1.5 million during 1998. 61 JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS--(CONTINUED) On June 24, 1993, the Company contributed $24.6 million in additional capital to CPAL. CPAL was renamed John Hancock Life Insurance Company of America (JHLICOA) on July 7, 1993. JHLICOA was subsequently renamed Investors Partner Life Insurance Company (IPL) on March 5, 1998. IPL manages the business assumed from Charter and began marketing term life and variable universal life products through brokers in 1999. Summarized financial information for IPL for 1999 and 1998 is as follows: 1999 1998 ------- ------- (IN MILLIONS) Total assets................................ $ 570.7 $ 587.8 Total liabilities........................... 498.9 517.5 Total revenue............................... 35.6 38.8 Net income.................................. 3.5 3.8 3. NET INVESTMENT INCOME Investment income has been reduced by the following amounts: 1999 1998 ------- ------- (IN MILLIONS) Investment expenses.............................. $ 9.5 $ 8.3 Interest expense................................. 1.7 2.4 Depreciation expense............................. 0.6 0.8 Investment taxes................................. 0.3 0.7 ------- ------- $ 12.1 $ 12.2 ======= ======= 62 JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS--(CONTINUED) 4. NET CAPITAL GAINS (LOSSES) AND OTHER ADJUSTMENTS Net realized capital gains (losses) consist of the following items: 1999 1998 ------ ------ (IN MILLIONS) Net gains from asset sales....................... $ (2.8) $ 7.6 Capital gains tax................................ 0.2 (2.9) Net capital gains transferred to IMR............. 0.9 (5.3) ------ ------ Net realized capital losses...................... $ (1.7) $ (0.6) ====== ====== Net unrealized capital gains (losses) and other adjustments consist of the following items: 1999 1998 ------ ------ (IN MILLIONS) Net losses from changes in security values and book value adjustments............................. $ (2.6) $ (2.7) Increase in asset valuation reserve................ (1.2) (3.3) ------ ------ Net unrealized capital losses and other adjustments....................................... $ (3.8) $ (6.0) ====== ====== 63 JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS--(continued) 5. Transactions with Parent The Company's Parent provides the Company with personnel, property and facilities in carrying out certain of its corporate functions. The Parent annually determines a fee for these services and facilities based on a number of criteria which were revised in 1999 and 1998 to reflect continuing changes in the Company's operations. The amount of the service fee charged to the Company was $188.3 million and $157.5 million in 1999 and 1998, respectively, which has been included in insurance and investment expenses. The Parent has guaranteed that, if necessary, it will make additional capital contributions to prevent the Company's stockholder's equity from declining below $1.0 million. The service fee charged to the Company by the Parent includes $0.2 million and $0.7 million in 1999 and 1998, respectively, representing the portion of the provision for retiree benefit plans determined under the accrual method, including a provision for the 1993 transition liability which is being amortized over twenty years, that was allocated to the Company. The Company has a modified coinsurance agreement with John Hancock to reinsure 50% of 1994 through 1999 issues of flexible premium variable life insurance and scheduled premium variable life insurance policies. In connection with this agreement, John Hancock transferred $44.5 million and $4.9 million of cash for tax, commission, and expense allowances to the Company, which increased the Company's net gain from operations by $20.6 million and $22.2 million in 1999 and 1998, respectively. Effective January 1, 1996, the Company entered into a modified coinsurance agreement with John Hancock to reinsure 50% of the 1995 inforce block and 50% of 1996 and all future issue years of certain variable annuity contracts (Independence Preferred, Declaration, Independence 2000, MarketPlace, and Revolution). In connection with this agreement, the Company received a net cash payment of $40.0 million and $12.7 million in 1999 and 1998, respectively, for surrender benefits, tax, reserve increase, commission, expense allowances and premium, This agreement increased the Company's net gain from operations by $26.9 million and $8.4 million in 1999 and 1998, respectively. Effective January 1, 1997, the Company entered into a stop-loss agreement with John Hancock to reinsure mortality claims in excess of 110% of expected mortality claims in 1999 and 1998 for all policies that are not reinsured under any other indemnity agreement. In connection with the agreement, John Hancock received $0.8 million and 1.0 million in 1999 and 1998, respectively, for mortality claims to the Company. This agreement decreased the Company's net gain from operations in both 1999 and 1998 by $0.5 million. At December 31, 1998 the Company had outstanding a short-term note of $61.9 million payable to an affiliate at a variable rate of interest. The note was part of a revolving line of credit and was repaid in 1999. Interest paid in 1999 and 1998 was $1.7 million and $2.9 million, respectively. The note is included in other general account obligations at December 31, 1998. 64 JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS--(continued) 6. Investments The statement value and fair value of bonds are shown below:
Gross Unrealized Gross Unrealized Statement Value Gains Losses Fair Value --------------- ------------------ -------------------- ---------- (In Millions) December 31, 1999 U.S. Treasury securities and obligations of U.S. government corporations and agencies.............. $ 5.9 $ 0.0 $ 0.1 $ 5.8 Obligations of states and political subdivisions.... 2.2 0.1 0.1 2.2 Debit securities issued by foreign governments...... 13.9 0.8 0.1 14.6 Corporate securities................................ 964.4 13.0 59.4 918.5 Mortgage-backed securities.......................... 299.4 0.5 7.8 222.1 -------- ----- ------ -------- Total bonds......................................... $1,216.3 $14.4 $ 67.5 $1,163.2 ======== ===== ====== ======== December 31, 1998 U.S. Treasury securities and obligations of U.S. government corporations and agencies.............. $ 5.1 $ 0.1 $ 0.0 $ 5.2 Obligations of states and political subdivisions.... 3.2 0.3 0.0 3.5 Corporate securities................................ 925.2 50.4 15.0 960.6 Mortgage-backed securities.......................... 252.3 10.0 0.1 262.2 -------- ----- ------ -------- Total bonds......................................... $1,185.8 $60.8 $ 15.1 $1,231.5 ======== ===== ====== ========
65 JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS--(CONTINUED) The statement value and fair value of bonds at December 31, 1999, by contractual maturity, are shown below. Maturities will differ from contractual maturities because eligible borrowers may exercise their right to call or prepay obligations with or without call or prepayment penalties.
STATEMENT FAIR VALUE VALUE -------- --------- (IN MILLIONS) Due in one year or less .......................... $ 58.5 58.2 Due after one year through five years ............ 286.8 282.0 Due after five years through ten years ........... 425.4 405.6 Due after ten years .............................. 216.2 195.3 -------- --------- 986.9 941.1 Mortgage-backed securities ....................... 229.4 222.1 -------- -------- $1,216.3 $1,163.2 ======== ========
Gross gains of $0.3 million in 1999 and $3.4 million in 1998 and gross losses of $4.0 million in 1999 and $0.7 million in 1998 were realized from the sale of bonds. At December 31, 1999, bonds with an admitted asset value of $9.1 million were on deposit with state insurance departments to satisfy regulatory requirements. The cost of common stocks was $3.1 million and $2.1 million at December 31, 1999 and 1998, respectively. At December 31, 1999, gross unrealized appreciation on common stocks totaled $1.2 million, and gross unrealized depreciation totaled $1.1 million. The fair value of preferred stock totaled $35.9 million at December 31, 1999 and $36.5 million at December 31, 1998. Bonds with amortized cost of $0.4 million were non-income producing for the twelve months ended December 31, 1999. At December 31, 1999, the mortgage loan portfolio was diversified by geographic region and specific collateral property type as displayed below. The Company controls credit risk through credit approvals, limits and monitoring procedures. 66 JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS--(CONTINUED) STATEMENT STATEMENT VALUE GEOGRAPHIC VALUE PROPERTY TYPE (IN MILLIONS) CONCENTRATION (IN MILLIONS) Apartments .............. $112.1 East North Central $ 71.3 Hotels .................. 11.3 East South Central 7.4 Industrial .............. 66.0 Middle Atlantic 28.5 Office buildings ........ 86.4 Mountain 21.0 Retail .................. 25.5 New England 37.5 Agricultural ............ 99.6 Pacific 111.1 Other ................... 32.2 South Atlantic 87.6 West North Central 16.6 West South Central 48.6 Other 3.5 ------ ------- $433.1 $ 433.1 ====== ======= At December 31, 1999, the fair values of the commercial and agricultural mortgage loans portfolios were $323.5 million and $98.2 million, respectively. The corresponding amounts as of December 31, 1998 were approximately $331.3 million and $70.0 million, respectively. The maximum and minimum lending rates for mortgage loans during 1999 were 14.24% and 6.84% for agricultural loans, 7.45% and 7.00% for other properties. Generally, the maximum percentage of any loan to the value of security at the time of the loan, exclusive of insured, guaranteed or purchase money mortgages, is 75%. For city mortgages, fire insurance is carried on all commercial and residential properties at least equal to the excess of the loan over the maximum loan which would be permitted by law on the land without the building, except as permitted by regulations of the Federal Housing Commission on loans fully insured under the provisions of the National Housing Act. For agricultural mortgage loans, fire insurance is not normally required on land based loans except in those instances where a building is critical to the farming operation. Fire insurance is required on all agri-business facilities in an aggregate amount equal to the loan balance. 67 JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS--(CONTINUED) 7. REINSURANCE The Company cedes business to reinsurers to share risks under variable life, universal life and flexible variable life insurance policies for the purpose of reducing exposure to large losses. Premiums, benefits and reserves ceded to reinsurers in 1999 were $594.9 million, $132.8 million, and $13.6 million, respectively. The corresponding amounts in 1998 were $590.2 million, $63.2 million, and $8.2 million, respectively. Reinsurance ceded contracts do not relieve the Company from its obligations to policyholders. The Company remains liable to its policyholders for the portion reinsured to the extent that any reinsurer does not meet its obligations for reinsurance ceded to it under the reinsurance agreements. Failure of the reinsurers to honor their obligations could result in losses to the Company; consequently, estimates are established for amounts deemed or estimated to be uncollectible. To minimize its exposure to significant losses from reinsurance insolvencies, the Company evaluates the financial condition of its reinsurers and monitors concentration of credit risk arising from similar characteristics of the reinsurer. Neither the Company, nor any of its related parties, control, either directly or indirectly, any external reinsurers with which the Company conducts business. No policies issued by the Company have been reinsured with a foreign company which is controlled, either directly or indirectly, by a party not primarily engaged in the business of insurance. The Company has not entered into any reinsurance agreement in which the reinsurer may unilaterally cancel any reinsurance for reasons other than nonpayment of premiums or other similar credits. The Company does not have any reinsurance agreements in effect in which the amount of losses paid or accrued through December 31, 1999 would result in a payment to the reinsurer of amounts which, in the aggregate and allowing for offset of mutual credits from other reinsurance agreements with the same reinsurer, exceed the total direct premiums collected under the reinsured policies. 8. FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK The notional amounts, carrying values and estimated fail values of the Company's derivative instruments were as follows at December 31:
ASSETS (LIABILITIES) NUMBER OF CONTRACTS/ ------------------------------------------------- NOTIONAL AMOUNTS 1999 1998 CARRYING CARRYING 1999 1998 VALUE FAIR VALUE VALUE FAIR VALUE ------ ------ -------- -------- ---------- (IN MILLIONS) Futures contracts to sell securities 362.0 947.0 $0.6 $ 0.6 $(0.5) $ (0.5) Interest rate swap agreements $965.0 $365.0 -- 11.5 -- (17.7) Interest rate cap agreements 239.4 89.4 5.6 5.6 3.1 3.1 Currency rate swap agreements 15.8 15.8 -- (1.6) -- (3.3)
68 JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS--(CONTINUED) The Company uses futures contracts, interest rate swap, cap agreements, and currency rate swap agreements for other than trading purposes to hedge and manage its exposure to changes in interest rate levels, foreign exchange rate fluctuations and to manage duration mismatch of assets and liabilities. The futures contracts expire in 2000. The interest rate swap agreements expire in 2000 to 2011. The interest rate cap agreements expire in 2006 to 2008. The currency rate swap agreements expire in 2006 to 2009. The Company's exposure to credit risk is the risk of loss from a counterparty failing to perform to the terms of the contract. The Company continually monitors its position and the credit ratings of the counterparties to these derivative instruments. To limit exposure associated with counterparty nonperformance on interest rate and currency swap agreements, the Company enters into master netting agreements with its counterparties. The Company believes the risk of incurring losses due to nonperformance by its counterparties is remote and that such losses, if any, would be immaterial. Futures contracts trade on organized exchanges and, therefore, have minimal credit risk. 9. POLICY RESERVES POLICYHOLDERS' AND BENIFICIARIES' FUNDS AND OBLIGATIONS RELATED TO SEPARATE ACCOUNTS The Company' annuity reserves and deposit fund liabilities that are subject to discretionary withdrawal, with and without adjustment, are summarized as follows. DECEMBER 31, 1999 PERCENT ----------------- ------- (IN MILLIONS) Subject to discretionary withdrawal (with adjustment) With market value adjustment .................. $3.8 0.1% At book value less surrender charge ........... 40.5 1.5 At market value ............................... 2,326.6 87.1 --------- ------ Total with adjustment .................... 2,370.9 88.7 Subject to discretionary withdrawal at book value (without adjustment) ......... 287.1 10.7 Not subject to discretionary withdrawal--general account ................ 15.4 0.6 --------- ------ Total annuity reserves and deposit liabilities ................................. $ 2,673.4 100.0% 69 JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS--(CONTINUED) 10. COMMITMENTS AND CONTINGENCIES The Company has extended commitments to purchase long-term bonds and issue real estate mortgages totaling $15.4 million and $3.5 million, respectively, at December 31, 1999. The Company monitors the creditworthiness of borrowers under long-term bonds commitments and requires collateral as deemed necessary. If funded, loans related to real estate mortgages would be fully collateralized by the related properties. The estimated fair value of the commitments described above is $19.4 million at December 31, 1999. The majority of these commitments expire in 2000. In the normal course of its business operations, the Company is involved with litigation from time to time with claimants, beneficiaries and others, and a number of litigation matters were pending as of December 31, 1999. It is the opinion of management, after consultation with counsel, that the ultimate liability with respect to these claims, if any, will not materially affect the financial position or results of operations of the Company. During 1997, John Hancock entered into a court-approved settlement relating to a class action lawsuit involving certain individual life insurance policies sold from 1979 through 1996. In entering into the settlement, John Hancock specifically denied any wrongdoing. During 1999, the Company recorded a $194.9 million reserve, through a direct charge to its unassigned deficit, representing the Company's share of the settlement and John Hancock contributed $194.9 million of capital to the Company. The reserve held at December 31, 1999 amounted to $136.5 million and is based on a number of factors, including the estimated number of claims, the expected type of relief to be sought by class members (general relief or alternative dispute resolution), the estimated cost per claim and the estimated costs to administer the claims. Given the uncertainties associated with estimating the reserve, it is reasonably possible that the final cost of the settlement could differ materially from the amounts presently provided for by the Company. John Hancock and the Company will continue to update their estimate of the final cost of the settlement as claims are processed and more specific information is developed, particularly as the actual cost of the claims subject to alternative dispute resolution becomes available. However, based on information available at this time, and the uncertainties associated with the final claim processing and alternative dispute resolution, the range of any additional costs related to the settlement cannot be reasonably estimated. If the Company's share of the settlement increases, John Hancock will contribute additional capital to the Company so that the Company's total stockholder's equity would not be impacted. 70 JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS--(CONTINUED) 11. FAIR VALUE OF FINANCIAL INSTRUMENTS The following table presents the carrying amounts and fair values of the Company's financial instruments: DECEMBER 31, 1999 1998 ------------------- --------------------- CARRYING FAIR CARRYING FAIR AMOUNT VALUE AMOUNT VALUE -------- ------ -------- ----- (IN MILLIONS) ASSETS Bonds--Note 6 $1,216.3 $1,163.2 $1,185.8 $1,231.5 Preferred stocks--Note 6 35.9 35.9 36.5 36.5 Common stocks--Note 6 3.2 3.2 3.1 3.1 Mortgage loans on real estate--Note 6 433.1 421.7 388.1 401.3 Policy loans--Note 1 172.1 172.1 137.7 137.7 Cash items--Note 1 250.1 250.1 19.9 19.9 Derivatives assets (liabilities) relating to: --Note 8 Futures contracts 0.6 0.6 (0.5) (0.5) Interest rate swaps -- 11.5 -- (17.7) Currency rate swaps -- (1.6) -- (3.3) Interest rate caps 5.6 5.6 3.1 3.1 LIABILITIES Commitments--Note 10 -- 19.4 -- 32.1 The carrying amounts in the table are included in the statutory-basis statements of financial position. The method and assumptions utilized by the Company in estimating its fair value disclosures are described in Note 1. 12. SUBSEQUENT EVENTS REORGANIZATION AND INITIAL PUBLIC OFFERING Pursuant to a Plan of Reorganization approved by the policyholders of John Hancock and the Commonwealth of Massachusetts Division of Insurance, effective February 1, 2000, John Hancock converted from a mutual life insurance company to a stock life insurance company (i.e., demutualized) and became a wholly owned subsidiary of John Hancock Financial Services, Inc., which is a holding company. In connection with the reorganization, John Hancock changed its name to John Hancock Life Insurance Company. In addition, on February 1, 2000, John Hancock Financial Services, Inc. completed its initial public offering and 102 million shares of common stock were issued at an initial public offering price of $17 per share. 71 JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY NOTES TO STATUTORY-BASIS FINANCIAL STATEMENT--(CONTINUED) 13. IMPACT OF YEAR 2000 (UNAUDITED) The Company participated in the Year 2000 remediation project of its parent, John Hancock. By late 1999, John Hancock and the Company completed their Year 2000 readiness plan to address issues that could result from computer programs written using two digits to define the applicable year rather than four to define the applicable year and century. As a result, John Hancock and the Company were prepared for the transition to the Year 2000 and did not experience any significant Year 2000 problems with respect to mission critical information technology ("IT") or non-IT systems, applications or infrastructure. During the date rollover to the year 2000, John Hancock and the Company implemented and monitored their millennium rollover plan and conducted business as usual on Monday, January 3, 2000. Since January 3, 2000, the information systems, including mission critical systems, which in the event of a Year 2000 failure would have the greatest impact on operations, have functioned properly. In addition, neither John Hancock nor the Company have experienced any significant Year 2000 issues related to interactions with material business partners. No disruptions have occurred which impact John Hancock or the Company's ability to process claims, update customer accounts, process financial transactions, or report accurate data to management and no business interruptions due to Year 2000 issues have been experienced. While John Hancock and the Company continue to monitor their systems, and those of material business partners, closely to ensure that no unexpected Year 2000 issues develop, neither John Hancock nor the Company have reason to expect any such issues. The costs of the Year 2000 project consist of internal IT personnel and external costs such as consultants, programmers, replacement software, and hardware. The costs of the Year 2000 project are expensed as incurred. The project is funded partially through a reallocation of resources from discretionary projects. Through December 31, 1999, John Hancock has incurred and expensed approximately $20.8 million in related payroll costs for internal IT personnel on the project. The estimated remaining IT personnel costs of the project are approximately $1.0 million. Through December 31, 1999, John Hancock has incurred and expensed approximately $47.0 million in external costs for the project. John Hancock's estimated remaining external cost of the project is approximately $2.0 million. The total costs of the Year 2000 project to John Hancock, based on management's best estimates, include approximately $21.7 million in internal IT personnel, $14.6 million in the external modification of software, $18.3 million for external solution providers, $9.1 million in replacement costs of non-compliant IT systems and $6.9 million in oversight, test facilities and other expenses. Accordingly, the estimated range of total costs of the Year 2000 project to John Hancock, internal and external, is approximately $70 to $72.5 million. John Hancock's total Year 2000 project costs include the estimated impact of external solution providers based on presently available information. 72 UNAUDITED FINANCIAL STATEMENTS FOR JOHN HANCOCK VARIABLE LIFE ACCOUNT U THIRD QUARTER 2000 73 JOHN HANCOCK VARIABLE LIFE ACCOUNT U STATEMENT OF ASSETS AND LIABILITIES (UNAUDITED) SEPTEMBER 30, 2000
