-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, V/vw2tHj3lGrxAVGLpN+VFEs8W0nesoI53DyHF6RNUMe+nko/OSotQy+ipW7O2Y0 a8+/bWlQEmm2Rw5/Dng9Lg== 0000927016-01-500660.txt : 20010507 0000927016-01-500660.hdr.sgml : 20010507 ACCESSION NUMBER: 0000927016-01-500660 CONFORMED SUBMISSION TYPE: S-6 PUBLIC DOCUMENT COUNT: 2 FILED AS OF DATE: 20010504 FILER: COMPANY DATA: COMPANY CONFORMED NAME: HANCOCK JOHN VARIABLE LIFE ACCOUNT S CENTRAL INDEX KEY: 0000906790 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 042664016 STATE OF INCORPORATION: MA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-6 SEC ACT: SEC FILE NUMBER: 333-60274 FILM NUMBER: 1623118 BUSINESS ADDRESS: STREET 1: 200 CLARENDON STREET STREET 2: PO BOX 111 CITY: BOSTON STATE: MA ZIP: 02117 BUSINESS PHONE: 6175729196 S-6 1 ds6.txt JHVLICO LIFE ACCOUNT S As filed with the Securities and Exchange Commission on May 4, 2001 Registration No. 33-_____ - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ----------------------- FORM S-6 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [X] ---------------------- JOHN HANCOCK VARIABLE LIFE ACCOUNT S (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. JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY INSURANCE & SEPARATE ACCOUNTS DEPT.-LAW SECTOR JOHN HANCOCK PLACE, BOSTON, 02117 (Name and complete address of agent for service) -------------------- Copy to: THOMAS C. LAUERMAN 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 life insurance policy. 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 5(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 Sections 8(a), may determine. PROSPECTUS DATED JUNE 1, 2001 MAJESTIC VARIABLE COLI a flexible premium variable 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 - -------------------------- ---------- Equity Index................................................... State Street Global Advisors Growth & Income................................................ Independence Investment LLC and Putnam Investment Management, LLC Large Cap Value................................................ T. Rowe Price Associates, Inc. Large Cap Value CORE /SM/...................................... Goldman Sachs Asset Management Large Cap Growth............................................... Independence Investment LLC Large Cap Aggressive Growth.................................... Alliance Capital Management L.P. Large/Mid Cap Value............................................ Wellington Management Company, LLP Fundamental Growth............................................. Putnam Investment Management, LLC Mid Cap Growth................................................. Janus Capital Corporation 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 Value................................................ T. Rowe Price Associates, Inc. Small Cap Growth............................................... John Hancock Advisers, Inc. V.A. Relative Value............................................ John Hancock Advisers, Inc. AIM V.I. Value................................................. A I M Advisors, Inc. AIM V.I. Growth................................................ A I M Advisors, Inc. Fidelity VIP Growth............................................ Fidelity Management and Research Company Fidelity VIP Contrafund/(R)/................................... Fidelity Management and Research Company MFS Investors Growth Stock..................................... MFS Investment Management/(R)/ MFS Research................................................... MFS Investment Management/(R)/ MFS New Discovery.............................................. MFS Investment Management/(R)/ International Equity Index..................................... Independence Investment LLC International Opportunities.................................... T. Rowe Price International, Inc. International Equity........................................... Goldman Sachs Asset Management Emerging Markets Equity........................................ Morgan Stanley Investment Management Inc. Janus Aspen Worldwide Growth................................... Janus Capital Corporation Real Estate Equity............................................. Independence Investment LLC and Morgan Stanley Investment Management Inc. Health Sciences................................................ John Hancock Advisers, Inc. V.A. Financial Industries...................................... John Hancock Advisers, Inc. Janus Aspen Global Technology.................................. Janus Capital Corporation Managed........................................................ Independence Investment LLC and Capital Guardian Trust Company Global Balanced................................................ Capital Guardian Trust Company Short-Term Bond................................................ Independence Investment LLC Bond Index..................................................... Mellon Bond Associates, LLP Active Bond.................................................... John Hancock Advisers, Inc. V.A. Strategic Income.......................................... John Hancock Advisers, Inc. High Yield Bond................................................ Wellington Management Company, LLP Global Bond.................................................... Capital Guardian Trust Company Money Market................................................... Wellington Management Company, LLP Brandes International Equity................................... Brandes Investment Partners, L.P. Turner Core Growth............................................. Turner Investment Partners, Inc. Frontier Capital Appreciation.................................. Frontier Capital Management Company, LLC Clifton Enhanced U.S. Equity................................... The Clifton Group - ------------------------------------------------------------------------------------------------------------------------
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 John Hancock Declaration Trust, the AIM Variable Insurance Funds, Fidelity's Variable Insurance Products Fund (Service Class) and Variable Insurance Products Fund II (Service Class), the MFS Variable Insurance Trust (Initial Class Shares), the Janus Aspen Series (Service Shares Class), and the M Fund, Inc. (together, "the Series Funds"). In this prospectus, the investment options of the Series Funds are referred to as "funds". In the prospectuses for the Series Funds, the investment options may be referred to as "funds", "portfolios" or "series". Each Series Fund 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 Series Funds. Each of the funds is separately managed and has its own investment objective and strategies. Attached at the end of this prospectus are prospectuses for the Series Funds. The Series Fund 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 Charlestowne, MA 02129 Boston, MA 02117 Phone: 1-800-521-1234 Fax: 1-617-572-6956 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 is in a question and answer format. We suggest you read the Basic Information section 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 22. . Behind the illustrations is a section called "Additional Information" that gives more details about the policy. It generally does not --- repeat information that is in the Basic Information section. A table of contents for the Additional Information section appears on page 27. . Behind the Additional Information section are the financial statements for JHVLICO and Separate Account S. These start on page 41. . Finally, there is an Alphabetical Index of Key Words and Phrases at the back of the prospectus on page 126. After the Alphabetical Index of Key Words and Phrases, this prospectus ends and the prospectuses for the Series Funds begin. * * * * * * * * * * * * 3 BASIC INFORMATION This part of the prospectus provides answers to commonly asked questions about the policy. Question Beginning on page - -------- ----------------- .What is the policy?....................................... 5 .Who owns the policy?...................................... 5 .How can I invest money in the policy?..................... 5 .Is there a minimum amount I must invest?.................. 6 .How will the value of my investment in the policy change over time?................................................ 8 .What charges will JHVLICO deduct from my investment in the policy?............................................... 9 .What charges will the Series Funds deduct from my investment in the policy?................................. 10 .What other charges could JHVLICO impose in the future?.... 13 .How can I change my policy's investment allocations?...... 13 .How can I access my investment in the policy?............. 14 .How much will JHVLICO pay when the insured person dies?... 15 .How can I change my policy's insurance coverage?.......... 17 .Can I cancel my policy after it's issued?................. 18 .Can I choose the form in which JHVLICO pays out policy proceeds?................................................. 18 .To what extent can JHVLICO vary the terms and conditions of its policies in particular cases?...................... 19 .How will my policy be treated for income tax purposes?.... 19 .How do I communicate with JHVLICO?........................ 20 Here are the page numbers where the questions and answers appear: 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. 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 I 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. Minimum premium payment Each premium payment must be at least $100. 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. We'll monitor your premium payments and let you know if you're about to exceed this limit. More discussion of these tax law requirements begins on page 35. 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 or the guaranteed minimum death benefit feature from terminating. We reserve the right to limit premium payments above the amount of cumulative Guaranteed Minimum Death Benefit Premiums (whether or not the guaranteed minimum death benefit feature described on page 7 is 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 Life." We will not accept credit card checks. We will not accept starter or third party checks if they fail to satisfy our administrative requirements. Premiums after the first must be sent to the 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, 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 I 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. The premium reminder notice we send you is based on this amount. You will also choose how often to pay premiums-- annually, semi-annually, quarterly or monthly. The date on which such a payment is "due" is referred to in the policy as a "modal processing date." However, payment of Planned Premiums is not necessarily 6 required. You need only invest enough to keep the policy in force (see "Lapse and reinstatement" and "Guaranteed minimum death benefit feature" below). Lapse and reinstatement Either your entire policy or the Additional Sum Insured portion of your Total Sum Insured can terminate (i.e., "lapse") for failure to pay charges due under the policy. If the guaranteed minimum death benefit feature is in effect, only the Additional Sum Insured, if any, can lapse. If the guaranteed minimum death benefit feature is not in effect, the entire policy can lapse. In either case, --- if the policy's surrender value is not sufficient to pay the charges on a monthly deduction date, we will notify you of how much you will need to pay to keep any Additional Sum Insured or the policy in force. You will have a 61 day "grace period" to make that payment. If you don't pay at least the required amount by the end of the grace period, the Additional Sum Insured or your policy 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 1 year 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 minimum 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 such a grace period, you cannot make a partial withdrawal or policy loan. Guaranteed minimum death benefit feature This feature is available only if the insured person meets certain underwriting requirements and only if you've elected death benefit Option A (see "How much will JHVLICO pay when the last insured person dies?" on page 15) . The feature guarantees that your Basic Sum Insured will not lapse during the first 10 policy years, regardless of adverse investment performance, if both of the following are true: . any Additional Sum Insured under the policy is not scheduled to exceed the Basic Sum Insured at any time (see "How much will JHVLICO pay when the insured person dies?" on page 15), and . on each monthly deduction date during that 10 year period the amount of cumulative premiums you have paid accumulated at 4% (less all withdrawals from the policy accumulated at 4%) equals or exceeds the sum of all Guaranteed Minimum Death Benefit Premiums due to date accumulated at 4%. The Guaranteed Minimum Death Benefit Premium (or "GMDB Premium) is defined in the policy and is "due" on each monthly deduction date. The term "monthly deduction date" is defined on page 30. On the application for the policy, you may elect for this feature to extend beyond the tenth policy year. If you so elect, we will impose a special charge for this feature after the tenth policy year. You may revoke the election at any time. 7 No GMDB Premium will ever be greater than the so-called "guideline premium" for the policy as defined in Section 7702 of the Internal Revenue Code. Also, the GMDB Premiums may change in the event of any change in the Additional Sum Insured of the policy or any change in the death benefit option (see "How much will JHVLICO pay when the insured person dies?" on page 15). If the guaranteed minimum death benefit test is not satisfied on any monthly deduction date, we will notify you immediately and tell you how much you will need to pay to keep the feature in effect. You will have until the second monthly deduction date after default to make that payment. If you don't pay at least the required amount by the end of that period, the feature will lapse. The feature may be reinstated in accordance with the terms of the policy within 5 years after the policy anniversary on which default occurred. If it is reinstated more than 1 year after such policy anniversary, we will require evidence that the insured person still meets our requirements for issuing coverage. We may refuse to reinstate the feature more than once during the life of the policy. The guaranteed minimum death benefit feature applies only to the Basic Sum Insured. It does not apply to any amount of Additional Sum Insured (see "How --- much will JHVLICO pay when the insured person dies?" on page 15). 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. HOW WILL THE VALUE OF MY 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 31.) 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 a Series Fund and had reinvested all fund dividends and distributions in additional fund shares; except that we will deduct certain additional charges which will reduce your account value. We describe these charges under "What charges will JHVLICO deduct from my 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 9. 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: 8 . 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 32. WHAT CHARGES WILL JHVLICO DEDUCT FROM MY INVESTMENT IN THE POLICY? Deductions from premium payments . Sales charge - A charge to help defray our sales costs. The current ------------ charge is 6.5% of premiums received in each of the first 10 policy years up to the Target Premium, and 3.5% of premiums received in each policy year thereafter up to the Target Premium. We reserve the right to increase the percentages for policy years 1 through 10 and thereafter up to 10% and 7%, respectively. Because policies of this type were first offered in 2001, the lower current rates after the tenth policy year are not yet applicable to any policy. No charge is currently deducted from premiums received in excess of the Target Premium, but we reserve the right to impose such a charge of up to 3.5% of such excess premiums received in any policy year. The "Target Premium" is determined at the time the policy is issued and will appear in the "Policy Specifications" section of the policy. . Optional enhanced cash value rider charge - A charge imposed if you elect ----------------------------------------- this rider. The charge is 1% of premiums received in the first policy year. Deductions from account value . 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 percentages are .03% for policy years 1 - 20, and .0125% thereafter. These percentages equate to effective annual rates of .36% and .15%, respectively. The reduction after 20 years has not occurred yet under any policy, since no policy has yet been outstanding for 20 years. We guarantee that this charge will never exceed .05% of that portion of your account value allocated to variable investment options. This percentage equates to an effective annual rate of .60%. This charge does not apply to the fixed investment option. . Issue charge - A monthly charge to help defray our administrative costs. ------------ This is a charge per $1,000 of Basic Sum Insured at issue that varies by age and that is deducted only during the first ten policy years. The charge will appear in the "Policy Specifications" section of the policy. As an example, the monthly charge for a 45 year old is 7.65c per $1,000 of Basic Sum Insured. 9 . Administrative charge - A monthly charge to help defray our --------------------- administrative costs. This charge has two parts: (1) a flat dollar charge of up to $5 (currently $2.50), and (2) a charge of up to 6c per $1,000 of Basic Sum Insured at issue (currently 3c per $1,000 of Basic Sum Insured at issue). The second part of this charge will not apply to amounts of Basic Sum Insured greater than $1,000,000. . 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. 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.) Higher current insurance rates are generally applicable to policies issued on a "guaranteed issue" basis, where only very limited underwriting information is obtained. This is often the case with policies issued to trustees, employers and similar entities. . 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. . Guaranteed minimum death benefit charge - A monthly charge beginning in --------------------------------------- the eleventh policy year if the guaranteed minimum death benefit feature is elected to extend beyond the first ten policy years. This charge is currently 1c per $1,000 of Basic Sum Insured and is guaranteed not to exceed 2c per $1,000 of Basic Sum Insured. Because policies of this type were first offered in 1994, this charge is not yet applicable to any policy at the current rate. . Optional benefits charge - Monthly charges for any optional insurance ------------------------ benefits added to the policy by means of a rider (other than the optional enhanced cash value rider). . 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 SERIES FUNDS DEDUCT FROM MY INVESTMENT IN THE POLICY? The funds 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 also receive payments from a fund or its affiliates at an annual rate of up to approximately 0.35% 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. 10 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 2000, except as 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 Total Fund Operating Investment Distribution and Other Operating Operating Expenses Management Service Expenses With Expenses With Absent Fund Name Fee (12b-1) Fees Reimbursement Reimbursement Reimbursement - --------- ---------- ---------------- --------------- -------------- ------------- JOHN HANCOCK VARIABLE SERIES TRUST I (NOTE 1): Equity Index . . . . . . . . . . . . . . . . . . . . 0.13% N/A 0.06% 0.19% 0.19% Growth & Income. . . . . . . . . . . . . . . . . . . 0.68% N/A 0.08% 0.76% 0.76% Large Cap Value. . . . . . . . . . . . . . . . . . . 0.75% N/A 0.05% 0.80% 0.80% Large Cap Value CORE /SM/ . . . . . . . . . . . . . 0.75% N/A 0.10% 0.85% 1.09% Large Cap Growth . . . . . . . . . . . . . . . . . . 0.36% N/A 0.10% 0.46% 0.46% Large Cap Aggressive Growth. . . . . . . . . . . . . 0.90% N/A 0.10% 1.00% 1.05% Large/Mid Cap Value. . . . . . . . . . . . . . . . . 0.95% N/A 0.10% 1.05% 1.36% Fundamental Growth*. . . . . . . . . . . . . . . . . 0.90% N/A 0.10% 1.00% 1.04% Mid Cap Growth . . . . . . . . . . . . . . . . . . . 0.81% N/A 0.04% 0.85% 0.85% Small/Mid Cap CORE /SM/ . . . . . . . . . . . . . . 0.80% N/A 0.10% 0.90% 1.23% Small/Mid Cap Growth . . . . . . . . . . . . . . . . 0.75% N/A 0.10% 0.85% 0.85% Small Cap Equity*. . . . . . . . . . . . . . . . . . 0.90% N/A 0.10% 1.00% 1.03% Small Cap Value* . . . . . . . . . . . . . . . . . . 0.95% N/A 0.10% 1.05% 1.29% Small Cap Growth . . . . . . . . . . . . . . . . . . 0.75% N/A 0.07% 0.82% 0.82% International Equity Index . . . . . . . . . . . . . 0.18% N/A 0.10% 0.28% 0.37% International Opportunities. . . . . . . . . . . . . 0.83% N/A 0.10% 0.93% 1.09% International Equity . . . . . . . . . . . . . . . . 1.00% N/A 0.10% 1.10% 1.76% Emerging Markets Equity. . . . . . . . . . . . . . . 1.22% N/A 0.10% 1.32% 2.49% Real Estate Equity . . . . . . . . . . . . . . . . . 1.01% N/A 0.09% 1.10% 1.10% Health Sciences. . . . . . . . . . . . . . . . . . . 1.00% N/A 0.10% 1.10% 1.10% Managed. . . . . . . . . . . . . . . . . . . . . . . 0.66% N/A 0.09% 0.75% 0.75% Global Balanced. . . . . . . . . . . . . . . . . . . 1.05% N/A 0.10% 1.15% 1.44% Short-Term Bond. . . . . . . . . . . . . . . . . . . 0.30% N/A 0.06% 0.36% 0.36% Bond Index . . . . . . . . . . . . . . . . . . . . . 0.15% N/A 0.10% 0.25% 0.27% Active Bond. . . . . . . . . . . . . . . . . . . . . 0.62% N/A 0.10% 0.72% 0.74% High Yield Bond. . . . . . . . . . . . . . . . . . . 0.65% N/A 0.10% 0.75% 0.87% Global Bond. . . . . . . . . . . . . . . . . . . . . 0.85% N/A 0.10% 0.95% 1.05% Money Market . . . . . . . . . . . . . . . . . . . . 0.25% N/A 0.04% 0.29% 0.29% JOHN HANCOCK DECLARATION TRUST (NOTE 2): V.A. Relative Value. . . . . . . . . . . . . . . . . 0.60% N/A 0.19% 0.79% 0.79% V.A. Financial Industries. . . . . . . . . . . . . . 0.80% N/A 0.10% 0.90% 0.90% V.A. Strategic Income. . . . . . . . . . . . . . . . 0.60% N/A 0.16% 0.76% 0.76% AIM VARIABLE INSURANCE FUNDS: AIM V.I. Value . . . . . . . . . . . . . . . . . . . 0.61% N/A 0.23% 0.84% 0.84% AIM V.I. Growth. . . . . . . . . . . . . . . . . . . 0.61% N/A 0.22% 0.83% 0.83% VARIABLE INSURANCE PRODUCTS FUND - SERVICE CLASS (NOTE 3): Fidelity VIP Growth. . . . . . . . . . . . . . . . . 0.57% 0.10% 0.09% 0.76% 0.76% VARIABLE INSURANCE PRODUCTS FUND II - SERVICE CLASS (NOTE 3): Fidelity VIP Contrafund(R) . . . . . . . . . . . . . 0.57% 0.10% 0.09% 0.76% 0.76% ----------------
11
Total Fund Total Fund Operating Investment Distribution and Other Operating Operating Expenses Management Service Expenses With Expenses With Absent Fund Name Fee (12b-1) Fees Reimbursement Reimbursement Reimbursement - --------- ---------- ---------------- --------------- -------------- ------------- MFS VARIABLE INSURANCE TRUST - INITIAL CLASS SHARES (NOTE 4): MFS Investors Growth Stock*. . . . . . . . . . . . . 0.75% 0.00% 0.16% 0.91% 0.92% MFS Research . . . . . . . . . . . . . . . . . . . . 0.75% 0.00% 0.10% 0.85% 0.85% MFS New Discovery. . . . . . . . . . . . . . . . . . 0.90% 0.00% 0.16% 1.06% 1.09% JANUS ASPEN SERIES - SERVICE SHARES CLASS (NOTE 5): Janus Aspen Worldwide Growth . . . . . . . . . . . . 0.65% 0.25% 0.05% 0.95% 0.95% Janus Aspen Global Technology. . . . . . . . . . . . 0.65% 0.25% 0.04% 0.94% 0.94% M FUND, INC. (NOTE 6): Brandes International Equity . . . . . . . . . . . . 0.80% N/A 0.25% 1.05% 1.19% Turner Core Growth . . . . . . . . . . . . . . . . . 0.45% N/A 0.25% 0.70% 0.91% Frontier Capital Appreciation. . . . . . . . . . . . 0.90% N/A 0.25% 1.15% 1.23% Clifton Enhanced U.S. Equity . . . . . . . . . . . . 0.44% N/A 0.25% 0.69% 1.22% --------------