ACTIVE BOND INTERNATIONAL LARGE CAP SUBACCOUNT EQUITY SMALL CAP GROWTH (FORMERLY INDEX GROWTH SUBACCOUNT ACTIVE BOARD) SUBACCOUNT SUBACCOUNT ------------ ------------- ------------- ------------- ASSETS Cash ............... $ -- $ -- $ -- $ -- Investments in shares of portfolios of John Hancock Variable Series Trust I, at value .. 169,201,606 239,694,443 28,083,661 15,567,067 Investments in shares of portfolios of M Fund Inc., at value .............. -- -- -- -- Policy loans and accrued interest receivable ......... 24,055,883 58,671,334 3,001,563 -- Receivable from: John Hancock Variable Series Trust I ............ -- 1,368,970 32,120 -- M Fund Inc. ........ -- -- -- -- ------------ ------------ ----------- ----------- Total assets ........ 193,257,489 299,734,747 31,117,344 15,567,067 LIABILITIES Payable to: John Hancock Variable Life Insurance Company ........... -- -- -- -- M Fund Inc. ........ -- -- -- -- Asset charges payable ............ 2,954 4,543 476 251 ------------ ------------ ----------- ----------- Total liabilities ... 2,954 4,543 476 251 ------------ ------------ ----------- ----------- Net assets .......... $193,254,535 $299,730,204 $31,116,868 $15,566,816 ============ ============ =========== ===========
GLOBAL BALANCED SUBACCOUNT MID CAP LARGE CAP MONEY (FORMERLY GROWTH VALUE MARKET INT'L BALANCED) SUBACCOUNT SUBACCOUNT SUBACCOUNT --------------- ----------- ------------ ------------- ASSETS Cash ................. $ -- $ -- -- $ -- Investments in shares of portfolios of John Hancock Variable Series Trust I, at value ............... 1,000,737 26,427,867 12,189,522 62,437,394 Investments in shares of portfolios of M Fund Inc., at value ............... -- -- -- -- Policy loans and accrued interest receivable .......... -- -- -- 13,980,926 Receivable from: John Hancock Variable Series Trust I ....... 1,718 -- 14,337 32,883 M Fund Inc. ........... -- -- -- -- ---------- ----------- ------------ ----------- Total assets ........... 1,002,455 26,427,867 12,203,859 76,451,203 LIABILITIES Payable to: John Hancock Variable Life Insurance Company .............. -- -- -- -- M Fund Inc. ........... -- -- -- -- Asset charges payable .. 17 429 198 3,465 ---------- ----------- ------------ ----------- Total liabilities ...... 17 429 198 3,465 ---------- ----------- ------------ ----------- Net assets ............. $1,002,438 $26,427,438 $12,203,661 $76,447,738 ========== =========== ============ ===========
See accompanying notes. 74 JOHN HANCOCK VARIABLE LIFE ACCOUNT U STATEMENT OF ASSETS AND LIABILITIES (UNAUDITED) (CONTINUED) SEPTEMBER 30, 2000
SMALL/MID CAP GROWTH MID CAP SUBACCOUNT REAL ESTATE GROWTH & VALUE (FORMERLY EQUITY INCOME SUBACCOUNT DIVERSIFIED) SUBACCOUNT SUBACCOUNT -------------- ------------ ------------ -------------- ASSETS Cash ...................................................... $ -- $ -- $ -- $ -- Investments in shares of portfolios of John Hancock Variable Series Trust I, at value ........................ 7,184,523 13,434,978 14,125,819 1,023,259,688 Investments in shares of portfolios of M Fund Inc., at value ................................................. -- -- -- -- Policy loans and accrued interest receivable .............. -- -- 2,176,747 196,547,234 Receivable from: John Hancock Variable Series Trust I ..................... 2,048 -- 123,872 655,013 M Fund Inc. .............................................. -- -- -- -- ------------- ----------- ----------- -------------- Total assets .............................................. 7,186,571 13,434,978 16,426,438 1,220,461,935 LIABILITIES Payable to: John Hancock Variable Life Insurance Company ............. -- -- -- -- M Fund Inc. .............................................. -- -- -- -- Asset charges payable ..................................... 117 220 254 18,435 ------------- ----------- ----------- -------------- Total liabilities ......................................... 117 220 254 18,435 ------------- ----------- ----------- -------------- Net assets ................................................ $ 7,186,454 $13,434,758 $16,426,184 $1,220,443,500 ============= =========== =========== ============== SMALL CAP EQUITY SUBACCOUNT SHORT-TERM (FORMERLY INTERNATIONAL MANAGED BOND SMALL CAP OPPORTUNITIES SUBACCOUNT SUBACCOUNT VALUE) SUBACCOUNT -------------- ------------ ----------- -------------- ASSETS Cash ...................................................... $ -- $ -- $ -- $ -- Investments in shares of portfolios of John Hancock Variable Series Trust I, at value ........................ 410,996,305 1,088,934 5,404,005 5,917,002 Investments in shares of portfolios of Fund Inc., at value ................................................. -- -- -- -- Policy loans and accrued interest receivable .............. 80,493,435 -- -- -- Receivable from: John Hancock Variable Series Trust I ..................... 913,067 5,276 6,002 -- M Fund Inc. .............................................. -- -- -- -- ------------- ----------- ----------- -------------- Total assets .............................................. 492,402,807 1,094,210 5,410,007 5,917,002 LIABILITIES Payable to: John Hancock Variable Life Insurance Company ............. -- -- -- -- M Fund Inc. .............................................. -- -- -- -- Asset charges payable ..................................... 7,429 18 88 96 ------------- ----------- ----------- -------------- Total liabilities ......................................... 7,429 18 88 96 ------------- ----------- ----------- -------------- Net assets ................................................ $ 492,395,378 $ 1,094,192 $ 5,409,919 $ 5,916,906 ============= =========== =========== ==============
See accompanying notes 75 JOHN HANCOCK VARIABLE LIFE ACCOUNT U STATEMENT OF ASSETS AND LIABILITIES (UNAUDITED) (CONTINUED) SEPTEMBER 30, 2000
TURNER BRANDES EQUITY GLOBAL CORE INTERNATIONAL INDEX BOND GROWTH EQUITY SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT ----------- ---------- ---------- --------------- ASSETS Cash .................................................. $ -- $ -- $ -- $ -- Investments in shares of portfolios of John Hancock Variable Series Trust I, at value .................... 26,993,113 1,727,454 -- -- Investments in shares of portfolios of M Fund Inc., at value ............................................. -- -- 480,459 653,092 Policy loans and accrued interest receivable .......... -- -- -- -- Receivable from: John Hancock Variable Series Trust I ................. 18,457 6,156 -- -- M Fund Inc. .......................................... -- -- -- -- ----------- ---------- -------- -------- Total assets .......................................... 27,011,570 1,733,610 480,459 653,092 LIABILITIES Payable to: John Hancock Variable Life Insurance Company ....... -- -- -- -- M Fund Inc. ........................................ -- -- -- -- Asset charges payable ................................. 445 27 8 10 ----------- ---------- -------- -------- Total liabilities ..................................... 445 27 8 10 ----------- ---------- -------- -------- Net assets ............................................ $27,011,125 $1,733,583 $480,451 $653,082 =========== ========== ======== ======== INTERNATIONAL OPPORTUNITIES FRONTIER EMERGING II CAPITAL MARKETS SUBACCOUNT BOND APPRECIATION EQUITY (FORMERLY INDEX SUBACCOUNT SUBACCOUNT GLOBAL EQUITY) SUBACCOUNT ------------ ---------- -------------- ------------ ASSETS Cash .................................................. $ -- $ -- $ -- $ -- Investments in shares of portfolios of John Hancock Variable Series Trust I, at value .................... -- 1,189,041 286,802 823,747 Investments in shares of portfolios of M Fund Inc., at value ............................................. 1,016,030 -- -- -- Policy loans and accrued interest receivable ......... -- -- -- -- Receivable from: John Hancock Variable Series Trust I ................. -- -- -- 4,641 M Fund Inc. .......................................... -- -- -- -- ----------- ---------- -------- -------- Total assets .......................................... 1,016,030 1,189,041 286,802 828,388 LIABILITIES Payable to: John Hancock Variable Life Insurance Company ......... -- -- -- -- M Fund Inc. .......................................... -- -- -- -- Asset charges payable ................................. 15 19 5 13 ----------- ---------- -------- -------- Total liabilities ..................................... 15 19 5 13 ----------- ---------- -------- -------- Net assets ............................................ $ 1,016,015 $1,189,022 $286,797 $828,375 =========== ========== ======== ========
See accompanying notes. 76 JOHN HANCOCK VARIABLE LIFE ACCOUNT U STATEMENT OF ASSETS AND LIABILITIES (UNAUDITED) (CONTINUED) SEPTEMBER 30, 2000
HIGH CLIFTON SMALL/MID YIELD ENHANCED CAP CORE BOND U.S. EQUITY AIM V.I. VALUE SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT ---------- ---------- ----------- ---------------- ASSETS Cash ...................... $ -- $ -- $ -- $ -- Investments in shares of portfolios of John Hancock Variable Series Trust I, at value ........ 295,159 318,260 -- -- Investments in shares of portfolios of M Fund Inc., at value ........... -- -- 17,533 9 Policy loans and accrued interest receivable ...... -- -- -- -- Receivable from: John Hancock Variable Series Trust I .......... 191 2,455 -- -- M Fund Inc. .............. -- -- -- -- -------- -------- ------- ------ Total assets .............. 295,350 320,715 17,533 9 LIABILITIES Payable to: John Hancock Variable Life Insurance Company... -- -- -- -- M Fund Inc. .............. -- -- -- -- Asset charges payable ..... 4 5 -- -- -------- -------- ------- ------ Total liabilities ......... 4 5 -- -- -------- -------- ------- ------ Net assets ................ $295,346 $320,710 $17,533 $ 9 ======== ======== ======= ======
JANUS ASPEN JANUS ASPEN FIDELITY VIP GLOBAL WORLDWIDE GROWTH FIDELITY TECH GR. SUBACCOUNT CONTRAFUND SUBACCOUNT SUBACCOUNT ------------ ---------- ----------- ------------- ASSETS Cash ...................... $ -- $ -- $ -- $ -- Investments in shares of portfolios of John Hancock Variable Series Trust I, at value ........ -- -- -- -- Investments in shares of portfolios of M Fund Inc., at value ........... 6 -- 5,155 5,110 Policy loans and accrued interest receivable ...... -- -- -- -- Receivable from: John Hancock Variable Series Trust I .......... -- -- -- -- M Fund Inc. .............. -- -- -- -- -------- -------- ------- ------ Total assets .............. 6 -- 5,155 5,110 LIABILITIES Payable to: John Hancock Variable Life Insurance Company... -- -- -- -- M Fund Inc. .............. -- -- -- -- Asset charges payable ..... -- -- -- -- -- -- -- -- Total liabilities ......... -- -- -- -- -------- -------- ------- ------ -- -- -- -- -------- -------- ------- ------ Net assets ................ $ 6 $ -- $ 5,155 $5,110 ======== ======== ======= ======
See accompanying notes. 77 JOHN HANCOCK VARIABLE LIFE ACCOUNT U STATEMENT OF ASSETS AND LIABILITIES (UNAUDITED) (CONTINUED) SEPTEMBER 30, 2000
MFS NEW DISCOVERY FUNDAMENTAL SEARCH MID CAP CORE SERIES GROWTH BOND SUBACCOUNT SUBACCOUNT SUBACCOUNT ---------- ----------- ------------ ASSETS Cash .................................. $ -- $ -- $ -- Investments in shares of portfolios of John Hancock Variable Series Trust I, at value ............................. -- -- -- Investments in shares of portfolios of M Fund Inc., at value ................ 7,850 -- -- Policy Loans and accrued interest receivable ........................... -- -- -- Receivable from: John Hancock Variable Series Trust I . -- -- -- M Fund Inc. .......................... -- -- -- ------ ---- ---- Total assets .......................... 7,850 -- -- LIABILITIES Payable to: John Hancock Variable Life Insurance Company ............................. -- -- -- M Fund Inc. .......................... -- -- -- Asset charges payable ................. -- -- -- ------ ---- ---- Total liabilities ..................... -- -- -- ------ ---- ---- Net assets ............................ $7,850 $ -- $ -- ====== ==== ====
AMERICAN LEADERS LARGE CAP LARGE CAP AGGRESSIVE TEMPLETON VALUE GROWTH INTERNATIONAL SUBACCOUNT SUBACCOUNT SUBACCOUNT ---------- ---------- ------------- ASSETS Cash .................................. $ -- $ -- $ -- Investments in shares of portfolios of John Hancock Variable Series Trust I, at value ............................. -- -- -- Investments in shares of portfolios of M Fund Inc., at value ................ -- -- -- Policy Loans and accrued interest receivable ........................... Receivable from:...................... -- -- -- John Hancock Variable Series Trust I . -- -- -- M Fund Inc. .......................... -- -- -- ------ ---- ---- Total assets .......................... -- -- -- LIABILITIES Payable to: John Hancock Variable Life Insurance Company ............................. -- -- -- M Fund Inc. .......................... -- -- -- Asset charges payable ................. -- -- -- ------ ---- ---- Total liabilities ..................... -- -- -- ------ ---- ---- Net assets ............................ $ -- $ -- $ -- ====== ==== ====
See accompanying notes. 78 JOHN HANCOCK MUTUAL VARIABLE LIFE INSURANCE ACCOUNT U STATEMENTS OF OPERATIONS (UNAUDITED) YEARS AND PERIODS ENDED SEPTEMBER 30,
ACTIVE BOND SUBACCOUNT LARGE CAP GROWTH SUBACCOUNT (FORMERLY, SOVEREIGN BOND) ---------------------------------------- ---------------------------------------- 2000 1999 1998 2000 1999 1998 ------------ ------------ ------------ ------------ ------------ ------------ Investment income: Distributions received from: John Hancock Variable Series Trust I .... $ 233,658 $ 24,007,195 $ 11,641,271 $ 11,435,390 $ 17,792,726 $ 19,685,096 M Fund Inc. ............................. -- -- -- -- -- -- Interest income on policy loans ......... 1,166,645 1,211,333 1,008,607 3,206,774 4,084,783 4,027,376 ------------ ------------ ------------ ------------ ------------ ------------ Total investment income .................. 1,400,303 25,218,528 12,649,878 14,642,164 21,877,509 23,712,472 Expenses: Mortality and expense risks ............. 779,068 828,714 624,665 1,215,761 1,643,861 1,642,615 ------------ ------------ ------------ ------------ ------------ ------------ Net investment income (loss) ............. 621,235 24,389,814 12,025,213 13,426,403 20,233,648 22,087,857 Net realized and unrealized gain (loss) on investments: Net realized gain (loss) ................ 3,814,060 4,239,424 3,520,199 3,376 192,098 1,600,539 Net unrealized appreciation (depreciation) during the period ....... (3,423,088) 1,727,703 18,509,310 3,156,858 (20,304,536) (2,317,324) ------------ ------------ ------------ ------------ ------------ ------------ Net realized and unrealized gain (loss) on investments .......................... 390,972 5,967,127 22,029,509 3,160,234 (20,112,438) (716,785) ------------ ------------ ------------ ------------ ------------ ------------ Net increase (decrease) in net assets resulting from operations ............... $ 1,012,207 $ 30,356,941 $ 34,054,722 $ 16,586,637 $ (121,210) $ 21,371,072 ============ ============ ============ ============ ============ ============ INTERNATIONAL EQUITY INDEX SUBACCOUNT SMALL CAP GROWTH SUBACCOUNT ---------------------------------------- ---------------------------------------- 2000 1999 1998 2000 1999 1998 ------------ ------------ ------------ ------------ ------------ ------------ Investment income: Distributions received from: John Hancock Variable Series Trust I .... $ 339,916 $ 917,904 $ 3,394,842 $ 0 $ 1,272,230 $ -- M Fund Inc. ............................. -- -- -- -- -- -- Interest income on policy loans ......... 163,489 179,345 170,285 -- -- -- ------------ ------------ ------------ ------------ ------------ ------------ Total investment income .................. 503,405 1,097,249 3,565,127 0 1,272,230 -- Expenses: Mortality and expense risks ............. 137,485 147,126 124,891 62,665 37,386 20,335 ------------ ------------ ------------ ------------ ------------ ------------ Net investment income (loss) ............. 365,920 950,123 3,440,236 (62,665) 1,234,844 (20,335) Net realized and unrealized gain (loss) on investments: Net realized gain (loss) ................ 944,473 168,248 148,419 1,987,667 491,241 55,393 Net unrealized appreciation (depreciation) during the period ....... (5,382,322) 5,712,567 105,161 (2,061,321) 2,317,857 518,731 ------------ ------------ ------------ ------------ ------------ ------------ Net realized and unrealized gain (loss) on investments .......................... (4,437,849) 5,880,815 253,580 (73,654) 2,809,098 574,124 ------------ ------------ ------------ ------------ ------------ ------------ Net increase (decrease) in net assets resulting from operations ............... $ (4,071,929) $ 6,830,938 $ 3,693,816 $ (136,319) $ 4,043,942 $ 553,789 ============ ============ ============ ============ ============ ============
See accompanying notes. 79 JOHN HANCOCK MUTUAL VARIABLE LIFE INSURANCE ACCOUNT U STATEMENTS OF OPERATIONS (UNAUDITED) (CONTINUED) YEARS AND PERIODS ENDED SEPTEMBER 30,
GLOBAL BALANCED SUBACCOUNT (FORMERLY, INTERNATIONAL BALANCED) MID CAP GROWTH SUBACCOUNT ----------------------------------- -------------------------------------- 2000 1999 1998 2000 1999 1998 ---------- ---------- ----------- ------------ ---------- ------------ Investment income: Distributions received from: John Hancock Variable Series Trust I ..... $ 19,234 $ 99,184 $ 57,587 $ -- $2,117,559 $ 461,919 M Fund Inc. ......... -- -- -- -- -- -- Interest income on policy loans ....... -- -- -- -- -- -- --------- --------- ---------- ----------- ---------- ---------- Total investment income .............. 19,234 99,184 57,587 -- 2,117,559 461,919 Expenses: Mortality and expense risks .............. 4,458 6,368 4,696 114,567 58,898 16,758 --------- --------- ---------- ----------- ---------- ---------- Net investment income (loss) .............. 14,776 92,816 52,891 (114,567) 2,058,661 445,161 Net realized and unrealized gain (loss) on investments: Net realized gain ... (8,764) 4,711 (4,506) 2,185,984 773,222 73,958 Net unrealized appreciation (depreciation) during the period .. (91,173) (38,997) 78,455 (5,360,691) 6,801,000 647,137 --------- --------- ---------- ----------- ---------- ---------- Net realized and unrealized gain (loss) on investments ......... (99,937) (34,286) 73,949 (3,174,707) 7,574,222 721,095 --------- --------- ---------- ----------- ---------- ---------- Net increase (decrease) in net assets resulting from operations .......... $ (85,161) $ 58,530 $ 126,840 $(3,289,274) $9,632,883 $1,166,256 ========= ========= ========== =========== ========== ==========
LARGE CAP VALUE SUBACCOUNT MONEY MARKET SUBACCOUNT ----------------------------------- ------------------------------------- 2000 1999 1998 2000 1999 1998 ---------- ---------- ------------ ----------- ---------- ------------ Investment income: Distributions received from: John Hancock Variable Series Trust I ..... $ 166,438 $ 648,532 $ 433,626 $ 2,761,882 $2,943,852 $2,888,490 M Fund Inc. ......... -- -- -- -- -- -- Interest income on policy loans ....... -- -- -- 746,509 985,509 973,241 --------- --------- ----------- ----------- ---------- ---------- Total investment income .............. 166,438 648,532 433,626 3,508,391 3,929,361 3,861,731 Expenses: Mortality and expense risks .............. 46,188 54,610 44,753 314,406 411,487 380,002 --------- --------- ----------- ----------- ---------- ---------- Net investment income 120,250 593,922 388,873 3,193,985 3,517,874 3,481,729 Net realized and unrealized gain (loss) on investments: Net realized gain ... 26,539 165,556 673,582 -- -- -- Net unrealized appreciation (depreciation) during the period .. 284,190 (569,216) (479,093) -- -- -- --------- --------- ----------- ----------- ---------- ---------- Net realized and unrealized gain (loss) on investments ...... 31,729 (403,660) 194,489 -- -- -- --------- --------- ----------- ----------- ---------- ---------- Net increase (decrease) in net assets resulting from operations .......... $ 430,979 $ 190,262 $ 583,362 $ 3,193,985 $3,517,874 $3,481,729 ========= ========= =========== =========== ========== ==========
See accompanying notes. 80 JOHN HANCOCK MUTUAL VARIABLE LIFE INSURANCE ACCOUNT U STATEMENTS OF OPERATIONS (UNAUDITED) (CONTINUED) YEARS AND PERIODS ENDED SEPTEMBER 30,
MID CAP VALUE SUBACCOUNT SMALL/MID CAP GROWTH SUBACCOUNT ------------------------------------- ------------------------------------------- 2000 1999 1998 2000 1999 1998 ---------- --------- ------------ ----------- ------------- ------------ Investment income: Distributions received from: John Hancock Variable Series Trust I . $ 16,932 $ 31,306 $ 40,338 $ -- $ 1,903,687 $ 217,686 M Fund Inc. .......................... -- -- -- -- -- -- Interest income on policy loans ...... -- -- -- -- -- -- ---------- --------- ------------ ----------- ------------- ------------ Total investment income ............... 16,932 31,306 40,338 -- 1,903,687 217,686 Expenses: Mortality and expense risks .......... 26,010 29,798 23,760 55,910 69,847 63,334 ---------- --------- ------------ ----------- ------------- ------------ Net investment income ................. (9,078) 1,508 16,578 (55,910) 1,833,840 154,352 Net realized and unrealized gain (loss) on investments: Net realized gain (loss) ............. 35,124 (241,740) (422,902) (295,929) (13,020) 56,968 Net unrealized appreciation (depreciation) during the period .... 1,099,998 469,537 (260,362) 1,949,027 (1,274,161) 334,213 ---------- --------- ------------ ----------- ------------- ------------ Net realized and unrealized gain (loss) on investments ....................... 1,135,122 227,797 (683,264) 1,653,098 (1,287,181) 391,181 ---------- --------- ------------ ----------- ------------- ------------ Net increase (decrease) in net assets resulting from operations ............ $1,126,044 $ 229,305 $ (666,686) $ 1,597,188 $ 546,659 $ 545,533 ========== ========= ============ =========== ============= ============
REAL ESTATE EQUITY SUBACCOUNT GROWTH & INCOME SUBACCOUNT -------------------------------------- ------------------------------------------- 2000 1999 1998 2000 1999 1998 ---------- ----------- ----------- ------------- ------------ ------------ Investment income: Distributions received from: John Hancock Variable Series Trust I . $ 652,081 $ 771,050 $ 817,633 $ 7,975,176 $124,750,392 $ 96,326,313 M Fund Inc. .......................... -- -- -- -- -- -- Interest income on policy loans ...... 104,737 131,461 145,212 10,602,981 12,877,539 11,727,553 ---------- ----------- ----------- ------------- ------------ ------------ Total investment income ............... 756,818 902,511 962,845 18,578,157 137,627,931 108,053,866 Expenses: Mortality and expense risks .......... 62,144 78,893 86,610 5,057,893 6,531,512 5,589,689 ---------- ----------- ----------- ------------- ------------ ------------ Net investment income ................. 694,674 823,618 876,235 13,520,264 131,096,419 102,464,177 Net realized and unrealized gain (loss) on investments: Net realized gain (loss) ............. (519,846) 123,591 442,876 24,488,512 22,802,197 22,835,488 Net unrealized appreciation (depreciation) during the period .... 2,788,827 (1,106,755) (3,720,942) (52,597,621) 7,687,109 112,457,395 ---------- ----------- ----------- ------------- ------------ ------------ Net realized and unrealized gain (loss) on investments ....................... 2,268,981 (983,164) (3,278,066) (28,109,109) 30,489,306 135,292,883 ---------- ----------- ----------- ------------- ------------ ------------ Net increase (decrease) in net assets resulting from operations ............ $2,963,655 $ (159,546) $(2,401,831) $(14,588,845) $161,585,725 $237,757,060 ========== =========== =========== ============= ============ ============
See accompanying notes. 81 JOHN HANCOCK MUTUAL VARIABLE LIFE INSURANCE ACCOUNT U STATEMENTS OF OPERATIONS (UNAUDITED) (CONTINUED) YEARS AND PERIODS ENDED SEPTEMBER 30,
MANAGED SUBACCOUNT SHORT-TERM BOND SUBACCOUNT --------------------------------------- -------------------------------------- 2000 1999 1998 2000 1999 1998 ------------ ------------ ----------- --------------- ----------- ----------- Investment income: Distributions received from: John Hancock Variable Series Trust I ..... $ 9,379,040 $39,951,885 $37,907,821 $ 48,158 $ 53,689 $ 31,261 M Fund Inc. .............................. -- -- -- -- -- -- Interest income on policy loans .......... 4,245,392 5,217,121 4,949,021 -- -- -- ----------- ----------- ----------- -------------- ---------- -------- Total investment income ................... 13,624,432 45,169,006 42,856,842 48,158 53,689 31,261 Expenses: Mortality and expense risks .............. 2,013,835 2,636,085 2,381,406 4,632 5,065 3,052 ----------- ----------- ----------- -------------- ---------- -------- Net investment income ..................... 11,610,597 42,532,921 40,475,436 43,526 48,624 28,209 Net realized and unrealized gain (loss) on investments: Net realized gain (loss) ................. 5,593,279 5,060,826 5,853,076 (14,388) (3,107) 2,008 Net unrealized appreciation (depreciation) during the period ....................... (6,847,915) (9,288,287) 24,834,482 20,120 (23,648) (5,287) ----------- ----------- ----------- -------------- ---------- -------- Net realized and unrealized gain (loss) on investments .............................. (1,254,636) (4,227,461) 30,687,558 5,732 (26,755) (3,279) ----------- ----------- ----------- -------------- ---------- -------- Net increase (decrease) in net assets resulting from operations ................ $10,355,961 $38,305,460 $71,162,994 $ 49,258 $ 21,869 $ 24,930 =========== =========== =========== ============== ========== ========
SMALL CAP EQUITY SUBACCOUNT INTERNATIONAL OPPORTUNITIES (FORMERLY, SMALL CAP VALUE) SUBACCOUNT ---------------------------------- ---------------------------------- 2000 1999 1998 2000 1999 1998 ---------- ---------- ----------- ------------ ---------- ---------- Investment income: Distributions received from: John Hancock Variable Series Trust I ...... $ 56,414 $ 97,290 $ 24,781 $ 26,702 $ 354,646 $ 27,799 M Fund Inc. .......... -- -- -- -- -- -- Interest income on policy loans ........ -- -- -- -- -- -- --------- --------- ---------- ----------- ---------- -------- Total investment income ............... 56,414 97,290 24,781 26,702 354,646 27,799 Expenses: Mortality and expense risks ............... 19,954 24,661 23,711 26,221 24,257 19,481 --------- --------- ---------- ----------- ---------- -------- Net investment income.. 36,460 72,629 1,070 481 330,389 8,318 Net realized and unrealized gain (loss) on investments: Net realized gain (loss) .............. (188,550) (217,582) 61,917 725,677 123,861 64,757 Net unrealized appreciation (depreciation) during the period ... 545,649 (40,472) (364,339) (1,429,396) 839,140 339,709 --------- --------- ---------- ----------- ---------- -------- Net realized and unrealized gain (loss) on investments .......... 357,099 (258,054) (302,422) (703,719) 963,001 404,466 --------- --------- ---------- ----------- ---------- -------- Net increase (decrease) in net assets resulting from operations ........... $ 393,559 $(185,425) $ (301,352) $ (703,238) $1,293,390 $412,784 ========= ========= ========== =========== ========== ========
See accompanying notes. 82 JOHN HANCOCK MUTUAL VARIABLE LIFE INSURANCE ACCOUNT U STATEMENTS OF OPERATIONS (UNAUDITED) (CONTINUED) YEARS AND PERIODS ENDED SEPTEMBER 30,
EQUITY INDEX SUBACCOUNT GLOBAL BOND SUBACCOUNT ------------------------------------ -------------------------------- 2000 1999 1998 2000 1999 1998 ------------ ---------- ---------- --------- ---------- --------- Investment income: Distributions received from: John Hancock Variable Series Trust I ...... $ 205,343 $ 921,698 $ 367,284 $ 44,897 $ 91,316 $62,244 M Fund Inc. .......... -- -- -- -- -- -- Interest income on policy loans ........ -- -- -- -- -- -- ----------- ---------- ---------- -------- --------- ------- Total investment income ............... 205,343 921,698 367,284 44,897 91,316 62,244 Expenses: Mortality and expense risks ............... 110,017 103,983 60,274 7,241 9,736 7,516 ----------- ---------- ---------- -------- --------- ------- Net investment income.. 95,326 817,715 307,010 37,656 81,580 54,728 Net realized and unrealized gain (loss) on investments: Net realized gain (loss) .............. 720,233 471,802 132,619 (39,928) (1,996) 32,917 Net unrealized appreciation (depreciation) during the period ... (1,267,708) 2,019,913 2,082,107 64,988 (126,001) 11,342 ----------- ---------- ---------- -------- --------- ------- Net realized and unrealized gain (loss) on investments .......... (547,475) 2,491,715 2,214,726 25,060 (127,997) 44,259 ----------- ---------- ---------- -------- --------- ------- Net increase (decrease) in net assets resulting from operations ...... $ (452,149) $3,309,430 $2,521,736 $ 62,716 $ (46,417) $98,987 =========== ========== ========== ======== ========= =======
BRANDES INTERNATIONAL TURNER CORE GROWTH SUBACCOUNT EQUITY SUBACCOUNT ------------------------------- -------------------------------- 2000 1999 1998 2000 1999 1998 ---------- --------- -------- --------- ---------- --------- Investment income: Distributions received from: John Hancock Variable Series Trust I ...... $ -- $ -- $ -- $ -- $ -- $ -- M Fund Inc. .......... 5,157 368,038 5,535 8,116 18,453 13,237 Interest income on policy loans ........ -- -- -- -- -- -- -------- -------- ------- -------- -------- ------- Total investment income ............... 5,157 368,038 5,535 8,116 18,453 13,237 Expenses: Mortality and expense risks ............... 2,331 2,102 1,022 2,726 1,904 1,143 -------- -------- ------- -------- -------- ------- Net investment income.. 2,826 35,936 4,513 5,390 16,549 12,094 Net realized and unrealized gain (loss) on investments: Net realized gain (loss) .............. 102,105 44,245 14,364 9,926 7,704 1,184 Net unrealized appreciation (depreciation) during the period ... (68,169) 37,727 49,605 (10,886) 119,400 15,813 -------- -------- ------- -------- -------- ------- Net realized and unrealized gain (loss) on investments .......... 33,936 81,972 63,969 (960) 127,104 16,997 -------- -------- ------- -------- -------- ------- Net increase (decrease) in net assets resulting from operations ...... $ 36,762 $117,908 $68,482 $ 4,430 $143,653 $29,091 ======== ======== ======= ======== ======== =======
See accompanying notes. 83 JOHN HANCOCK MUTUAL VARIABLE LIFE INSURANCE ACCOUNT U STATEMENTS OF OPERATIONS (UNAUDITED) (CONTINUED) YEARS AND PERIODS ENDED SEPTEMBER 30,
FRONTIER CAPITAL APPRECIATION EMERGING MARKETS EQUITY SUBACCOUNT SUBACCOUNT ------------------------------ ----------------------------- 2000 1999 1998 2000 1999 1998 --------- --------- -------- ----------- -------- ------ Investment income: Distributions received from: John Hancock Variable Series Trust I ...... $ -- $ -- $ -- $ -- $ 13,510 $ 1 M Fund Inc. .......... 24,107 20,787 1,888 -- -- -- Interest income on policy loans ........ -- -- -- -- -- -- -------- -------- -------- ---------- -------- ----- Total investment income ............... 24,107 20,787 1,888 -- 13,510 1 Expenses: Mortality and expense risks ............... 4,027 3,019 2,096 4,733 720 -- -------- -------- -------- ---------- -------- ----- Net investment income.. 20,080 17,768 (208) (4,733) 12,790 1 Net realized and unrealized gain (loss) on investments: Net realized gain (loss) .............. 91,532 22,678 12,123 (136,688) 5,339 -- Net unrealized appreciation (depreciation) during the period ... 3,207 164,599 (17,930) (215,341) 86,570 10 -------- -------- -------- ---------- -------- ----- Net realized and unrealized gain (loss) on investments .......... 94,739 187,277 (5,807) (352,029) 91,909 10 -------- -------- -------- ---------- -------- ----- Net increase (decrease) in net assets resulting from operations ........... $114,819 $205,045 $ (6,015) $ (356,762) $104,699 $ 11 ======== ======== ======== ========== ======== =====
INTERNATIONAL OPPORTUNITIES II SUBACCOUNT BOND INDEX (FORMERLY, GLOBAL EQUITY) SUBACCOUNT ----------------------------- ---------------------------------- 2000 1999 1998 2000 1999 1998* ---------- ------- -------- ----------- ----------- -------- Investment income: Distributions received from: John Hancock Variable Series Trust I ...... $ 2,906 $ 508 $ 1 $ 38,196 $ 17,417 $ 149 M Fund Inc. .......... -- -- -- -- -- -- Interest income on policy loans ........ -- -- -- -- -- -- --------- ------- -------- ---------- ---------- ----- Total investment income ............... 2,906 508 1 38,196 17,417 149 Expenses: Mortality and expense risks ............... 1,018 267 -- 3,217 1,565 3 --------- ------- -------- ---------- ---------- ----- Net investment income ............... 1,888 241 1 34,979 15,852 146 Net realized and unrealized gain (loss) on investments: Net realized gain (loss) .............. 13,096 602 1 (3,038) (1,422) (1) Net unrealized appreciation (depreciation) during the period ... (37,065) 13,424 45 17,202 (22,820) (196) --------- ------- -------- ---------- ---------- ----- Net realized and unrealized gain (loss) on investments .......... (23,969) 14,026 46 14,164 (24,242) (197) --------- ------- -------- ---------- ---------- ----- Net increase (decrease) in net assets resulting from operations ........... $ (22,081) $14,267 $ 47 $ 49,143 $ (8,390) $ (51) ========= ======= ======== ========== ========== =====
See accompanying notes. 84 JOHN HANCOCK MUTUAL VARIABLE LIFE INSURANCE ACCOUNT U STATEMENTS OF OPERATIONS (UNAUDITED) (CONTINUED) YEARS AND PERIODS ENDED SEPTEMBER 30,
SMALL/MID CAP CORE HIGH YIELD BOND SUBACCOUNT SUBACCOUNT ------------------------ ----------------------------- 2000 1999 1998 2000 1999 1998 -------- ------ ------ --------- ------- --------- Investment income: Distributions received from: John Hancock Variable Series Trust I ...... $ 683 $6,810 $ -- $ 16,967 $2,748 $ 19 M Fund Inc. .......... -- -- -- -- -- -- Interest income on policy loans ........ -- -- -- -- -- -- ------- ------ ---- -------- ------ ----- Total investment income ............... 683 6,810 -- 16,967 2,748 19 Expenses: Mortality and expense risks ............... 759 178 -- 1,149 206 1 ------- ------ ---- -------- ------ ----- Net investment income.. (76) 6,632 -- 15,818 2,542 18 Net realized and unrealized gain (loss) on investments: Net realized gain (loss) .............. 10,871 252 -- (9,067) (186) -- Net unrealized appreciation (depreciation) during the period ... (1,191) 3,005 6 (10,278) (511) (26) ------- ------ ---- -------- ------ ----- Net realized and unrealized gain (loss) on investments .......... 9,680 3,257 6 (19,345) (697) (26) ------- ------ ---- -------- ------ ----- Net increase (decrease) in net assets resulting operations ........... $ 9,604 $9,889 $ 6 $ (3,527) $1,845 $ (8) ======= ====== ==== ======== ====== =====
CLIFTON AIM V.I. FIDELITY VIP FIDELITY JANUS ASPEN ENHANCED U.S. VALUE GROWTH CONTRAFUND GLOBAL TECH EQUITY SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT ------------------ ---------- ------------ ---------- ------------- 2000 1999 2000 2000 2000 2000 -------- --------- ---------- ------------ ---------- ------------- Investment income: Distributions received from: John Hancock Variable Series Trust I ..... $ -- $ -- $ -- $ -- $ -- $ -- M Fund Inc. ......... 476 1,117 -- -- -- -- Interest income on policy loans ....... -- -- -- -- -- -- ----- ------ ----- ----- ----- ----- Total investment income .............. 476 1,117 -- -- -- -- Expenses: Mortality and expense risks .............. 76 4 -- -- -- -- ----- ------ ----- ----- ----- ----- Net investment income (loss) .............. 400 1,113 -- -- -- -- Net realized and unrealized gain (loss) on investments: Net realized gains (losses) ........... (106) 91 -- -- -- (1) Net unrealized appreciation (depreciation) during the period .. (541) (879) (1) (0) -- (245) ----- ------ ----- ----- ----- ----- Net realized and unrealized gain (loss) on investments ......... (647) (788) (1) (0) -- (246) ----- ------ ----- ----- ----- ----- Net increase (decrease) in net assets resulting from operations .......... $(247) $ 325 $ (1) $ (0) $ -- $(246) ===== ====== ===== ===== ==== =====
See accompanying notes. 85 JOHN HANCOCK MUTUAL VARIABLE LIFE INSURANCE ACCOUNT U STATEMENTS OF OPERATIONS (UNAUDITED) (CONTINUED) YEARS AND PERIODS ENDED SEPTEMBER 30,
AMERICAN JANUS ASPEN MFS NEW FUNDAMENTAL LEADERS LARGE CAP WORLDWIDE DISCOVERY MID CAP CORE LARGE CAP AGGRESSIVE TEMPLETON GR. SERIES GROWTH BOND VALUE GROWTH INTERNATIONAL SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT ----------- ---------- ----------- ---------- ---------- ---------- --------------- 2000 2000 2000 2000 2000 2000 2000 ----------- ---------- ----------- ---------- ---------- ---------- --------------- Investment income: Distributions received from: 888 888 John Hancock Variable Series Trust I .......... $ -- $ -- $ -- $ -- $ -- $ -- $ -- M Fund Inc. ............... -- -- -- -- -- -- -- Interest income on policy loans .................... -- -- -- -- -- -- -- ----- ----- ---- ---- ---- ---- ---- Total investment income .... -- -- -- -- -- -- -- Expenses: Mortality and expense risks -- -- -- -- -- -- -- ----- ----- ---- ---- ---- ---- ---- Net investment income (loss) -- -- -- -- -- -- -- Net realized and unrealized gain (loss) on investments: Net realized gain (loss) .. (1) (1) -- -- -- -- -- Net unrealized appreciation (depreciation) during the period ............... (280) (265) -- -- -- -- -- ----- ----- ---- ---- ---- ---- ---- Net realized and unrealized gain (loss) on investments ............... (281) (266) -- -- -- -- -- ----- ----- ---- ---- ---- ---- ---- Net increase (decrease) in net assets resulting from operations ........... $(281) $(266) $ -- $ -- $ -- $ -- $ -- ===== ===== ==== ==== ==== ==== ====
See accompanying notes. 86 JOHN HANCOCK MUTUAL VARIABLE LIFE INSURANCE ACCOUNT U STATEMENTS OF CHANGES IN NET ASSETS (UNAUDITED) YEARS AND PERIODS ENDED SEPTEMBER 30,
ACTIVE BOND SUBACCOUNT LARGE CAP GROWTH SUBACCOUNT (FORMERLY, SOVEREIGN BOND) ------------------------------------------ ------------------------------------------- 2000 1999 1998 2000 1999 1998 ------------ ------------ ------------ ------------ ------------ ------------ Increase (decrease) in net assets from operations: Net investment income (loss)........... $ 621,235 $ 24,389,814 $ 12,025,213 $ 13,426,403 $ 20,233,648 $ 22,087,857 Net realized gain (loss)............... 3,814,060 4,239,424 3,520,199 3,376 192,098 1,600,539 Net unrealized appreciation (depreciation) during the period............................ (3,423,088) 1,727,703 18,509,310 3,156,858 (20,304,536) (2,317,324) ------------ ------------ ------------ ------------ ------------ ------------ Net increase (decrease) in net assets resulting from operations.............. 1,012,207 30,356,941 34,054,722 16,586,637 121,210 21,371,072 From policyholder transactions: Net premiums from policyholders......................... 44,384,261 37,307,814 21,681,632 18,417,337 26,114,799 32,901,747 Net benefits to policyholders.......... (32,940,678) (25,817,420) (21,510,240) (29,904,344) (35,577,616) (39,577,750) Net increase in policy loans........... 3,736,413 -- 2,561,877 1,509,775 -- 1,607,456 ------------ ------------ ------------ ------------ ------------ ------------ Net increase in net assets resulting from policyholder transactions......... 15,179,996 11,490,394 2,733,269 (9,977,232) (9,462,817) (5,068,547) ------------ ------------ ------------ ------------ ------------ ------------ Net increase in net assets.............. 16,192,203 41,847,335 36,787,991 6,609,405 (9,341,607) 16,302,525 Net assets at beginning of period....... 177,062,332 135,214,997 98,427,006 293,120,799 302,462,406 286,159,881 ------------ ------------ ------------ ------------ ------------ ------------ Net assets at end of period............. $193,254,535 $177,062,332 $135,214,997 $299,730,204 $293,120,799 $302,462,406 ============ ============ ============ ============ ============ ============ INTERNATIONAL EQUITY INDEX SUBACCOUNT SMALL CAP GROWTH SUBACCOUNT ------------------------------------------- ------------------------------------------ 2000 1999 1998 2000 1999 1998 ------------- ------------- ------------- ------------ ------------ -------------- Increase (decrease) in net assets from operations: Net investment income (loss)........... $ 365,920 $ 950,123 $ 3,440,236 $ (62,665) $ 1,234,844 $ (20,335) Net realized gain (loss)............... 944,473 168,248 148,419 1,987,667 491,241 55,393 Net unrealized appreciation (depreciation) during the period............................ (5,382,322) 5,712,567 105,161 (2,061,321) 2,317,857 518,731 ------------ ----------- ----------- ----------- ----------- ---------- Net increase (decrease) in net assets resulting from operations.............. (4,071,929) 6,830,938 3,693,816 (136,319) 4,043,942 553,789 From policyholder transactions: Net premiums from policyholders......................... 15,022,955 7,373,967 6,549,988 12,805,299 4,316,218 2,382,203 Net benefits to policyholders.......... (11,875,750) (6,834,914) (5,210,982) (7,927,742) (2,206,402) (998,381) Net increase in policy loans........... 142,553 -- 86,200 -- -- -- ------------ ----------- ----------- ----------- ----------- ---------- Net increase in net assets resulting from policyholder transactions......... 3,289,758 539,053 1,452,206 4,877,557 2,109,816 1,383,822 ------------ ----------- ----------- ----------- ----------- ---------- Net increase in net assets.............. (782,171) 7,369,991 5,119,022 4,741,238 6,153,758 1,937,611 Net assets at beginning of period....... 31,899,039 24,529,048 19,410,026 10,825,578 4,671,820 2,734,209 ------------ ----------- ----------- ----------- ----------- ---------- Net assets at end of period............. $ 31,116,868 $31,899,039 $24,529,048 $15,566,816 $10,825,578 $4,671,820 ============ =========== =========== =========== =========== ==========