NOTES TO FUND EXPENSE TABLE (1) Under its current investment management agreements with the John Hancock Variable Series Trust I, John Hancock Life Insurance Company reimburses a fund when the fund's "other fund expenses" exceed 0.10% of the fund's average daily net assets. Percentages shown for the Health Sciences Fund are estimates because the fund was not in operation in 2000. Percentages shown for the Growth & Income, Fundamental Growth, Small Cap Equity, Real Estate Equity, Managed, Global Balanced, Active Bond and Global Bond funds are calculated as if the current management fee schedules, which apply to these funds effective November 1, 2000, were in effect for all of 2000. Percentages shown for the Small Cap Value and Large Cap Value funds are calculated as if the current management fee schedules, which apply to these funds effective May 1, 2001, were in effect for all of 2000. "CORE/SM/" is a service mark of Goldman, Sachs & Co./ / * Fundamental Growth was formerly "Fundamental Mid Cap Growth," Small Cap Equity was formerly "Small Cap Value," and Small Cap Value was formerly "Small/Mid Cap Value." (2) Percentages shown for John Hancock Declaration Trust funds reflect the investment management fees currently payable and other fund expenses allocated in 2000. John Hancock Advisers, Inc. has agreed to limit temporarily other expenses of each fund to 0.25% of the fund's average daily assets, at least until April 30, 2002. (3) Actual annual class operating expenses were lower for each of the Fidelity VIP funds shown because a portion of the brokerage commissions that the fund paid was used to reduce the fund's expenses, and/or because through arrangements with the fund's custodian, credits realized as a result of uninvested cash balances were used to reduce a portion of the fund's expenses. See the accomanying prospectus of the fund for details. (4) 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. "Other Operating Expenses" do not take into account these expense reductions, and are therefore higher than the actual expenses of the funds. Had these fee reductions been taken into account, total Fund Operating Expenses with Reimbursement would equal 0.90% for MFS Investors Growth Stock, 0.84% for MFS 12 Research and 1.05% for MFS New Discovery. MFS Investment Management(R) (also doing business as Massachusetts Financial Services Company) has contractually agreed, subject to reimbursement, to bear expenses for the MFS Investors Growth Stock and New Discovery funds, such that the funds' "Other Expenses" (after taking into account the expense offset arrangement describe above) do not exceed 0.15% for Investors Growth Stock and 0.15% for New Discovery of the average daily net assets during the current fiscal year. * MFS Investors Growth Stock was formerly "MFS Growth." (5) Percentages shown forJanus Aspen funds are based upon expenses for the fiscal year ended December 31, 2000, restated to reflect a reduction in the management fee for the Worldwide Growth fund. Expenses are shown without the effect of any expense offset arrangement. (6) Percentages shown for M Fund, Inc. funds reflect the investment management fees currently payable and other fund expenses allocated in 2000. M Financial Advisers, Inc. reimburses a fund when the fund's other operating expenses exceed 0.25% of that fund's average daily net assets. WHAT OTHER CHARGES COULD JHVLICO IMPOSE IN THE FUTURE? We currently make no charge for our Federal income taxes. However, if we incur, or expect to incur, additional 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. 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 I CHANGE MY 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. A confirmation of each transfer will be sent to you. 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 frequency of transfers into and out of variable investment options, 13 . impose a limit of not less than 12 on the number of such transfers in any policy year, and . impose a charge of up to $25 on each such transfer in excess of a yearly limit of not less than 12. Transfers out of the fixed investment option are currently subject to the following restrictions: . You can only make such a transfer once a year and only during the 31 day period following your policy anniversary. . We must receive the request for such a transfer during the period beginning 60 days prior to the policy anniversary and ending 30 days after it. . 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 a minimum amount limit on transfers out of the fixed investment option. HOW CAN I ACCESS MY 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 plus, if surrender occurs in the first three policy years, a refund of 50% of sales charges deducted from any Target Premiums paid within 365 days prior to the date of surrender. 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. 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. 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 account 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. Any partial withdrawal (other than a Terminated ASI Withdrawal Amount, as described below) will reduce your death benefit under any of the death benefit options (see "How much will JHVLICO pay when the insured person dies?" on page 15) and under the guaranteed death benefit feature (see page 7). Under Option A, such a partial withdrawal will reduce the Total Sum Insured. Under Option B, such a partial withdrawal will reduce your account value. Under the guaranteed death benefit feature, such a partial withdrawal will reduce the Basic Sum Insured. A "Terminated ASI Withdrawal Amount" is any partial withdrawal made while there is an Additional Sum Insured under the policy that later lapses as described on page 7. The total of all Terminated ASI 14 Withdrawal Amounts cannot exceed the Additional Sum Insured in effect immediately before the Additional Sum Insured lapses. Policy loans You may borrow from your policy at any time by completing a form satisfactory to us or, if the telephone transaction authorization form has been completed, by telephone. However, you can't borrow from your policy during a "grace period" (see "Lapse and reinstatement" on page 7). The maximum amount you can borrow is determined as follows: . We first determine the account 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 20 and .25% thereafter. . We then subtract the third item above from the second item above. The minimum amount of each loan is $1,000. The interest charged on any loan is an effective annual rate of 4.75% in the first 20 policy years and 4.25% thereafter. 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. 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. HOW MUCH WILL JHVLICO 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." Total Sum Insured 15 is composed of the Basic Sum Insured and any Additional Sum Insured you elect. The only limitation on how much Additional Sum Insured you can have is that it generally cannot exceed 400% of the Basic 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 30. When the insured person dies, we will pay the death benefit minus any outstanding loans. There are ywo 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 (as described below). . Option B -The death benefit will equal the greater of (1) the Total Sum Insured plus your policy's account value on the date of death, or (2) the minimum insurance amount. 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 death benefit option, you must also elect which test you wish to have 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 (plus any refund of sales charges that might be due if the policy were surrendered on that date) by the "required additional death benefit factor" applicable on that date. In this case, the death benefit factors are derived by applying the guideline premium and cash value corridor test. The death benefit 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. Under the cash value accumulation test, we compute the minimum insurance amount each business day by multiplying the account value on that date (plus any refund of sales charges that might be due if the policy were surrendered on that date) by the death benefit factor applicable on that date. In this case, the death benefit factors are derived by applying the cash value accumulation test. The death benefit factor decreases as attained age increases. Regardless of which test you elect, a table showing the required additional death benefit factor for each policy year will appear in the policy. As noted above, you have to elect which test will be applied when you elect the death benefit option. The cash value accumulation test may be preferable if you want an increasing death benefit in later policy years and/or want to fund the policy at the "7 pay" limit for the full 7 years 16 (see "Tax Considerations" beginning on page 35). 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. Enhanced cash value rider In the application for the policy, you may elect to purchase the enhanced cash value rider. This rider provides an enhanced cash value benefit (in addition to the surrender value) if you surrender the policy within the first seven policy years and such surrender is not made pursuant to an exchange under Section 1035 of the Internal Revenue Code (or any successor provision). The amount of the benefit will be shown in the "Policy Specifications" section of the policy. The benefit is also included in the account value when calculating the death benefit. Election of this rider could increase your insurance charge since it affects our amount at risk under the policy. The amount available for partial withdrawals and loans are based on the surrender value and will in no way be increased due to this rider. HOW CAN I CHANGE MY POLICY'S INSURANCE COVERAGE? Increase in coverage The Basic Sum Insured generally cannot be increased after policy issue. After the first policy year, you may request an increase in the Additional Sum Insured. However, you will have to provide us with evidence that the insured person still meets our requirements for issuing insurance coverage. As to when an approved increase would take effect, see "Effective date of other policy transactions" on page 32. Decrease in coverage The Basic Sum Insured generally cannot be decreased after policy issue. After the first policy year, you may request a reduction in the Additional Sum Insured, but only if: . the remaining Total Sum Insured will be at least $100,000, 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 an approved decrease would take effect, see "Effective date of other policy transactions" on page 32. Change of death benefit option At any time, you may request to change your coverage from death benefit Option B to Option A. Our administrative systems do not currently permit any other change of death benefit option. Such changes may be permitted in the future, but that is not guaranteed. 17 Tax consequences Please read "Tax considerations" starting on page 35 to learn about possible tax consequences of changing your insurance coverage under the policy. CAN I CANCEL MY POLICY AFTER IT'S ISSUED? You have the right to cancel your policy within the latest of the following periods: . 10 days after you receive it (this period may be longer in some states); . 10 days after mailing by JHVLICO of the Notice of Withdrawal Right; or . 45 days after the date Part A of the application has been completed. 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 to 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 Series Funds prior to that date. The date of cancellation will be the date of such mailing or delivery. CAN I CHOOSE THE FORM IN WHICH JHVLICO PAYS 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 . 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 18 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 JHVLICO VARY THE TERMS AND CONDITIONS OF ITS 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 JHVLICO in every state in which its 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 "Reduced charges for eligible classes" on page 33. No variation in any charge will exceed any maximum stated in this prospectus with respect to that charge. HOW WILL MY 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 19 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, please read "Tax considerations" beginning on page 35. HOW DO I COMMUNICATE WITH JHVLICO? 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. Under our current rules, certain requests must be made in writing and be signed and dated by you. They include the following: . surrenders or partial withdrawals . 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 The following requests may be made either in writing (signed and dated by you) or by telephone or fax if a special form is completed (see "Telephone Transactions" below): . loans . transfers of account value among investment options . change of allocation among investment options for new premium payments You should mail or express all written requests to the JHVLICO Life Servicing Office at the appropriate address shown on page 2. You should also send notice of the insured person's death and related documentation to the JHVLICO 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 the JHVLICO Life Servicing Office or your JHVLICO 20 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 1-800-521-1234 or by faxing us at 1-617-572-6956. 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. 21 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 Series Fund assets). After the deduction of average fees and expenses at the Series Fund level (as described below) the corresponding net annual rates of return would be -0.84%, 5.11% and 11.06%. (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 45 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. 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 the guaranteed minimum death benefit has not been elected beyond the tenth policy year, that no Additional Sum Insured or optional rider benefits have been elected and that no loans or withdrawals are made. With respect to fees and expenses deducted from Series Fund assets, the amounts shown in all tables reflect (1) investment management fees equivalent to an effective annual rate of .72%, and (2) an assumed average asset charge for all other Series Fund operating expenses equivalent to an effective annual rate of .12%. These rates are the arithmetic average for all funds of the Series Funds. 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 Series Fund operating expenses reflects reimbursements to certain funds as described in the footnotes to the table beginning on page 11. 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 Total Sum Insured and annual Planned Premium amount requested. 22 PLAN: FLEXIBLE PREMIUM VARIABLE LIFE $100,000 TOTAL SUM INSURED AT ISSUE MALE, ISSUE AGE 45, FULLY UNDERWRITTEN NONSMOKER UNDERWRITING CLASS OPTION A DEATH BENEFIT NO GUARANTEED MINIMUM DEATH BENEFIT AFTER TENTH POLICY YEAR PLANNED PREMIUM: $5,649 FOR SEVEN YEARS* USING CURRENT CHARGES
Death Benefit Surrender Value --------------------------------------------- --------------------------------------------- Planned Premiums Assuming hypothetical gross annual return of Assuming hypothetical gross annual return of End of accumulated at --------------------------------------------- --------------------------------------------- Policy Year 5% annual interest 0% 6% 12% 0% 6% 12% - ----------- ------------------ ------------- ------------- --------------- ------------- -------------- ---------------- 1 5,931 100,000 100,000 100,000 5,176 5,481 5,787 2 12,159 100,000 100,000 100,000 10,091 11,013 11,972 3 18,699 100,000 100,000 100,000 14,895 16,754 18,762 4 25,565 100,000 100,000 100,000 19,425 22,551 26,064 5 32,775 100,000 100,000 100,000 24,052 28,788 34,325 6 40,345 100,000 100,000 107,480 28,616 35,318 43,465 7 48,294 100,000 101,218 128,526 33,122 42,160 53,535 8 50,709 100,000 102,091 137,116 32,337 43,784 58,805 9 53,244 100,000 103,008 146,350 31,539 45,470 64,602 10 55,906 100,000 103,968 156,276 30,722 47,217 70,973 11 58,702 100,000 105,260 167,255 30,013 49,159 78,113 12 61,637 100,000 106,604 179,070 29,285 51,176 85,963 13 64,718 100,000 108,001 191,788 28,534 53,268 94,593 14 67,954 100,000 109,458 205,491 27,763 55,444 104,088 15 71,352 100,000 110,980 220,267 26,978 57,712 114,543 16 74,920 100,000 112,553 236,169 26,155 60,060 126,024 17 78,666 100,000 114,163 253,254 25,287 62,490 138,625 18 82,599 100,000 115,822 271,637 24,370 65,003 152,451 19 86,729 100,000 117,541 291,442 23,398 67,603 167,620 20 91,065 100,000 119,326 312,798 22,364 70,291 184,259 25 116,225 100,000 131,769 456,178 17,314 86,741 300,295 30 148,336 100,000 147,156 672,641 10,159 106,782 488,093 35 189,318 ** 166,552 1,004,861 ** 130,762 788,931
------------------------- * The illustrations assume that Planned Premiums equal to the Target Premium are paid at the start of each of the first seven Policy Years. 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, Guaranteed Minimum Death Benefit after the tenth Policy Year, or optional rider benefits are elected. ** Policy lapses unless additional premium payments are made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
Death Benefit Surrender Value --------------------------------------------- --------------------------------------------- Planned Premiums Assuming hypothetical gross annual return of Assuming hypothetical gross annual return of End of accumulated at --------------------------------------------- --------------------------------------------- Policy Year 5% annual interest 0% 6% 12% 0% 6% 12% - ----------- ------------------ -------------- -------------- -------------- -------------- -------------- ---------------- 1 5,931 100,000 100,000 100,000 4,611 4,891 5,170 2 12,159 100,000 100,000 100,000 8,864 9,693 10,556 3 18,699 100,000 100,000 100,000 13,042 14,700 16,494 4 25,565 100,000 100,000 100,000 16,864 19,642 22,769 5 32,775 100,000 100,000 100,000 20,897 25,095 30,013 6 40,345 100,000 100,000 100,000 24,860 30,793 38,026 7 48,294 100,000 100,000 112,452 28,751 36,748 46,839 8 50,709 100,000 100,000 118,671 27,519 37,622 50,894 9 53,244 100,000 100,000 125,277 26,239 38,494 55,300 10 55,906 100,000 100,000 132,294 24,904 39,359 60,082 11 58,702 100,000 100,000 140,030 23,628 40,341 65,398 12 61,637 100,000 100,000 148,240 22,280 41,317 71,163 13 64,718 100,000 100,000 156,960 20,856 42,287 77,415 14 67,954 100,000 100,000 166,216 19,345 43,247 84,194 15 71,352 100,000 100,000 176,035 17,738 44,195 91,542 16 74,920 100,000 100,000 186,463 16,020 45,124 99,500 17 78,666 100,000 100,000 197,509 14,173 46,028 108,112 18 82,599 100,000 100,000 209,220 12,175 46,896 117,420 19 86,729 100,000 100,000 221,631 9,998 47,718 127,470 20 91,065 100,000 100,000 234,789 7,611 48,481 138,307 25 116,225 ** 100,000 313,560 ** 51,009 206,411 30 148,336 ** 100,000 418,757 ** 49,260 303,865 35 189,318 ** 100,000 559,552 ** 35,446 439,313
------------------------- * The illustrations assume that Planned Premiums equal to the Target Premium are paid at the start of each of the first seven Policy Years. 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, Guaranteed Minimum Death Benefit after the tenth Policy Year, or optional rider benefits are elected. ** Policy lapses unless additional premium payments are made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
Death Benefit Surrender Value --------------------------------------------- --------------------------------------------- Planned Premiums Assuming hypothetical gross annual return of Assuming hypothetical gross annual return of End of accumulated at --------------------------------------------- --------------------------------------------- Policy Year 5% annual interest 0% 6% 12% 0% 6% 12% - ----------- ------------------ -------------- -------------- -------------- ------------- -------------- ---------------- 1 5,931 104,990 105,296 105,601 5,173 5,479 5,785 2 12,159 109,899 110,820 111,778 10,083 11,004 11,962 3 18,699 114,684 116,539 118,543 14,868 16,722 18,727 4 25,565 119,363 122,478 125,978 19,363 22,478 25,978 5 32,775 123,935 128,644 134,151 23,935 28,645 34,151 6 40,345 128,426 135,076 143,167 28,426 35,076 43,167 7 48,294 132,842 141,790 153,121 32,842 41,790 53,121 8 50,709 131,962 143,265 158,267 31,962 43,265 58,267 9 53,244 131,063 144,780 163,929 31,063 44,780 63,929 10 55,906 130,137 146,326 170,155 30,137 46,326 70,155 11 58,702 129,315 148,042 177,143 29,315 48,042 77,143 12 61,637 128,467 149,802 184,838 28,467 49,802 84,838 13 64,718 127,588 151,604 193,310 27,588 51,604 93,310 14 67,954 126,686 153,456 202,649 26,686 53,456 102,649 15 71,352 125,767 155,366 217,202 25,767 55,366 112,949 16 74,920 124,800 157,306 232,879 24,800 57,306 124,268 17 78,666 123,779 159,271 249,724 23,779 59,271 136,693 18 82,599 122,697 161,253 267,849 22,697 61,253 150,325 19 86,729 121,552 163,249 287,376 21,552 63,249 165,282 20 91,065 120,336 165,254 308,433 20,336 65,254 181,688 25 116,225 114,483 177,483 449,803 14,483 77,483 296,098 30 148,336 106,516 190,311 663,233 6,516 90,311 481,266 35 189,318 ** 201,476 990,798 ** 101,476 777,890
------------------------- * The illustrations assume that Planned Premiums equal to the Target Premium are paid at the start of each of the first seven Policy Years. 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, Guaranteed Minimum Death Benefit after the tenth Policy Year, or optional rider benefits are elected. ** Policy lapses unless additional premium payments are made. IT IS EMPHASIZED THAT THE HYPOTHETICAL INVESTMENT RETURNS 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 AND SURRENDER VALUE FOR A POLICY WOULD BE DIFFERENT FROM THOSE SHOWN IF THE ACTUAL GROSS RATES OF INVESTMENT RETURN AVERAGE 0%, 6%, OR 12% OVER A PERIOD OF YEARS, BUT ALSO FLUCTUATE ABOVE OR BELOW THE AVERAGE FOR INDIVIDUAL POLICY YEARS. NO REPRESENTATIONS CAN BE MADE THAT THESE HYPOTHETICAL INVESTMENT RESULTS CAN BE ACHIEVED FOR ONE YEAR OR SUSTAINED OVER ANY PERIOD OF TIME. IN FACT, FOR ANY GIVEN PERIOD OF TIME, THE INVESTMENT RESULTS COULD BE NEGATIVE. 25 PLAN: FLEXIBLE PREMIUM VARIABLE LIFE $100,000 TOTAL SUM INSURED AT ISSUE MALE, ISSUE AGE 45, FULLY UNDERWRITTEN NONSMOKER UNDERWRITING CLASS OPTION B DEATH BENEFIT NO GUARANTEED MINIMUM DEATH BENEFIT AFTER TENTH POLICY YEAR PLANNED PREMIUM: $5,649 FOR SEVEN YEARS* USING MAXIMUM CHARGES
Death Benefit Surrender Value --------------------------------------------- --------------------------------------------- Planned Premiums Assuming hypothetical gross annual return of Assuming hypothetical gross annual return of End of accumulated at --------------------------------------------- --------------------------------------------- Policy Year 5% annual interest 0% 6% 12% 0% 6% 12% - ----------- ------------------ -------------- -------------- -------------- -------------- -------------- ---------------- 1 5,931 104,307 104,586 104,864 4,590 4,868 5,146 2 12,159 108,517 109,339 110,195 8,799 9,621 10,477 3 18,699 112,625 114,264 116,037 12,908 14,546 16,320 4 25,565 116,634 119,366 122,442 16,634 19,366 22,442 5 32,775 120,538 124,650 129,464 20,538 24,650 29,464 6 40,345 124,336 130,118 137,162 24,336 30,118 37,162 7 48,294 128,021 135,771 145,599 28,021 35,771 45,599 8 50,709 126,576 136,297 149,229 26,576 36,297 49,229 9 53,244 125,078 136,770 153,158 25,078 36,770 53,158 10 55,906 123,516 137,176 157,404 23,516 37,176 57,404 11 58,702 122,007 137,632 162,125 22,007 37,632 62,125 12 61,637 120,420 138,007 167,231 20,420 38,007 67,231 13 64,718 118,753 138,292 172,759 18,753 38,292 72,759 14 67,954 117,000 138,476 178,744 17,000 38,476 78,744 15 71,352 115,154 138,546 185,225 15,154 38,546 85,225 16 74,920 113,203 138,484 192,240 13,203 38,484 92,240 17 78,666 111,133 138,267 199,828 11,133 38,267 99,828 18 82,599 108,927 137,869 208,029 8,927 37,869 108,029 19 86,729 106,564 137,259 216,881 6,564 37,259 116,881 20 91,065 104,024 136,404 226,430 4,024 36,404 126,430 25 116,225 ** 127,374 286,681 ** 27,374 186,681 30 148,336 ** 106,002 377,341 ** 6,002 273,812 35 189,318 ** ** 503,980 ** ** 395,682
------------------------- * The illustrations assume that Planned Premiums equal to the Target Premium are paid at the start of each of the first seven Policy Years. 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, Guaranteed Minimum Death Benefit after the tenth Policy Year, or optional rider benefits are elected. ** Policy lapses unless additional premium payments are made. IT IS EMPHASIZED THAT THE HYPOTHETICAL INVESTMENT RETURNS 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 AND SURRENDER VALUE FOR A POLICY WOULD BE DIFFERENT FROM THOSE SHOWN IF THE ACTUAL GROSS RATES OF INVESTMENT RETURN AVERAGE 0%, 6%, OR 12% OVER A PERIOD OF YEARS, BUT ALSO FLUCTUATE ABOVE OR BELOW THE AVERAGE FOR INDIVIDUAL POLICY YEARS. NO REPRESENTATIONS CAN BE MADE THAT THESE HYPOTHETICAL INVESTMENT RESULTS CAN BE ACHIEVED FOR ONE YEAR OR SUSTAINED OVER ANY PERIOD OF TIME. IN FACT, FOR ANY GIVEN PERIOD OF TIME, THE INVESTMENT RESULTS COULD BE NEGATIVE. 26 ADDITIONAL INFORMATION This section of the prospectus provides additional detailed information that is not contained in the Basic Information section on pages 4 through 21. CONTENTS OF THIS SECTION PAGES TO SEE - ------------------------ ------------ Description of JHVLICO........................................ 28 How we support the policy and investment options.............. 28 Procedures for issuance of a policy........................... 29 Basic Sum Insured vs. Additional Sum Insured.................. 30 Commencement of investment performance........................ 31 How we process certain policy transactions.................... 31 Effects of policy loans....................................... 32 Additional information about how certain policy charges work.. 33 How we market the policies.................................... 34 Tax considerations............................................ 35 Reports that you will receive................................. 37 Voting privileges that you will have.......................... 37 Changes that JHVLICO can make as to your policy............... 37 Adjustments we make to death benefits......................... 38 When we pay policy proceeds................................... 38 Other details about exercising rights and paying benefits..... 39 Legal matters................................................. 39 Registration statement filed with the SEC..................... 39 Accounting and actuarial experts.............................. 39 Financial statements of JHVLICO and the Account............... 39 List of Directors and Executive Officers of JHVLICO........... 40 27 DESCRIPTION OF JHVLICO 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, 2000, John Hancock's assets were approximately $88 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 S The variable investment options shown on page 1 are in fact subaccounts of Separate Account S (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 JHVLICO. The Account's assets are the property of JHVLICO. 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 Series Funds. New subaccounts may be added as new funds are added to the Series Funds and made available to policy owners. Existing subaccounts may be deleted if existing funds are deleted from the Series Funds. We will purchase and redeem Series Fund shares for the Account at their net asset value without any sales or redemption charges. Shares of a Series Fund represent an interest in one of the funds of the Series Fund which corresponds to a subaccount of the Account. Any dividend or capital gains distributions received by the Account will be reinvested in shares of that same fund at their net asset value as of the dates paid. On each business day, shares of each fund are purchased or redeemed by us for each subaccount based on, among other things, the amount of net premiums allocated to the subaccount, distributions reinvested, and transfers to, from and among 28 subaccounts, all to be effected as of that date. Such purchases and redemptions are effected at each fund's net asset value per share determined for that same date. A "business day" is any date on which the New York Stock Exchange is open for trading. We compute policy values for each business day as of the close of that day (usually 4:00 p.m. Eastern 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 Total Sum Insured at issue of $100,000 and a minimum Basic Sum Insured at issue of $50,000. At the time of issue, the insured person must have an attained age of at least 20 and 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 Total 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 30). The policy will take effect only if all of the following conditions are satisfied: . The policy is delivered to and received by the applicant. 29 . The Minimum Initial Premium is received by us. . Each insured person is living and still meets our health criteria for issuing insurance. 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 sales charge deducted from premiums 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 minimum death benefit feature. 