See accompanying notes 87 JOHN HANCOCK MUTUAL VARIABLE LIFE INSURANCE ACCOUNT U STATEMENTS OF CHANGES IN NET ASSETS (UNAUDITED) (CONTINUED) YEARS AND PERIODS ENDED SEPTEMBER 30,
GLOBAL BALANCED SUBACCOUNT (FORMERLY, INTERNATIONAL BALANCED) MID CAP GROWTH SUBACCOUNT --------------------------------------- ----------------------------------------- 2000 1999 1998 2000 1999 1998 ----------- ----------- ---------- ----------- ----------- ----------- Increase (decrease) in net assets from operations: Net investment income (loss)................ $ 14,776 $ 92,816 $ 52,891 $ (114,567) $ 2,058,661 $ 445,161 Net realized gain (loss).................... (8,764) 4,711 (4,506) 2,185,984 773,222 73,958 Net unrealized appreciation (depreciation) during the period........... (91,173) (38,997) 78,445 (5,360,691) 6,801,000 647,137 ----------- ----------- ---------- ----------- ----------- ----------- Net increase (decrease) in net assets resulting from operations................... (85,161) 58,530 126,840 (3,289,274) 9,632,883 1,166,256 From policyholder transactions: Net premiums from policyholders............. 242,576 377,958 341,482 17,804,733 8,941,124 3,164,065 Net benefits to policyholders............... (332,208) (131,331) (310,766) (8,940,276) (2,937,257) (612,975) Net increase (decrease) in policy loans..... -- -- -- -- -- -- ----------- ----------- ---------- ----------- ----------- ----------- Net increase (decrease) in net assets resulting from policyholder transactions.... (89,632) 246,627 307,169 8,864,457 6,003,867 2,551,090 ----------- ----------- ---------- ----------- ----------- ----------- Net increase (decrease) in net assets........ (174,794) 305,157 157,556 5,575,183 15,636,750 3,717,346 Net assets at beginning of period............ 1,177,232 872,075 714,519 20,852,255 5,215,505 1,498,159 ----------- ----------- ---------- ----------- ----------- ----------- Net assets at end of period.................. $ 1,002,438 $ 1,177,232 $ 872,075 $26,427,438 $20,852,255 $ 5,215,505 =========== =========== ========== =========== =========== =========== LARGE CAP VALUE SUBACCOUNT MONEY MARKET SUBACCOUNT --------------------------------------- ------------------------------------------- 2000 1999 1998 2000 1999 1998 ----------- ----------- ----------- ------------ ------------ ------------ Increase (decrease) in net assets from operations: Net investment income (loss).............. $ 120,250 $ 593,922 $ 388,873 $ 3,193,985 $ 3,517,874 $ 3,481,729 Net realized gain (loss).................. 26,539 165,556 673,582 -- -- -- Net unrealized appreciation (depreciation) during the period......... 284,190 (569,216) (479,093) -- -- -- ----------- ----------- ----------- ------------ ------------ ------------ Net increase (decrease) in net assets resulting from operations................. 430,979 190,262 583,362 3,193,985 3,517,874 3,481,729 From policyholder transactions: Net premiums from policyholders........... 5,876,189 3,166,658 4,214,076 57,979,084 33,694,123 24,612,731 Net benefits to policyholders............. (3,656,800) (1,903,017) (3,212,048) (61,210,718) (30,672,090) (24,024,723) Net increase (decrease) in policy loans... -- -- -- (153,254) 421,166 390,775 ----------- ----------- ----------- ------------ ------------ ------------ Net increase (decrease) in net assets resulting from policyholder transactions.. 2,219,389 1,263,641 1,002,028 (3,384,888) 3,022,033 1,009,174 ----------- ----------- ----------- ------------ ------------ ------------ Net increase (decrease) in net assets...... 2,650,368 1,453,903 1,585,390 (190,903) 6,539,907 4,490,903 Net assets at beginning of period.......... 9,553,293 8,099,390 6,514,000 76,638,641 70,098,734 65,607,831 ----------- ----------- ----------- ------------ ------------ ------------ Net assets at end of period................ $12,203,661 $ 9,553,293 $ 8,099,390 $ 76,447,738 $ 76,638,641 $ 70,098,734 =========== =========== =========== ============ ============ ============
See accompanying notes 88 JOHN HANCOCK MUTUAL VARIABLE LIFE INSURANCE ACCOUNT U STATEMENTS OF CHANGES IN NET ASSETS (UNAUDITED) (CONTINUED) YEARS AND PERIODS ENDED SEPTEMBER 30,
MID CAP VALUE SUBACCOUNT SMALL/MID CAP GROWTH SUBACCOUNT --------------------------------------- --------------------------------------------------- 2000 1999 1998 2000 1999 1998 ----------- ----------- ----------- --------------- -------------- --------------- Increase (decrease) in net assets from operations: Net investment income............. $ (9,078) $ 1,508 $ 16,578 $ (55,910) $ 1,833,840 $ 154,352 Net realized gain (loss).......... 35,124 (241,740) (422,902) (295,929) (13,020) 56,698 Net unrealized appreciation (depreciation) during the period........................... 1,099,998 469,537 (260,362) 1,949,027 (1,274,161) 334,123 ----------- ----------- ----------- --------------- -------------- --------------- Net increase (decrease) in net assets resulting from operations.. 1,126,044 229,305 (666,686) 1,597,188 546,659 545,533 From policyholder transactions: Net premiums from policyholders... 3,657,742 1,886,594 5,997,691 3,303,996 3,493,643 3,953,326 Net benefits to policyholders..... (2,833,912) (1,745,112) (2,912,034) (3,875,999) (3,105,108) (3,311,846) Net increase (decrease) in policy loans............................ -- -- -- -- -- -- ----------- ----------- ----------- --------------- -------------- --------------- Net increase (decrease) in net assets resulting from policyholder transactions......... 823,830 141,482 3,085,657 (572,003) 388,535 641,480 ----------- ----------- ----------- --------------- -------------- --------------- Net increase (decrease) in net assets............................ 1,949,874 370,787 2,418,971 1,025,185 935,194 1,187,013 Net assets at beginning of period.. 5,236,580 4,865,793 2,446,822 12,409,573 11,474,379 10,287,366 ----------- ----------- ----------- --------------- -------------- --------------- Net assets at end of period........ $ 7,186,454 $ 5,236,580 $ 4,865,793 $ 13,434,758 $ 12,409,573 $ 11,474,379 =========== =========== =========== =============== ============== ================ REAL ESTATE EQUITY SUBACCOUNT GROWTH & INCOME SUBACCOUNT --------------------------------------- ------------------------------------------------- 2000 1999 1998 2000 1999 1998 ----------- ----------- ----------- -------------- -------------- -------------- Increase (decrease) in net assets from operations: Net investment income............... $ 694,674 $ 823,618 $ 876,235 $ 13,520,264 $ 11,096,419 $ 102,464,177 Net realized gain (loss)............ (519,846) 123,591 442,876 24,488,512 22,802,197 22,835,488 Net unrealized appreciation (depreciation) during the period............................. 2,788,827 (1,106,755) (3,720,942) (52,597,621) 7,687,109 112,457,395 ----------- ----------- ----------- -------------- -------------- -------------- Net increase (decrease) in net assets resulting from operations.... 2,963,655 (159,546) (5,401,931) (14,588,845) 161,585,725 237,757,060 From policyholder transactions: Net premiums from policyholders..... 7,419,486 2,304,591 6,295,255 66,706,125 101,973,160 92,955,980 Net benefits to policyholders....... (7,604,722) (3,311,591) (5,507,305) (118,470,137) (133,701,210) (134,661,151) Net increase (decrease) in policy loans.............................. 269,293 (83,216) 265,517 8,056,803 -- 18,165,114 ----------- ----------- ----------- -------------- -------------- -------------- Net increase (decrease) in net assets resulting from policyholder transactions........................ 84,057 (1,007,000) 704,734 (43,707,209) (31,728,050) (23,540,057) ----------- ----------- ----------- -------------- -------------- -------------- Net increase (decrease) in net assets.............................. 3,047,712 (1,166,546) (1,697,097) (58,296,054) 129,857,675 214,217,003 Net assets at beginning of period.... 13,378,472 14,545,018 16,242,115 1,278,739,554 1,148,881,879 934,664,876 ----------- ----------- ----------- -------------- -------------- -------------- Net assets at end of period.......... $16,426,184 $13,378,472 $14,545,018 $1,220,443,500 $1,278,739,554 $1,148,881,879 =========== =========== =========== ============== ============== ==============
See accompanying notes 89 JOHN HANCOCK MUTUAL VARIABLE LIFE INSURANCE ACCOUNT U STATEMENTS OF CHANGES IN NET ASSETS (UNAUDITED) (CONTINUED) YEARS AND PERIODS ENDED SEPTEMBER 30,
MANAGED SUBACCOUNT SHORT-TERM BOND SUBACCOUNT ------------------------------------------ -------------------------------------- 2000 1999 1998 2000 1999 1998 ------------ ------------ ------------ ---------- ---------- ----------- Increase (decrease) in net assets from operations: Net investment income....................... $ 11,610,597 $ 42,532,921 $ 40,475,436 $ 43,526 $ 48,624 $ 28,209 Net realized gain (loss).................... 5,593,279 5,060,826 5,853,076 (14,388) (3,107) 2,008 Net unrealized appreciation (depreciation) during the period........... (6,847,915) (9,288,287) 24,834,482 20,120 (23,648) (5,287) ------------ ------------ ------------ ---------- ---------- ----------- Net increase in net assets resulting from operations.................................. 10,355,961 38,305,460 71,162,994 49,258 21,869 24,930 From policyholder transactions: Net premiums from policyholders............. 30,876,272 44,546,082 40,631,684 321,510 690,849 435,150 Net benefits to policyholders............... (51,526,685) (55,332,758) (55,447,667) (406,059) (178,124) (274,762) Net increase in policy loans................ 2,617,080 -- 5,379,590 -- -- -- ------------ ------------ ------------ ---------- ---------- ----------- Net increase (decrease) in net assets resulting from policyholder transactions.... (18,033,333) (10,786,676) (9,436,393) (84,549) 512,725 160,388 ------------ ------------ ------------ ---------- ---------- ----------- Net increase (decrease) in net assets........ (7,677,372) 27,518,784 61,726,601 (35,291) 534,594 185,318 Net assets at beginning of period............ 500,072,750 472,553,966 410,827,365 1,129,483 594,889 409,571 ------------ ------------ ------------ ---------- ---------- ----------- Net assets at end of period.................. $492,395,378 $500,072,750 $472,553,966 $1,094,192 $1,129,483 $ 594,889 ============ ============ ============ ========== ========== =========== SMALL CAP EQUITY SUBACCOUNT (FORMERLY, SMALL CAP VALUE) INTERNATIONAL OPERATIONS SUBACCOUNT --------------------------------------- ---------------------------------------- 2000 1999 1998 2000 1999 1998 ----------- ----------- ----------- ----------- ----------- ----------- Increase (decrease) in net assets from operations: Net investment income........................ $ 36,460 $ 72,629 $ 1,070 $ 481 $ 330,389 $ 8,318 Net realized gain (loss)..................... (188,550) (217,582) 61,917 725,677 123,861 64,757 Net unrealized appreciation (depreciation) during the period............ 545,649 (40,472) (364,359) (1,429,396) 839,140 339,709 ----------- ----------- ----------- ----------- ----------- ----------- Net increase (decrease) in net assets resulting from operations.................... 393,559 (185,425) (301,352) (703,238) 1,293,390 412,784 From policyholder transactions: Net premiums from policyholders.............. 2,449,450 1,446,109 2,644,808 8,147,324 1,632,955 2,203,753 Net benefits to policyholders................ (1,544,506) (1,547,128) (1,288,464) (6,837,766) (1,315,539) (1,443,700) Net increase in policy loans................. -- -- -- -- -- -- ----------- ----------- ----------- ----------- ----------- ----------- Net increase (decrease) in net assets resulting from policyholder transactions..... 904,944 (101,019) 1,356,344 1,309,558 317,416 760,053 ----------- ----------- ----------- ----------- ----------- ----------- Net increase (decrease) in net assets......... 1,298,503 (286,444) 1,054,972 606,320 1,610,806 1,172,837 Net assets at beginning of period............. 4,111,416 4,397,860 3,342,888 5,310,586 3,699,780 2,526,943 ----------- ----------- ----------- ----------- ----------- ----------- Net assets at end of period................... $ 5,409,919 $ 4,111,416 $ 4,397,860 $ 5,916,906 $ 5,310,586 $ 3,699,780 =========== =========== =========== =========== =========== ===========
See accompanying notes 90 JOHN HANCOCK MUTUAL VARIABLE LIFE INSURANCE ACCOUNT U STATEMENTS OF CHANGES IN NET ASSETS (UNAUDITED) (CONTINUED) YEARS AND PERIODS ENDED SEPTEMBER 30,
EQUITY INDEX SUBACCOUNT GLOBAL BOND SUBACCOUNT --------------------------------------- -------------------------------------- 2000 1999 1998 2000 1999 1998 ----------- ----------- ----------- ---------- ---------- ----------- Increase (decrease) in net assets from operations: Net investment income..................... $ 95,326 $ 817,715 $ 307,010 $ 37,656 $ 81,580 $ 54,728 Net realized gain (loss).................. 720,233 471,802 132,619 (39,928) (1,996) 32,917 Net unrealized appreciation (depreciation) during the period......... (1,267,708) 2,019,913 2,082,107 64,988 (126,001) 11,342 ----------- ----------- ----------- ---------- ---------- ----------- Net increase (decrease) in net assets resulting from operations................. (452,149) 3,309,430 2,521,736 62,716 (46,417) 98,987 From policyholder transactions: Net premiums from policyholders........... 9,225,298 7,762,529 4,632,113 558,069 1,115,699 798,933 Net benefits to policyholders............. (3,879,648) (2,563,485) (1,120,852) (769,877) (292,075) (1,158,109) Net increase in policy loans.............. -- -- -- -- -- -- ----------- ----------- ----------- ---------- ---------- ----------- Net increase in net assets resulting from policyholder transactions................. 5,345,650 5,199,044 3,511,261 (211,808) 823,624 (359,176) ----------- ----------- ----------- ---------- ---------- ----------- Net increase in net assets................. 4,893,501 8,508,474 6,032,997 (149,902) 777,207 (260,189) Net assets at beginning of period.......... 22,117,624 13,609,150 7,576,153 1,882,675 1,105,468 1,365,657 ----------- ----------- ----------- ---------- ---------- ----------- Net assets at end of period................ $27,011,125 $22,117,624 $13,609,150 $1,733,583 $1,882,675 $ 1,105,468 =========== =========== =========== ========== ========== =========== TURNER CORE GROWTH SUBACCOUNT BRANDES INTERNATIONAL EQUITY SUBACCOUNT -------------------------------- --------------------------------------- 2000 1999 1998 2000 1999 1998 --------- --------- -------- -------- -------- ---------- Increase (decrease) in net assets from operations: Net investment income.................... $ 2,826 $ 35,936 $ 4,513 $ 5,390 $ 16,549 $ 12,094 Net realized gain (loss)................. 102,105 44,245 14,364 9,926 7,704 1,184 Net unrealized appreciation (depreciation) during the period........ (68,169) 37,727 49,605 (10,886) 119,400 15,813 --------- --------- -------- -------- -------- -------- Net increase (decrease) in net assets resulting from operations................ 36,762 117,908 68,482 4,430 143,653 29,091 From policyholder transactions: Net premiums from policyholders.......... 285,472 240,351 203,590 115,832 239,618 55,021 Net benefits to policyholders............ (377,975) (136,661) (77,651) (55,308) (29,502) (10,341) Net increase in policy loans............. -- -- -- -- -- -- --------- --------- -------- -------- -------- -------- Net increase in net assets resulting from policyholder transactions........... (92,503) 103,690 125,939 60,524 210,098 44,680 --------- --------- -------- -------- -------- -------- Net increase in net assets................ (55,741) 221,598 194,421 64,954 353,751 73,771 Net assets at beginning of period......... 536,192 314,594 120,173 588,128 234,377 160,606 --------- --------- -------- -------- -------- -------- Net assets at end of period............... $ 480,451 $ 536,192 $314,594 $653,082 $588,128 $234,377 ========= ========= ======== ======== ======== ========
See accompanying notes 91 JOHN HANCOCK MUTUAL VARIABLE LIFE INSURANCE ACCOUNT U STATEMENTS OF CHANGES IN NET ASSETS (UNAUDITED) (CONTINUED) YEARS AND PERIODS ENDED SEPTEMBER 30,
FRONTIER CAPITAL APPRECIATION SUBACCOUNT EMERGING MARKETS EQUITY SUBACCOUNT ---------------------------------------- ------------------------------------ 2000 1999 1998 2000 1999 1998 ---------- -------- ---------- ----------- --------- ------- Increase (decrease) in net assets from operations: Net investment income........................ $ 20,080 $ 17,768 $ (208) $ (4,733) $ 12,790 $ 1 Net realized gain (loss)..................... 91,532 22,678 12,123 (136,688) 5,339 -- Net unrealized appreciation (depreciation) during the period............ 3,207 164,599 (17,930) (215,341) 86,570 10 ---------- -------- ---------- ----------- --------- ------- Net increase (decrease) in net assets resulting from operations.................... 114,819 205,045 (6,015) (356,762) 104,699 11 From policyholder transactions: Net premiums from policyholders.............. 412,703 255,268 128,779 8,406,642 433,406 2,018 Net benefits to policyholders................ (240,181) (89,136) (146,083) (7,256,592) (144,400) -- Net increase in policy loans................. -- -- -- -- -- -- ---------- -------- ---------- ----------- --------- ------- Net increase in net assets resulting from policyholder transactions.................... 172,522 166,132 (17,304) 1,150,050 289,006 2,018 ---------- -------- ---------- ----------- --------- ------- Net increase in net assets.................... 287,341 371,177 (23,319) 793,288 393,705 2,029 Net assets at beginning of period............. 728,674 357,497 380,816 395,734 2,029 -- ---------- -------- ---------- ----------- --------- ------- Net assets at end of period................... $1,016,015 $728,674 $ 357,497 $ 1,189,022 $ 395,734 $ 2,029 ========== ======== ========== =========== ========= ======= INTERNATIONAL OPPORTUNITIES II SUBACCOUNT (FORMERLY, GLOBAL EQUITY) BOND INDEX SUBACCOUNT ----------------------------------------- ------------------------------------- 2000 1999 1998 2000 1999 1998* ----------- -------- ---------- ------------ ---------- ------- Increase (decrease) in net assets from operations: Net investment income........................ $ 1,888 $ 241 $ 1 $ 34,979 $ 15,852 $ 146 ---------- -------- ---------- ----------- --------- ------- Net realized gain (loss)..................... 13,096 602 1 (3,038) (1,422) (1) Net unrealized appreciation (depreciation) during the period............ (37,065) 13,424 45 17,202 (22,820) (196) ---------- -------- ---------- ----------- --------- ------- Net increase (decrease) in net assets resulting from operations................... (22,081) 14,267 47 49,143 (8,390) (51) From policyholder transactions: Net premiums from policyholders.............. 263,934 1,084,209 915 441,780 412,326 10,254 Net benefits to policyholders................ (67,628) (11,064) (13) (50,311) (26,307) (69) Net increase in policy loans................. -- -- -- -- -- -- ---------- -------- ---------- ----------- --------- ------- Net increase in net assets resulting from policyholder transactions.................... 196,306 97,356 902 391,469 386,019 10,185 ---------- -------- ---------- ----------- --------- ------- Net increase in net assets.................... 174,225 111,623 949 440,612 377,629 10,134 Net assets at beginning of period............. 112,572 949 -- 387,763 10,134 -- ---------- -------- ---------- ----------- --------- ------- Net assets at end of period................... $ 286,797 $112,572 $ 949 $ 828,375 $ 387,763 $10,134 ========== ======== ========== =========== ========= =======
See accompanying notes 92 JOHN HANCOCK MUTUAL VARIABLE LIFE INSURANCE ACCOUNT U STATEMENTS OF CHANGES IN NET ASSETS (UNAUDITED) (CONTINUED) YEARS AND PERIODS ENDED SEPTEMBER 30,
SMALL/MID CAP CORE SUBACCOUNT HIGH YIELD BOND SUBACCOUNT ------------------------------ ------------------------------- 2000 1999 1998 2000 1999 1998* -------- -------- -------- -------- -------- -------- Increase (decrease) in net assets from operations: Net investment income... $ (76) $ 6,632 -- $ 15,818 $ 2,542 $ 18 Net realized gain (loss)................. 10,871 252 -- (9,067) (186) -- Net unrealized appreciation (depreciation) during the period................. (1,191) 3,005 6 (10,278) (511) (26) -------- -------- -------- -------- -------- -------- Net increase (decrease) in net assets resulting from operations......... 9,604 9,889 6 (3,527) 1,845 (8) From policyholder transactions: Net premiums from policyholders.......... 555,833 97,385 104 1,583,188 98,955 2,887 Net benefits to policyholders.......... (369,572) (7,901) (2) (1,349,561) (13,078) -- Net increase in policy loans........... -- -- -- -- -- -- -------- -------- -------- --------- -------- -------- Net increase in net assets resulting from policyholder transactions............ 186,261 89,484 102 233,627 85,877 2,887 -------- -------- -------- --------- -------- -------- Net increase (decrease) in net assets.................. 195,865 99,373 108 230,100 87,222 2,879 Net assets at beginning of period 99,481 108 -- 90,610 2,879 -- --------- -------- -------- --------- -------- -------- Net assets at end of period.................. $ 295,346 $ 99,481 $ 108 $ 320,710 $ 90,610 $ 2,879 ========= ======== ======== ========= ======== ========
CLIFTON ENHANCED U S. EQUITY SUBACCOUNT ----------------------- 2000 1999 ----------- ----------- Increase (decrease) in net assets from operations: Net investment income............................ $ 400 $ 1,113 Net realized gain (loss)......................... (106) 91 Net unrealized appreciation (depreciation) during the period...................................... (541) (879) ------- ------- Net increase (decrease) in net assets resulting from operations (247) 325 From policyholder transactions: Net premiums from policyholders 4,510 13,814 Net benefits to policyholders (869) -- Net increase in policy loans -- -- ------- ------- Net increase (decrease) in net assets resulting from policyholder transactions 3,641 13,814 ------- ------- Net increase (decrease) in net assets 3,394 14,139 Net assets at beginning of period 14,139 -- ------- ------- Net assets at end of period . . . . . . . . . . . $17,533 $14,139 ======= ======= See accompanying notes 93 JOHN HANCOCK MUTUAL VARIABLE LIFE INSURANCE ACCOUNT U STATEMENTS OF CHANGES IN NET ASSETS (UNAUDITED) (CONTINUED) YEARS AND PERIODS ENDED SEPTEMBER 30,
JANUS ASPEN AIM V.I. FIDELITY VIP FIDELITY JANUS ASPEN WORLDWIDE NEW DISCOVERY VALUE GROWTH CONTRAFUND GLOBAL TECH GROWTH SERIES SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT ---------- ---------- ---------- ---------- ---------- ---------- 2000 2000 2000 2000 2000 2000 ---------- ---------- ---------- ---------- ---------- ---------- Increase (decrease) in net assets from operations: Net investment income (loss)................. $ -- $ -- $ -- $ -- $ -- $ -- Net realized gain (loss)................. -- -- -- (1) (1) (1) Net unrealized appreciation (depreciation) during the period................. (1) (0) -- (245) (280) (265) ------ ------ ------ ------ ------ ------ Net increase (decrease) in net assets resulting from operations.............. (1) (0) -- (246) (281) (266) From policyholder transactions: Net premiums from policyholders.......... 6 4 -- 4,808 3,247 4,058 Net benefits to policyholders.......... 4 2 -- 593 2,144 4,058 ------ ------ ------ ------ ------ ------ Net increase in policy loans........... Net increase (decrease) in net assets resulting from policyholder transactions............ 10 6 -- 5,401 5,391 8,116 ------ ------ ------ ------ ------ ------ Net increase (decrease) in net assets.................. 9 6 -- 5,155 5,110 7,850 Net assets at beginning of period..... -- -- -- -- -- -- ------ ------ ------ ------ ------ ------ Net assets at end of period.................. $ 9 $ 6 $ -- $5,155 $5,110 $7,850 ====== ====== ====== ====== ====== ====== AMERICAN FUNDAMENTAL LEADERS LARGE CAP MID CAP CORE LARGE CAP AGGRESSIVE TEMPLETON GROWTH BOND VALUE GROWTH INTERNATIONAL SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT ---------- ---------- ---------- ---------- ---------- 2000 2000 2000 2000 2000 ---------- ---------- ---------- ---------- ---------- Increase (decrease) in net assets from operations: Net investment income.................. $-- $-- $-- $-- $-- Net realized gain (loss)................................ -- -- -- -- -- Net unrealized appreciation (depreciation) during the period..................... -- -- -- -- -- ----- ----- ----- ----- ----- Net increase (decrease) in net assets resulting from operations............................. -- -- -- -- -- From policyholder transactions: Net premiums from policyholders......................... -- -- -- -- -- Net benefits to policyholders......................... -- -- -- -- -- Net increase in policy loans.......................... -- -- -- -- -- Net increase (decrease) in net assets resulting from policyholder transactions........................... -- -- -- -- - ----- ----- ----- ----- ----- Net increase (decrease) in net assets................................. -- -- -- -- -- Net assets at beginning of period.................... -- -- -- -- -- ----- ----- ----- ----- ----- Net assets at end of period................................. $-- $-- $-- $-- $-- ===== ===== ===== ===== =====
94 JOHN HANCOCK VARIABLE LIFE ACCOUNT U NOTES TO FINANCIAL STATEMENTS (UNAUDITED) SEPTEMBER 30, 2000 1. ORGANIZATION John Hancock Variable Life Account U (the Account) is a separate investment account of John Hancock Variable Life Insurance Company (JHVLICO), a wholly- owned subsidiary of John Hancock Mutual Life Insurance Company (John Hancock). The Account was formed to fund variable life insurance policies (Policies) issued by JHVLICO. The Account is operated as a unit investment trust registered under the Investment Company Act of 1940, as amended, and currently consists of thirty-two subaccounts. The assets of each subaccount are invested exclusively in shares of a corresponding Portfolio of John Hancock Variable Series Trust I (the Fund) or of M Fund Inc. (M Fund). New subaccounts may be added as new Portfolios are added to the Fund or to M Fund, or as other investment options are developed, and made available to policyholders. The thirty-eight Portfolios of the Fund and M Fund which are currently available are the Large Cap Growth, Active Bond (formerly, Sovereign Bond), International Equity Index, Small Cap Growth, Global Balanced (formerly, International Balanced), Mid Cap Growth, Large Cap Value, Money Market, Mid Cap Value, Small/Mid Cap Growth (formerly, Diversified Mid Cap Growth), Real Estate Equity, Growth & Income, Managed, Short-Term Bond, Small Cap Equity (formerly, Small Cap Value), International Opportunities, Equity Index, Global Bond (formerly, Strategic Bond), Turner Core Growth, Brandes International Equity, Frontier Capital Appreciation, Emerging Markets Equity, International Opportunities II (formerly, Global Equity), Bond Index, Small/Mid Cap CORE, High Yield Bond, Clifton Enhanced US Equity, Aim V.I. Value, Fidelity VIP Growth, Fidelity Contrafund, Janus Aspen Global Tech, Janus Aspen Worldwide Gr., MFS New Discovery Series, Fundamental Mid Growth (formerly, Fundamental Mid Cap Growth), Core Bond, American Leaders Large Cap Value, Large Cap Aggressive Growth, and Templeton International. Each Portfolio has a different investment objective. The net assets of the Account may not be less than the amount required under state insurance law to provide for death benefits (without regard to the minimum death benefit guarantee) and other policy benefits. Additional assets are held in JHVLICO's general account to cover the contingency that the guaranteed minimum death benefit might exceed the death benefit which would have been payable in the absence of such guarantee. The assets of the Account are the property of JHVLICO. The portion of the Account's assets applicable to the policies may not be charged with liabilities arising out of any other business JHVLICO may conduct. 2. SIGNIFICANT ACCOUNTING POLICIES Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Valuation of Investments Investment in shares of the Fund and of M Fund are valued at the reported net asset values of the respective Portfolios. Investment transactions are recorded on the trade date. Dividend income is recognized on the ex-dividend date. Realized gains and losses on sales of respective Portfolio shares are determined on the basis of identified cost. 95 JOHN HANCOCK VARIABLE LIFE ACCOUNT U NOTES TO FINANCIAL STATEMENTS (UNAUDITED)--CONTINUED Federal Income Taxes The operations of the Account are included in the federal income tax return of JHVLICO, which is taxed as a life insurance company under the Internal Revenue Code. JHVLICO has the right to charge the Account any federal income taxes, or provision for federal income taxes, attributable to the operations of the Account or to the policies funded in the Account. Currently, JHVLICO does not make a charge for income or other taxes. Charges for state and local taxes, if any, attributable to the Account may also be made. Expenses JHVLICO assumes mortality and expense risks of the variable life insurance policies for which asset charges are deducted at various rates ranging from .50% to .625%, depending on the type of policy, of net assets (excluding policy loans) of the Account. In addition, a monthly charge at varying levels for the cost of insurance is deducted from the net assets of the Account. JHVLICO makes certain deductions for administrative expenses and state premium taxes from premium payments before amounts are transferred to the Account. 2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Policy Loans Policy loans represent outstanding loans plus accrued interest. Interest is accrued (net of a charge for policy loan administration determined at an annual rate of .75% of the aggregate amount of policyholder indebtedness) and compounded daily. At December 31, 2000, there were no outstanding policy loans. 3. TRANSACTION WITH AFFILIATES John Hancock acts as the distributor, principal underwriter and investment advisor for the Fund. Certain officers of the Account are officers and directors of JHVLICO, the Fund or John Hancock. 96 JOHN HANCOCK VARIABLE LIFE ACCOUNT U NOTES TO FINANCIAL STATEMENTS (UNAUDITED)--CONTINUED 4. DETAILS OF INVESTMENTS The details of the shares owned and cost and value of investments in the Portfolios of the Fund and of M Fund at December 31, 2000 were as follows:
PORTFOLIO SHARES OWNED COST VALUE --------- ------------ ------------ -------------- Large Cap Growth............ 6,168,344 $136,402,496 $ 169,201,606 Active Bond................. 25,928,698 251,003,887 239,694,444 International Equity Index.. 1,664,035 28,588,291 28,083,661 Small Cap Growth............ 803,544 14,589,738 15,567,067 Global Balanced............. 103,030 1,090,819 1,000,737 Mid Cap Growth.............. 997,461 24,144,879 26,427,867 Large Cap Value............. 881,144 12,223,281 12,189,522 Money Market................ 6,243,739 62,437,394 62,437,394 Mid Cap Value............... 466,477 5,938,149 7,184,523 Small/Mid Cap Growth........ 838,364 12,758,593 13,434,978 Real Estate Equity.......... 1,027,531 13,843,808 14,125,820 Growth & Income............. 52,508,595 781,278,745 1,023,259,688 Managed..................... 26,678,218 358,347,374 410,996,304 Short-Term Bond............. 111,464 1,096,747 1,088,934 Small Cap Equity............ 458,183 5,245,734 5,404,005 International Opportunities. 440,808 6,251,196 5,917,002 Equity Index................ 1,350,342 22,951,726 26,993,113 Global Bond................. 172,871 1,773,633 1,727,455 Turner Core Growth.......... 19,381 448,471 480,459 Brandes International Equity..................... 42,271 525,746 653,092 Frontier Capital Appreciation............... 41,641 823,509 1,016,030 Emerging Markets Equity..... 128,874 1,317,802 1,189,041 International Opportunities II......................... 25,860 310,399 286,802 Bond Index.................. 87,071 829,562 823,747 Small/Mid Cap Core.......... 27,868 293,339 295,159 High Yield Bond............. 38,615 329,075 318,260 Clifton Enhanced Capital App........................ 885 18,953 17,533 Aim V.I. Value.............. 0.287 10 9 Fidelity VIP Growth......... 0.125 6 6 Fidelity Contrafund......... -- -- -- Janus Aspen Global Tech..... 121 5,400 5,155 Janus Aspen Worldwide Gr............... 554 5,390 5,110 MFS New Discovery Series........... 427 8,115 7,850 Fundamental Growth.......... -- -- -- Core Bond................... -- -- -- American Leaders Large Cap Value.................. -- -- -- Large Cap Aggressive Growth.......... -- -- -- Templeton International..... -- -- --
97 JOHN HANCOCK VARIABLE LIFE ACCOUNT U NOTES TO FINANCIAL STATEMENTS (UNAUDITED)--CONTINUED 4. DETAILS OF INVESTMENTS (CONTINUED) Purchases, including reinvestment of dividend distributions, and proceeds from sales of shares in the Portfolios of the Fund and of M Fund during 2000 were as follows:
PORTFOLIO PURCHASES SALES --------- ----------- ------------ Large Cap Growth..................... $19,723,408 $ 7,844,017 Active Bond.......................... 18,574,025 18,239,873 International Equity Index........... 10,754,542 7,288,968 Small Cap Growth..................... 9,625,296 4,810,154 Global Balanced...................... 223,702 300,260 Mid Cap Growth....................... 12,944,237 4,193,918 Large Cap Value...................... 4,776,481 2,450,981 Money Market......................... 33,484,878 33,567,470 Mid Cap Value........................ 2,622,367 1,809,547 Small/Mid Cap Growth................. 2,420,377 3,048,070 Real Estate Equity................... 6,306,868 5,932,736 Growth & Income...................... 13,980,215 53,661,822 Managed.............................. 12,842,692 23,264,222 Short-Term Bond...................... 295,488 341,769 Small Cap Equity..................... 2,051,864 1,116,374 International Opportunities.......... 7,054,343 5,744,208 Equity Index......................... 7,092,160 1,669,197 Global Bond.......................... 466,410 646,690 Turner Core Growth................... 298,221 387,890 Brandes International Equity......... 93,206 27,282 Frontier Capital Appreciation........ 419,266 226,648 Emerging Markets Equity.............. 6,693,159 5,547,822 International Opportunities II....... 368,019 169,819 Bond Index........................... 473,412 51,591 Small/Mid Cap Core................... 520,317 334,319 High Yield Bond...................... 1,585,215 1,338,221 Clifton Enhanced Capital App......... 4,954 914 Aim V.I. Value....................... 10 -- Fidelity VIP Growth.................. 6 -- Fidelity Contrafund.................. -- -- Janus Aspen Global Tech.............. 5,423 22 Janus Aspen Worldwide Gr............. 5,413 22 MFS New Discovery Series............. 8,149 33 Fundamental Growth................... -- -- Core Bond............................ -- -- American Leaders Large Cap Value..... -- -- Large Cap Aggressive Growth.......... -- -- Templeton International.............. -- --
98 REPORT ERNST & YOUNG LLP, INDEPENDENT AUDITORS To the Policyholders of John Hancock Variable Life Account U of John Hancock Variable Life Insurance Company We have audited the accompanying statement of assets and liabilities of John Hancock Variable Life Account U (the Account) (comprising, respectively, the Large Cap Growth, Sovereign Bond, International Equity Index, Small Cap Growth, International Balanced, Mid Cap Growth, Large Cap Value, Money Market, Mid Cap Value, Small/Mid Cap Growth (formerly, Diversified Mid Cap Growth), Real Estate Equity, Growth & Income, Managed, Short-Term Bond, Small Cap Value, International Opportunities, Equity Index, Global Bond (formerly, Strategic Bond), Turner Core Growth, Brandes International Equity, Frontier Capital Appreciation, Emerging Markets Equity, Global Equity, Bond Index, Small/Mid Cap CORE, High Yield Bond and Enhanced U.S. Equity Subaccounts) as of December 31, 1999, and the related statements of operations and changes in net assets for each of the periods indicated therein. These financial statements are the responsibility of the Account's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of each of the respective subaccounts constituting John Hancock Variable Life Account U at December 31, 1999, the results of their operations and the changes in their net assets for each of the periods indicated, in conformity with accounting principles generally accepted in the United States. ERNST & YOUNG LLP Boston, Massachusetts February 11, 2000 99 JOHN HANCOCK VARIABLE LIFE ACCOUNT U STATEMENT OF ASSETS AND LIABILITIES DECEMBER 31, 1999
INTERNATIONAL LARGE CAP SOVEREIGN EQUITY SMALL CAP GROWTH BOND INDEX GROWTH SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT ------------ ------------ ------------ ------------ ASSETS Cash ........................................ $ 18,374 $ 31,159 $ 3,363 $ 1,196 Investments in shares of portfolios of John Hancock Variable Series Trust I, at value ................................... 156,931,243 236,200,057 29,055,936 10,825,578 Policy loans and accrued interest receivable ................................. 20,131,090 56,920,743 2,843,104 -- Receivable from: John Hancock Variable Series Trust I .................................... 166,807 45,107 32,276 20,662 M Fund Inc. ................................ -- -- -- -- ------------ ------------ ------------ ------------ Total assets ................................ 177,247,514 293,197,066 31,934,679 10,847,436 LIABILITIES Payable to John Hancock Variable Life Insurance Company .......................... 164,174 40,650 31,788 20,488 Asset charges payable ....................... 21,008 35,617 3,852 1,370 ------------ ------------ ------------ ------------ 185,182 76,267 35,640 21,858 ------------ ------------ ------------ ------------ Net assets .................................. $177,062,332 $293,120,799 $31,899,039 $10,825,578 ============ ============ ============ ============ INTERNATIONAL MID CAP LARGE CAP MONEY BALANCED GROWTH VALUE MARKET SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT ------------ ------------ ------------ ------------ ASSETS Cash ........................................ $ 133 $ 2,329 $ 1,091 $ 4,680 Investments in shares of portfolios of John Hancock Variable Series Trust I, at value ................................... 1,177,232 20,852,255 9,553,293 62,519,986 Policy loans and accrued interest receivable ................................. -- -- -- 14,118,655 Receivable from: John Hancock Variable Series Trust I ....... 970 103,804 6,237 159,443 M Fund Inc. ................................ -- -- -- -- ------------ ------------ ----------- ----------- Total assets ................................ 1,178,335 20,958,388 9,560,621 76,802,764 LIABILITIES Payable to John Hancock Variable Life Insurance Company .......................... 950 103,466 6,081 158,266 Asset charges payable ....................... 153 2,667 1,247 5,857 ------------ ------------ ----------- ----------- 1,103 106,133 7,328 164,123 ------------ ------------ ----------- ----------- Net assets .................................. $ 1,177,232 $ 20,852,255 $ 9,553,293 $76,638,641 ============ ============ =========== ===========