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), the Additional Sum Insured coverage will lapse, even if the Basic Sum Insured stays in effect pursuant to the guaranteed minimum death benefit feature. Generally, you will incur lower sales 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 minimum death benefit feature, 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. As stated earlier in this prospectus, the guaranteed minimum death benefit feature does not apply if the Additional Sum Insured is scheduled to exceed the Basic Sum Insured at any time. If such was the case, you would presumably 30 wish to maximize the proportion of the Additional Sum Insured. If you want to purchase Additional Sum Insured, you may select from among several forms of it: a level amount of coverage; an amount of coverage that increases on each policy anniversary up to a prescribed limit; an amount of coverage that increases on each policy anniversary to the amount of premiums paid during prior policy years plus the Planned Premium for the current policy year, subject to certain limits; or a combination of those forms of coverage. 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 35). COMMENCEMENT OF INVESTMENT PERFORMANCE Any premium payment processed prior to the twentieth day after the date of issue will 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. (5) 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. 31 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 a variable 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. If received on or before the policy anniversary, requests for transfer out of the fixed investment option will be processed on the policy anniversary (or the next business day if the policy anniversary does not occur on a business day). If received after the policy anniversary, such a request will be processed at the end of the business day in which we receive the request at our Life Servicing Office. If you request a transfer out of the fixed investment option 61 days or more prior to the policy anniversary, we will not process that portion of the reallocation, and your confirmation statement will not reflect a transfer out of the fixed investment option as to such request. Currently, there is no minimum amount limit on transfers into the fixed investment option, but we reserve the right to impose such a limit in the future. We have the right to defer transfers of amounts out of the fixed investment option for up to six months. 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 the request: . Total Sum Insured decreases . Additional Sum Insured increases . Change of death benefit option from Option B to Option A . Any other change of death benefit option, when and if permitted by our administrative rules (see "Change of death benefit option" on page 17) Reinstatements of lapsed policies take effect on the monthly deduction date on or next following the date we approve the request for reinstatement. 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 from the amount otherwise payable when the policy proceeds become payable. 32 Whenever the outstanding loan equals or exceeds the account 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 35). ADDITIONAL INFORMATION ABOUT HOW CERTAIN POLICY CHARGES WORK Sales expenses and related charges The sales charges help to compensate us for the cost of selling our policies. (See "What charges will JHVLICO deduct from my 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 asset-based risk charge and other gains with respect to the policies, or from our general assets. (See "How we market the policies" on page 34.) 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 and amount of premium payments to minimize the sales charges, although doing so involves certain risks. Paying less than one Target Premium in the first policy year or paying more than one Target Premium in any policy year could reduce your total sales charges over time. For example, if the Target Premium was $10,000 and you paid a premium of $10,000 in each of the first ten policy years, you would pay total sales charges of $6,500. If you paid $20,000 (i.e., two times the Target Premium amount) in every other policy year up to the ninth policy year, you would pay total sales charges of only $3,250. However, delaying the payment of Target Premiums to later policy years could increase the risk that the guaranteed minimum death benefit feature will lapse and the account value will be insufficient to pay monthly policy charges as they come due. As a result, the policy or any Additional Sum Insured may lapse and eventually terminate. Conversely, accelerating the payment of Target Premiums to earlier policy years could cause aggregate premiums paid to exceed the policy's 7-pay premium limit and, as a result, cause the policy to become a modified endowment, with adverse tax consequences to you upon receipt of policy distributions. (See "Tax considerations" beginning on page 35.) Monthly charges We 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 33 members of the class will result in lower than normal sales or administrative expenses, lower taxes or lower risks to us. We will make these reductions in accordance with our rules in effect at the time of the application for a policy. The factors we consider in determining the eligibility of a particular group for reduced charges, and the level of the reduction, are as follows: the nature of the association and its organizational framework; the method by which sales will be made to the members of the class; the facility with which premiums will be collected from the associated individuals and the association's capabilities with respect to administrative tasks; the anticipated lapse and surrender rates of the policies; the size of the class of associated individuals and the number of years it has been in existence; the aggregate amount of premiums paid; and any other such circumstances which result in a reduction in sales or administrative expenses, lower taxes or lower risks. Any reduction in charges will be reasonable and will apply uniformly to all prospective policy purchasers in the class and will not unfairly discriminate against any owner. HOW WE MARKET THE POLICIES Signator Investors, Inc. ("Signator"), an indirect wholly-owned subsidiary of John Hancock located at 197 Clarendon Street, Boston, MA 02117, is registered as a broker-dealer under the Securities Exchange Act of 1934 and is a member of the National Association of Securities Dealers, Inc. and the Securities Investor Protection Corporation. Signator acts as principal underwriter and principal distributor of the policies pursuant to a sales agreement among John Hancock, Signator, JHVLICO, and the Account. Signator also serves as principal underwriter for John Hancock Variable Annuity Accounts U, I and V, John Hancock Mutual Variable Life Insurance Account UV and John Hancock Variable Life Accounts U and V, all of which are registered under the 1940 Act. Signator is also the principal underwriter for John Hancock Variable Series Trust I. Applications for policies are solicited by agents who are licensed by state insurance authorities to sell JHVLICO's policies and who are also registered representatives ("representatives") of Signator or other broker-dealer firms, as discussed below. 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. JHVLICO will make the appropriate refund if a policy ultimately is not issued or is returned under the "free look" provision. Officers and employees of John Hancock and JHVLICO are covered by a blanket bond by a commercial carrier in the amount of $25 million. Signator's representatives are compensated for sales of the policies on a commission and service fee basis by Signator, and JHVLICO reimburses Signator for such compensation and for other direct and indirect expenses (including agency expense allowances, general agent, district manager and supervisor's compensation, agent's training allowances, deferred compensation and insurance benefits of agents, general agents, district managers and supervisors, agency office clerical expenses and advertising) actually incurred in connection with the marketing and sale of the policies. The maximum commission payable to a Signator representative for selling a policy is 21% of the Target Premium paid in the first policy year, 12 % of the Target Premium paid in each of the second through fifth policy years, and 3% of the Target Premium paid in each policy year thereafter. The maximum commission on any premium paid in any policy year in excess of the Target Premium is 2%. Representatives with less than four years of service with Signator and those compensated on salary plus bonus or level commission programs may be paid on a different basis. Representatives who meet certain productivity and persistency standards with respect to the sale of policies issued by JHVLICO and John Hancock will be eligible for additional compensation. 34 The policies are also sold through other registered broker-dealers that have entered into selling agreements with Signator and whose representatives are authorized by applicable law to sell variable life insurance policies. The commissions which will be paid by such broker-dealers to their representatives will be in accordance with their established rules. The commission rates may be more or less than those set forth above for Signator's representatives. In addition, their qualified registered representatives may be reimbursed by the broker-dealers under expense reimbursement allowance programs in any year for approved voucherable expenses incurred. Signator will compensate the broker-dealers as provided in the selling agreements, and JHVLICO will reimburse Signator for such amounts and for certain other direct expenses in connection with marketing the policies through other broker-dealers. Representatives of Signator and the other broker-dealers mentioned above may also earn "credits" toward qualification for attendance at certain business meetings sponsored by John Hancock. The offering of the policies is intended to be continuous, but neither JHVLICO nor Signator is obligated to sell any particular amount of policies. 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 under the policy will be excludable from the beneficiary's gross income under the Code. In addition, 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. 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. 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). 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. 35 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 Additional Sum Insured, the addition of certain other policy benefits after issue, a change in death benefit 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 36 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 each Series Fund, 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 Series Funds. We will vote the shares of each of the funds of the Series Funds which are deemed attributable to variable life insurance policies at regular and special meetings of the Series Funds' shareholders in accordance with instructions received from owners of such policies. Shares of the Series Funds 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 the Series Fund's meeting. Owners of policies may give instructions regarding the election of the Board of Trustees or Board of Directors of a Series Fund, ratification of the selection of independent auditors, approval of Series Fund investment advisory agreements and other matters requiring a shareholder vote. We will furnish owners with information and forms to enable owners to give voting instructions. However, we may, in certain limited circumstances permitted by the SEC's rules, disregard voting instructions. If we do disregard voting instructions, you will receive a summary of that action and the reasons for it in the next semi-annual report to owners. CHANGES THAT JHVLICO CAN MAKE AS TO YOUR POLICY Changes relating to a Series Fund 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 37 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 documentation of the insured person's death, we will pay the proceeds as a single sum. Delay to challenge coverage We may challenge the validity of your insurance policy based on any material misstatements made to us in the application for the policy. We cannot make such a challenge, however, beyond certain time limits that are specified in the policy. Delay for check clearance We reserve the right to defer payment of that portion of your 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 (a) the New York 38 Stock Exchange is closed (other than customary weekend and holiday closings) or trading on the New York Stock Exchange is restricted; (b) 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 (c) 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. The law firm of Foley & Lardner, Washington, D.C., has 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 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 their authority as experts in accounting and auditing. Actuarial matters included in this prospectus have been examined by Deborah A. Poppel, F.S.A., an 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. 39 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 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, Vice President and Chief Investment officer of JHVLICO; Vice President and Chief Investment Strategist, John Hancock Life Insurance Company. Paul Strong.......................... Director and Vice President of JHVLICO; 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; Assistant Treasurer, John Hancock Life Insurance Company Earl W. Baucom....................... Controller of JHVLICO; Senior Vice President and 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. 40 REPORT OF INDEPENDENT AUDITORS The Board of Directors John Hancock Variable Life Insurance Company We have audited the accompanying consolidated balance sheet of John Hancock Variable Life Insurance Company as of December 31, 2000, and the related consolidated statements of income, changes in shareholder's equity, and cash flows for the year ended December 31, 2000. Our audit also included the financial statement schedules listed in the Index at Item 14(a). These financial statements and schedules are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and schedules based on our audit. We conducted our audit 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 audit provides a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of John Hancock Variable Life Insurance Company at December 31, 2000, and the consolidated results of their operations and their cash flows for the year ended December 31, 2000, in conformity with accounting principles generally accepted in the United States. Also, in our opinion, the related financial statement schedules, when considered in relation to the basic financial statements taken as a whole, present fairly in all material respects the information set forth therein. /S/ ERNST & YOUNG LLP Boston, Massachusetts March 16, 2001 41 JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY CONSOLIDATED BALANCE SHEET DECEMBER 31 2000 ------------- (IN MILLIONS) ASSETS Investments--Notes 3 and 4 Fixed maturities: Held-to-maturity--at amortized cost (fair value: $686.8)............................................. $ 715.4 Available-for-sale--at fair value (cost: $1,018.8)... 1,011.8 Equity securities: Available-for-sale--at fair value (cost: $7.1)....... 8.1 Mortgage loans on real estate......................... 554.8 Real estate........................................... 23.9 Policy loans.......................................... 334.2 Short-term investments................................ 21.7 Other invested assets................................. 34.8 --------- Total Investments................................... 2,704.7 Cash and cash equivalents............................. 277.3 Accrued investment income............................. 52.1 Premiums and accounts receivable...................... 7.0 Deferred policy acquisition costs..................... 994.1 Reinsurance recoverable--Note 7....................... 48.4 Other assets.......................................... 28.2 Separate accounts assets.............................. 8,082.9 --------- Total Assets........................................ $12,194.7 ========= The accompanying notes are an integral part of these consolidated financial statements. 42 JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY CONSOLIDATED BALANCE SHEET -- (CONTINUED) DECEMBER 31 2000 ------------- (IN MILLIONS) LIABILITIES AND SHAREHOLDER'S EQUITY LIABILITIES Future policy benefits..................................... $ 2,754.2 Policyholders' funds....................................... 14.2 Unearned revenue........................................... 212.0 Unpaid claims and claim expense reserves................... 11.1 Dividends payable to policyholders......................... 0.1 Income taxes--Note 5....................................... 64.2 Other liabilities.......................................... 250.4 Separate accounts liabilities.............................. 8,082.9 --------- Total Liabilities........................................ 11,389.1 SHAREHOLDER'S EQUITY--Note 9 Common stock, $50 par value; 50,000 shares authorized; 50,000 shares issued and outstanding...................... 2.5 Additional paid in capital................................. 572.4 Retained earnings.......................................... 232.9 Accumulated other comprehensive loss....................... (2.2) --------- Total Shareholder's Equity............................... 805.6 --------- Total Liabilities and Shareholder's Equity............... $12,194.7 ========= The accompanying notes are an integral part of these consolidated financial statements. 43 JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY CONSOLIDATED STATEMENT OF INCOME YEAR ENDED DECEMBER 31 2000 ------------- (IN MILLIONS) REVENUES Premiums........................................... $ 28.6 Universal life and investment-type product charges. 337.1 Net investment income--Note 3...................... 213.4 Net realized investment losses, net of related amortization of deferred policy acquisition costs of $3.8--Notes 1, 3, and 10................. (10.6) Other revenue...................................... 0.2 ------ Total revenues................................... 568.7 BENEFITS AND EXPENSES Benefits to policyholders.......................... 248.6 Other operating costs and expenses................. 116.8 Amortization of deferred policy acquisition costs, excluding amounts related to net realized investment losses of $3.8--Notes 1, 3 and 10...... 34.0 Dividends to policyholders......................... 26.1 ------ Total benefits and expenses...................... 425.5 ------ Income before income taxes......................... 143.2 Income taxes--Note 5............................... 43.8 ------ Net income......................................... $ 99.4 ====== The accompanying notes are an integral part of these consolidated financial statements. 44 JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDER'S EQUITY AND COMPREHENSIVE INCOME
ACCUMULATED ADDITIONAL OTHER TOTAL PAID IN RETAINED COMPREHENSIVE SHAREHOLDER'S COMMON STOCK CAPITAL EARNINGS LOSS EQUITY ------------ ---------- -------- ------------- --------------- Balance at December 31, 1999............. $2.5 $572.4 $133.5 ($13.4) $695.0 Comprehensive income: Net income........... 99.4 99.4 Other comprehensive income, net of tax: Net unrealized gains 11.2 11.2 Comprehensive income.. 110.6 ---- ------ ------ ------ ------ Balance at December 31, 2000............. $2.5 $572.4 $232.9 ($2.2) $805.6 ==== ====== ====== ====== ======
The accompanying notes are an integral part of these consolidated financial statements. 45 JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY CONSOLIDATED STATEMENT OF CASH FLOWS YEAR ENDED DECEMBER 31 2000 ------------- (IN MILLIONS) Cash flows from operating activities: Net income.................................................... $ 99.4 Adjustments to reconcile net income to net cash provided by operating activities: Amortization of discount--fixed maturities.................. (1.9) Realized investment losses, net............................. 10.6 Change in deferred policy acquisition costs................. (141.5) Depreciation and amortization............................... 1.9 Increase in accrued investment income....................... (10.2) Decrease in premiums and accounts receivable................ 0.3 Decrease in other assets and other liabilities, net......... 70.7 Decrease in policy liabilities and accruals, net............ (401.1) Increase in income taxes.................................... 22.5 -------- Net cash used by operating activities...................... (349.3) Cash flows from investing activities: Sales of: Fixed maturities available-for-sale.......................... 194.6 Equity securities available-for-sale......................... 1.0 Real estate.................................................. 0.2 Short-term investments and other invested assets............. 1.3 Maturities, prepayments and scheduled redemptions of: Fixed maturities held-to-maturity............................ 79.9 Fixed maturities available-for-sale.......................... 91.5 Short-term investments and other invested assets............. 10.1 Mortgage loans on real estate................................ 85.6 Purchases of: Fixed maturities held-to-maturity............................ (127.2) Fixed maturities available-for-sale.......................... (424.7) Equity securities available-for-sale......................... (0.6) Real estate.................................................. (0.4) Short-term investments and other invested assets............. (38.8) Mortgage loans on real estate issued......................... (100.5) Other, net................................................... (41.5) -------- Net cash used in investing activities...................... (269.5) Cash flows from financing activities: Universal life and investment-type contract deposits.......... $1,067.2 Universal life and investment-type contract maturities and withdrawals.................................................. (430.7) -------- Net cash provided by financing activities.................. 636.5 -------- Net increase in cash and cash equivalents.................. 17.7 Cash and cash equivalents at beginning of year................. 259.6 -------- Cash and cash equivalents at end of year................... $ 277.3 ======== The accompanying notes are an integral part of these consolidated financial statements. 46 JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY NOTES TO FINANCIAL STATEMENTS NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES John Hancock Variable Life Insurance Company (the Company) is a wholly-owned subsidiary of John Hancock Life Insurance Company (John Hancock or the Parent). The Company, domiciled in the Commonwealth of Massachusetts, issues variable and universal life insurance policies, individual whole and term life policies and variable annuity contracts. Those policies primarily are marketed through John Hancock's sales organization, 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 are also sold through various unaffiliated securities broker-dealers and certain other financial institutions. Currently, the Company writes business in all states except New York. Pursuant to a Plan of Reorganization approved by the policyholders 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. Prior to 2000, the Company did not prepare its financial statements in accordance with accounting principles generally accepted in the United States and financial information on such basis currently is not readily available for earlier periods. Comparative financial statements prepared on a statutory-basis are included elsewhere in this Form 10-K. Principles of Consolidation The accompanying consolidated financial statements include the accounts of the Company and its wholly-owned subsidiary, Investors Partner Life Insurance Company (IPL). All significant intercompany transactions and balances have been eliminated. The preparation of financial statements requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results could differ from those estimates. Investments In accordance with the provisions of Statement of Financial Accounting Standards (SFAS) No. 115, "Accounting for Certain Investments in Debt and Equity Securities", the Company is required to classify its investments into one of three categories: held-to-maturity, available-for-sale or trading. The Company determines the appropriate classification of debt securities at the time of purchase and re-evaluates such designation as of each balance sheet date. Fixed maturity investments include bonds, mortgage-backed securities, and redeemable preferred stock and are classified as held-to-maturity or available-for-sale. Bonds and mortgage-backed securities, which the Company has the positive intent and ability to hold to maturity, are classified as held-to-maturity and carried at amortized cost. Fixed maturity investments not classified as held-to-maturity are classified as available-for-sale and are carried at fair value. Unrealized gains and losses related to available-for-sale securities are reflected in shareholder's equity, net of related amortization of deferred policy acquisition costs and applicable taxes. The amortized cost of debt securities is adjusted for amortization of premiums and accretion of discounts to maturity. Such amortization is included in investment income. The amortized cost of fixed maturity investments is adjusted for impairments in value deemed to be other than temporary. 