See accompanying notes. 100 JOHN HANCOCK VARIABLE LIFE ACCOUNT U STATEMENT OF ASSETS AND LIABILITIES (CONTINUED) DECEMBER 31, 1999 SMALL/MID MID CAP CAP REAL ESTATE GROWTH & VALUE GROWTH EQUITY INCOME SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT ------------ ------------ ------------ ------------- ASSETS Cash................. $ 589 $ 1,386 $ 1,428 $ 132,575 Investments in shares of portfolios of John Hancock Variable Series Trust I, at value............... 5,236,581 12,409,573 11,482,706 1,091,050,404 Policy loans and accrued interest receivable.......... -- -- 1,895,766 187,689,150 Receivable from: John Hancock Variable Series Trust I..... 27,820 34,285 1,966 333,111 M Fund Inc.......... -- -- -- -- ------------ ------------ ------------ ------------- Total assets......... 5,264,990 12,445,244 13,381,866 1,279,205,240 LIABILITIES Payable to John Hancock Variable Life Insurance Company... 27,735 34,083 1,758 314,139 Asset charges payable 675 1,588 1,636 151,547 ------------ ------------ ------------ -------------- Total liabilities.... 28,410 35,671 3,394 465,686 ------------ ------------ ------------ -------------- Net assets........... $ 5,236,580 $ 12,409,573 $ 13,378,472 $1,278,739,554 ============ ============ ============ ============== SHORT-TERM SMALL CAP INTERNATIONAL MANAGED BOND VALUE OPPORTUNITIES SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT ------------ ------------ ------------ ------------ ASSETS Cash................. $ 52,222 $ 129 $ 460 $ 593 Investments in shares of portfolios of John Hancock Variable Series Trust I, at value... 422,672,470 1,129,483 4,111,416 5,310,586 Policy loans and accrued interest receivable.......... 77,400,280 -- -- -- Receivable from: John Hancock Variable Series Trust I............. 123,268 218 2,954 5,072 M Fund Inc.......... -- -- -- -- ------------ ------------ ------------ ------------ Total assets......... 500,248,240 1,129,830 4,114,830 5,316,251 LIABILITIES Payable to John Hancock Variable Life Insurance Company............. 115,790 199 2,887 4,985 Asset charges payable............. 59,700 148 527 680 ------------ ------------ ------------ ------------ Total liabilities.... 175,490 347 3,414 5,665 ------------ ------------ ------------ ------------ Net assets........... $500,072,750 $ 1,129,483 $ 4,111,416 $ 5,310,586 ============ ============ ============ ============ See accompanying notes. 101 JOHN HANCOCK VARIABLE LIFE ACCOUNT U STATEMENT OF ASSETS AND LIABILITIES (CONTINUED) DECEMBER 31, 1999 TURNER BRANDES EQUITY GLOBAL CORE INTERNATIONAL INDEX BOND GROWTH EQUITY SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT ------------ ------------ ------------ ------------ ASSETS Cash................. $ 2,517 $ 216 $ 60 $ 65 Investments in shares of portfolios of John Hancock Variable Series Trust I, at value......... 22,117,624 1,882,675 -- -- Investments in shares of portfolios of M Fund Inc., at value. -- -- 536,192 588,128 Policy loans and accrued interest receivable.......... -- -- -- -- Receivable from: John Hancock Variable Series Trust I..... 19,259 31 -- -- M Fund Inc.......... -- -- 9 10 ------------ ------------ ------------ ------------ Total assets......... 22,139,400 1,882,922 536,261 588,203 LIABILITIES Payable to John Hancock Variable Life Insurance Company............. 18,897 -- -- -- Asset charges payable............. 2,879 247 69 75 ------------ ------------ ------------ ------------ Total liabilities.... 21,776 247 69 75 ------------ ------------ ------------ ------------ Net assets........... $ 22,117,624 $ 1,882,675 $ 536,192 $ 588,128 ============ ============ ============ ============ FRONTIER EMERGING CAPITAL MARKETS GLOBAL APPRECIATION EQUITY EQUITY BOND INDEX SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT ------------ ------------ ------------ ------------ ASSETS Cash................. $ 80 $ 43 $ 12 $ 45 Investments in shares of portfolios of John Hancock Variable Series Trust I, at value............ -- 395,733 112,572 387,762 Investments in shares of portfolios of M Fund Inc., at value............... 728,674 -- -- -- Policy loans and accrued interest receivable.......... -- -- -- -- Receivable from: John Hancock Variable Series Trust I..... -- 2,536 2 1,123 M Fund Inc.......... 12 -- -- -- ------------ ------------ ------------ ------------ Total assets......... 728,766 398,312 112,586 388,930 LIABILITIES Payable to John Hancock Variable Life Insurance Company............. -- 2,529 -- 1,116 Asset charges payable............. 92 49 14 51 ------------ ------------ ------------ ------------ Total liabilities.... 92 2,578 14 1,167 ------------ ------------ ------------ ------------ Net assets........... $ 728,674 $ 395,734 $ 112,572 $ 387,763 ============ ============ ============ ============ See accompanying notes. 102 JOHN HANCOCK VARIABLE LIFE ACCOUNT U STATEMENT OF ASSETS AND LIABILITIES (CONTINUED) DECEMBER 31, 1999 SMALL/MID HIGH YIELD ENHANCED CAP CORE BOND U.S. EQUITY SUBACCOUNT SUBACCOUNT SUBACCOUNT ---------- ---------- ------------ ASSETS Cash.................................... $ 9 $ -- $ 1 Investments in shares of portfolios of John Hancock Variable Series Trust I, at value............................... 99,481 90,611 -- Investments in shares of portfolios of M Fund Inc., at value.................... -- -- 14,140 Policy loans and accrued interest receivable............................. -- -- -- Receivable from: John Hancock Variable Series Trust I... 16,714 1,478 -- M Fund Inc............................. -- -- -- ------- ------- ------- Total assets............................ 116,204 92,089 14,141 LIABILITIES Payable to John Hancock Variable Life Insurance Company...................... 16,712 1,477 -- Asset charges payable................... 11 11 2 ------- ------- ------- Total liabilities....................... 16,723 1,488 2 ------- ------- ------- Net assets.............................. $99,481 $90,601 $14,139 ======= ======= ======= See accompanying notes. 103 JOHN HANCOCK VARIABLE LIFE ACCOUNT U STATEMENT OF OPERATIONS YEARS AND PERIODS ENDED DECEMBER 31,
LARGE CAP GROWTH SUBACCOUNT SOVEREIGN BOND SUBACCOUNT ------------------------------------- -------------------------------------- 1999 1998 1997 1999 1998 1997 ----------- ----------- ----------- ------------ ----------- ----------- Investment income: Distributions received from: John Hancock Variable Series Trust I................................. $24,007,195 $11,641,271 $ 7,675,850 $ 17,792,726 $19,685,096 $17,409,990 M Fund Inc............................... -- -- -- -- -- -- Interest income on policy loans........... 1,211,333 1,008,607 875,892 4,084,783 4,027,376 3,926,698 ----------- ----------- ----------- ------------ ----------- ----------- Total investment income................... 25,218,528 12,649,878 8,551,742 21,877,509 23,712,472 21,336,688 Expenses: Mortality and expense risks.............. 828,714 624,665 480,057 1,643,861 1,624,615 1,514,127 ----------- ----------- ----------- ------------ ----------- ----------- Net investment income..................... 24,389,814 12,025,213 8,071,685 20,233,648 22,087,857 19,822,561 Net realized and unrealized gain (loss) on investments: Net realized gain........................ 4,239,424 3,520,199 4,216,904 192,098 1,600,539 1,088,488 Net unrealized appreciation (depreciation) during the period....................... 1,727,703 18,509,310 7,920,403 (20,304,536) (2,317,324) 2,987,952 ----------- ----------- ----------- ------------ ---------- --------- Net realized and unrealized gain (loss) on investments.............................. 5,967,127 22,029,509 12,137,307 (20,112,438) (716,785) 4,076,440 ----------- ----------- ----------- ------------ ---------- ---------- Net increase in net assets resulting from operations............................... $30,356,941 $34,054,722 $20,208,992 $ 121,210 $21,371,072 $23,899,001 =========== =========== =========== ============ =========== =========== INTERNATIONAL EQUITY INDEX SUBACCOUNT SMALL CAP GROWTH SUBACCOUNT ------------------------------------- ------------------------------------- 1999 1998 1997 1999 1998 1997 ----------- ----------- ----------- ----------- ----------- ----------- Investment income: Distributions received from: John Hancock Variable Series Trust I................................. $ 917,904 $ 3,394,842 $ 840,616 $ 1,272,230 $ -- $ 976 M Fund Inc............................... -- -- -- -- -- -- Interest income on policy loans........... 179,345 170,285 170,905 -- -- -- ----------- ----------- ----------- ----------- ----------- ----------- Total investment income................... 1,097,249 3,565,127 1,011,521 1,272,230 -- 976 Expenses: Mortality and expense risks.............. 147,126 124,891 107,415 37,386 20,335 11,175 ----------- ----------- ----------- ----------- ----------- ----------- Net investment income (loss).............. 950,123 3,440,236 904,106 1,234,844 (20,335) (10,199) Net realized and unrealized gain (loss) on investments: Net realized gain........................ 168,248 148,419 209,781 491,241 55,393 34,153 Net unrealized appreciation (depreciation) during the period........ 5,712,567 105,161 (2,036,425) 2,317,857 518,731 226,085 ----------- ----------- ----------- ----------- ----------- ----------- Net realized and unrealized gain (loss) on investments.................... 5,880,815 253,580 (1,826,644) 2,809,098 574,124 260,238 ----------- ----------- ----------- ----------- ----------- ----------- Net increase (decrease) in net assets resulting from operations......... $ 6,830,938 $ 3,693,816 $ (922,538) $ 4,043,942 $ 553,789 $ 250,039 =========== =========== =========== =========== =========== ===========
See accompanying notes. 104 JOHN HANCOCK VARIABLE LIFE ACCOUNT U STATEMENT OF OPERATIONS (CONTINUED) YEARS AND PERIODS ENDED DECEMBER 31,
INTERNATIONAL BALANCED SUBACCOUNT MID CAP GROWTH SUBACCOUNT ------------------------------------ ---------------------------------- 1999 1998 1997 1999 1998 1997 ----------- ----------- ---------- ---------- ---------- ---------- Investment income: Distributions received from: John Hancock Variable Series Trust I..... $ 99,184 $ 57,587 $ 30,867 $2,117,559 $ 461,919 $ -- M Fund Inc.......... -- -- -- -- -- -- Interest income on policy loans........ -- -- -- -- -- -- ----------- ----------- ---------- ---------- ---------- ---------- Total investment income.............. 99,184 57,587 30,867 2,117,559 461,919 -- Expenses: Mortality and expense risks.............. 6,368 4,696 2,758 58,898 16,758 5,801 ----------- ----------- ---------- ---------- ---------- ---------- Net investment income (loss).............. 92,816 52,891 28,109 2,058,661 445,161 (5,801) Net realized and unrealized gain (loss) on investments: Net realized gain (loss)............. 4,711 (4,506) 12,000 773,222 73,958 394 Net unrealized appreciation (depreciation) during the period.. (38,997) 78,455 (41,999) 6,801,000 647,137 199,441 ----------- ----------- ---------- ---------- ---------- ---------- Net realized and unrealized gain (loss) on investments......... (34,286) 73,949 (29,999) 7,574,222 721,095 199,835 ----------- ----------- ---------- ---------- ---------- ---------- Net increase (decrease) in net assets resulting from operations.......... $ 58,530 $ 126,840 $ (1,890) $9,632,883 $1,166,256 $ 194,034 =========== =========== ========== ========== ========== ========== LARGE CAP VALUE SUBACCOUNT MONEY MARKET SUBACCOUNT -------------------------------- ------------------------------------ 1999 1998 1997 1999 1998 1997 ---------- ---------- -------- ---------- ---------- ------------ Investment income: Distributions received from: John Hancock Variable Series Trust I............. $ 648,532 $ 433,626 $ 266,440 $2,943,852 $2,888,490 $2,746,662 M Fund Inc.......... -- -- -- -- -- -- Interest income on policy loans........ -- -- -- 985,509 973,241 957,390 ----------- ----------- ---------- ---------- ---------- ---------- Total investment income.............. 648,532 433,626 266,440 3,929,361 3,861,731 3,704,052 Expenses: Mortality and expense risks.............. 54,610 44,753 25,295 411,487 380,002 361,409 ----------- ----------- ---------- ---------- ---------- ---------- Net investment income 593,922 388,873 241,145 3,517,874 3,481,729 3,342,643 Net realized and unrealized gain (loss) on investments: Net realized gain.... 165,556 673,582 217,073 -- -- -- Net unrealized appreciation (depreciation) during the period.. (569,216) (479,093) 532,936 -- -- -- ----------- ----------- ---------- ---------- ---------- ---------- Net realized and unrealized gain (loss) on investments......... (403,660) 194,489 750,009 -- -- -- ----------- ----------- ---------- ---------- ---------- ---------- Net increase in net assets resulting from operations.......... $ 190,262 $ 583,362 $ 991,154 $3,517,874 $3,481,729 $3,342,643 =========== =========== ========== ========== ========== ==========
See accompanying notes. 105 JOHN HANCOCK VARIABLE LIFE ACCOUNT U STATEMENT OF OPERATIONS (CONTINUED) YEARS AND PERIODS ENDED DECEMBER 31,
MID CAP VALUE SUBACCOUNT SMALL/MID CAP GROWTH SUBACCOUNT --------------------------------------- ------------------------------------------ 1999 1998 1997 1999 1998 1997 ------------ ------------ ------------ ------------ ------------ ------------ Investment income: Distributions received from: John Hancock Variable Series Trust I................................. $ 31,306 $ 40,338 $ 178,590 $ 1,903,687 $ 217,686 $ 1,022,881 M Fund Inc............................... -- -- -- -- -- -- Interest income on policy loans........... -- -- -- -- -- -- ------------ ------------ ------------ ------------ ------------ ------------ Total investment income................... 31,306 40,338 178,590 1,903,687 217,686 1,022,881 Expenses: Mortality and expense risks.............. 29,798 23,760 6,329 69,847 63,334 54,469 ------------ ------------ ------------ ------------ ------------ ------------ Net investment income..................... 1,508 16,578 172,261 1,833,840 154,352 968,412 Net realized and unrealized gain (loss) on investments: Net realized gain (loss)................. (241,740) (422,902) 121,152 (13,020) 56,968 533,297 Net unrealized appreciation (depreciation) during the period....................... 469,537 (260,362) (86,033) (1,274,161) 334,213 (1,073,252) ------------ ------------ ------------ ------------ ------------ ------------ Net realized and unrealized gain (loss) on investments.............................. 227,797 (683,264) 35,119 (1,287,181) 391,181 (539,955) ------------ ------------ ------------ ------------ ------------ ------------ Net increase (decrease) in net assets resulting from operations................ $ 229,305 $ (666,686) $ 207,380 $ 546,659 $ 545,533 $ 428,457 ============ ============ ============ ============ ============ ============ REAL ESTATE EQUITY SUBACCOUNT GROWTH & INCOME SUBACCOUNT ---------------------------------------- ---------------------------------------- 1999 1998 1997 1999 1998 1997 ------------ ------------ ------------ ------------ ------------ ------------ Investment income: Distributions received from: John Hancock Variable Series Trust I................................. $ 771,050 $ 817,633 $ 957,079 $124,750,392 $ 96,326,313 $ 99,799,718 M Fund Inc............................... -- -- -- -- -- -- Interest income on policy loans........... 131,461 145,212 140,517 12,877,539 11,727,553 10,448,315 ------------ ------------ ------------ ------------ ------------ ------------ Total investment income................... 902,511 962,845 1,097,596 137,627,931 108,053,866 110,248,033 Expenses: Mortality and expense risks.............. 78,893 86,610 76,454 6,531,512 5,589,689 4,658,703 ------------ ------------ ------------ ------------ ------------ ------------ Net investment income..................... 823,618 876,235 1,021,142 131,096,419 102,464,177 105,589,330 Net realized and unrealized gain (loss) on investments: Net realized gain........................ 123,591 442,876 551,925 22,802,197 22,835,488 16,543,458 Net unrealized appreciation (depreciation) during the period....................... (1,106,755) (3,720,942) 447,661 7,687,109 112,457,395 67,250,127 ------------ ------------ ------------ ------------ ------------ ------------ Net realized and unrealized gain (loss) on investments.............................. (983,164) (3,278,066) 999,586 30,489,306 135,292,883 83,793,585 ------------ ------------ ------------ ------------ ------------ ------------ Net increase (decrease) in net assets resulting from operations................ $ (159,546) $ (2,401,831) $ 2,020,728 $161,585,725 $237,757,060 $189,382,915 ============ ============ ============ ============ ============ ============
See accompanying notes. 106 JOHN HANCOCK VARIABLE LIFE ACCOUNT U STATEMENT OF OPERATIONS (CONTINUED) YEARS AND PERIODS ENDED DECEMBER 31,
MANAGED SUBACCOUNT SHORT-TERM BOND SUBACCOUNT ---------------------------------------- ---------------------------------------- 1999 1998 1997 1999 1998 1997 ------------ ------------ ------------ ------------ ------------ ------------ Investment income: Distributions received from: John Hancock Variable Series Trust I ................................ $ 39,951,885 $ 37,907,821 $32,757,460 $ 53,689 $ 31,261 $ 22,079 M Fund Inc. ............................. -- -- -- -- -- -- Interest income on policy loans .......... 5,217,121 4,949,021 4,669,363 -- -- -- ------------ ------------ ------------ ------------ ------------ ------------ Total investment income .................. 45,169,006 42,856,842 37,426,823 53,689 31,261 22,079 Expenses: Mortality and expense risks ............. 2,636,085 2,381,406 2,111,314 5,065 3,052 2,202 ------------ ------------ ------------ ------------ ------------ ------------ Net investment income .................... 42,532,921 40,475,436 35,315,509 48,624 28,209 19,877 Net realized and unrealized gain (loss) on investments: Net realized gain (loss) ................ 5,060,826 5,853,076 5,663,060 (3,107) 2,008 235 Net unrealized appreciation (depreciation) during the period ....... (9,288,287) 24,834,482 16,843,903 (23,648) (5,287) 1,405 ------------ ------------ ------------ ------------ ------------ ------------ Net realized and unrealized gain (loss) on investments ................... (4,227,461) 30,687,558 22,506,963 (26,755) (3,279) 1,640 ------------ ------------ ------------ ------------ ------------ ------------ Net increase in net assets resulting from operations .............................. $ 38,305,460 $ 71,162,994 $ 57,822,472 $ 21,869 $ 24,930 $ 21,517 ============ ============ ============ ============ ============ ============ SMALL CAP VALUE SUBACCOUNT INTERNATIONAL OPPORTUNITIES SUBACCOUNT ---------------------------------------- ---------------------------------------- 1999 1998 1997 1999 1998 1997 ------------ ------------ ------------ ------------ ------------ ------------ Investment income: Distributions received from: John Hancock Variable Series Trust I ................................ $ 97,290 $ 24,781 $ 256,363 $ 354,646 $ 27,799 $ 35,111 M Fund Inc. ............................. -- -- -- -- -- -- Interest income on policy loans .......... -- -- -- -- -- -- ------------ ------------ ------------ ------------ ------------ ------------ Total investment income .................. 97,290 24,781 256,363 354,646 27,799 35,111 Expenses: Mortality and expense risks ............. 24,661 23,711 10,530 24,257 19,481 11,575 ------------ ------------ ------------ ------------ ------------ ------------ Net investment income .................... 72,629 1,070 245,833 330,389 8,318 23,536 Net realized and unrealized gain (loss) on investments: Net realized gain (loss) ................ (217,582) 61,917 129,604 123,861 64,757 78,058 Net unrealized appreciation (depreciation) during the period ....... (40,472) (364,339) (32,439) 839,140 339,709 (141,034) ------------ ------------ ------------ ------------ ------------ ------------ Net realized and unrealized gain (loss) on investments ................... (258,054) (302,422) 97,165 963,001 404,466 (62,976) ------------ ------------ ------------ ------------ ------------ ------------ Net increase (decrease) in net assets resulting from operations ........ $ (185,425) $ (301,352) $ 342,998 $ 1,293,390 $ 412,784 $ (39,440) ============ ============ ============ ============ ============ ============
See accompanying notes. 107 JOHN HANCOCK VARIABLE LIFE ACCOUNT U STATEMENT OF OPERATIONS (CONTINUED) YEARS AND PERIODS ENDED DECEMBER 31,
EQUITY INDEX SUBACCOUNT GLOBAL BOND SUBACCOUNT ---------------------------------- ---------------------------- 1999 1998 1997 1999 1998 1997 ---------- ---------- ---------- ---------- ------- ---------- Investment income: Distributions received from: John Hancock Variable Series Trust I.............. $ 921,698 $ 367,284 $ 220,686 $ 91,316 $62,244 $84,597 M Fund Inc. .......... -- -- -- -- -- -- Interest income on policy loans.......... -- -- -- -- -- -- ---------- ---------- ---------- --------- ------- ------- Total investment income................ 921,698 367,284 220,686 91,316 62,244 84,597 Expenses: Mortality and expense risks................ 103,983 60,274 28,637 9,736 7,516 5,827 ---------- ---------- ---------- --------- ------- ------- Net investment income.. 817,715 307,010 192,049 81,580 54,728 78,770 Net realized and unrealized gain (loss) on investments: Net realized gain (loss)............... 471,802 132,619 38,987 (1,996) 32,917 5,891 Net unrealized appreciation (depreciation) during the period.... 2,019,913 2,082,107 1,193,531 (126,001) 11,342 (3,195) ---------- ---------- ---------- --------- ------- ------- Net realized and unrealized gain (loss) on investments........... 2,491,715 2,214,726 1,232,518 (127,997) 44,259 2,696 ---------- ---------- ---------- --------- ------- ------- Net increase (decrease) in net assets resulting from operations............ $3,309,430 $2,521,736 $1,424,567 $ (46,417) $98,987 $81,466 ========== ========== ========== ========= ======= =======
TURNER CORE GROWTH SUBACCOUNT BRANDES INTERNATIONAL EQUITY SUBACCOUNT ------------------------------ ---------------------------------------- 1999 1998 1997 1999 1998 1997 ---------- --------- --------- ------------- ------------ ------------- Investment income: Distributions received from: John Hancock Variable Series Trust I.............. $ -- $ -- $ -- $ -- $ -- $ -- M Fund Inc. .......... 38,038 5,535 11,090 18,453 13,237 2,278 Interest income on policy loans.......... -- -- -- -- -- -- -------- ------- ------- -------- ------- ------ Total investment income................ 38,038 5,535 11,090 18,453 13,237 2,278 Expenses: Mortality and expense risks................ 2,102 1,022 505 1,904 1,143 746 -------- ------- ------- -------- ------- ------ Net investment income.. 35,936 4,513 10,585 16,549 12,094 1,532 Net realized and unrealized gain (loss) on investments: Net realized gain..... 44,245 14,364 3,166 7,704 1,184 133 Net unrealized appreciation during the period........... 37,727 49,605 12,370 119,400 15,813 2,674 -------- ------- ------- -------- ------- ------ Net realized and unrealized gain on investments........... 81,972 63,969 15,536 127,104 16,997 2,807 -------- ------- ------- -------- ------- ------ Net increase in net assets resulting from operations............ $117,908 $68,482 $26,121 $143,653 $29,091 $4,339 ======== ======= ======= ======== ======= ======
See accompanying notes. 108 JOHN HANCOCK VARIABLE LIFE ACCOUNT U STATEMENT OF OPERATIONS (CONTINUED) YEARS AND PERIODS ENDED DECEMBER 31,