47 JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY NOTES TO FINANCIAL STATEMENTS (CONTINUED) NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) For the mortgage-backed bond portion of the fixed maturity investment portfolio, the Company recognizes income using a constant effective yield based on anticipated prepayments and the estimated economic life of the securities. When actual prepayments differ significantly from anticipated prepayments, the effective yield is recalculated to reflect actual payments to date, and anticipated future payments and any resulting adjustment is included in net investment income. Equity securities include common stock and non-redeemable preferred stock. Equity securities that have readily determinable fair values are carried at fair value. For equity securities which the Company has classified as available-for-sale, unrealized gains and losses are reflected in shareholder's equity as described above. Impairments in value deemed to be other than temporary are reported as a component of realized investment gains (losses). Mortgage loans on real estate are carried at unpaid principal balances adjusted for amortization of premium or discount, less allowance for probable losses. When it is probable that the Company will be unable to collect all amounts of principal and interest due according to the contractual terms of the mortgage loan agreement, the loan is deemed to be impaired and a valuation allowance for probable losses is established. The valuation allowance is based on the present value of the expected future cash flows, discounted at the loan's original effective interest rate, or on the collateral value of the loan if the loan is collateral dependent. Any change to the valuation allowance for mortgage loans on real estate is reported as a component of realized investment gains (losses). Interest received on impaired mortgage loans on real estate is included in interest income in the period received. If foreclosure becomes probable, the measurement method used is collateral value. Foreclosed real estate is then recorded at the collateral's fair value at the date of foreclosure, which establishes a new cost basis. Investment real estate, which the Company has the intent to hold for the production of income, is carried at depreciated cost, using the straight-line method of depreciation, less adjustments for impairments in value. In those cases where it is determined that the carrying amount of investment real estate is not recoverable, an impairment loss is recognized based on the difference between the depreciated cost and fair value of the asset. The Company reports impairment losses as part of realized investment gains (losses). Real estate to be disposed of is carried at the lower of cost or fair value less costs to sell. Any changes to the valuation allowance for real estate to be disposed of is reported as a component of realized investment gains (losses). The Company does not depreciate real estate to be disposed of. Policy loans are carried at unpaid principal balances which approximate fair value. Short-term investments are carried at amortized cost. Partnership and joint venture interests in which the Company does not have control or a majority ownership interest are recorded using the equity method of accounting and included in other invested assets. Realized investment gains and losses, other than those related to separate accounts for which the Company does not bear the investment risk, are determined on the basis of specific identification and are reported net of related amortization of deferred policy acquisition costs. Derivative Financial Instruments The Company uses futures contracts, interest rate swap, cap and floor agreements, swaptions and currency rate swap agreements for other than trading purposes to hedge and manage its exposure to changes in interest rate levels and foreign exchange rate fluctuations and to manage duration mismatch of assets and liabilities. The Company also uses equity collar agreements to reduce its exposure to market fluctuations in certain equity securities. 48 JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY NOTES TO FINANCIAL STATEMENTS (CONTINUED) NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) The Company uses futures contracts principally to hedge risks associated with interest rate fluctuations on anticipated fixed income asset acquisitions. Futures contracts represent commitments to either purchase or sell securities at a specified future date and at a specified price or yield. The Company uses interest rate swap, cap and floor agreements and swaptions for the purpose of converting the interest rate characteristics (fixed or variable) of certain investments to more closely match its liabilities. Interest rate swap agreements are contracts with a counterparty to exchange interest rate payments of a differing character (e.g., fixed-rate payments exchanged for variable-rate payments) based on an underlying principal balance (notional principal) to hedge against interest rate changes. Interest rate cap and floor agreements are contracts with a counterparty which require the payment of a premium for the right to receive payments for the difference between the cap or floor interest rate and a market interest rate on specified future dates based on an underlying principal balance (notional principal) to hedge against rising and falling interest rates. Swaptions entitle the Company to receive settlement payments from other parties on specified expiration dates, contingent on future interest rates. The amount of such settlement payments, if any, is determined by the present value of the difference between the fixed rate on a market rate swap and the strike rate multiplied by the notional amount. Currency rate swap agreements are used to manage the Company's exposure to foreign exchange rate fluctuations. Currency rate swap agreements are contracts to exchange the currencies of two different countries at the same rate of exchange at specified future dates. The Company invests in common stock that is subject to fluctuations from market value changes in stock prices. The Company sometimes seeks to reduce its market exposure to such holdings by entering into equity collar agreements. A collar consists of a call option that limits the Company's potential for gain from appreciation in the stock price as well as a put option that limits the Company's potential for loss from a decline in the stock price. Futures contracts are carried at fair value and require daily cash settlement. Changes in the fair value of futures contracts that qualify as hedges are deferred and recognized as an adjustment to the hedged asset or liability. The net differential to be paid or received on interest rate swap agreements and currency rate swap agreements is accrued and recognized as a component of net investment income. The related amounts due to or from counterparties are included in accrued investment income receivable or payable. Premiums paid for interest rate cap and floor agreements and swaptions are deferred and amortized to net investment income on a straight-line basis over the term of the agreements. The unamortized premium is included in other assets. Amounts earned on interest rate cap and floor agreements and swaptions are recorded as an adjustment to net investment income. Settlements received on swaptions are deferred and amortized over the life of the hedged assets as an adjustment to yield. Interest rate swap, cap and floor agreements, swaptions and currency rate swap agreements which hedge instruments designated as available-for-sale are adjusted to fair value with the resulting unrealized gains and losses, net of related taxes, included in shareholder's equity. Equity collar agreements are carried at fair value and are included in other invested assets, with the resulting unrealized gains and losses included in realized investment gains (losses). Hedge accounting is applied after the Company determines that the items to be hedged expose it to interest or price risk, designates these financial instruments as hedges and assesses whether the instruments reduce the hedged risks through the measurement of changes in the value of the instruments and the items being hedged at both inception and throughout the hedge period. 49 JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY NOTES TO FINANCIAL STATEMENTS (CONTINUED) NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) From time to time, futures contracts, interest rate swaps, cap and floor agreements, swaptions and currency rate swap agreements are terminated. If the terminated position was accounted for as a hedge, realized gains or losses are deferred and amortized over the remaining lives of the hedged assets or liabilities. Realized and unrealized changes in fair value of derivatives designated with items that no longer exist or are no longer probable of occurring are recorded as a component of the gain or loss arising from the disposition of the designated item or included in income when it is determined that the item is no longer probable of occurring. Changes in the fair value of derivatives no longer effective as hedges are recognized in income from the date the derivative becomes ineffective until their expiration. Revenue Recognition Premiums from participating and non-participating traditional life insurance and annuity policies with life contingencies are recognized as income when due. Premiums from universal life and investment-type contracts are reported as deposits to policyholders' account balances. Revenues from these contracts consist of amounts assessed during the period against policyholders' account balances for mortality charges, policy administration charges and surrender charges. Premiums for contracts with a single premium or a limited number of premium payments, due over a significantly shorter period than the total period over which benefits are provided, are recorded in income when due. The portion of such premium that is not required to provide for all benefits and expenses is deferred and recognized in income in a constant relationship to insurance in force or, for annuities, the amount of expected future benefit payments. Future Policy Benefits and Policyholders' Funds Future policy benefits for participating traditional life insurance policies are based on the net level premium method. This net level premium reserve is calculated using the guaranteed mortality and dividend fund interest rates, which range from 4.5% to 5.0%. The liability for annual dividends represents the accrual of annual dividends earned. Settlement dividends are accrued in proportion to gross margins over the life of the contract. For non-participating traditional life insurance policies, future policy benefits are estimated using a net level premium method on the basis of actuarial assumptions as to mortality, persistency, interest and expenses established at policy issue. Assumptions established at policy issue as to mortality and persistency are based on the Company's experience, which, together with interest and expense assumptions, include a margin for adverse deviation. Benefit liabilities for annuities during the accumulation period are equal to accumulated contractholders' fund balances and after annuitization are equal to the present value of expected future payments. Interest rates used in establishing such liabilities range from 7.5% to 8.0% for life insurance liabilities and 3.5% to 10.3% for individual annuity liabilities. Policyholders' funds for universal life and investment-type products are equal to the policyholder account values before surrender charges. Policy benefits that are charged to expense include benefit claims incurred in the period in excess of related policy account balances and interest credited to policyholders' account balances. Interest crediting rates range from 3.0% to 9.0% for universal life products. Liabilities for unpaid claims and claim expenses include estimates of payments to be made on reported individual life claims and estimates of incurred but not reported claims based on historical claims development patterns. Estimates of future policy benefit reserves, claim reserves and expenses are reviewed continually and adjusted as necessary; such adjustments are reflected in current earnings. Although considerable variability is inherent in such estimates, management believes that future policy benefit reserves and unpaid claims and claims expense reserves are adequate. 50 JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY NOTES TO FINANCIAL STATEMENTS (CONTINUED) NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Participating Insurance Participating business represents approximately 16.3% of the Company's life insurance in force and 30.1% of life insurance premiums in 2000. The amount of policyholders' dividends to be paid is approved annually by the Company's Board of Directors. The determination of the amount of policyholder dividends is complex and varies by policy type. In general, the aggregate amount of policyholders' dividends is related to actual interest, mortality, morbidity, persistency and expense experience for the year and judgment as to the appropriate level of statutory surplus to be retained by the Company. Deferred Policy Acquisition Costs Costs that vary with, and are related primarily to, the production of new business have been deferred to the extent that they are deemed recoverable. Such costs include commissions, certain costs of policy issue and underwriting, and certain agency expenses. For participating traditional life insurance policies, such costs are being amortized over the life of the contracts at a constant rate based on the present value of the estimated gross margin amounts expected to be realized over the lives of the contracts. Estimated gross margin amounts include anticipated premiums and investment results less claims and administrative expenses, changes in the net level premium reserve and expected annual policyholder dividends. For universal life insurance contracts and investment-type products, such costs are being amortized generally in proportion to the present value of expected gross profits arising principally from surrender charges and investment results, and mortality and expense margins. The effects on the amortization of deferred policy acquisition costs of revisions to estimated gross margins and profits are reflected in earnings in the period such estimated gross margins and profits are revised. For non-participating term life insurance products, such costs are being amortized over the premium-paying period of the related policies using assumptions consistent with those used in computing policy benefit reserves. Amortization expense was $30.2 million in 2000. Amortization of deferred policy acquisition costs is allocated to: (1) realized investment gains and losses for those products that realized gains and losses have a direct impact on the amortization of deferred policy acquisition costs; (2) unrealized investment gains and losses, net of tax, to provide for the effect on the deferred policy acquisition cost asset that would result from the realization of unrealized gains and losses on assets backing participating traditional life insurance and universal life and investment-type contracts; and (3) a separate component of benefits and expenses to reflect amortization related to the gross margins or profits, excluding realized gains and losses, relating to policies and contracts in force. Realized investment gains and losses related to certain products have a direct impact on the amortization of deferred policy acquisition costs as such gains and losses affect the amount and timing of profit emergence. Accordingly, to the extent that such amortization results from realized gains and losses, management believes that presenting realized investment gains and losses net of related amortization of deferred policy acquisition costs provides information useful in evaluating the operating performance of the Company. This presentation may not be comparable to presentations made by other insurers. Cash and Cash Equivalents Cash and cash equivalents include cash and all highly liquid debt investments with a maturity of three months or less when purchased. 51 JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY NOTES TO FINANCIAL STATEMENTS (CONTINUED) NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Separate Accounts Separate account assets and liabilities reported in the accompanying consolidated balance sheet represent funds that are administered and invested by the Company to meet specific investment objectives of the contractholders. Investment income and investment gains and losses generally accrue directly to such contractholders who bear the investment risk, subject in some cases to minimum guaranteed rates. The assets of each account are legally segregated and are not subject to claims that arise out of any other business of the Company. Separate account assets are reported at fair value. Deposits, net investment income and realized investment gains and losses of separate accounts are not included in the revenues of the Company. Fees charged to contractholders, principally mortality, policy administration and surrender charges, are included in universal life and investment-type product charges. Reinsurance The Company utilizes reinsurance agreements to provide for greater diversification of business, allow management to control exposure to potential losses arising from large risks and provide additional capacity for growth. Assets and liabilities related to reinsurance ceded contracts are reported on a gross basis. The accompanying statement of income reflects premiums, benefits and settlement expenses net of reinsurance ceded. 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. Federal Income Taxes The provision for federal income taxes includes amounts currently payable or recoverable and deferred income taxes, computed under the liability method, resulting from temporary differences between the tax basis and book basis of assets and liabilities. A valuation allowance is established for deferred tax assets when it is more likely than not that an amount will not be realized. Foreign Currency Translation Gains or losses on foreign currency transactions are reflected in earnings. Accounting Changes and New Accounting Principles Adopted SOP 98-7, "Deposit Accounting: Accounting for Insurance and Reinsurance Contracts That Do Not Transfer Insurance Risk," provides guidance on how to account for insurance and reinsurance contracts that do not transfer insurance risk under a method referred to as deposit accounting. SOP 98-7 is effective for fiscal years beginning after June 15, 1999. SOP 98-7 did not have a material impact on the Company's consolidated financial statements. 52 JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY NOTES TO FINANCIAL STATEMENTS (CONTINUED) NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Recent Accounting Pronouncements In June 1998, the Financial Accounting Standards Board (FASB) issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities." In June 1999, the FASB issued SFAS No. 137, "Accounting for Derivative Instruments and Hedging Activities--Deferral of the Effective Date of FASB Statement 133." This Statement amends SFAS No. 133 to defer its effective date for one year, to fiscal years beginning after June 15, 2000. In June 2000, the FASB issued SFAS No. 138, "Accounting for Certain Derivative Instruments and Certain Hedging Activities--an amendment of SFAS No. 133." This Statement makes certain changes in the hedging provisions of SFAS No. 133, and is effective concurrent with SFAS No. 133. As amended, SFAS No. 133 requires all derivatives to be recognized on the balance sheet at fair value, and establishes special accounting for the following three types of hedges: fair value hedges, cash flow hedges, and hedges of foreign currency exposures of net investments in foreign operations. Special accounting for qualifying hedges provides for matching the timing of gain or loss recognition on the hedging instrument with the recognition of the corresponding changes in value of the hedged item. If the derivative is a hedge, depending on the nature of the hedge, changes in the fair value of derivatives will either be offset against the change in the fair value of the hedged assets, liabilities or firm commitments through earnings or recognized in other comprehensive income until the hedged item is recognized in earnings. The ineffective portion of a derivative's change in fair value will be recognized immediately in earnings and will be included in net realized and other investment gains. The adoption of SFAS No. 133, as amended, will result in an increase in other comprehensive income of $0.5 million (net of tax of $0.3 million) as of January 1, 2001 that will be accounted for as the cumulative effect of an accounting change. In addition, the adoption of SFAS No. 133, as amended, will result in an increase to earnings of $4.9 million (net of tax of $2.7 million) as of January 1, 2001, that will be accounted for as the cumulative effect of an accounting change. The Company believes that its current risk management philosophy will remain largely unchanged after adoption of the Statement. SFAS No. 133, as amended, precludes the designation of held-to-maturity fixed maturity investment securities as hedged items in hedging relationships where the hedged risk is interest rates. As a result, in connection with the adoption of the Statement and consistent with the provisions of the Statement, on January 1, 2001, the Company will reclassify approximately $550.3 million of its held-to-maturity fixed maturity investment portfolio to the available-for-sale category. This will result in an additional increase in other comprehensive income of $4.7 million (net of tax of $2.5 million) as of January 1, 2001. In December 1999, the Securities and Exchange Commission (SEC) issued Staff Accounting Bulletin 101 (SAB 101), "Revenue Recognition in Financial Statements." SAB 101 clarifies the SEC staff's views on applying generally accepted accounting principles to revenue recognition in financial statements. In March 2000, the SEC issued an amendment, SAB 101A, which deferred the effective date of SAB 101. In June 2000, the SEC issued a second amendment, SAB 101B, which deferred the effective date of SAB 101 to no later than the fourth fiscal quarter of fiscal years beginning after December 15, 1999. The Company adopted SAB 101 in the fourth quarter of fiscal 2000. The adoption of SAB 101 did not have a material impact on the Company's results of operation or financial position. 53 JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY NOTES TO FINANCIAL STATEMENTS (CONTINUED) NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Codification In March 1998, the National Association of Insurance Commissioners (NAIC) adopted codified statutory accounting principles (Codification) effective January 1, 2001. Codification changes prescribed statutory accounting practices and results in changes to the accounting practices that the Company and its domestic life insurance subsidiary will use to prepare their statutory-basis financial statements. The states of domicile of the Company and its domestic life insurance subsidiary have adopted Codification as the prescribed basis of accounting on which domestic insurers must report their statutory-basis results effective January 1, 2001. The cumulative effect of changes in accounting principles adopted to conform to the requirements of Codification will be reported as an adjustment to surplus as of January 1, 2001. Management believes that, although the implementation of Codification will have a negative impact on the Company and its domestic life insurance subsidiary's statutory-basis capital and surplus, the Company and its domestic life insurance subsidiary will remain in compliance with all regulatory and contractual obligations. NOTE 2. TRANSACTIONS WITH PARENT John Hancock provides the Company with personnel, property and facilities in carrying out certain of its corporate functions. John Hancock annually determines a fee for these services and facilities based on a number of criteria, which were revised in 2000 to reflect continuing changes in the Company's operations. The amount of the service fee charged to the Company was $170.6 million, which has been included in other operating costs and expenses. As of December 31, 2000, the Company owed John Hancock $56.9 million related to these services, which is included in other liabilities. John Hancock has guaranteed that, if necessary, it will make additional capital contributions to prevent the Company's shareholder's equity from declining below $1.0 million. The Company has a modified coinsurance agreement with John Hancock to reinsure 50% of 1994 through 2000 issues of flexible premium variable life insurance and scheduled premium variable life insurance policies. In connection with this agreement, John Hancock transferred $24.2 million of cash for tax, commission, and expense allowances to the Company, which increased the Company's net income by $0.9 million. The Company has a modified coinsurance agreement with John Hancock to reinsure 50% of the Company's 1995 in-force block and 50% of 1996 and all future issue years of certain retail annuity contracts. In connection with this agreement, the Company is holding a deposit liability of $102.2 million as of December 31, 2000. This agreement had no impact on the Company's net gain from operations. Effective January 1, 1997, the Company entered into a stop-loss agreement with John Hancock to reinsure mortality claims in excess of 100% of expected mortality claims for all policies that are not reinsured under any other indemnity agreement. In connection with the agreement, John Hancock received $1.0 million from the Company in 2000. This agreement increased the Company's net gain from operations in 2000 by $1.1 million. 54 JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY NOTES TO FINANCIAL STATEMENTS (CONTINUED) NOTE 3. INVESTMENTS The following information summarizes the components of net investment income and realized investment losses, net: YEAR ENDED DECEMBER 31 2000 ------------- (IN MILLIONS) NET INVESTMENT INCOME Fixed maturities.............................................. $138.5 Equity securities............................................. 0.2 Mortgage loans on real estate................................. 44.3 Real estate................................................... 4.1 Policy loans.................................................. 17.1 Short-term investments........................................ 19.4 Other......................................................... 1.1 ------ Gross investment income....................................... 224.7 Less investment expenses..................................... 11.3 ------ Net investment income........................................ $213.4 ====== NET REALIZED INVESTMENT GAINS (LOSSES), NET OF RELATED AMORTIZATION OF DEFERRED POLICY ACQUISITION COSTS Fixed maturities............................................... $(16.0) Equity securities.............................................. 0.8 Mortgage loans on real estate and real estate.................. (2.3) Derivatives and other invested assets.......................... 3.1 Amortization adjustment for deferred policy acquisition costs.. 3.8 ------ Net realized investment losses, net of related amortization of deferred policy acquisition costs.......................... $(10.6) ====== 55 JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY NOTES TO FINANCIAL STATEMENTS (CONTINUED) NOTE 3. INVESTMENTS (CONTINUED) Gross gains of $1.5 million in 2000 and gross losses of $6.0 million in 2000 were realized on the sale of available-for-sale securities. The Company's investments in held-to-maturity securities and available-for-sale securities are summarized below: GROSS GROSS AMORTIZED UNREALIZED UNREALIZED FAIR COST GAINS LOSSES VALUE --------- ---------- ---------- ---------- (IN MILLIONS) DECEMBER 31, 2000 HELD-TO-MATURITY: Corporate securities............ $ 684.2 $23.4 $51.0 $ 656.6 Mortgage-backed securities...... 29.3 0.2 1.2 28.3 Obligations of states and political subdivisions......... 1.9 0.0 0.0 1.9 -------- ----- ----- -------- Total.......................... $ 715.4 $23.6 $52.2 $ 686.8 ======== ===== ===== ======== AVAILABLE-FOR-SALE: Corporate securities............ $ 751.6 $20.6 $27.8 $ 744.4 Mortgage-backed securities...... 239.1 3.6 3.7 239.0 Obligations of states and political subdivisions......... 0.9 0.0 0.0 0.9 Debt securities issued by foreign governments............ 11.1 0.3 0.6 10.8 U.S. Treasury securities and obligations of U.S. government corporations and agencies...... 16.1 0.7 0.1 16.7 -------- ----- ----- -------- Total fixed maturities.......... 1,018.8 25.2 32.2 1,011.8 Equity securities............... 7.1 2.8 1.8 8.1 -------- ----- ----- -------- Total.......................... $1,025.9 $28.0 $34.0 $1,019.9 ======== ===== ===== ======== 56 JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY NOTES TO FINANCIAL STATEMENTS (CONTINUED) NOTE 3. INVESTMENTS (CONTINUED) The amortized cost and fair value of fixed maturities at December 31, 2000, by contractual maturity, are shown below: AMORTIZED FAIR COST VALUE --------- ---------- (IN MILLIONS) HELD-TO-MATURITY: Due in one year or less................................ $ 71.9 $ 72.1 Due after one year through five years.................. 234.8 235.0 Due after five years through ten years................. 222.5 223.0 Due after ten years.................................... 156.9 128.4 -------- -------- 686.1 658.5 Mortgage-backed securities............................. 29.3 28.3 -------- -------- Total................................................. $ 715.4 $ 686.8 ======== ======== AVAILABLE-FOR-SALE: Due in one year or less................................ $ 24.9 $ 24.8 Due after one year through five years.................. 332.3 333.0 Due after five years through ten years................. 290.0 281.0 Due after ten years.................................... 132.5 134.0 -------- -------- 779.7 772.8 Mortgage-backed securities............................. 239.1 239.0 -------- -------- Total................................................. $1,018.8 $1,011.8 ======== ======== Expected maturities may differ from contractual maturities because eligible borrowers may exercise their right to call or prepay obligations with or without call or prepayment penalties. The Company participates in a securities lending program for the purpose of enhancing income on securities held. At December 31, 2000, $1.4 million of the Company's bonds and stocks, at market value, were on loan to various brokers/dealers, but were fully collateralized by cash and U.S. government securities in an account held in trust for the Company. The market value of the loaned securities is monitored on a daily basis, and the Company obtains additional collateral when deemed appropriate. Mortgage loans on real estate are evaluated periodically as part of the Company's loan review procedures and are considered impaired when, based on current information and events, it is probable that the Company will be unable to collect all amounts due according to the contractual terms of the loan agreement. The allowance for losses is maintained at a level believed adequate by management to absorb estimated probable credit losses that exist at the balance sheet date. Management's periodic evaluation of the adequacy of the allowance for losses is based on the Company's past loan loss experience, known and inherent risks in the portfolio, adverse situations that may affect the borrower's ability to repay (including the timing of future payments), the estimated value of the underlying collateral, composition of the loan portfolio, current economic conditions and other relevant factors. This evaluation is inherently subjective as it requires estimating the amounts and timing of future cash flows expected to be received on impaired loans that may be susceptible to significant change. 57 JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY NOTES TO FINANCIAL STATEMENTS (CONTINUED) NOTE 3. INVESTMENTS (CONTINUED) Changes in the allowance for probable losses on mortgage loans on real estate were as follows: BALANCE AT BALANCE AT BEGINNING END OF OF YEAR ADDITIONS DEDUCTIONS YEAR ----------- --------- ---------- ------------- (IN MILLIONS) Year ended December 31, 2000 Mortgage loans on real estate...................... $3.8 $1.2 $0.0 $5.0 ==== ==== ==== ==== At December 31, 2000 the total recorded investment in mortgage loans that are considered to be impaired under SFAS No. 114, "Accounting by Creditors for Impairment of a Loan," along with the related provision for losses were as follows: DECEMBER 31 2000 ------------- (IN MILLIONS) Impaired mortgage loans on real estate with provision for losses...................................................... $4.2 Provision for losses......................................... 1.2 ---- Net impaired mortgage loans on real estate................... $3.0 ==== The average investment in impaired loans and the interest income recognized on impaired loans were as follows: YEAR ENDED DECEMBER 31 2000 ------------- (IN MILLIONS) Average recorded investment in impaired loans................ $2.1 Interest income recognized on impaired loans................. 0.3 The payment terms of mortgage loans on real estate may be restructured or modified from time to time. Generally, the terms of the restructured mortgage loans call for the Company to receive some form or combination of an equity participation in the underlying collateral, excess cash flows or an effective yield at the maturity of the loans sufficient to meet the original terms of the loans. Restructured commercial mortgage loans aggregated $3.4 million as of December 31, 2000.The expected gross interest income that would have been recorded had the loans been current in accordance with the original loan agreements and the actual interest income recorded were as follows: YEAR ENDED DECEMBER 31 2000 ------------- (IN MILLIONS) Expected..................................................... 0.34 Actual....................................................... 0.27 58 JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY NOTES TO FINANCIAL STATEMENTS (CONTINUED) NOTE 3. INVESTMENTS (CONTINUED) At December 31, 2000, the mortgage portfolio was diversified by geographic region and specific collateral property type as displayed below: CARRYING GEOGRAPHIC CARRYING PROPERTY TYPE AMOUNT CONCENTRATION AMOUNT - ------------- ------------- ------------- ------------- (IN MILLIONS) (IN MILLIONS) Apartments........... $129.2 East North Central.... $ 68.1 Hotels............... 15.1 East South Central.... 27.6 Industrial........... 77.4 Middle Atlantic....... 27.1 Office buildings..... 99.2 Mountain.............. 35.7 Retail............... 45.7 New England........... 44.5 Mixed Use............ 13.5 Pacific............... 120.7 Agricultural......... 165.6 South Atlantic........ 156.7 Other................ 14.1 West North Central.... 16.9 West South Central.... 59.3 Canada/Other.......... 3.2 Allowance for losses. (5.0) Allowance for losses.. (5.0) ------ ------ Total............... $554.8 Total................ $554.8 ====== ====== Bonds with amortized cost of $7.0 million were non-income producing for the year ended December 31, 2000. Depreciation expense on investment real estate was $0.6 million in 2000. Accumulated depreciation was $2.5 million at December 31, 2000. Investments in unconsolidated joint ventures and partnerships accounted for by using the equity method of accounting totaled $0.4 million at December 31, 2000. Total combined assets of these joint ventures and partnerships were $28.5 million (consisting primarily of investments), and total combined liabilities were $8.7 million (including $2.9 million of non-recourse notes payable to banks) at December 31, 2000. Total combined revenues and expenses of such joint ventures and partnerships were $77.6 million and $76.3 million, respectively, resulting in $1.3 million of total combined income from operations before income taxes in 2000. Net investment income on investments accounted for on the equity method totaled $0.4 million in 2000. 59 JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY NOTES TO FINANCIAL STATEMENTS (CONTINUED) NOTE 4. DERIVATIVES The notional amounts, carrying values and estimated fair values of the Company's derivative instruments are as follows: NUMBER OF CONTRACTS/ ASSETS (LIABILITIES) NOTIONAL --------------------- AMOUNTS 2000 ---------- --------------------- CARRYING FAIR 2000 VALUE VALUE ---------- ----------- ----------- (IN MILLIONS) ASSET HEDGES: Futures contracts to sell securities..... 6 -- -- Interest rate swap agreements Notional................................ $600.0 -- (10.8) Average fixed rate--paid................ 6.38% -- -- Average float rate--received............ 6.69% -- -- Currency rate swap agreements............ $ 22.3 (0.6) (0.6) Equity collar agreements................. -- 0.4 0.4 LIABILITY HEDGES: Futures contracts to acquire securities.. 43 0.1 0.1 Interest rate swap agreements Notional................................ $570.0 9.6 Average fixed rate--received............ 6.43% -- -- Average float rate--paid................ 6.69% -- -- Interest rate cap agreements............. $239.4 2.1 2.1 Interest rate floor agreements........... 485.4 4.5 4.5 Financial futures contracts are used principally to hedge risks associated with interest rate fluctuations on anticipated fixed income asset acquisitions. The Company is subject to the risks associated with changes in the value of the underlying securities; however, such changes in value generally are offset by opposite changes in the value of the hedged items. The contracts or notional amounts of the contracts represent the extent of the Company's involvement but not the future cash requirements, as the Company intends to close the open positions prior to settlement. The futures contracts expire in March 2001. The interest rate swap agreements expire in 2001 to 2011. The interest rate cap agreements expire in 2006 to 2007 and interest rate floor agreements expire in 2010. The currency rate swap agreements expire in 2006 to 2015. The equity collar agreements expire in 2005. Fair values for futures contracts are based on quoted market prices. Fair values for interest rate swap, cap and floor agreements, swaptions, and currency swap agreements and equity collar agreements are based on current settlement values. The current settlement values are based on quoted market prices, which utilize pricing models or formulas using current assumptions. 60 JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY NOTES TO FINANCIAL STATEMENTS (CONTINUED) NOTE 4. DERIVATIVES (CONTINUED) 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. NOTE 5. INCOME TAXES The Company is included in the consolidated federal income tax return of John Hancock Financial Services, Inc. The federal income taxes of the Company are allocated on a separate return basis with certain adjustments. The components of income taxes were as follows: YEAR ENDED DECEMBER 31 2000 ------------- (IN MILLIONS) Current taxes: Federal..................................................... $15.2 Foreign..................................................... 0.6 ----- 15.8 Deferred taxes: Federal..................................................... 28.0 Foreign..................................................... -- ----- 28.0 ----- Total income taxes......................................... $43.8 ===== A reconciliation of income taxes computed by applying the federal income tax rate to income before income taxes and the consolidated income tax expense charged to operations follows: YEAR ENDED DECEMBER 31 2000 ------------- (IN MILLIONS) Tax at 35%................................................... $50.1 Add (deduct): Equity base tax............................................. (5.6) Tax credits................................................. (0.6) Foreign taxes............................................... 0.6 Tax exempt investment income................................ (0.7) ----- Total income taxes......................................... $43.8 ===== 61 JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY NOTES TO FINANCIAL STATEMENTS (CONTINUED) NOTE 5. INCOME TAXES (CONTINUED) The significant components of the Company's deferred tax assets and liabilities were as follows: DECEMBER 31 2000 ------------- (IN MILLIONS) DEFERRED TAX ASSETS: Policy reserve adjustments.................................. $ 74.6 Other postretirement benefits............................... 23.3 Book over tax basis of investments.......................... 7.8 Interest.................................................... 7.5 Unrealized losses........................................... 1.4 ------ Total deferred tax assets.................................. 114.6 ------ DEFERRED TAX LIABILITIES: Deferred policy acquisition costs........................... 199.1 Depreciation................................................ 1.8 Basis in partnerships....................................... 0.4 Market discount on bonds.................................... 0.6 Other....................................................... 9.5 ------ Total deferred tax liabilities............................. 211.4 ------ Net deferred tax liabilities............................... $ 96.8 ====== The Company made income tax payments of $62.9 million in 2000. NOTE 6. DEBT AND LINE OF CREDIT At December 31, 2000, the Company had a line of credit with John Hancock Capital Corporation, an indirect, wholly-owned subsidiary of John Hancock, totaling $250.0 million. John Hancock Capital Corporation will commit, when requested, to loan funds at prevailing interest rates as agreed to from time to time between John Hancock Capital Corporation and the Company. At December 31, 2000, the Company had no outstanding borrowings under the agreement. NOTE 7. REINSURANCE The effect of reinsurance on premiums written and earned was as follows: 2000 PREMIUMS --------------- WRITTEN EARNED ------- -------- (IN MILLIONS) Life Insurance: Direct..................................................... $34.1 $34.1 Ceded...................................................... (5.5) (5.5) ----- ----- Net life insurance premiums............................... $28.6 $28.6 ===== ===== For the year ended December 31, 2000, benefits to policyholders under life ceded reinsurance contracts were $3.0 million. 62 JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY NOTES TO FINANCIAL STATEMENTS (CONTINUED) NOTE 7. REINSURANCE (CONTINUED) 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. NOTE 8. COMMITMENTS AND CONTINGENCIES The Company has extended commitments to purchase long-term bonds, issue real estate mortgages and purchase other assets totaling $37.0 million, $6.3 million and $17.4 million, respectively, at December 31, 2000. The Company monitors the creditworthiness of borrowers under long-term bond 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 was $62.9 million at December 31, 2000. The majority of these commitments expire in 2001. 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, 2000. 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. The reserve held in connection with the settlement to provide for relief to class members and for legal and administrative costs associated with the settlement amounted to $66.3 million at December 31, 2000. No costs were incurred in 2000. The estimated reserve is based on a number of factors, including the estimated cost per claim and the estimated costs to administer the claims. During 1996, management determined that it was probable that a settlement would occur and that a minimum loss amount could be reasonably estimated. Accordingly, the Company recorded its best estimate based on the information available at the time. The terms of the settlement agreement were negotiated throughout 1997 and approved by the court on December 31, 1997. In accordance with the terms of the settlement agreement, the Company contacted class members during 1998 to determine the actual type of relief to be sought by class members. The majority of responses from class members were received by the fourth quarter of 1998. The type of relief sought by class members differed from the Company's previous estimates, primarily due to additional outreach activities by regulatory authorities during 1998 encouraging class members to consider alternative dispute resolution relief. In 1999, the Company updated its estimate of the cost of claims subject to alternative dispute resolution relief and revised its reserve estimate accordingly. 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 the 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 estimated with precision. If the Company's share of the settlement increases, John Hancock will contribute additional capital to the Company so that the Company's total shareholder's equity would not be impacted. 63 JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY NOTES TO FINANCIAL STATEMENTS (continued) Note 9. Shareholder's Equity (a) Other Comprehensive Loss The components of accumulated other comprehensive loss are as follows: Accumulated Other Comprehensive Income --------------- Balance at January 1, 2000. . . . . . . . . . . . . . . . . . ($13.4) ------ Gross unrealized gains (net of deferred income tax expense of $9.7 million). . . . . . . . . . . . . . . . . . . . . . . . 18.0 Less reclassification adjustment for gains, realized in net income (net of tax expense of $1.6 million). . . . . . . . . (2.9) Adjustment to deferred policy acquisition costs (net of deferred income tax benefit of $2.1 million) . . . . . . . . (3.9) ------ Net unrealized gains. . . . . . . . . . . . . . . . . . . . . 11.2 ------ Balance at December 31, 2000. . . . . . . . . . . . . . . . . ($2.2) ====== Net unrealized investment gains (losses), included in the consolidated balance sheet as a component of shareholder's equity, are summarized as follows: 2000 --------------- (in millions) Balance, end of year comprises: Unrealized investment gains (losses) on: Fixed maturities . . . . . . . . . . . . . . . . . . . . . . ($7.0) Equity investments . . . . . . . . . . . . . . . . . . . . . 1.0 Derivatives and other. . . . . . . . . . . . . . . . . . . . 0.3 ----- Total . . . . . . . . . . . . . . . . . . . . . . . . . . . (5.7) Amounts attributable to: Deferred policy acquisition cost . . . . . . . . . . . . . . 2.1 Deferred federal income taxes. . . . . . . . . . . . . . . . 1.4 ----- Total . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.5 ----- Net unrealized investment gains . . . . . . . . . . . . . . ($2.2) ===== 64 JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY NOTES TO FINANCIAL STATEMENTS (continued) Note 9. Shareholder's Equity (continued) (b) Statutory Results The Company and its domestic insurance subsidiary prepare their statutory- basis financial statements in accordance with accounting practices prescribed or permitted by the state of domicile. Prescribed statutory accounting practices include state laws, regulations and administrative rules, as well as guidance published by the NAIC. Permitted accounting practices encompass all accounting practices that are not prescribed by the sources noted above. Since 1988, the Commonwealth of Massachusetts Division of Insurance has provided the Company with approval to recognize a pension plan prepaid expense in accordance with the requirements of SFAS No. 87, "Employers' Accounting for Pensions." The Company furnishes the Commonwealth of Massachusetts Division of Insurance with an actuarial certification of the prepaid expense computation on an annual basis. The pension plan prepaid expense amounted to $55.6 million at December 31, 2000. Statutory net income and surplus include the accounts of the Company and its wholly-owned subsidiary, Investors Partners Life Insurance Company. 2000 --------------- (in millions) Statutory net income. . . . . . . . . . . . . . . . . . . . . $ 26.6 Statutory surplus . . . . . . . . . . . . . . . . . . . . . . 527.2 Massachusetts has enacted laws governing the payment of dividends by insurers. Under Massachusetts insurance law, no insurer may pay any shareholder dividends from any source other than statutory unassigned funds without the prior approval of Massachusetts Commissioner of Insurance. Massachusetts law also limits the dividends an insurer may pay in any twelve month period, without the prior permission of the Commonwealth of Massachusetts Insurance Commissioner, to the greater of (i) 10% of its statutory policyholders' surplus as of the preceding December 31 or (ii) the individual company's statutory net gain from operations for the preceding calendar year, if such insurer is a life company. Note 10. Segment Information The Company's reportable segments are strategic business units offering different products and services. The reportable segments are managed separately, as they focus on different products, markets or distribution channels. Retail-Protection Segment. Offers a variety of individual life insurance, including participating whole life, term life, universal life and variable life insurance. Products are distributed through multiple distribution channels, including insurance agents and brokers and alternative distribution channels that include banks, financial planners, direct marketing and the Internet. Retail-Asset Gathering Segment. Offers individual annuities, consisting of fixed deferred annuities, fixed immediate annuities, single premium immediate annuities, and variable annuities. This segment distributes its products through distribution channels including insurance agents and brokers affiliated with the Company, securities brokerage firms, financial planners, and banks. 65 JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY NOTES TO FINANCIAL STATEMENTS (continued) Note 10. Segment Information (continued) The accounting policies of the segments are the same as those described in the summary of significant accounting policies. Allocations of net investment income are based on the amount of assets allocated to each segment. Other costs and operating expenses are allocated to each segment based on a review of the nature of such costs, cost allocations utilizing time studies, and other relevant allocation methodologies. Management of the Company evaluates performance based on segment after-tax operating income, which excludes the effect of net realized investment gains or losses and unusual or non-recurring events and transactions. Segment after-tax operating income is determined by adjusting GAAP net income for net realized investment gains and losses, including gains and losses on disposals of businesses and certain other items which management believes are not indicative of overall operating trends. While these items may be significant components in understanding and assessing the Company's financial performance, management believes that the presentation of after-tax operating income enhances its understanding of the Company's results of operations by highlighting net income attributable to the normal, recurring operations of the business. Amounts reported as segment adjustments in the tables below primarily relate to: (i) certain realized investment gains (losses), net of related amortization adjustment for deferred policy acquisition costs; (ii) benefits to policyholders and expenses incurred relating to the settlement of a class action lawsuit against the Company involving certain individual life insurance policies sold from 1979 through 1996; (iii) restructuring costs related to our distribution systems and retail operations; (iv) the surplus tax on mutual life insurance companies that was allocated by John Hancock to the Company; and (v) a charge for certain one time costs associated with John Hancock's demutualization process. 66 JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY NOTES TO FINANCIAL STATEMENTS (continued) Note 10. Segment Information (continued) The following table summarizes selected financial information by segment for the year ended or as of December 31 and reconciles segment revenues and segment after-tax operating income to amounts reported in the consolidated statements of income (in millions): Retail Retail Asset Protection Gathering Consolidated ---------- --------- ------------ 2000 Revenues: Segment revenues . . . . . . . . . . . $ 530.8 $ 48.5 $ 579.3 Realized investment losses, net. . . . (10.6) -- (10.6) -------- -------- --------- Revenues . . . . . . . . . . . . . . . $ 520.2 $ 48.5 $ 568.7 ======== ======== ========= Net investment income. . . . . . . . . $ 215.9 ($2.5) $ 213.4 Net income: Segment after-tax operating income . . 96.0 6.3 102.3 Realized investment losses, net. . . . (6.8) -- (6.8) Restructuring charges. . . . . . . . . (1.1) -- (1.1) Surplus tax. . . . . . . . . . . . . . 5.4 0.2 5.6 Other demutualization related cost . . (0.5) (0.1) (0.6) -------- -------- --------- Net income . . . . . . . . . . . . . . $ 93.0 $ 6.4 $ 99.4 ======== ======== ========= Supplemental Information: Equity in net income of investees accounted for by the equity method. . $ 1.3 -- $ 1.3 Amortization of deferred policy acquisition costs . . . . . . . . . . 17.6 16.4 34.0 Income tax expense . . . . . . . . . . 40.7 3.1 43.8 Segment assets . . . . . . . . . . . . 9,326.9 2,867.8 12,194.7 Net Realized Investment Gains Data: Net realized investment losses . . . . $ (14.4) -- $ (14.4) Add capitalization/less amortization of deferred policy acquisition costs related to net realized investment gains (losses) . . . . . . . . . . . 3.8 -- 3.8 -------- -------- --------- Net realized investment losses, net of related amortization of deferred policy acquisition costs--per consolidated financial statements . . (10.6) -- (10.6) Less income tax effect . . . . . . . . 3.8 -- 3.8 -------- -------- --------- Realized investment losses, net-after-tax adjustment made to calculate segment operating income. . ($6.8) -- ($6.8) ======== ======== ========= The Company operates only in the United States. The Company has no reportable major customers and revenues are attributed to countries based on the location of customers. 