FRONTIER CAPITAL APPRECIATION EMERGING MARKETS EQUITY GLOBAL SUBACCOUNT SUBACCOUNT EQUITY SUBACCOUNT ------------------------------ ------------------------ ------------------ 1999 1998 1997 1999 1998* 1999 1998* -------- -------- ------- -------- ------- ------- ------- Investment income: Distributions received from: John Hancock Variable Series Trust I.......... $ -- $ $ -- $ 13,510 $ 1 $ 508 $ 1 M Fund Inc. .................................. 20,787 1,888 8,986 -- -- -- -- Interest income on policy loans................ -- -- -- -- -- -- -- -------- -------- ------- -------- ----- ------- ------- Total investment income........................ 20,787 1,888 8,986 13,510 1 508 1 Expenses: Mortality and expense risks................... 3,019 2,096 1,464 720 -- 267 -- -------- -------- ------- -------- ----- ------- ------- Net investment income (loss)................... 17,768 (208) 7,522 12,790 1 241 1 Net realized and unrealized gain on investments: Net realized gain............................. 22,678 12,123 9,048 5,339 -- 602 1 Net unrealized appreciation (depreciation) during the period............................ 164,599 (17,930) 40,541 86,570 10 13,424 45 -------- -------- ------- -------- ----- ------- ------- Net realized and unrealized gain (loss) on investments................................... 187,277 (5,807) 49,589 91,909 10 14,026 46 -------- -------- ------- -------- ----- ------- ------- Net increase (decrease) in net assets resulting from operations............................... $205,045 $ (6,015) $57,111 $104,699 $ 11 $14,267 $ 47 ======== ======== ======= ======== ===== ======= =======
SMALL/MID ENHANCED CAP CORE HIGH YIELD U.S. EQUITY BOND INDEX SUBACCOUNT SUBACCOUNT BOND SUBACCOUNT SUBACCOUNT ----------------------- --------------- ---------------- -------------- 1999 1998* 1999 1998* 1999 1998* 1999** ------------ --------- ------ ------- -------- ------ -------------- Investment income: Distributions received from: John Hancock Variable Series Trust I....... $ 17,417 $ 149 $6,810 $ -- $2,748 $ 19 $ -- M Fund Inc. .......... -- -- -- -- 1,117 Interest income on policy loans.......... -- -- -- -- -- -- -- -------- ----- ------ ------- ------ ---- ------ Total investment income................ 17,417 149 6,810 2,748 19 1,117 Expenses: Mortality and expense risks................ 1,565 3 178 -- 206 1 4 -------- ----- ------ ------- ------ ---- ------ Net investment income.. 15,852 146 6,632 -- 2,542 18 1,113 Net realized and unrealized gain (loss) on investments........ Net realized gain (loss)............... (1,422) (1) 252 -- (186) -- 91 Net unrealized appreciation (depreciation) during the period.... (22,820) (196) 3,005 6 (511) (26) (879) -------- ----- ------ ------- ------ ---- ------ Net realized and unrealized gain (loss) on investments........ (24,242) (197) 3,257 6 (697) (26) (788) -------- ----- ------ ------- ------ ---- ------ Net increase (decrease) in net assets resulting from operations............ $ (8,390) $ (51) $9,889 $ 6 $1,845 $ (8) $ 325 ======== ===== ====== ======= ====== ==== ======
--------- * From May 1, 1998 (commencement of operations). ** From March 9, 1999 (commencement of operations). See accompanying notes. 109 JOHN HANCOCK VARIABLE LIFE ACCOUNT U STATEMENTS OF CHANGES IN NET ASSETS YEARS AND PERIODS ENDED DECEMBER 31,
LARGE CAP GROWTH SUBACCOUNT SOVEREIGN BOND SUBACCOUNT ------------------------------------------ ------------------------------------------- 1999 1998 1997 1999 1998 1997 ------------ ------------ ------------ ------------ ------------ ------------ Increase (decrease) in net assets from operations: Net investment income................. $ 24,389,814 $ 12,025,213 $ 8,071,685 $ 20,233,648 $ 22,087,857 $ 19,822,561 Net realized gains.................... 4,239,424 3,520,199 4,216,904 192,098 1,600,539 1,088,488 Net unrealized appreciation (depreciation) during the period..... 1,727,703 18,509,310 7,920,403 (20,304,536) (2,317,324) 2,987,952 ------------ ------------ ------------ ------------ ------------ ------------ Net increase in net assets resulting from operations....................... 30,356,941 34,054,722 20,208,992 121,210 21,371,072 23,899,001 From policyholder transactions: Net premiums from policyholders....... 37,307,814 21,681,632 18,819,133 26,114,799 32,901,747 31,136,450 Net benefits to policyholders......... (25,817,420) (21,510,240) (19,915,971) (35,577,616) (39,577,750) (39,506,771) Net increase (decrease) in policy loans................................ -- 2,561,877 (41,068) -- 1,607,456 1,612,490 ------------ ------------ ------------ ------------ ------------ ------------ Net increase (decrease) in net assets resulting from policyholder transactions.......................... 11,490,394 2,733,269 (1,137,906) (9,462,817) (5,068,547) (6,757,831) ------------ ------------ ------------ ------------ ------------ ------------ Net increase (decrease) in net assets.. 41,847,335 36,787,991 19,071,086 (9,341,607) 16,302,525 17,141,170 Net assets at beginning of period................................ 135,214,997 98,427,006 79,355,920 302,462,406 286,159,881 269,018,711 ------------ ------------ ------------ ------------ ------------ ------------ Net assets at end of period............ $177,062,332 $135,214,997 $ 98,427,006 $293,120,799 $302,462,406 $286,159,881 ============ ============ ============ ============ ============ ============
INTERNATIONAL EQUITY INDEX SUBACCOUNT SMALL CAP GROWTH SUBACCOUNT --------------------------------------- -------------------------------------- 1999 1998 1997 1999 1998 1997 ----------- ----------- ----------- ----------- ---------- ---------- Increase (decrease) in net assets from operations: Net investment income (loss).......... $ 950,123 $ 3,440,236 $ 904,106 $ 1,234,844 $ (20,335) $ (10,199) Net realized gains.................... 168,248 148,419 209,781 491,241 55,393 34,153 Net unrealized appreciation (depreciation) during the period..... 5,712,567 105,161 (2,036,425) 2,317,857 518,731 226,085 ----------- ----------- ----------- ----------- ---------- ---------- Net increase (decrease) in net assets resulting from operations............. 6,830,938 3,693,816 (922,538) 4,043,942 553,789 250,039 From policyholder transactions: Net premiums from policyholders....... 7,373,967 6,549,988 6,398,146 4,316,218 2,382,203 1,906,439 Net benefits to policyholders......... (6,834,914) (5,210,982) (4,052,306) (2,206,402) (998,381) (626,114) Net increase in policy loans.......... -- 86,200 41,466 -- -- -- ----------- ----------- ----------- ----------- ---------- ---------- Net increase in net assets resulting from policyholder transactions........ 539,053 1,425,206 2,387,306 2,109,816 1,383,822 1,280,325 ----------- ----------- ----------- ----------- ---------- ---------- Net increase in net assets............. 7,369,991 5,119,022 1,464,768 6,153,758 1,937,611 1,530,364 Net assets at beginning of period................................ 24,529,048 19,410,026 17,945,258 4,671,820 2,734,209 1,203,845 ----------- ----------- ----------- ----------- ---------- ---------- Net assets at end of period............ $31,899,039 $24,529,048 $19,410,026 $10,825,578 $4,671,820 $2,734,209 =========== =========== =========== =========== ========== ==========
See accompanying notes. 110 JOHN HANCOCK VARIABLE LIFE ACCOUNT U STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED) YEARS AND PERIODS ENDED DECEMBER 31,
INTERNATIONAL BALANCED SUBACCOUNT MID CAP GROWTH SUBACCOUNT --------------------------------------- ------------------------------------------- 1999 1998 1997 1999 1998 1997 ----------- ----------- ----------- ------------ ------------ ------------ Increase (decrease) in net assets from operations: Net investment income (loss)............ $ 92,816 $ 52,891 $ 28,109 $ 2,058,661 $ 445,161 $ (5,801) Net realized gains (losses)............. 4,711 (4,506) 12,000 773,222 73,958 394 Net unrealized appreciation (depreciation) during the period....... (38,997) 78,455 (41,999) 6,801,000 647,137 199,441 ----------- ----------- ----------- ------------ ------------ ------------ Net increase (decrease) in net assets resulting from operations............... 58,530 126,840 (1,890) 9,632,883 1,166,256 194,034 From policyholder transactions: Net premiums from policyholders......... 377,958 341,482 602,033 8,941,124 3,164,065 1,031,218 Net benefits to policyholders........... (131,331) (310,766) (102,953) (2,937,257) (612,975) (294,344) Net increase in policy loans............ -- -- -- -- -- -- ----------- ----------- ----------- ------------ ------------ ------------ Net increase in net assets resulting from policyholder transactions............... 246,627 30,716 499,080 6,003,867 2,551,090 736,874 ----------- ----------- ----------- ------------ ------------ ------------ Net increase in net assets............... 305,157 157,556 497,190 15,636,750 3,717,346 930,908 Net assets at beginning of period........ 872,075 714,519 217,329 5,215,505 1,498,159 567,251 ----------- ----------- ----------- ------------ ------------ ------------ Net assets at end of period.............. $ 1,177,232 $ 872,075 $ 714,519 $ 20,852,255 $ 5,215,505 $ 1,498,159 =========== =========== =========== ============ ============ ============
LARGE CAP VALUE SUBACCOUNT MONEY MARKET SUBACCOUNT --------------------------------------- ------------------------------------------- 1999 1998 1997 1999 1998 1997 ----------- ----------- ----------- ------------ ------------ ------------ Increase (decrease) in net assets from operations: Net investment income................... $ 593,922 $ 388,873 $ 241,145 $ 3,517,874 $ 3,481,729 $ 3,342,641 Net realized gains...................... 165,556 673,582 217,073 -- -- -- Net unrealized appreciation (depreciation) during the period....... (569,216) (479,093) 532,936 -- -- -- ----------- ----------- ----------- ------------ ------------ ------------ Net increase in net assets resulting from operations.............................. 190,262 583,362 991,154 3,517,874 3,481,729 3,342,641 From policyholder transactions: Net premiums from policyholders......... 3,166,658 4,214,076 3,739,319 33,694,123 24,612,731 19,023,054 Net benefits to policyholders........... (1,903,017) (3,212,048) (1,140,574) (30,672,090) (24,024,723) (20,817,572) Net increase in policy loans............ -- -- -- -- 421,166 390,775 ----------- ----------- ----------- ------------ ------------ ------------ Net increase (decrease) in net assets resulting from policyholder transactions............................ 1,263,641 1,002,028 2,598,745 3,022,033 1,009,174 (1,403,743) ----------- ----------- ----------- ------------ ------------ ------------ Net increase in net assets............... 1,453,903 1,585,390 3,589,899 6,539,907 4,490,903 1,938,898 Net assets at beginning of period........ 8,099,390 6,514,000 2,924,101 70,098,734 65,607,831 63,668,933 ----------- ----------- ----------- ------------ ------------ ------------ Net assets at end of period.............. $ 9,553,293 $ 8,099,390 $ 6,514,000 $ 76,638,641 $ 70,098,734 $ 65,607,831 =========== =========== =========== ============ ============ ============
See accompanying notes. 111 JOHN HANCOCK VARIABLE LIFE ACCOUNT U STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED) YEARS AND PERIODS ENDED DECEMBER 31,
MID CAP VALUE SUBACCOUNT SMALL/MID CAP GROWTH SUBACCOUNT --------------------------------------- ---------------------------------------------- 1999 1998 1997 1999 1998 1997 ----------- ----------- ----------- ------------- ------------- ------------- Increase (decrease) in net assets from operations: Net investment income................ $ 1,508 $ 16,578 $ 172,261 $ 1,833,840 $ 154,352 $ 968,412 Net realized gains (losses).......... (241,740) (422,902) 121,152 (13,020) 56,968 533,297 Net unrealized appreciation (depreciation) during the period.... 469,537 (260,362) (86,033) (1,274,161) 334,213 (1,073,252) ----------- ----------- ----------- ------------- ------------- ------------- Net increase (decrease) in net assets resulting from operations............ 229,305 (666,686) 207,380 546,659 545,533 428,457 From policyholder transactions: Net premiums from policyholders...... 1,886,594 5,997,691 2,070,644 3,493,643 3,953,326 6,338,416 Net benefits to policyholders........ (1,745,112) (2,912,034) (190,430) (3,105,108) (3,311,846) (3,379,629) Net increase in policy loans......... -- -- -- -- -- -- ----------- ----------- ----------- ------------- ------------- ------------- Net increase in net assets resulting from policyholder transactions....... 141,482 3,085,657 1,880,214 388,535 641,480 2,958,787 ----------- ----------- ----------- ------------- ------------- ------------- Net increase in net assets............ 370,787 2,418,971 2,087,594 935,194 1,187,013 3,387,244 Net assets at beginning of period..... 4,865,793 2,446,822 359,228 11,474,379 10,287,366 6,900,122 ----------- ----------- ----------- ------------- ------------- ------------- Net assets at end of period........... $ 5,236,580 $ 4,865,793 $ 2,446,822 $ 12,409,573 $ 11,474,379 $ 10,287,366 =========== =========== =========== ============= ============= =============
REAL ESTATE EQUITY SUBACCOUNT GROWTH & INCOME SUBACCOUNT --------------------------------------- ------------------------------------------------ 1999 1998 1997 1999 1998 1997 ----------- ----------- ----------- -------------- -------------- ------------- Increase (decrease) in net assets from operations: Net investment income................ $ 823,618 $ 876,235 $ 1,021,142 $ 131,096,419 $ 102,464,177 $ 105,589,330 Net realized gains................... 123,591 442,876 551,925 22,802,197 22,835,488 16,543,458 Net unrealized appreciation (depreciation) during the period.... (1,106,755) (3,720,942) 447,661 7,687,109 112,457,395 67,250,127 ----------- ----------- ----------- -------------- -------------- ------------- Net increase (decrease) in net assets resulting from operations............ (159,546) (2,401,831) 2,020,728 161,585,725 237,757,060 189,382,915 From policyholder transactions: Net premiums from policyholders...... 2,304,591 6,295,255 7,786,904 101,973,160 92,955,980 86,308,294 Net benefits to policyholders........ (3,311,591) (5,507,305) (5,481,110) (133,701,210) (134,661,151) (115,839,460) Net increase (decrease) in policy loans............................... -- (83,216) 265,517 -- 18,165,114 18,568,293 ----------- ----------- ----------- -------------- -------------- ------------- Net increase (decrease) in net assets resulting from policyholder transactions......................... (1,007,000) 704,734 2,571,311 (31,728,050) (23,540,057) (10,962,873) ----------- ----------- ----------- -------------- -------------- ------------- Net increase (decrease) in net assets (1,166,546) (1,697,097) 4,592,039 129,857,675 214,217,003 178,420,042 Net assets at beginning of period..... 14,545,018 16,242,115 11,650,076 1,148,881,879 934,664,876 756,244,834 ----------- ----------- ----------- -------------- -------------- ------------- Net assets at end of period........... $13,378,472 $14,545,018 $16,242,115 $1,278,739,554 $1,148,881,879 $ 934,664,876 =========== =========== =========== ============== ============== =============
See accompanying notes. 112 JOHN HANCOCK VARIABLE LIFE ACCOUNT U STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED) YEARS AND PERIODS ENDED DECEMBER 31,
MANAGED SUBACCOUNT SHORT-TERM BOND SUBACCOUNT ------------------------------------------ --------------------------------------- 1999 1998 1997 1999 1998 1997 ------------ ------------ ------------ ----------- ----------- ---------- Increase (decrease) in net assets from operations: Net investment income................ $ 42,532,921 $ 40,475,436 $ 35,315,509 $ 48,624 $ 28,209 $ 19,877 Net realized gains (losses).......... 5,060,826 5,853,076 5,663,060 (3,107) 2,008 235 Net unrealized appreciation (depreciation) during the period.... (9,288,287) 24,834,482 16,843,903 (23,648) (5,287) 1,405 ------------ ------------ ------------ ----------- ----------- ---------- Net increase (decrease) in net assets resulting from operations............ 38,305,460 71,162,994 57,822,472 21,869 24,930 21,517 From policyholder transactions: Net premiums from policyholders...... 44,546,082 40,631,684 40,318,523 690,849 435,150 278,114 Net benefits to policyholders........ (55,332,758) (55,447,667) (54,498,285) (178,124) (274,762) (218,771) Net increase in policy loans......... -- 5,379,590 4,761,829 -- -- -- ------------ ------------ ------------ ----------- ----------- ---------- Net increase (decrease) in net assets resulting from policyholder transactions......................... (10,786,676) (9,436,393) (9,417,933) 512,725 160,388 59,343 ------------ ------------ ------------ ----------- ----------- ---------- Net increase in net assets............ 27,518,784 61,726,601 48,404,539 534,594 185,318 80,860 Net assets at beginning of period..... 472,553,966 410,827,365 362,422,826 594,889 409,571 328,711 ------------ ------------ ------------ ----------- ----------- ---------- Net assets at end of period........... $500,072,750 $472,553,966 $410,827,365 $ 1,129,483 $ 594,889 $ 409,571 ------------ ------------ ------------ ----------- ----------- ---------- SMALL CAP VALUE SUBACCOUNT INTERNATIONAL OPPORTUNITIES SUBACCOUNT ------------------------------------------ --------------------------------------- 1999 1998 1997 1999 1998 1997 ------------ ------------ ------------ ----------- ----------- ---------- Increase (decrease) in net assets from operations: Net investment income................ $ 72,629 $ 1,070 $ 245,833 $ 330,389 $ 8,318 $ 23,536 Net realized gains (losses).......... (217,582) 61,917 129,604 123,861 64,757 78,058 Net unrealized appreciation (depreciation) during the period.... (40,472) (364,359) (32,439) 839,140 339,709 (141,034) ------------ ------------ ------------ ----------- ----------- ---------- Net increase (decrease) in net assets resulting from operations............ (185,425) (301,372) 342,998 1,293,390 412,784 (39,440) From policyholder transactions: Net premiums from policyholders...... 1,446,109 2,644,808 2,466,836 1,632,955 2,203,753 1,969,364 Net benefits to policyholders........ (1,547,128) (1,288,464) (358,679) (1,315,539) (1,443,700) (709,490) Net increase in policy loans......... -- -- -- -- -- -- ------------ ------------ ------------ ----------- ----------- ---------- Net increase (decrease) in net assets resulting from policyholder transactions......................... (101,019) 1,356,344 2,108,157 317,416 760,053 1,259,874 ------------ ------------ ------------ ----------- ----------- ---------- Net increase (decrease) in net assets (286,444) 1,054,972 2,451,155 1,610,806 1,172,837 1,220,434 Net assets at beginning of period..... 4,397,860 3,342,888 891,733 3,699,780 2,526,943 1,306,509 ------------ ------------ ------------ ----------- ----------- ---------- Net assets at end of period........... $ 4,111,416 $ 4,397,860 $ 3,342,888 $ 5,310,586 $ 3,699,780 $2,526,943 ============ ============ ============ =========== =========== ==========
See accompanying notes. 113 JOHN HANCOCK VARIABLE LIFE ACCOUNT U STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED) YEARS AND PERIODS ENDED DECEMBER 31,
EQUITY INDEX SUBACCOUNT GLOBAL BOND SUBACCOUNT -------------------------------------- ------------------------------------- 1999 1998 1997 1999 1998 1997 ------------ ------------ ----------- ----------- ------------ ------------- Increase (decrease) in net assets from operations: Net investment income......................... $ 817,715 $ 307,010 $ 192,049 $ 81,580 $ 54,728 $ 78,770 Net realized gains (losses)................... 471,802 132,619 38,987 (1,996) 32,917 5,891 Net unrealized appreciation (depreciation) during the period............................ 2,019,913 2,082,107 1,193,531 (126,001) 11,342 (3,195) ----------- ----------- ---------- ---------- ----------- ---------- Net increase (decrease) in net assets resulting from operations............................... 3,309,430 2,521,736 1,424,567 (46,417) 98,987 81,466 From policyholder transactions: Net premiums from policyholders............... 7,762,529 4,632,113 6,068,371 1,115,699 798,933 807,985 Net benefits to policyholders................. (2,563,485) (1,120,852) (260,531) (292,075) (1,158,109) (201,240) Net increase in policy loans.................. -- -- -- -- -- -- ----------- ----------- ---------- ---------- ----------- ---------- Net increase (decrease) in net assets resulting from policyholder transactions................ 5,199,044 3,511,261 5,807,840 823,624 (359,176) 606,745 ----------- ----------- ---------- ---------- ----------- ---------- Net increase (decrease) in net assets.......... 8,508,474 6,032,997 7,232,407 777,207 (260,189) 688,211 Net assets at beginning of period.............. 13,609,150 7,576,153 343,746 1,105,468 1,365,657 677,446 ----------- ----------- ---------- ---------- ----------- ---------- Net assets at end of period.................... $22,117,624 $13,609,150 $7,576,153 $1,882,675 $ 1,105,468 $1,365,657 =========== =========== ========== ========== =========== ==========
TURNER CORE GROWTH SUBACCOUNT BRANDES INTERNATIONAL EQUITY SUBACCOUNT ------------------------------- ---------------------------------------- 1999 1998 1997 1999 1998 1997 ---------- --------- --------- ------------ ------------ -------------- Increase (decrease) in net assets from operations: Net investment income.......................... $ 35,936 $ 4,513 $ 10,585 $ 16,549 $ 12,094 $ 1,532 Net realized gains............................. 44,245 14,364 3,166 7,704 1,184 133 Net unrealized appreciation during the period.. 37,727 49,605 12,370 119,400 15,813 2,674 --------- -------- -------- -------- -------- -------- Net increase in net assets resulting from operations..................................... 117,908 68,482 26,121 143,653 29,091 4,339 From policyholder transactions: Net premiums from policyholders................ 240,351 203,590 91,440 239,618 55,021 146,796 Net benefits to policyholders.................. (136,661) (77,651) (9,878) (29,520) (10,341) (34,985) Net increase in policy loans................... -- -- -- -- -- -- --------- -------- -------- -------- -------- -------- Net increase in net assets resulting from policyholder transactions...................... 103,690 125,939 81,562 210,098 44,680 111,811 --------- -------- -------- -------- -------- -------- Net increase in net assets...................... 221,598 194,421 107,683 353,751 73,771 116,150 Net assets at beginning of period 314,594 120,173 12,490 234,377 160,606 44,456 --------- -------- -------- -------- -------- -------- Net assets at end of period..................... $ 536,192 $314,594 $120,173 $588,128 $234,377 $160,606 ========= ======== ======== ======== ======== ========