67 JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY NOTES TO FINANCIAL STATEMENTS (continued) Note 11. Fair Value of Financial Instruments The following discussion outlines the methodologies and assumptions used to determine the fair value of the Company's financial instruments. The aggregate fair value amounts presented herein do not represent the underlying value of the Company and, accordingly, care should be exercised in drawing conclusions about the Company's business or financial condition based on the fair value information presented herein. The following methods and assumptions were used by the Company to determine the fair values of financial instruments: Fair values for publicly traded fixed maturities (including redeemable preferred stocks) are obtained from an independent pricing service. Fair values for private placement securities and fixed maturities not provided by the independent pricing service are estimated by the Company by discounting expected future cash flows using a current market rate applicable to the yield, credit quality and maturity of the investments. The fair value for equity securities is based on quoted market prices. The fair value for mortgage loans on real estate is estimated using discounted cash flow analyses using interest rates adjusted to reflect the credit characteristics of the loans. Mortgage loans with similar characteristics and credit risks are aggregated into qualitative categories for purposes of the fair value calculations. Fair values for impaired mortgage loans are measured based either on the present value of expected future cash flows discounted at the loan's effective interest rate or the fair value of the underlying collateral for loans that are collateral dependent. The carrying amount in the balance sheet for policy loans, short-term investments and cash and cash equivalents approximates their respective fair values. The fair value for fixed-rate deferred annuities is the cash surrender value, which represents the account value less applicable surrender charges. Fair values for immediate annuities without life contingencies are estimated based on discounted cash flow calculations using current market rates. The Company's derivatives include futures contracts, interest rate swap, cap and floor agreements, swaptions, currency rate swap agreements and equity collar agreements. Fair values for these contracts are based on current settlement values. These values are based on quoted market prices for the financial futures contracts and brokerage quotes that utilize pricing models or formulas using current assumptions for all swaps and other agreements. The fair value for commitments approximates the amount of the initial commitment. 68 JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY NOTES TO FINANCIAL STATEMENTS (continued) Note 11. Fair Value of Financial Instruments (continued) The following table presents the carrying amounts and fair values of the Company's financial instruments: December 31 2000 ---------------------------- Carrying Value Fair Value -------------- ------------ (in millions) Assets: Fixed maturities: Held-to-maturity . . . . . . . . . . . . . . . $ 715.4 $ 686.8 Available-for-sale . . . . . . . . . . . . . . 1,011.8 1,011.8 Equity securities: Available-for-sale . . . . . . . . . . . . . . 8.1 8.1 Mortgage loans on real estate . . . . . . . . . 554.8 574.2 Policy loans. . . . . . . . . . . . . . . . . . 334.2 334.2 Short-term investments. . . . . . . . . . . . . 21.7 21.7 Cash and cash equivalents . . . . . . . . . . . 277.3 277.3 Liabilities: Fixed rate deferred and immediate annuities 63.8 60.4 Derivatives assets/(liabilities) relating to: Futures contracts, net . . . . . . . . . . . . 0.1 0.1 Interest rate swap agreements. . . . . . . . . (1.2) Interest rate cap agreements . . . . . . . . . 2.1 2.1 Interest rate floor agreements . . . . . . . . 4.5 4.5 Currency rate swap agreements. . . . . . . . . (0.6) (0.6) Equity collar agreements . . . . . . . . . . . 0.4 0.4 Commitments. . . . . . . . . . . . . . . . . . . -- 62.9 69 REPORT OF 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, 2000, 1999 and 1998, and the related statutory-basis statements of operations and unassigned deficit and cash flows for each of the three years in the period ended December 31, 2000. These financial statements and schedules are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and schedules 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 and the effects on the accompanying financial statements also are described in Note 1. 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, 2000, 1999, and 1998, or the results of its operations or its cash flows for each of the three years in the period ended December 31, 2000. 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, 2000, 1999, and 1998, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2000 in conformity with accounting practices prescribed or permitted by the Commonwealth of Massachusetts Division of Insurance. Also, in our opinion, the related financial statement schedules, when considered in relation to the basic financial statements taken as a whole, present fairly in all material respects the information set forth therein. /S/ ERNST & YOUNG LLP Boston, Massachusetts March 9, 2001 70 JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY STATUTORY-BASIS STATEMENTS OF FINANCIAL POSITION December 31 -------------------------------- 2000 1999 1998 --------- --------- -------- (in millions) Assets Bonds--Note 6. . . . . . . . . . . . . . $ 1,400.5 $ 1,216.3 $1,185.8 Preferred stocks . . . . . . . . . . . . 44.0 35.9 36.5 Common stocks. . . . . . . . . . . . . . 2.8 3.2 3.1 Investment in affiliates . . . . . . . . 84.8 80.7 81.7 Mortgage loans on real estate--Note 6. . 456.0 433.1 388.1 Real estate. . . . . . . . . . . . . . . 24.5 25.0 41.0 Policy loans . . . . . . . . . . . . . . 218.9 172.1 137.7 Cash items: Cash in banks . . . . . . . . . . . . . 45.4 27.2 11.4 Temporary cash investments. . . . . . . 226.6 222.9 8.5 --------- --------- -------- 272.0 250.1 19.9 Premiums due and deferred. . . . . . . . 73.0 29.9 32.7 Investment income due and accrued. . . . 43.3 33.2 29.8 Other general account assets . . . . . . 17.6 65.3 47.5 Assets held in separate accounts . . . . 8,082.8 8,268.2 6,595.2 --------- --------- -------- Total Assets . . . . . . . . . . . . . $10,720.2 $10,613.0 $8,599.0 ========= ========= ======== Obligations and Stockholder's Equity Obligations Policy reserves. . . . . . . . . . . . . $ 2,207.9 $ 1,866.6 $1,652.0 Federal income and other taxes payable--Note 1 . . . . . . . . . . . . (7.4) 67.3 44.3 Other general account obligations. . . . 166.3 219.0 150.9 Transfers from separate accounts, net. . (198.5) (221.6) (190.3) Asset valuation reserve--Note 1. . . . . 26.7 23.1 21.9 Obligations related to separate accounts 8,076.4 8,261.6 6,589.4 --------- --------- -------- Total Obligations . . . . . . . . . . 10,271.4 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 2.5 Paid-in capital. . . . . . . . . . . . . 572.4 572.4 377.5 Unassigned deficit--Note 10 . . . . . . (126.1) (177.9) (49.2) --------- --------- -------- Total Stockholder's Equity . . . . . . 448.8 397.0 330.8 --------- --------- -------- Total Obligations and Stockholder's Equity . . . . . . . . . . . . . . . . $10,720.2 $10,613.0 $8,599.0 ========= ========= ======== The accompanying notes are an integral part of the statutory-basis financial statements. 71 JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY STATUTORY-BASIS STATEMENTS OF OPERATIONS AND UNASSIGNED DEFICIT Year Ended December 31 ------------------------------ 2000 1999 1998 -------- -------- -------- (in millions) Income Premiums . . . . . . . . . . . . . . . . . $ 945.5 $ 950.8 $1,272.3 Net investment income--Note 3. . . . . . . 176.7 136.0 122.8 Other, net . . . . . . . . . . . . . . . . 475.6 605.4 618.1 -------- -------- -------- 1,597.8 1,692.2 2,013.2 Benefits and Expenses Payments to policyholders and beneficiaries 340.8 349.9 301.4 Additions to reserves to provide for future payments to policyholders and beneficiaries . . . . . . . . . . . . . . 844.4 888.8 1,360.2 Expenses of providing service to policyholders and obtaining new insurance--Note 5 . . . . . . . . . . . . 363.4 314.4 274.2 State and miscellaneous taxes. . . . . . . 25.8 20.5 28.1 -------- -------- -------- 1,574.4 1,573.6 1,963.9 -------- -------- -------- Gain From Operations Before Federal Income Tax (Credit) Expense and Net Realized Capital Losses . . . . . . . . . . . . . . 23.4 118.6 49.3 Federal income tax (credit) expense--Note 1 (18.0) 42.9 33.1 -------- -------- -------- Gain From Operations Before Net Realized Capital Losses . . . . . . . . . . . . . . 41.4 75.7 16.2 Net realized capital losses--Note 4 . . . . (18.2) (1.7) (0.6) -------- -------- -------- Net Income . . . . . . . . . . . . . . . . 23.2 74.0 15.6 Unassigned deficit at beginning of year . . (177.9) (49.2) (58.3) Net unrealized capital gains (losses) and other adjustments--Note 4. . . . . . . . . 8.0 (3.8) (6.0) Adjustment to premiums due and deferred . . 21.4 -- -- Other reserves and adjustments--Note 10 . . (0.8) (198.9) (0.5) -------- -------- -------- Unassigned Deficit at End of Year . . . . . $ (126.1) $ (177.9) $ (49.2) ======== ======== ======== The accompanying notes are an integral part of the statutory-basis financial statements. 72 JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY STATUTORY-BASIS STATEMENTS OF CASH FLOWS Year Ended December 31 ----------------------------- 2000 1999 1998 ------- ------- -------- (in millions) Cash flows from operating activities: Insurance premiums . . . . . . . . . . . . . $ 939.9 $ 958.5 $1,275.3 Net investment income. . . . . . . . . . . . 166.0 134.2 118.2 Benefits to policyholders and beneficiaries. (315.1) (321.6) (275.5) Dividends paid to policyholders. . . . . . . (26.1) (25.6) (22.3) Insurance expenses and taxes . . . . . . . . (362.4) (344.8) (296.9) Net transfers to separate accounts . . . . . (513.0) (705.3) (874.4) Other, net . . . . . . . . . . . . . . . . . 347.4 540.6 551.3 ------- ------- -------- Net Cash Provided From Operations . . . . 236.7 236.0 475.7 ------- ------- -------- Cash flows used in investing activities: Bond purchases . . . . . . . . . . . . . . . (450.7) (240.7) (618.8) Bond sales . . . . . . . . . . . . . . . . . 148.0 108.3 340.7 Bond maturities and scheduled redemptions. . 80.0 78.4 111.8 Bond prepayments . . . . . . . . . . . . . . 29.4 18.7 76.5 Stock purchases. . . . . . . . . . . . . . . (8.8) (3.9) (23.4) Proceeds from stock sales. . . . . . . . . . 1.7 3.6 1.9 Real estate purchases . . . . . . . . . . . (0.4) (2.2) (4.2) Real estate sales. . . . . . . . . . . . . . 0.2 17.8 2.1 Other invested assets purchases. . . . . . . (13.8) (4.5) -- Mortgage loans issued. . . . . . . . . . . . (85.7) (70.7) (145.5) Mortgage loan repayments . . . . . . . . . . 61.6 25.3 33.2 Other, net . . . . . . . . . . . . . . . . . 23.7 (68.9) (435.2) ------- ------- -------- Net Cash Used in Investing Activities . . . (214.8) (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 . . . . . . . . . . . . . 21.9 230.2 (123.3) Cash and temporary cash investments at beginning of year. . . . . . . . . . . . . . 250.1 19.9 143.2 ------- ------- -------- Cash and Temporary Cash Investments at End of Year . . . . . . . . . . . . . . . . . $ 272.0 $ 250.1 $ 19.9 ======= ======= ======== The accompanying notes are an integral part of the statutory-basis financial statements. 73 JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS NOTE 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 (John Hancock). The Company, domiciled in the Commonwealth of Massachusetts, writes variable and universal life insurance policies and variable annuity contracts. Those policies primarily are marketed through John Hancock's sales organization, 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. Pursuant to a Plan of Reorganization approved by the policyholders 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. 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. The carrying values of investment securities and real estate are reduced through the income statement when there has been a decline in value deemed other than temporary and mortgage loan valuation allowances, if necessary, are established when the Company determines it is probable that it will be unable to collect all amounts of principal and interest due according to the contractual terms of the mortgage loan agreement; (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. GAAP net income for the year ended December 31, 2000 and GAAP shareholder's equity as of December 31, 2000 and 1999 were $99.4 million, $805.6 million and $695.0 million, respectively. The effects of variances from GAAP on net income for the year ended December 31, 1999 have not been determined but are presumed to be material. 74 JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS (continued) Note 1. Nature of Operations and Significant Accounting Practices (continued) The significant accounting practices of the Company are as follows: Permitted Statutory Accounting Practices: In March 1998, the National Association of Insurance Commissioners (NAIC) adopted codified statutory accounting principles (Codification) effective January 1, 2001. Codification changes prescribed statutory accounting practices and results in changes to the accounting practices that the Company will use to prepare its statutory-basis financial statements. The Commonwealth of Massachusetts Division of Insurance has adopted Codification as the prescribed basis of accounting on which domestic insurers must report their statutory-basis results effective January 1, 2001. The cumulative effect of changes in accounting principles adopted to conform to the requirements of Codification will be reported as an adjustment to surplus as of January 1, 2001. Management believes that, although the implementation of Codification will have a negative impact on the Company's statutory-basis capital and surplus, the Company will remain in compliance with all regulatory and contractual obligations. 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 and floor 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. Net premiums related to equity collar positions are amortized into income on a straight-line basis over the term of the collars. The interest rate cap and floor agreements and collars are carried at fair value, with changes in fair value reflected directly in unassigned deficit. 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 $2.5 million in 2000, $1.9 million in 1999, and $3.0 million in 1998. 75 JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS (continued) Note 1. Nature of Operations and Significant Accounting Practices (continued) 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. 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, 2000, the IMR, net of 2000 amortization of $1.6 million, amounted to $4.2 million, which is included in other general account obligations. The corresponding 1999 amounts were $2.3 million and $7.4 million, respectively, and the corresponding 1998 amounts were $2.4 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 $6.3 million, $8.9 million, and $11.4 million at December 31, 2000, 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 annuity contracts and 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 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. 76 JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS (continued) Note 1. Nature of Operations and Significant Accounting Practices (continued) 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 loans 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 aggregated 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, 2000. 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 41/2% 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 41/2% 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 51/2% interest for policies issued from 1988 through 1992; 5% interest for policies issued in 1993 and 1994; and 41/2% interest for policies issued in 1995 through 2000. 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 for the affiliated group. The federal income taxes of the Company are allocated on a separate return basis with certain adjustments. The Company made federal income tax payments of $65.1 million in 2000, $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. 77 JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS (continued) Note 1. Nature of Operations and Significant Accounting Practices (continued) 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 2000, 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. Note 2. Investment in Affiliate The Company owns all outstanding shares of Investors Partner Life Insurance Company (IPL). IPL manages a block of single premium whole life insurance business and began marketing term life and variable universal life products through brokers in 1999. Summarized statutory-basis financial information for IPL for 2000, 1999 and 1998 is as follows: 2000 1999 1998 ------ ------ ------ (in millions) Total assets . . . . . . . . . . . . . . . . . . . . $554.7 $571.0 $587.8 Total liabilities. . . . . . . . . . . . . . . . . . 476.3 499.2 517.5 Total revenues . . . . . . . . . . . . . . . . . . . 42.8 35.6 38.8 Net income . . . . . . . . . . . . . . . . . . . . . 3.3 3.5 3.8 Note 3. Net Investment Income Investment income has been reduced by the following amounts: 2000 1999 1998 ----- ----- ------ (in millions) Investment expenses . . . . . . . . . . . . . . . . . . $ 9.0 $ 9.5 $ 8.3 Interest expense. . . . . . . . . . . . . . . . . . . . -- 1.7 2.4 Depreciation expense. . . . . . . . . . . . . . . . . . 0.6 0.6 0.8 Investment taxes. . . . . . . . . . . . . . . . . . . . 0.5 0.3 0.7 ----- ----- ----- $10.1 $12.1 $12.2 ===== ===== ===== 78 JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS (continued) Note 4. Net Capital Gains (Losses) and Other Adjustments Net realized capital losses consist of the following items: 2000 1999 1998 ------ ----- ----- (in millions) Net (losses) gains from asset sales . . . . . . . . $(19.5) $(2.8) $ 7.6 Capital gains tax . . . . . . . . . . . . . . . . . (0.3) 0.2 (2.9) Amounts transferred to IMR. . . . . . . . . . . . . 1.6 0.9 (5.3) ------ ----- ----- Net realized capital losses. . . . . . . . . . . . $(18.2) $(1.7) $(0.6) ====== ===== ===== Net unrealized capital gains (losses) and other adjustments consist of the following items: 2000 1999 1998 ----- ----- ----- (in millions) Net gains (losses) from changes in security values and book value adjustments. . . . . . . . . . . . . $11.6 $(2.6) $(2.7) Increase in asset valuation reserve. . . . . . . . . (3.6) (1.2) (3.3) ----- ----- ----- Net unrealized capital gains (losses) and other adjustments. . . . . . . . . . . . . . . . . . . . $ 8.0 $(3.8) $(6.0) ===== ===== ===== Note 5. Transactions With Parent John Hancock provides the Company with personnel, property and facilities in carrying out certain of its corporate functions. John Hancock annually determines a fee for these services and facilities based on a number of criteria which were revised in 2000, 1999 and 1998 to reflect continuing changes in the Company's operations. The amount of the service fee charged to the Company was $162.2 million, $188.3 million, $157.5 million, in 2000, 1999, and 1998, respectively, which has been included in insurance and investment expenses. John Hancock 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 John Hancock includes $0.7 million, $0.2 million, and $0.7 million in 2000, 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. John Hancock allocates a portion of the activity related to its defined benefit pension plans to the Company. The pension plan prepaid expense allocated to the Company amounted to $55.0 million and $41.9 million in 2000 and 1999, respectively. Since 1988, the Massachusetts Division of Insurance has provided the Company with approval to recognize the pension plan prepaid expense, if any, in accordance with the requirements of SFAS No. 87, "Employers' Accounting for Pensions." The Company furnishes the Division of Insurance with an actuarial certification of the prepaid expense computation on an annual basis. 79 JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS (continued) Note 5. Transactions With Parent (continued) The Company has a modified coinsurance agreement with John Hancock to reinsure 50% of 1994 through 2000 issues of flexible premium variable life insurance and scheduled premium variable life insurance policies. In connection with this agreement, John Hancock transferred $24.2 million, $44.5 million, and $4.9 million of cash for tax, commission, and expense allowances to the Company, which decreased the Company's net gain from operations by $0.9 million in 2000, and 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 $17.4 million, $40.0 million, and $12.7 million in 2000, 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 $5.6 million, $26.9 million, and $8.4 million in 2000, 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 100% of expected mortality claims in 2000, 1999 and 1998 for all policies that are not reinsured under any other indemnity agreement. In connection with the agreement, John Hancock received $1.0 million, $0.8 million, and $1.0 million in 2000, 1999, and 1998, respectively, for mortality claims to the Company. This agreement decreased the Company's net gain from operations by $1.1 million in 2000 and $0.5 million in both 1999 and 1998. The Company had a $200.0 million line of credit with an affiliate, John Hancock Capital Corp. At December 31, 2000 and 1999, the Company had no outstanding borrowings under this agreement. 80 JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS (continued) Note 6. Investments The statement value and fair value of bonds are shown below: Gross Gross Statement Unrealized Unrealized Fair Value Gains Losses Value --------- ---------- ---------- ---------- (in millions) December 31, 2000 U.S. Treasury securities and obligations of U.S. government corporations and agencies. . . $ 5.7 $ -- $ -- $ 5.7 Obligations of states and political subdivisions . . . . 1.8 -- -- 1.8 Debt securities issued by foreign governments. . . . . . 10.9 0.3 0.6 10.6 Corporate securities. . . . . . 1,158.8 36.4 68.5 1,126.7 Mortgage-backed securities . . 223.3 3.4 4.6 222.1 -------- ----- ----- -------- Total bonds. . . . . . . . . $1,400.5 $40.1 $73.7 $1,366.9 ======== ===== ===== ======== December 31, 1999 U.S. Treasury securities and obligations of U.S. government corporations and agencies. . . $ 5.9 -- $ 0.1 $ 5.8 Obligations of states and political subdivisions . . . . 2.2 $ 0.1 0.1 2.2 Debt securities issued by foreign governments. . . . . . 13.9 0.8 0.1 14.6 Corporate securities. . . . . . 964.9 13.0 59.4 918.5 Mortgage-backed securities . . 229.4 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 -- $ 5.2 Obligations of states and political subdivisions . . . . 3.2 0.3 -- 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 ======== ===== ===== ======== The statement value and fair value of bonds at December 31, 2000, 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. 81 JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS (continued) Note 6. Investments (continued) Statement Fair Value Value --------- -------- (in millions) Due in one year or less . . . . . . . . . . . . . . . . $ 72.4 $ 72.5 Due after one year through five years . . . . . . . . . 424.2 427.7 Due after five years through ten years. . . . . . . . . 428.5 419.5 Due after ten years . . . . . . . . . . . . . . . . . . 252.1 225.1 -------- -------- 1,177.2 1,144.8 Mortgage-backed securities. . . . . . . . . . . . . . . 223.3 222.1 -------- -------- $1,400.5 $1,366.9 ======== ======== Gross gains of $0.9 million in 2000, $0.3 million in 1999, and $3.4 million in 1998 and gross losses of $3.0 million in 2000, $4.0 million in 1999 and $0.7 million in 1998 were realized from the sale of bonds. At December 31, 2000, bonds with an admitted asset value of $9.6 million were on deposit with state insurance departments to satisfy regulatory requirements. The cost of common stocks was $3.1 million at December 31, 2000 and 1999 and $2.1 million at December 31, 1998. At December 31, 2000, gross unrealized appreciation on common stocks totaled $1.5 million, and gross unrealized depreciation totaled $1.8 million. The fair value of preferred stock totaled $41.6 million, $35.9 million, and $36.5 million at December 31, 2000, 1999, and 1998, respectively. Bonds with amortized cost of $5.1 million were non-income producing for the twelve months ended December 31, 2000. At December 31, 2000, 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. statement Geographic Statement Property Type Value Concentration Value - ------------- ------------- ------------- --------------- (in millions) (in millions) Apartments . . . . . . $ 93.7 East North Central. . $ 64.3 Hotels . . . . . . . . 13.0 East South Central. . 20.9 Industrial . . . . . . 63.5 Middle Atlantic . . . 20.9 Office buildings . . . 84.7 Mountain. . . . . . . 27.0 Retail . . . . . . . . 35.4 New England . . . . . 23.4 Agricultural . . . . . 142.5 Pacific . . . . . . . 108.0 Other. . . . . . . . . 23.2 South Atlantic. . . . 120.7 ------ West North Central. . 16.0 West South Central. . 51.5 Other . . . . . . . . 3.3 ------ $456.0 $456.0 ====== ====== 82 JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS (continued) Note 6. Investments (continued) At December 31, 2000, the fair values of the commercial and agricultural mortgage loans portfolios were $317.5 million and $149.8 million, respectively. The corresponding amounts as of December 31, 1999 were approximately $323.5 million and $98.2 million, respectively. The maximum and minimum lending rates for mortgage loans during 2000 were 12.84% and 8.29% for agricultural loans, and 8.94% and 8.07% 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. Note 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 2000 were $588.1 million, $187.3 million, and $19.9 million, respectively. The corresponding amounts in 1999 were $594.9 million, $132.8 million, and $13.6 million, respectively, and 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 agreements 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, 2000 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. 83 JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS (continued) Note 8. Financial Instruments With Off-Balance-Sheet Risk The notional amounts, carrying values and estimated fair values of the Company's derivative instruments were as follows at December 31: Number of Contracts/ Assets (Liabilities) Notional Amounts 2000 ---------------- --------------------- Carrying Fair 2000 Value Value ---------------- ----------- -------- ($ in millions) Futures contracts to sell securities. . . . . . . . . . . . $ -- $ -- $ -- Futures contracts to buy securities 43 0.1 0.1 Interest rate swap agreements. . . $1,150.0 -- Interest rate cap agreements . . . 239.4 2.1 2.1 Currency rate swap agreements. . . 22.3 -- (0.6) Equity collar agreements . . . . . -- 0.4 0.4 Interest rate floor agreements . . 361.4 1.4 1.4 Number of Contracts/ Assets (Liabilities) Notional Amounts 1999 ---------------- --------------------- Carrying Fair 1999 Value Value ---------------- ----------- -------- ($ in millions) Futures contracts to sell securities. . . . . . . . . . . . 362 $0.6 $ 0.6 Interest rate swap agreements. . . $965.0 -- 11.5 Interest rate cap agreements. . . 239.4 5.6 5.6 Currency rate swap agreements. . . 15.8 -- (1.6) Number of Contracts/ Assets (Liabilities) Notional Amounts 1998 ---------------- --------------------- Carrying Fair 1998 Value Value ---------------- ---------- --------- ($ in millions) Futures contracts to sell securities 947 $(0.5) $ (0.5) Interest rate swap agreements. . . $365.0 -- (17.7) Interest rate cap agreements. . . . 89.4 3.1 3.1 Currency rate swap agreements. . . 15.8 -- (3.3) 84 JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS (continued) Note 8. Financial Instruments With Off-Balance-Sheet Risk (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 Company invests in common stock that is subject to fluctuations from market value changes in stock prices. The Company sometimes seeks to reduce its market exposure to such holdings by entering into equity collar agreements. A collar consists of a call that limits the Company's potential gain from appreciation in the stock price as well as a put that limits the Company's loss potential from a decline in the stock price. The futures contracts expire in 2001. 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 2015. The equity collar agreements expire in 2005. 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. Note 9. Policy Reserves, Policyholders' and Beneficiaries' Funds and Obligations Related To Separate Accounts The Company's annuity reserves and deposit fund liabilities that are subject to discretionary withdrawal, with and without adjustment, are summarized as follows: December 31, 2000 Percent ----------------- ------- (in millions) Subject to discretionary withdrawal (with adjustment) . . . . . . . . . . . . . . . . . . With market value adjustment. . . . . . . . . . $ 30.3 1.1% At book value less surrender charge . . . . . . 54.7 2.1 At market value . . . . . . . . . . . . . . . . 2,250.3 84.8 -------- ----- Total with adjustment. . . . . . . . . . . . . 2,335.3 88.0 Subject to discretionary withdrawal at book value (without adjustment). . . . . . . . . . . . . . 312.8 11.8 Not subject to discretionary withdrawal--general account . . . . . . . . . . . . . . . . . . . . 7.1 0.2 -------- ----- Total annuity reserves and deposit liabilities $2,655.2 100.0% ======== ===== 85 JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS (continued) Note 10. Commitments and Contingencies The Company has extended commitments to purchase long-term bonds issue real estate mortgages and purchase other assets totaling $33.5 million, $6.3 million and $14.7 million, respectively, at December 31, 2000. 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 $56.4 million at December 31, 2000. The majority of these commitments expire in 2001. 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, 2000. 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, 2000 amounted to $39.5 million and is based on a number of factors, including 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 estimated with precision. 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. 86 JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS (continued) Note 11 -- Fair Value of Financial Instruments The following table presents the carrying amounts and fair values of the Company's financial instruments: December 31 --------------------------------------- 2000 1999 ------------------ ------------------ Carrying Fair Carrying Fair Amount Value Amount Value -------- -------- -------- -------- (in millions) Assets Bonds--Note 6. . . . . . . . . . . $1,400.5 $1,366.9 $1,216.3 $1,163.2 Preferred stocks--Note 6 . . . . . 44.0 41.6 35.9 35.9 Common stocks--Note 6. . . . . . . 2.8 2.8 3.2 3.2 Mortgage loans on real estate--Note 6 . . . . . . . . . . . . . . . . 456.0 467.3 433.1 421.7 Policy loans--Note 1 . . . . . . . 218.9 218.9 172.1 172.1 Cash items--Note 1 . . . . . . . . 272.0 272.0 250.1 250.1 Derivatives assets (liabilities) relating to: Note 8 Futures contracts. . . . . . . . . 0.1 0.1 0.6 0.6 Interest rate swaps. . . . . . . . -- (0.4) -- 11.5 Currency rate swaps. . . . . . . . -- (0.6) -- (1.6) Interest rate caps . . . . . . . . 2.1 2.1 5.6 5.6 Equity collar agreements . . . . . -- 0.4 -- -- Liabilities Commitments--Note 10 . . . . . . . -- 56.4 -- 19.4 87 JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS (continued) Note 11 -- Fair Value of Financial Instruments (continued) December 31 ------------------- 1998 ------------------- Carrying Fair Amount Value --------- -------- (in millions) Assets Bonds--Note 6. . . . . . . . . . . . . . . . . . . . . $1,185.8 $1,231.5 Preferred stocks--Note 6 . . . . . . . . . . . . . . . 36.5 36.5 Common stocks--Note 6. . . . . . . . . . . . . . . . . 3.1 3.1 Mortgage loans on real estate--Note 6. . . . . . . . . 388.1 401.3 Policy loans--Note 1 . . . . . . . . . . . . . . . . . 137.7 137.7 Cash items--Note 1 . . . . . . . . . . . . . . . . . . 19.9 19.9 Derivatives assets (liabilities) relating to: Note 8 Futures contracts. . . . . . . . . . . . . . . . . . . (0.5) (0.5) Interest rate swaps. . . . . . . . . . . . . . . . . . -- (17.7) Currency rate swaps. . . . . . . . . . . . . . . . . . -- (3.3) Interest rate caps . . . . . . . . . . . . . . . . . . 3.1 3.1 Liabilities Commitments--Note 10 . . . . . . . . . . . . . . . . . -- 32.1 The carrying amounts in the tables 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. 88 JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY SCHEDULE I -- SUMMARY OF INVESTMENTS -- OTHER THAN INVESTMENTS IN RELATED PARTIES As of December 31, 2000 (in millions of dollars) Amount at Which Shown in the Consolidated Type of Investment Cost (2) Value Balance Sheet ------------------ -------- ----- --------------- Fixed maturity securities, available-for-sale: Bonds: United States government and government agencies and authorities . . . . . . . 16.1 16.7 16.7 States, municipalities and political subdivisions . . . . . . . . . . . . . 6.8 6.7 6.7 Foreign governments . . . . . . . . . . 11.1 10.8 10.8 Public utilities. . . . . . . . . . . . 49.1 50.1 50.1 Convertibles and bonds with warrants attached . . . . . . . . . . . . . . . 13.7 13.6 13.6 All other corporate bonds . . . . . . . 877.1 871.5 871.5 Certificates of deposits. . . . . . . . 0.0 0.0 0.0 Redeemable preferred stock. . . . . . . 44.9 42.4 42.4 ------- ------- ------- Total fixed maturity securities, available-for-sale . . . . . . . . . . 1,018.8 1,011.8 1,011.8 ------- ------- ------- Equity securities, available-for-sale: Common stocks: Public utilities. . . . . . . . . . . . 0.0 0.0 0.0 Banks, trust and insurance companies. . 0.0 0.0 0.0 Industrial, miscellaneous and all other 4.0 4.8 4.8 Non-redeemable preferred stock. . . . . 3.1 3.3 3.3 ------- ------- ------- Total equity securities, available-for-sale . . . . . . . . . . 7.1 8.1 8.1 ------- ------- ------- Fixed maturity securities, held-to-maturity: Bonds: United States government and government agencies and authorities . . . . . . . 0.0 0.0 0.0 States, municipalities and political subdivisions . . . . . . . . . . . . . 1.9 1.9 1.9 Foreign governments . . . . . . . . . . 0.0 0.0 0.0 Public utilities. . . . . . . . . . . . 42.5 43.4 42.5 Convertibles and bonds with warrants attached . . . . . . . . . . . . . . . 13.3 11.1 13.3 All other corporate bonds . . . . . . . 657.7 630.4 657.7 Certificates of deposits. . . . . . . . 0.0 0.0 0.0 Redeemable preferred stock. . . . . . . 0.0 0.0 0.0 ------- ------- ------- Total fixed maturity securities, held-to-maturity. . . . . . . . . . . 715.4 686.8 715.4 ------- ------- ------- Equity securities, trading: Common stocks: Public utilities. . . . . . . . . . . . Banks, trust and insurance companies. . Industrial, miscellaneous and all other Non-redeemable preferred stock. . . . . Total equity securities, trading. . . . 0.0 0.0 0.0 ------- ------- ------- Mortgage loans on real estate, net (1). 559.8 XXXX 554.8 89 JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY SCHEDULE I -- SUMMARY OF INVESTMENTS -- OTHER THAN INVESTMENTS IN RELATED PARTIES (continued) As of December 31, 2000 (in millions of dollars) Amount at Which Shown in the Consolidated Cost (2) Value Balance Sheet -------- ------- --------------- Real estate, net: Investment properties (1) . . . . . . . 23.9 XXXX 23.9 Acquired in satisfaction of debt (1). . 0.0 XXXX 0.0 Policy loans. . . . . . . . . . . . . . 334.2 XXXX 334.2 Other long-term investments (2) . . . . 34.8 XXXX 34.8 Short-term investments. . . . . . . . . 21.7 XXXX 21.7 ------- ------- ------- Total investments. . . . . . . . . . . 2,715.7 1,706.7 2,704.7 ======= ======= ======= (1) Difference from Column B is primarily due to valuation allowances due to impairments on mortgage loans on real estate and due to accumulated depreciation and valuation allowances due to impairments on real estate. See note 3 to the consolidated financial statements. (2) Difference from Column B is primarily due to operating gains (losses) of investments in limited partnerships. See accompanying independent auditors' report. 90 JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY SCHEDULE III -- SUPPLEMENTARY INSURANCE INFORMATION As of December 31, 2000, 1999 and 1998 and for the year then ended (in millions of dollars)
Future Policy Other Deferred Benefits, Policy Policy Losses, Claims Claims and Acquisition and Loss Unearned Benefits Premium Segment Costs Expenses Premiums Payable Revenue ------- ------------ --------------- --------- ---------- ------- GAAP 2000: Protection. . . . . . $819.3 $2,698.4 $212.0 $11.1 $ 28.6 Asset Gathering . . . 174.8 70.0 -- -- -- ------ -------- ------ ----- -------- Total. . . . . . . . $994.1 $2,768.4 $212.0 $11.1 $ 28.6 ------ -------- ------ ----- -------- Statutory Basis 2000: Variable Products. . N/A $2,206.0 $ 8.8 $16.4 $ 945.4 ------ -------- ------ ----- -------- 1999: Variable Products. . N/A $1,864.9 $ 3.9 $15.4 $ 950.8 ------ -------- ------ ----- -------- 1998: Variable Products. . N/A $1,651.7 $ 2.3 $13.1 $1,272.3 ------ -------- ------ ----- --------
91 JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY SCHEDULE III -- SUPPLEMENTARY INSURANCE INFORMATION (continued) As of December 31, 2000, 1999 and 1998 and for the year then ended (in millions of dollars)
Amortization of Benefits, Deferred Policy Claims, Losses, Acquisition Costs, Net and Excluding Amounts Other Investment Settlement Related to Realized Operating Segment Income Expenses Investment Gains Expenses ------- ---------- --------------- ------------------- --------- GAAP 2000: Protection. . . . . . $215.9 $ 242.2 $17.6 $100.5 Asset Gathering . . . (2.5) 6.4 16.4 16.3 ------ -------- ----- ------ Total. . . . . . . . $213.4 $ 248.6 $34.0 $116.8 ------ -------- ----- ------ Statutory Basis 2000: Variable Products. . $176.7 $1,185.2 N/A $389.2 ------ -------- ----- ------ 1999: Variable Products. . $136.0 $1,238.7 N/A $334.9 ------ -------- ----- ------ 1998: Variable Products. . $122.8 $1,661.6 N/A $302.3 ------ -------- ----- ------
92 JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY AND SUBSIDIARY SCHEDULE IV -- REINSURANCE As of December 31, 2000 (in millions of dollars)
Percentage Ceded to Assumed of Amount Gross Other from Other Assumed Amount Companies Companies Net Amount to Net ------ --------- ---------- ---------- ---------- GAAP 2000 Life insurance in force. . . . . . . . $98,737.2 $39,495.8 $37.1 $59,278.5 0.1% --------- --------- ----- --------- --- Premiums: Life insurance. . . . $ 34.1 $ 5.5 $ -- $ 28.6 0.0% Accident and health insurance. . . . . . -- -- -- -- 0.0% P&C . . . . . . . . . -- -- -- -- 0.0% --------- --------- ----- --------- --- Total . . . . . . . $ 34.1 $ 5.5 $ -- $ 28.6 0.0% ========= ========= ===== ========= === Statutory Basis 2000 Life insurance in force. . . . . . . . $96,574.3 $38,059.7 $ -- $58,514.6 0.0% --------- --------- ----- --------- --- Premiums: Life insurance. . . . $ 1,533.6 $ 588.1 $ -- $ 945.5 0.0% Accident and health insurance. . . . . . -- -- -- -- 0.0% P&C . . . . . . . . . -- -- -- -- 0.0% --------- --------- ----- --------- --- Total . . . . . . . $ 1,533.6 $ 588.1 $ -- $ 945.5 0.0% ========= ========= ===== ========= === 1999 Life insurance in force. . . . . . . . $74,831.8 $ 8,995.0 $ -- $55,836.8 0.0% --------- --------- ----- --------- --- Premiums: Life insurance. . . . $ 1,545.7 $ 594.9 $ -- $ 950.8 0.0% Accident and health insurance. . . . . . -- -- -- -- 0.0% P&C . . . . . . . . . -- -- -- -- 0.0% --------- --------- ----- --------- --- Total . . . . . . . $ 1,545.7 $ 594.9 $ -- $ 950.8 0.0% ========= ========= ===== ========= ===
93 JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY AND SUBSIDIARY SCHEDULE IV--REINSURANCE (continued) As of December 31, 2000 (in millions of dollars)
Percentage Ceded to Assumed of Amount Gross Other from Other Net Assumed Amount Companies Companies Amount to Net ------ --------- ---------- ------ ---------- 1998 Life insurance in force. . . . . . . . $62,628.7 $15,302.1 $-- $47,326.6 0.0% --------- --------- --- --------- --- Premiums: Life insurance. . . . $ 1,862.5 $ 590.2 $-- $ 1,272.3 0.0% Accident and health insurance. . . . . . -- -- -- -- 0.0% P&C . . . . . . . . . -- -- -- -- 0.0% --------- --------- --- --------- --- Total . . . . . . . $ 1,862.5 $ 590.2 $-- $ 1,272.3 0.0% ========= ========= === ========= ===
Note: The life insurance caption represents principally premiums from traditional life insurance and life-contingent immediate annuities and excludes deposits on investment products and universal life insurance products. See accompanying independent auditors' report. 94 Report of Independent Auditors To the Policyholders of John Hancock Variable Life Account S of John Hancock Variable Life Insurance Company We have audited the accompanying statement of assets and liabilities of John Hancock Variable Life Account S (the Account) (comprising, respectively, the Large Cap Growth, Active Bond (formerly, Sovereign Bond), International Equity Index, Small Cap Growth, Global Balanced, Mid Cap Growth, Large Cap Value, Money Market, Mid Cap Value, Small/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, Clifton Enhanced U.S. Equity, Emerging Markets Equity, Bond Index, Small/Mid Cap CORE, High Yield Bond, Large Cap Aggressive Growth, Fundamental Growth (formerly, Fundamental Mid Cap Growth), Core Bond, American Leaders Large Cap Value, AIM V.I. Value, Fidelity VIP Growth, Fidelity VIP II Contrafund, Janus Aspen Global Technology, Janus Aspen Worldwide Growth, MFS New Discovery Series, and Templeton International Subaccounts) as of December 31, 2000, 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 S at December 31, 2000, 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. /S/ ERNST & YOUNG LLP February 13, 2001 95 JOHN HANCOCK VARIABLE LIFE ACCOUNT S STATEMENT OF ASSETS AND LIABILITIES December 31, 2000 International Large Cap Active Equity Small Cap Growth Bond Index Growth Subaccount Subaccount Subaccount Subaccount ---------- ---------- ------------- ---------- Assets Investments in shares of portfolios of John Hancock Variable Series Trust I, at value. . . . . . . . $128,183,227 $49,115,293 $35,113,621 $35,777,318 Investments in shares of portfolios of Outside Trusts, at value. . . . . . . . -- -- -- -- Receivable from: John Hancock Variable Series Trust I . . 217,824 21,983 34,739 1,066,885 Portfolio of Outside Trusts. . . . . . . -- -- -- -- ------------ ----------- ----------- ------------ Total assets. . . . . 128,401,051 49,137,276 35,148,360 36,844,203 Liabilities Payable to: John Hancock Variable Life Insurance Company . . . . . . 214,814 21,266 33,992 1,065,954 Portfolio of Outside Trusts. . . . . . . -- -- -- -- Asset charges payable 3,010 717 747 931 ------------ ----------- ----------- ------------ Total liabilities . . 217,824 21,983 34,739 1,066,885 ------------ ----------- ----------- ------------ Net assets. . . . . . $128,183,227 $49,115,293 $35,113,621 $35,777,318 ============ =========== =========== ============ Global Mid Cap Large Cap Money Balanced Growth Value Market Subaccount Subaccount Subaccount Subaccount ---------- ---------- ---------- ---------- Assets Investments in shares of portfolios of John Hancock Variable Series Trust I, at value . . . $3,533,069 $56,033,021 $52,663,086 $189,140,131 Investments in shares of portfolios of Outside Trusts, at value. . . . -- -- -- -- Receivable from: John Hancock Variable Series Trust I . . . . 166 1,062,123 43,811 5,658,510 Portfolio of Outside Trusts . . . . . . . . -- -- -- -- ---------- ----------- ----------- ------------ Total assets . . . . . . 3,533,235 57,095,144 52,706,897 194,798,641 Liabilities Payable to: John Hancock Variable Life Insurance Company 69 1,060,694 42,643 5,653,690 Portfolio of Outside Trusts . . . . . . . . -- -- -- -- Asset charges payable. . 97 1,429 1,168 4,820 ---------- ----------- ----------- ------------ Total liabilities. . . . 166 1,062,123 43,811 5,658,510 ---------- ----------- ----------- ------------ Net assets . . . . . . . $3,533,069 $56,033,021 $52,663,086 $189,140,131 ========== =========== =========== ============ See accompany notes. 96 JOHN HANCOCK VARIABLE LIFE ACCOUNT S STATEMENT OF ASSETS AND LIABILITIES (continued) December 31, 2000 Mid Cap Small/Mid Cap Real Estate Growth & Value Growth Equity Income Subaccount Subaccount Subaccount Subaccount ---------- ------------- ----------- ---------- Assets Investments in shares of portfolios of John Hancock Variable Series Trust I, at value. . . . . . . . $31,539,966 $12,113,014 $17,858,812 $182,636,457 Investments in shares of portfolios of Outside Trusts, at value. . . . . . . . -- -- -- -- Receivable from: John Hancock Variable Series Trust I. . . 14,549 7,592 9,207 184,566 Portfolio of Outside Trusts. . . . . . . -- -- -- -- ------------ ----------- ----------- ------------ Total assets. . . . . 31,554,515 12,120,606 17,868,019 182,821,023 Liabilities Payable to: John Hancock Variable Life Insurance Company . . . . . . 13,735 7,211 8,870 178,590 Portfolio of Outside Trusts. . . . . . . -- -- -- -- Asset charges payable 814 381 337 5,976 ------------ ----------- ----------- ------------ Total liabilities . . 14,549 7,592 9,207 184,566 ------------ ----------- ----------- ------------ Net assets. . . . . . $31,539,966 $12,113,014 $17,858,812 $182,636,457 ============ =========== =========== ============ Short-Term Small Cap International Managed Bond Equity Opportunities Subaccount Subaccount Subaccount Subaccount ---------- ---------- ---------- ------------- Assets Investments in shares of portfolios of John Hancock Variable Series Trust I, at value. . . . . . . . $128,889,839 $16,559,672 $26,092,949 $41,366,171 Investments in shares of portfolios of Outside Trusts, at value. . . . . . . . -- -- -- -- Receivable from: John Hancock Variable Series Trust I. . . 162,149 18,438 469,529 27,592 Portfolio of Outside Trusts. . . . . . . -- -- -- -- ------------ ----------- ----------- ----------- Total assets. . . . . 129,051,988 16,578,110 26,562,478 41,393,763 Liabilities Payable to: John Hancock Variable Life Insurance Company. . . . . . 156,559 18,146 468,842 26,560 Portfolio of Outside Trusts. . . . . . . -- -- -- -- Asset charges payable 5,590 292 687 1,032 ------------ ----------- ----------- ----------- Total liabilities. . 162,149 18,438 469,529 27,592 ------------ ----------- ----------- ----------- Net assets. . . . . . $128,889,839 $16,559,672 $26,092,949 $41,366,171 ============ =========== =========== =========== See accompany notes. 97 JOHN HANCOCK VARIABLE LIFE ACCOUNT S STATEMENT OF ASSETS AND LIABILITIES (continued) December 31, 2000 Turner Brandes Equity Global Core International Index Bond Growth Equity Subaccount Subaccount Subaccount Subaccount ---------- ---------- ---------- ------------- Assets Investments in shares of portfolios of John Hancock Variable Series Trust I, at value. . . . . . . . $160,798,440 $8,150,109 -- -- Investments in shares of portfolios of Outside Trusts, at value. . . . . . . . -- -- $22,550,873 $36,778,383 Receivable from: John Hancock Variable Series Trust I. . . 142,079 3,841 -- -- Portfolio of Outside Trusts. . . . . . . -- -- 179,536 109,167 ------------ ----------- ----------- ----------- Total assets 160,940,519 8,153,950 22,730,409 36,887,550 Liabilities Payable to: John Hancock Variable Life Insurance Company . . . . . . 138,139 3,610 -- -- Portfolio of Outside Trusts. . . . . . . -- -- 179,137 108,613 Asset charges payable 3,940 231 399 554 ------------ ----------- ----------- ----------- Total liabilities . . 142,079 3,841 179,536 109,167 ------------ ----------- ----------- ----------- Net assets. . . . . . $160,798,440 $8,150,109 $22,550,873 $36,778,383 ============ =========== =========== =========== Frontier Clifton Emerging Capital Enhanced Markets Bond Appreciation U.S. Equity Equity Index Subaccount Subaccount Subaccount Subaccount ------------ ----------- ---------- ---------- Assets Investments in shares of portfolios of John Hancock Variable Series Trust I, at value . . . -- -- $5,278,940 $12,799,604 Investments in shares of portfolios of Outside Trusts, at value. . . . $23,632,255 $10,205,351 -- -- Receivable from: John Hancock Variable Series Trust I . . . . -- -- 10,248 593 Portfolio of Outside Trusts . . . . . . . . 184,569 882 -- -- ----------- ----------- ---------- ----------- Total assets 23,816,824 10,206,233 5,289,188 12,800,197 Liabilities Payable to: John Hancock Variable Life Insurance Company -- -- 10,112 285 Portfolio of Outside Trusts . . . . . . . . 184,197 743 -- -- Asset charges payable. . 372 139 136 308 ----------- ----------- ---------- ----------- Total liabilities. . . . 184,569 882 10,248 593 ----------- ----------- ---------- ----------- Net assets . . . . . . . $23,632,255 $10,205,351 $5,278,940 $12,799,604 =========== =========== ========== =========== See accompany notes. 98 JOHN HANCOCK VARIABLE LIFE ACCOUNT S STATEMENT OF ASSETS AND LIABILITIES (continued) December 31, 2000 High Large Cap Small/Mid Yield Aggressive Fundamental Cap Core Bond Growth Growth Subaccount Subaccount Subaccount Subaccount ---------- ---------- ---------- ----------- Assets Investments in shares of portfolios of John Hancock Variable Series Trust I, at value. . . . . . . . . . . $2,657,431 $4,742,004 $ 344,987 $2,013,134 Investments in shares of portfolios of Outside Trusts, at value . . . . . -- -- -- -- Receivable from: John Hancock Variable Series Trust I. . . . . . 13,675 11,348 11 41 Portfolio of Outside Trusts -- -- -- -- ---------- ---------- ---------- ---------- Total assets. . . . . . . . 2,671,106 4,753,352 344,998 2,013,175 Liabilities Payable to: John Hancock Variable Life Insurance Company . . . . 13,617 11,231 -- -- Portfolio of Outside Trusts -- -- -- -- Asset charges payable . . . 58 117 11 41 ---------- ---------- ---------- ---------- Total liabilities . . . . . 13,675 11,348 11 41 ---------- ---------- ---------- ---------- Net assets. . . . . . . . . $2,657,431 $4,742,004 $ 344,987 $2,013,134 ========== ========== ========== ========== American Leaders Large AIM V.I. Fidelity VIP Core Bond Cap Value Value Growth Subaccount Subaccount Subaccount Subaccount ---------- ------------- ---------- ----------- Assets Investments in shares of portfolios of John Hancock Variable Series Trust I, at value. . . $16,062 $553,446 -- -- Investments in shares of portfolios of Outside Trusts, at value . . . -- -- $1,164,444 $1,517,758 Receivable from: John Hancock Variable Series Trust I. . . . 564 21 -- -- Portfolio of Outside Trusts. . . . . . . . -- -- 25 63,072 ------- -------- ---------- ---------- Total assets. . . . . . 16,626 553,467 1,164,469 1,580,830 Liabilities Payable to: John Hancock Variable Life Insurance Company 564 -- -- -- Portfolio of Outside Trusts. . . . . . . . -- -- -- 63,030 Asset charges payable . -- 21 25 42 ------- -------- ---------- ---------- Total liabilities . . . 564 21 25 63,072 ------- -------- ---------- ---------- Net assets. . . . . . . $16,062 $553,446 $1,164,444 $1,517,758 ======= ======== ========== ========== See accompany notes. 99 JOHN HANCOCK VARIABLE LIFE ACCOUNT S STATEMENT OF ASSETS AND LIABILITIES (continued) December 31, 2000
Janus Janus Aspen MFS New Fidelity VIP II Aspen Worldwide Discovery Templeton Contrafund Global Tech Growth Series International Subaccount Subaccount Subaccount Subaccount Subaccount --------------- ----------- ----------- ---------- ------------- Assets Investments in shares of portfolios of John Hancock Variable Series Trust I, at value. . . . . . . . -- -- -- -- -- Investments in shares of portfolios of Outside Trusts, at value. . . . . . . . $1,006,617 $442,306 $1,038,378 $1,178,457 $870,339 Receivable from: John Hancock Variable Series Trust I. . . -- -- -- -- -- Portfolio of Outside Trusts. . . . . . . 40 16 32 32 31 ---------- -------- ---------- ---------- -------- Total assets. . . . . 1,006,657 442,322 1,038,410 1,178,489 870,370 Liabilities Payable to: John Hancock Variable Life Insurance Company . . . . . . -- -- -- -- -- Portfolio of Outside Trusts. . . . . . . 14 -- -- 32 -- Asset charges payable 26 16 32 -- 31 ---------- -------- ---------- ---------- -------- Total liabilities . . 40 16 32 32 31 ---------- -------- ---------- ---------- -------- Net assets. . . . . . $1,006,617 $442,306 $1,038,378 $1,178,457 $870,339 ========== ======== ========== ========== ========
See accompany notes. 100 JOHN HANCOCK VARIABLE LIFE ACCOUNT S STATEMENTS OF OPERATIONS Years and periods ended December 31,