See accompanying notes. 114 JOHN HANCOCK VARIABLE LIFE ACCOUNT U STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED) YEARS AND PERIODS ENDED DECEMBER 31,
FRONTIER CAPITAL EMERGING MARKETS EQUITY GLOBAL APPRECIATION SUBACCOUNT SUBACCOUNT EQUITY SUBACCOUNT -------------------------------- ------------------------ --------------------- 1999 1998 1997 1999 1998* 1999 1998* --------- ---------- --------- ------------ ---------- --------- ---------- Increase (decrease) in net assets from operations: Net investment income (loss).......... $ 17,768 $ (208) $ 7,522 $ 12,790 $ 1 $ 241 $ 1 Net realized gains.................... 22,678 12,123 9,048 5,339 -- 602 1 Net unrealized appreciation (depreciation) during the period..... 164,599 (17,930) 40,541 86,570 10 13,424 45 -------- --------- -------- --------- -------- -------- ------- Net increase (decrease) in net assets resulting from operations............. 205,045 (6,015) 57,111 104,699 11 14,267 47 From policyholder transactions: Net premiums from policyholders....... 255,268 128,779 327,804 433,406 2,018 108,420 915 Net benefits to policyholders......... (89,136) (146,083) (47,276) (144,400) -- (11,064) (13) Net increase in policy loans.......... -- -- -- -- -- -- -- -------- --------- -------- --------- -------- -------- ------- Net increase (decrease) in net assets resulting from policyholder transactions.......................... 166,132 (17,304) 280,528 289,006 2,018 97,356 902 -------- --------- -------- --------- -------- -------- ------- Net increase (decrease) in net assets.. 371,177 (23,319) 337,639 393,705 2,029 111,623 949 Net assets at beginning of period...... 357,497 380,816 43,177 2,029 0 949 0 -------- --------- -------- --------- -------- -------- ------- Net assets at end of period............ $728,674 $ 357,497 $380,816 $ 395,734 $ 2,029 $112,572 $ 949 ======== ========= ======== ========= ======== ======== =======
ENHANCED U.S. SMALL/MID HIGH YIELD EQUITY BOND INDEX SUBACCOUNT CAP CORE SUBACCOUNT BOND SUBACCOUNT SUBACCOUNT ----------------------- --------------------- ------------------ --------------- 1999 1998* 1999 1998* 1999 1998* 1999** ----------- ---------- ---------- --------- --------- ------- --------------- Increase (decrease) in net assets from operations: Net investment income (loss).......... $ 15,852 $ 146 $ 6,632 $ -- $ 2,542 $ 18 $ 1,113 Net realized gains (losses)........... (1,422) (1) 252 -- (186) -- 91 Net unrealized appreciation (depreciation) during the period..... (22,820) (196) 3,005 6 (511) (26) (879) -------- ------- ------- ---- -------- ------ ------- Net increase (decrease) in net assets resulting from operations............. (8,390) (51) 9,889 6 1,845 (8) 325 From policyholder transactions: Net premiums from policyholders....... 412,326 10,254 97,385 104 98,955 2,887 13,814 Net benefits to policyholders......... (26,307) (69) (7,901) (2) (13,078) -- -- Net increase in policy loans.......... -- -- -- -- -- -- -- -------- ------- ------- ---- -------- ------ ------- Net increase in net assets resulting from policyholder transactions........ 386,019 10,185 89,484 102 85,877 2,887 13,814 -------- ------- ------- ---- -------- ------ ------- Net increase in net assets............. 377,629 10,134 99,373 108 87,722 2,879 14,139 Net assets at beginning of period...... 10,134 0 108 0 2,879 0 0 -------- ------- ------- ---- -------- ------ ------- Net assets at end of period............ $387,763 $10,134 $99,481 $108 $ 90,601 $2,879 $14,139 ======== ======= ======= ==== ======== ====== =======
--------- * From May 1, 1998 (commencement of operations). ** From March 9, 1999 (commencement of operations). See accompanying notes. 115 JOHN HANCOCK VARIABLE LIFE ACCOUNT U NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1999 1. ORGANIZATION John Hancock Variable Life Account U (the Account) is a separate investment account of John Hancock Variable Life Insurance Company (JHVLICO), a wholly-owned subsidiary of John Hancock Mutual Life Insurance Company (John Hancock). The Account was formed to fund variable life insurance policies (Policies) issued by JHVLICO. The Account is operated as a unit investment trust registered under the Investment Company Act of 1940, as amended, and currently consists of twenty-seven subaccounts. The assets of each subaccount are invested exclusively in shares of a corresponding Portfolio of John Hancock Variable Series Trust I (the Fund) or of M Fund Inc. (M Fund). New subaccounts may be added as new Portfolios are added to the Fund or to M Fund, or as other investment options are developed and made available to policyholders. The twenty-seven Portfolios of the Fund and M Fund which are currently available are the Large Cap Growth, Sovereign Bond, International Equity Index, Small Cap Growth, International Balanced, Mid Cap Growth, Large Cap Value, Money Market, Mid Cap Value, Small/Mid Cap Growth (formerly, Diversified Mid Cap Growth), Real Estate Equity, Growth & Income, Managed, Short-Term Bond, Small Cap Value, International Opportunities, Equity Index, Global Bond (formerly, Strategic Bond), Turner Core Growth, Brandes International Equity, Frontier Capital Appreciation, Emerging Markets Equity, Global Equity, Bond Index, Small/Mid Cap CORE, High Yield Bond, and Enhanced U.S. Equity Portfolios. Each Portfolio has a different investment objective. The net assets of the Account may not be less than the amount required under state insurance law to provide for death benefits (without regard to the minimum death benefit guarantee) and other policy benefits. Additional assets are held in JHVLICO's general account to cover the contingency that the guaranteed minimum death benefit might exceed the death benefit which would have been payable in the absence of such guarantee. The assets of the Account are the property of JHVLICO. The portion of the Account's assets applicable to the policies may not be charged with liabilities arising out of any other business JHVLICO may conduct. 2. SIGNIFICANT ACCOUNTING POLICIES Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, and disclosure of contingent assets and liabilities, at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Valuation of Investments Investment in shares of the Fund and of M Fund are valued at the reported net asset values of the respective Portfolios. Investment transactions are recorded on the trade date. Dividend income is recognized on the ex-dividend date. Realized gains and losses on sales of underlying portfolio shares are determined on the basis of identified cost. Federal Income Taxes The operations of the Account are included in the federal income tax return of JHVLICO, which is taxed as a life insurance company under the Internal Revenue Code. JHVLICO has the right to charge the Account any federal income taxes, or provision for federal income taxes, attributable to the operations of the Account or to the policies funded in the Account. Currently, JHVLICO does not make a charge for income or other taxes. Charges for state and local taxes, if any, attributable to the Account may also be made. 116 JOHN HANCOCK VARIABLE LIFE ACCOUNT U NOTES TO FINANCIAL STATEMENTS--CONTINUED Expenses JHVLICO assumes mortality and expense risks of the variable life insurance policies for which asset charges are deducted at an annual rate of .50% of net assets (excluding policy loans) of the Account. Additionally, a monthly charge at varying levels for the cost of extra insurance is deducted from the net assets of the Account. JHVLICO makes certain deductions for administrative expenses and state premium taxes from premium payments before amounts are transferred to the Account. With respect to the single premium policy, during the first nine years after policy issue, JHVLICO assesses a contingent deferred sales charge at varying levels in the event of early surrender of the variable life insurance policy. Policy Loans Policy loans represent outstanding loans plus accrued interest. Interest is accrued (net of a charge for policy loan administration determined at an annual rate of .75% of the aggregate amount of policyowner indebtedness) and compounded daily. 3. TRANSACTIONS WITH AFFILIATES John Hancock acts as the distributor, principal underwriter and investment advisor for the Fund. Certain officers of the Account are officers and directors of JHVLICO, the Fund or John Hancock. 117 JOHN HANCOCK VARIABLE LIFE ACCOUNT U NOTES TO FINANCIAL STATEMENTS--CONTINUED 4. DETAILS OF INVESTMENTS The details of the shares owned and cost and value of investments in the Portfolios of the Fund and of M Fund at December 31, 1999 are as follows: PORTFOLIO SHARES OWNED COST VALUE --------- ------------ ------------ ---------------- Large Cap Growth............... 5,741,593 $120,709,045 $ 156,931,243 Sovereign Bond................. 25,890,030 250,666,359 236,200,057 International Equity Index..... 1,479,056 24,178,244 29,055,936 Small Cap Growth............... 566,326 7,786,928 10,825,578 International Balanced......... 109,967 1,176,141 1,177,232 Mid Cap Growth................. 713,403 13,208,576 20,852,255 Large Cap Value................ 708,140 9,871,242 9,553,293 Money Market................... 6,251,999 62,519,986 62,519,986 Mid Cap Value.................. 409,851 5,090,205 5,236,581 Small/Mid Cap Growth........... 884,190 13,682,215 12,409,573 Real Estate Equity............. 1,000,760 13,989,522 11,482,706 Growth & Income................ 54,521,668 796,471,840 1,091,050,404 Managed........................ 27,360,590 363,175,625 422,672,470 Short-Term Bond................ 116,179 1,157,416 1,129,483 Small Cap Value................ 376,603 4,498,794 4,111,416 International Opportunities.... 350,017 4,215,384 5,310,586 Equity Index................... 1,081,124 16,808,530 22,117,624 Global Bond.................... 191,740 1,993,841 1,882,675 Turner Core Growth............. 23,384 436,035 536,192 Brandes International Equity... 37,895 449,896 588,128 Frontier Capital Appreciation.. 34,502 539,359 728,674 Emerging Markets Equity........ 32,273 309,153 395,733 Global Equity.................. 9,277 99,103 112,572 Bond Index..................... 41,614 410,779 387,762 Small/Mid Cap CORE............. 10,135 96,470 99,481 High Yield Bond................ 10,083 91,148 90,611 Enhanced U.S. Equity........... 674 15,019 14,140 118 JOHN HANCOCK VARIABLE LIFE ACCOUNT U NOTES TO FINANCIAL STATEMENTS--CONTINUED Purchases, including reinvestment of dividend distributions, and proceeds from the sales of shares in the Portfolios of the Fund and of M Fund during 1999, were as follows: PORTFOLIO PURCHASES SALES --------- ------------ ------------- Large Cap Growth.................... $ 40,147,156 $ 8,250,657 Sovereign Bond...................... 27,217,744 17,748,511 International Equity Index.......... 4,421,148 3,377,977 Small Cap Growth.................... 4,824,260 1,479,601 International Balanced.............. 640,162 300,719 Mid Cap Growth...................... 9,490,182 1,427,655 Large Cap Value..................... 2,984,422 1,126,859 Money Market........................ 21,519,371 15,378,894 Mid Cap Value....................... 1,426,492 1,283,502 Small/Mid Cap Growth................ 3,998,048 1,775,674 Real Estate Equity.................. 1,670,570 1,772,028 Growth & Income..................... 133,888,047 52,458,290 Managed............................. 46,301,140 19,231,354 Short-Term Bond..................... 682,313 120,964 Small Cap Value..................... 1,054,005 1,082,396 International Opportunities......... 1,758,914 1,111,110 Equity Index........................ 7,177,051 1,160,291 Global Bond......................... 1,188,656 283,452 Turner Core Growth.................. 279,803 140,177 Brandes International Equity........ 255,671 29,025 Frontier Capital Appreciation....... 401,413 217,513 Emerging Markets Equity............. 454,479 152,683 Global Equity....................... 107,485 9,888 Bond Index.......................... 429,057 27,186 Small/Mid Cap CORE.................. 106,540 10,425 High Yield Bond..................... 99,666 11,238 Enhanced U.S. Equity................ 26,361 11,432 119 ALPHABETICAL INDEX OF KEY WORDS AND PHRASES This index should help you locate more information about many of the important concepts in this prospectus. KEY WORD OR PHRASE PAGE KEY WORD OR PHRASE PAGE Account.................... 33 minimum premiums............ 6 account value.............. 9 modified endowment.......... 41 Additional Sum Insured..... 17 monthly deduction date...... 35 asset-based risk charge.... 10 Option A; Option B.......... 17 asset rebalancing.......... 15 optional benefits charge.... 10 attained age............... 10 owner....................... 5 Basic Sum Insured.......... 17 partial withdrawal.......... 15 beneficiary................ 44 partial withdrawal charge... 11 business day............... 34 payment options............. 21 changing Option A or B..... 20 Planned Premium............. 6 changing the Total Sum policy anniversary.......... 35 Insured................... 20 policy year................. 35 charges.................... 9 premium; premium payment.... 5 Code....................... 40 prospectus.................. 2 cost of insurance rates.... 10 receive; receipt............ 24 date of issue.............. 35 reinstate; reinstatement.... 8 death benefit.............. 5 sales charges............... 9 deductions................. 9 SEC......................... 2 dollar cost averaging...... 15 Separate Account U.......... 33 expenses of the Trusts..... 11 Servicing Office............ 2 fixed investment option.... 34 special loan account........ 16 full surrender............. 15 subaccount.................. 33 funds...................... 2 surrender................... 5 grace period............... 8 surrender value............. 15 guaranteed death benefit Target Premium.............. 9 feature................... 7 tax considerations.......... 40 Guaranteed Death Benefit telephone transactions...... 24 Premium................... 7 Total Sum Insured........... 17 insurance charge........... 10 transfers of account value.. 14 insured person............. 5 Trusts...................... 2 investment options......... 1 variable investment options. 1 JHVLICO.................... 33 we; us...................... 33 lapse...................... 7 withdrawal.................. 15 loan....................... 16 withdrawal charge........... 11 loan interest.............. 16 you; your................... 5 Maximum Monthly Benefit.... 19 maximum premiums........... 6 Minimum Initial Premium.... 34 minimum insurance amount... 17 120 PART II UNDERTAKING TO FILE REPORTS Subject to the terms and conditions of Section 15(d) of the Securities Exchange Act of 1934, the undersigned registrant hereby undertakes to file with the Securities and Exchange Commission such supplementary and periodic information, documents, and reports as may be prescribed by any rule or regulation of the Commission heretofore or hereafter duly adopted pursuant to authority conferred in that Section. REPRESENTATION OF REASONABLENESS John Hancock Variable Life Insurance Company represents that the fees and charges deducted under the Policies, in the aggregate, are reasonable in relation to the services rendered, the expenses expected to be incurred, and the risks assumed by the insurance company. UNDERTAKING REGARDING INDEMNIFICATION Pursuant to Section X of JHVLICO's Bylaws and Section 67 of the Massachusetts Business Corporation Law, JHVLICO indemnifies each director, former director, officer, and former officer, and his heirs and legal representatives from liability incurred or imposed in connection with any legal action in which he may be involved by reason of any alleged act or omission as an officer or a director of JHVLICO. Insofar as indemnification for liability arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue. CONTENTS OF REGISTRATION STATEMENT This Registration Statement comprises the following Papers and Documents: The facing sheet. Cross-Reference Table. The prospectuses containing 120 pages. The undertaking regarding indemnification. The undertaking to file reports. The signatures. The following exhibits: 1.A. (1) JHVLICO Board Resolution establishing the separate account included in Post-Effective Amendment No. 2 on Form S-6 Registration Statement to File No. 33-76660, filed March 5, 1996 is incorporated by reference. (2) Not Applicable. (3) (a) Form of Distribution Agreement by and among Signator Investors, Inc. (previously known as "John Hancock Distributors, Inc."), John Hancock Mutual Life Insurance Company, and John Hancock Variable Life Insurance Company, incorporated by reference from Pre- Effective Amendment No. 2 to Form S-6 Registration Statement of John Hancock Variable Life Account S (File No. 333-15075) filed April 18, 1997. (b) Specimen Variable Contracts Selling Agreement between Signator Investors, Inc., and selling broker-dealers, incorporated by reference from Pre-Effective Amendment No. 2 to Form S-6 Registration Statement of John Hancock Variable Life Account S (File No. 333-15075) filed April 18, 1997. (c) Schedule of Sales Commissions included in I. A. (3)(a) above. (4) Not Applicable. (5) Form of flexible premium variable insurance policy included in the initial registration statement on Form S-6 of this account for flexible premium policies, filed March 18, 1994 (File No. 33-76660) is incorporated by reference. (6) Certificate of Incorporation and By-Laws of John Hancock Variable Life Insurance Company included in Post-Effective Amendment No. 2 on Form S-6 Registration Statement to File 76660, filed March 5, 1996 is incorporated by reference. (7) Not Applicable. (8) Not Applicable. (9) Not Applicable. (10) Form of application for Policy included in Post-Effective Amendment No. 2 on Form S-6 Registration Statement, filed March 5, 1996 to File No. 33-76660 is incorporated by reference. (11) Not Applicable. The Registrant invests only in shares of open-end Funds. 2. Included as exhibit 1.A (5) above. 3. Opinion and consent of counsel as to securities being registered, (previously filed in Pre-Effective Amendment No. 1 on February 27, 2001). 4. Not Applicable. 5. Not Applicable. 6. Opinion and consent of actuary (previously filed in the Initial Registration Statement on December 19, 2000). 7. Consent of independent auditors (previously filed in Pre-Effective Amendment No. 1 on February 27, 2001). 8. Memorandum describing John Hancock's issuance, transfer and redemption procedures for flexible premium policies pursuant to Rule 6e-3(T)(b)(12)(iii), included in Post-Effective Amendment No. 2 on Form S-6 Registration Statement to File No. 33-76660, filed March 5, 1996 is incorporated by reference. 9. Powers of Attorney for Bruce M. Jones and Paul Strong, incorporated by reference from Post-Effective Amendment No. 2 to File No. 333-81127, filed on May 4, 2000. Power of Attorney for Ronald J. Bocage, incorporated by reference from Form 10-K annual report of John Hancock Variable Life Insurance Company (File No. 33-62895) filed March 28, 1997. Powers of attorney for Tomlinson, D'Alessandro, Shaw, Luddy, Lee, Reitano, Van Leer and Paster included in Post-Effective Amendment No. 2 on Form S-6 Registration Statement to File No. 33-76660, filed March 5, 1996 is incorporated by reference. 10. Representations, Description and Undertaking pursuant to Rule 6e-3(T)(b)(13)(iii)(F) under the Investment Company Act of 1940 included in Post-Effective Amendment No. 2 on Form S-6 Registration Statement to File No. 33-76660, filed March 5, 1996 is incorporated by reference. SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the John Hancock Variable Life Insurance Company has duly caused this Pre-Effective Amendment to the Registration Statement to be signed on its behalf by the undersigned, thereunder duly authorized, and its seal to be hereunto fixed and attested, all in the City of Boston and Commonwealth of Massachusetts on the 5th day of March, 2001. JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY (SEAL) By /s/ MICHELE G. VAN LEER ----------------------- Michele G. Van Leer Vice Chairman and President Attest: /s/ PETER SCAVONGELLI --------------------- Peter Scavongelli Assistant Secretary Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed below by the following persons in the capacities with John Hancock Variable Life Insurance Company and on the dates indicated. Signatures Title Date ---------- ----- ---- /s/ EARL W. BAUCOM ------------------- Earl W. Baucom Controller (Principal Accounting March 5, 2001 Officer) /s/ JULIE H. INDGE ------------------- Julie H. Indge Treasurer (Principal Financial March 5, 2001 Officer) /s/ MICHELE G. VAN LEER ----------------------- Michele G. Van Leer Vice Chairman of the Board March 5, 2001 for herself and as and President(Acting Principal Attorney-in-Fact Executive Officer) For: David F. D'Alessandro Chairman of the Board Robert S. Paster Director Thomas J. Lee Director Bruce M. Jones Director Paul Strong Director Barbara L. Luddy Director Ronald J. Bocage Director Robert R. Reitano Director