Large Cap Growth Subaccount Active Bond Subaccount ---------------------------------------- ---------------------------------------- 2000 1999 1998 2000 1999 1998 ------------- ------------ ----------- ------------- ------------ ----------- Investment income: Distributions received from: John Hancock Variable Series Trust I $ 20,421,555 $17,558,034 $ 6,312,073 $2,372,089 $ 2,851,613 $2,190,901 Portfolio of Outside Trusts. . . . . -- -- -- -- -- -- ------------ ----------- ----------- ------------ ----------- ---------- Total investment income . . . . . . . 20,421,555 17,558,034 6,312,073 2,372,089 2,851,613 2,190,901 Expenses: Mortality and expense risks . . . . (433,387) (324,595) (168,652) (92,625) (126,407) (93,556) ------------ ----------- ----------- ------------ ----------- ---------- Net investment income . . . . . . . . 19,988,168 17,233,439 6,143,421 2,279,464 2,725,206 2,097,345 Net realized and unrealized gain (loss) on investments: Net realized gains (losses) . . . . 5,243,833 5,003,007 1,750,881 (1,159,229) (1,391,910) 185,230 Net unrealized appreciation (depreciation) during the period . (53,885,375) (2,053,672) 8,041,022 2,598,926 (1,837,190) (378,058) ------------ ----------- ----------- ------------ ----------- ---------- Net realized and unrealized gain (loss) on investments . . . . . . . (48,641,542) 2,949,335 9,791,903 1,439,697 (3,229,100) (192,828) ------------ ----------- ----------- ------------ ----------- ---------- Net increase (decrease) in net assets resulting from operations . . . . . $(28,653,374) $20,182,774 $15,935,324 $3,719,161 $ (503,894) $1,904,517 ============ =========== =========== ============ =========== ==========
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 $1,780,524 $936,475 $1,930,710 $ 3,489,821 $ 3,697,955 -- Portfolio of Outside Trusts. . . . . -- -- -- -- -- -- ----------- ---------- ---------- ------------ ----------- ---------- Total investment income . . . . . . . 1,780,524 936,475 1,930,710 3,489,821 3,697,955 -- Expenses: Mortality and expense risks . . . . (112,998) (81,058) (45,651) (135,490) (60,221) $ (22,593) ----------- ---------- ---------- ------------ ----------- ---------- Net investment income (loss) . . . . 1,667,526 855,417 1,885,059 3,354,331 3,637,734 (22,593) Net realized and unrealized gain (loss) on investments: Net realized gains . . . . . . . . . 670,269 753,750 152,030 2,830,901 2,548,944 58,729 Net unrealized appreciation (depreciation) during the period . (8,622,825) 4,871,167 78,480 (17,022,592) 3,920,455 1,070,805 ----------- ---------- ---------- ------------ ----------- ---------- Net realized and unrealized gain (loss) on investments . . . . . . . (7,952,556) 5,624,917 230,510 (14,191,691) 6,469,399 1,129,534 ----------- ---------- ---------- ------------ ----------- ---------- Net increase (decrease) in net assets resulting from operations . . . . . $(6,285,030) $6,480,334 $2,115,569 $(10,837,360) $10,107,133 $1,106,941 =========== ========== ========== ============ =========== ==========
See accompanying notes. 101 JOHN HANCOCK VARIABLE LIFE ACCOUNT S STATEMENTS OF OPERATIONS (continued) Years and periods ended December 31,
Global Balanced Subaccount Mid Cap Growth Subaccount ------------------------------------- --------------------------------------- 2000 1999 1998 2000 1999 1998 ----------- ------------ ---------- ------------- ----------- ----------- Investment income: Distributions received from: John Hancock Variable Series Trust I . . $191,397 $372,766 $185,760 $ 9,182,305 $ 6,491,783 $1,114,374 Portfolio of Outside Trusts. . . . . . . -- -- -- -- -- -- ---------- ----------- ---------- ------------ ----------- ---------- Total investment income . . . . . . . 191,397 372,766 185,760 9,182,305 6,491,783 1,114,374 Expenses: Mortality and expense risks . . . . . . . 15,646 13,792 9,687 243,927 102,248 26,123 ---------- ----------- ---------- ------------ ----------- ---------- Net investment income 175,751 358,974 176,073 8,938,378 6,389,535 1,088,251 Net realized and unrealized gain on investments: Net realized gains (losses). . . . . . (506,008) 15,640 24,206 8,113,159 5,188,018 599,619 Net unrealized appreciation (depreciation) during the period . (109,325) (173,912) 147,461 (49,252,941) 15,078,681 1,184,263 ---------- ----------- ---------- ------------ ----------- ---------- Net realized and unrealized gain (loss) on investments . . . . . . . . . . (615,333) (158,272) 171,667 (41,139,782) 20,266,699 1,783,882 ---------- ----------- ---------- ------------ ----------- ---------- Net increase (decrease) in net assets resulting from operations . . . . . $(439,582) $200,702 $347,740 $(32,201,404) $26,656,234 $2,872,133 ========== =========== ========== ============ =========== ==========
Large Cap Value Subaccount Money Market Subaccount ------------------------------------- ----------------------------------- 2000 1999 1998 2000 1999 1998 ----------- ------------ ---------- ---------- ---------- ----------- Investment income: Distributions received from: John Hancock Variable Series Trust I . . $2,639,356 $ 1,809,072 $ 797,874 $5,765,606 $3,279,928 $1,854,829 Portfolio of Outside Trusts. . . . . . . -- -- -- -- -- -- ---------- ----------- ---------- ---------- ---------- ---------- Total investment income . . . . . . . 2,639,356 1,809,072 797,874 5,765,606 3,279,928 1,854,829 Expenses: Mortality and expense risks . . . . . . . 109,830 88,877 41,415 328,559 291,398 167,813 ---------- ----------- ---------- ---------- ---------- ---------- Net investment income 2,529,526 1,720,195 756,459 5,437,047 2,988,530 1,687,016 Net realized and unrealized gain (loss) on investments: Net realized gains (losses). . . . . . (861,398) 705,454 330,827 -- -- -- Net unrealized appreciation (depreciation) during the period . 3,840,473 (2,181,112) 145,355 -- -- -- ---------- ----------- ---------- ---------- ---------- ---------- Net realized and unrealized gain (loss) on investments . . . . . . . . . . 2,979,075 (1,475,658) 476,182 -- -- -- ---------- ----------- ---------- ---------- ---------- ---------- Net increase in net assets resulting from operations . . . . . $5,508,601 $ 244,537 $1,232,641 $5,437,047 $2,988,530 $1,687,016 ========== =========== ========== ========== ========== ==========
See accompanying notes. 102 JOHN HANCOCK VARIABLE LIFE ACCOUNT S STATEMENTS OF OPERATIONS (continued) Years and periods ended December 31,
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 . . . $3,243,126 $ 110,190 $ 120,469 $1,246,873 $ 1,421,656 $142,469 Portfolio of Outside Trusts. . . . . . . . -- -- -- -- -- -- ---------- ---------- ----------- ------------ ----------- ----------- Total investment income . . . . . . . . . . 3,243,126 110,190 120,469 1,246,873 1,421,656 142,469 Expenses: Mortality and expense risks . . . . . . . 84,295 68,611 45,020 39,985 32,995 34,432 ---------- ---------- ----------- ------------ ----------- ----------- Net investment income . . . . . . . . . . . 3,158,831 41,579 75,449 1,206,888 1,388,661 108,037 Net realized and unrealized gain (loss) on investments: Net realized gains (losses) . . . . . . . 2,578,812 (860,332) (538,516) (652,532) 13,375 232,246 Net unrealized appreciation (depreciation) during the period . . . . . . . . . . . . 689,275 1,757,919 (830,390) 119,763 (1,001,208) 236,333 ---------- ---------- ----------- ------------ ----------- ----------- Net realized and unrealized gain (loss) on investments. . . . . . . . . . . . . . . . 3,268,087 897,587 (1,368,906) (532,769) (987,833) 468,579 ---------- ---------- ----------- ------------ ----------- ----------- Net increase (decrease) in net assets resulting from operations . . . . . . . . $6,426,918 $ 939,166 $(1,293,457) $674,119 $ 400,828 $576,616 ========== ========== =========== ============ =========== ===========
Real Estate Equity Subaccount Growth & Income Subaccount ------------------------------------ ----------------------------------------- 2000 1999 1998 2000 1999 1998 ---------- ---------- ------------ ------------- ------------ ------------ Investment income: Distributions received from: John Hancock Variable Series Trust I . . . $1,569,398 $544,845 $ 305,783 $ 34,126,174 $23,565,679 $ 9,266,175 Portfolio of Outside Trusts. . . . . . . . -- -- -- -- -- -- ---------- --------- ----------- ------------ ----------- ----------- Total investment income . . . . . . . . . . 1,569,398 544,845 305,783 34,126,174 23,565,679 9,266,175 Expenses: Mortality and expense risks . . . . . . . 45,265 29,468 22,716 844,779 715,377 290,361 ---------- --------- ----------- ------------ ----------- ----------- Net investment income . . . . . . . . . . . 1,524,133 515,377 283,067 33,281,395 22,850,302 8,975,814 Net realized and unrealized gain (loss) on investments: Net realized gains (losses) . . . . . . . 1,851,413 (735,504) (454,979) 2,197,930 6,207,253 2,061,212 Net unrealized appreciation (depreciation) during the period . . . . . . . . . . . . 1,041,612 80,925 (698,676) (63,700,088) (5,814,839) 7,759,307 ---------- --------- ----------- ------------ ----------- ----------- Net realized and unrealized gain (loss) on investments. . . . . . . . . . . . . . . . 2,893,025 (654,579) (1,153,655) (61,502,158) 392,414 9,820,519 ---------- --------- ----------- ------------ ----------- ----------- Net increase (decrease) in net assets resulting from operations . . . . . . . . $4,417,158 $(139,202) $ (870,588) $(28,220,763) $23,242,716 $18,796,333 ========== ========= =========== ============ =========== ===========
See accompanying notes. 103 JOHN HANCOCK VARIABLE LIFE ACCOUNT S STATEMENTS OF OPERATIONS (continued) Years and periods ended December 31,
Managed Subaccount Short-Term Bond Subaccount --------------------------------------- ------------------------------------------ 2000 1999 1998 2000 1999 1998 ------------- ------------ ---------- -------------- ------------ ------------ Investment income: Distributions received from: John Hancock Variable Series Trust I . . . $ 13,844,402 $11,251,980 $3,606,186 $ 920,563 $ 957,614 $ 977,164 Portfolio of Outside Trusts. . . . . . . . -- -- -- -- -- -- ------------ ----------- ---------- ------------- ----------- ----------- Total investment income . . . . . . . . . . 13,844,402 11,251,980 3,606,186 920,563 957,614 977,164 Expenses: Mortality and expense risks . . . . . . . 686,633 495,544 121,905 37,022 50,128 50,947 ------------ ----------- ---------- ------------- ----------- ----------- Net investment income . . . . . . . . . . . 13,157,769 10,756,436 3,484,281 883,541 907,486 926,217 Net realized and unrealized gain (loss) on investments: Net realized gains (losses) . . . . . . . (233,751) 2,233,258 278,186 (210,780) (441,667) 24,740 Net unrealized appreciation (depreciation) during the period . . . . . . . . . . . . (13,708,391) (6,419,069) 1,791,231 451,906 (85,754) (136,999) ------------ ----------- ---------- ------------- ----------- ----------- Net realized and unrealized gain (loss) on investments. . . . . . . . . . . . . . . . (13,942,142) (4,185,811) 2,069,417 241,126 (527,421) (112,259) ------------ ----------- ---------- ------------- ----------- ----------- Net increase (decrease) in net assets resulting from operations . . . . . . . . . . . . . $ (784,373) $ 6,570,625 $5,553,698 $1,124,667 $ 380,065 $ 813,958 ============ =========== ========== ============= =========== ===========
Small Cap Equity Subaccount International Opportunities Subaccount ------------------------------------ ---------------------------------------- 2000 1999 1998 2000 1999 1998 ------------ ---------- ---------- -------------- ----------- ----------- Investment income: Distributions received from: John Hancock Variable Series Trust I . . . . $2,024,209 $409,324 $ 47,350 $ 2,592,009 $2,096,195 $ 103,399 Portfolio of Outside Trusts. . . . . . . . . -- -- -- -- -- -- ----------- --------- --------- ------------ ---------- ---------- Total investment income . . . . . . . . . . . 2,024,209 409,324 47,350 2,592,009 2,096,195 103,399 Expenses: Mortality and expense risks . . . . . . . . . 89,912 64,613 33,335 134,950 90,191 50,003 ----------- --------- --------- ------------ ---------- ---------- Net investment income . . . . . . . . . . . . 1,934,297 344,711 14,015 2,457,059 2,006,004 53,396 Net realized and unrealized gain (loss) on investments: Net realized gains (losses) . . . . . . . . . (158,893) (979,002) (9,919) 2,209,044 1,907,809 191,495 Net unrealized appreciation (depreciation) during the period . . . . . . . . . . . . . (4,241,216) 325,684 (523,693) (11,479,826) 3,818,953 1,108,416 ----------- --------- --------- ------------ ---------- ---------- Net realized and unrealized gain (loss) on investments . . . . . . . . . . . . . . . . . (4,400,109) (653,318) (533,612) (9,270,782) 5,726,762 1,299,911 ----------- --------- --------- ------------ ---------- ---------- Net increase (decrease) in net assets resulting from operations . . . . . . . . . . . . . . . $(2,465,812) $(308,607) $(519,597) $ (6,813,723) $7,732,766 $1,353,307 =========== ========= ========= ============ ========== ==========
See accompanying notes. 104 JOHN HANCOCK VARIABLE LIFE ACCOUNT S STATEMENTS OF OPERATIONS (continued) Years and periods ended December 31,
Equity Index Subaccount Global Bond Subaccount --------------------------------------- ------------------------------------ 2000 1999 1998 2000 1999 1998 ------------- ----------- ---------- ------------ ------------ --------- Investment income: Distributions received from: John Hancock Variable Series Trust I . . $ 8,279,123 $ 5,839,023 $1,337,750 $459,052 $ 460,088 $303,545 Portfolio of Outside Trusts. . . . . . . -- -- -- -- -- -- ------------ ----------- ---------- ----------- ----------- -------- Total investment income . . . . . . . 8,279,123 5,839,023 1,337,750 459,052 460,088 303,545 Expenses: Mortality and expense risks . . . . . . . 552,681 335,573 126,021 28,858 35,321 19,894 ------------ ----------- ---------- ----------- ----------- -------- Net investment income 7,726,442 5,503,450 1,211,729 430,194 424,767 283,651 Net realized and unrealized gain (loss) on investments: Net realized gains (losses). . . . . . 4,357,007 7,681,081 691,270 (302,157) (204,675) 81,659 Net unrealized appreciation (depreciation) during the period . (30,073,491) 4,678,509 6,098,919 688,537 (433,526) 43,608 ------------ ----------- ---------- ----------- ----------- -------- Net realized and unrealized gain (loss) on investments (25,716,484) 12,359,590 6,790,189 386,380 (638,201) 125,267 ------------ ----------- ---------- ----------- ----------- -------- Net increase (decrease) in net assets resulting from operations . . . . . $(17,990,042) $17,863,040 $8,001,918 $ 816,574 $ (213,434) $408,918 ============ =========== ========== =========== =========== ========
Turner Core Growth Subaccount Brandes International Equity Subaccount ---------------------------------- ---------------------------------------- 2000 1999 1998 2000 1999 1998 ------------ ---------- -------- -------------- ------------ ---------- Investment income: Distributions received from: John Hancock Variable Series Trust I . . $ -- $ -- $ -- $ -- $ -- $ -- Portfolio of Outside Trusts. . . . . . . 3,134,021 1,349,358 84,940 2,849,758 549,978 32,677 ----------- ---------- -------- ----------- ---------- -------- Total investment income . . . . . . . 3,134,021 1,349,358 84,940 2,849,758 549,978 32,677 Expenses: Mortality and expense risks . . . . . . . 61,261 33,920 7,737 57,452 34,297 7,502 ----------- ---------- -------- ----------- ---------- -------- Net investment income 3,072,760 1,315,438 77,203 2,792,306 515,681 25,175 Net realized and unrealized gain (loss) on investments: Net realized gains . 2,749,177 1,038,462 156,278 1,629,793 507,727 12,541 Net unrealized appreciation (depreciation) during the period . (8,773,256) 1,626,646 562,620 (2,602,173) 3,486,097 (26,022) ----------- ---------- -------- ----------- ---------- -------- Net realized and unrealized gain (loss) on investments (6,024,079) 2,665,108 718,898 (972,380) 3,993,824 (13,481) ----------- ---------- -------- ----------- ---------- -------- Net increase (decrease) in net assets resulting from operations . . . . . $(2,951,319) $3,980,546 $796,101 $ 1,819,926 $4,509,505 $ 11,694 =========== ========== ======== =========== ========== ========
See accompanying notes. 105 JOHN HANCOCK VARIABLE LIFE ACCOUNT S STATEMENTS OF OPERATIONS (continued) Years and periods ended December 31,
Frontier Capital Appreciation Subaccount Clifton Enhanced U.S. Equity Subaccount ------------------------------------------ ----------------------------------------- 2000 1999 1998 2000 1999 1998 -------------- ------------ ------------ -------------- ------------ ----------- Investment income: Distributions received from: John Hancock Variable Series Trust I . . $ -- $ -- $ -- $ -- $ -- $ -- Portfolio of Outside Trusts. . . . . . . 5,801,558 487,465 34,738 1,412,843 532,067 72,302 ----------- ---------- --------- ----------- ---------- -------- Total investment income . . . . . . . . . 5,801,558 487,465 34,738 1,412,843 532,067 72,302 Expenses: Mortality and expense risks . . . . . . . 54,938 37,471 24,841 19,820 13,930 4,069 ----------- ---------- --------- ----------- ---------- -------- Net investment income. . . . . . . . . . . 5,746,620 449,994 9,897 1,393,023 518,137 68,233 Net realized and unrealized gain (loss) on investments: Net realized gains (losses) . . . . . . . 4,402,175 624,068 (445,752) 132,736 264,436 87,723 Net unrealized appreciation (depreciation) during the period . . . . (9,587,258) 3,431,408 432,064 (2,553,428) 151,562 89,677 ----------- ---------- --------- ----------- ---------- -------- Net realized and unrealized gain (loss) on investments . . . . . . . . . . . . . . . (5,185,083) 4,055,476 (13,688) (2,420,692) 415,998 177,400 ----------- ---------- --------- ----------- ---------- -------- Net increase (decrease) in net assets resulting from operations . . . . . . . . $ 561,537 $4,505,470 $ (3,791) $(1,027,669) $ 934,135 $245,633 =========== ========== ========= =========== ========== ========
Emerging Markets Equity Subaccount Bond Index Subaccount ----------------------------------- -------------------------------- 2000 1999 1998* 2000 1999 1998* ------------ ---------- --------- --------- ---------- --------- Investment income: Distributions received from: John Hancock Variable Series Trust I . . $ 454,929 $ 137,724 $ 522 $514,721 $ 140,772 $ 23,842 Portfolio of Outside Trusts. . . . . . . -- -- -- -- -- -- ----------- ---------- -------- -------- --------- -------- Total investment income . . . . . . . 454,929 137,724 522 514,721 140,772 23,842 Expenses: Mortality and expense risks . . . . . . . 22,702 5,465 387 27,209 10,636 937 ----------- ---------- -------- -------- --------- -------- Net investment income 432,227 132,259 135 487,512 130,136 22,905 Net realized and unrealized gain (loss) on investments: Net realized gains (losses). . . . . . (1,410,734) 663,998 (45,975) (53,751) (104,174) 1,002 Net unrealized appreciation (depreciation) during the period . (2,006,595) 432,248 2,289 472,128 (78,192) (10,217) ----------- ---------- -------- -------- --------- -------- Net realized and unrealized gain (loss) on investments (3,417,329) 1,096,246 (43,686) 418,377 (182,366) (9,215) ----------- ---------- -------- -------- --------- -------- Net increase (decrease) in net assets resulting from operations . . . . . $(2,985,102) $1,228,505 $(43,551) $905,889 $ (52,230) $ 13,690 =========== ========== ======== ======== ========= ========
------------------------- * From May 1, 1998 (commencement of operations). See accompanying notes. 106 JOHN HANCOCK VARIABLE LIFE ACCOUNT S STATEMENTS OF OPERATIONS (continued) Years and periods ended December 31,
Small/Mid Cap Core Subaccount High Yield Bond Subaccount -------------------------------- --------------------------------- 2000 1999 1998* 2000 1999 1998* ---------- --------- --------- ---------- ---------- --------- Investment income: Distributions received from: John Hancock Variable Series Trust I . . $ 106,135 $ 54,784 -- $ 373,904 $ 352,641 $ 88,721 Portfolio of Outside Trusts. . . . . . . -- -- -- -- -- -- --------- -------- -------- --------- --------- -------- Total investment income . . . . . . . 106,135 54,784 -- 373,904 352,641 88,721 Expenses: Mortality and expense risks . . . . . . . 5,370 2,073 $ 535 14,689 12,206 1,962 --------- -------- -------- --------- --------- -------- Net investment income (loss) . . . . . . . 100,765 52,711 (535) 359,215 340,435 86,759 Net realized and unrealized gain (loss) on investments: Net realized gains (losses). . . . . . 52,147 65,733 (25,196) (207,326) 42,365 64,824 Net unrealized appreciation (depreciation) during the period . (145,708) (10,735) 18,718 (650,931) (139,659) 149,416 --------- -------- -------- --------- --------- -------- Net realized and unrealized gain (loss) on investments (93,561) 54,998 (6,478) (858,257) (97,294) 214,240 --------- -------- -------- --------- --------- -------- Net increase (decrease) in net assets resulting from operations . . $ 7,204 $107,709 $ (7,013) $(499,042) $ 243,141 $300,999 ========= ======== ======== ========= ========= ========
American Large Cap Fundamental Leaders Large Aggressive Growth Growth Core Bond Cap Value Subaccount Subaccount Subaccount Subaccount ----------------- ----------- ----------- ---------------- 2000** 2000*** 2000**** 2000**** ----------------- ----------- ----------- ---------------- Investment income: Distributions received from: John Hancock Variable Series Trust I . . $ 6,164 $ 206,294 $254 $ 3,426 Portfolio of Outside Trusts. . . . . . . -- -- -- -- -------- --------- ---- ------- Total investment income . . . . . . . 6,164 206,294 254 3,426 Expenses: Mortality and expense risks . . . . . . . 260 1,175 7 682 -------- --------- ---- ------- Net investment income 5,904 205,119 247 2,744 Net realized and unrealized gain (loss) on investments: Net realized gains (losses). . . . . . (11,798) (46,349) 89 8,325 Net unrealized appreciation (depreciation) during the period . (37,617) (568,635) 96 9,977 -------- --------- ---- ------- Net realized and unrealized gain (loss) on investments (49,415) (614,984) 185 18,302 -------- --------- ---- ------- Net increase (decrease) in net assets resulting from operations . . $(43,511) $(409,865) $432 $21,046 ======== ========= ==== =======
------------------------- * From May 1, 1998 (commencement of operations). ** From April 24, 2000 (commencement of operations). *** From April 28, 2000 (commencement of operations). **** From June 29, 2000 (commencement of operations). See accompanying notes. 107 JOHN HANCOCK VARIABLE LIFE ACCOUNT S STATEMENTS OF OPERATIONS (continued) Years and periods ended December 31,
AIM V.I. Fidelity VIP II Value Fidelity VIP Growth Contrafund Janus Aspen Global Subaccount Subaccount Subaccount Tech Subaccount ------------ -------------------- ---------------- --------------------- 2000** 2000** 2000** 2000*** ------------ -------------------- ---------------- --------------------- Investment income: Distributions received from: John Hancock Variable Series Trust I . . -- -- -- -- Portfolio of Outside Trusts. . . . . . . $ 48,587 -- -- $ 2,686 ----------- ---------- -------- --------- Total investment income . . . . . . . 48,587 -- -- 2,686 Expenses: Mortality and expense risks . . . . . . . 954 1,420 $ 1,017 658 ----------- ---------- -------- --------- Net investment income (loss) . . . . . . . 47,633 (1,420) (1,017) 2,028 Net realized and unrealized (loss) on investments: Net realized (losses) (54,358) (8,731) (11,057) (69,974) Net unrealized (depreciation) during the period . (101,244) (156,818) (35,244) (98,497) ----------- ---------- -------- --------- Net realized and unrealized (loss) on investments. . . . . (155,602) (165,549) (46,301) (168,471) ----------- ---------- -------- --------- Net (decrease) in net assets resulting from operations . . $(107,969) $(166,969) $(47,318) $(166,443) =========== ========== ======== =========
Janus Aspen MFS New Worldwide Discovery Templeton Growth Series International Subaccount Subaccount Subaccount ----------- ---------- --------------- 2000*** 2000** 2000** ----------- ---------- --------------- Investment income: Distributions received from: John Hancock Variable Series Trust I -- -- -- Portfolio of Outside Trusts. . . . 18,937 -- -- ---------- --------- -------- Total investment income . . . . . . 18,937 -- -- Expenses: Mortality and expense risks . . . . 1,396 1,349 640 ---------- --------- -------- Net investment income (loss) . . . . 17,541 (1,349) (640) Net realized and unrealized gain (loss) on investments: Net realized gains (losses) . . . . (140,835) 16,026 11,899 Net unrealized appreciation (depreciation) during the period . (61,721) (94,403) 15,320 ---------- --------- -------- Net realized and unrealized gain (loss) on investments . . . . . . . (202,556) (78,377) 27,219 ---------- --------- -------- Net increase (decrease) in net assets resulting from operations . . . . . $(185,015) $(79,726) $26,579 ========== ========= ========
------------------------- ** From April 24, 2000 (commencement of operations). *** From June 29, 2000 (commencement of operations). See accompanying notes. 108 JOHN HANCOCK VARIABLE LIFE ACCOUNT S STATEMENTS OF CHANGES IN NET ASSETS Years and periods ended December 31,
Large Cap Growth Subaccount ------------------------------------------- 2000 1999 1998 ------------- ------------ ------------ Increase (decrease) in net assets from operations: Net investment income. . . . . . . . $ 19,988,168 $ 17,233,439 $ 6,143,421 Net realized gains (losses). . . . . 5,243,833 5,003,007 1,750,881 Net unrealized appreciation (depreciation) during the period. . . . . . . . . . . . . . . (53,885,375) (2,053,672) 8,041,022 ------------- ------------ ------------ Net increase (decrease) in net assets resulting from operations. . . . . . (28,653,374) 20,182,774 15,935,324 From policyholder transactions: Net premiums from policyholders . . . . . . . . . . . 143,098,730 75,667,981 29,859,648 Net benefits to policyholders. . . . (101,783,680) (45,347,424) (13,281,028) ------------- ------------ ------------ Net increase in net assets resulting from policyholder transactions . . . 41,315,050 30,320,557 16,578,620 ------------- ------------ ------------ Net increase in net assets. . . . . . 12,661,676 50,503,331 32,513,944 Net assets at beginning of period . . 115,521,551 65,018,220 32,504,276 ------------- ------------ ------------ Net assets at end of period . . . . . $ 128,183,227 $115,521,551 $ 65,018,220 ============= ============ ============ Active Bond Subaccount -------------------------------------------- 2000 1999 1998 ------------- ------------ ------------ Increase (decrease) in net assets from operations: Net investment income. . . . . . . . $ 2,279,464 $ 2,725,206 $ 2,097,345 Net realized gains (losses). . . . . (1,159,229) (1,391,910) 185,230 Net unrealized appreciation (depreciation) during the period. . . . . . . . . . . . . . . 2,598,926 (1,837,190) (378,058) ------------- ------------ ------------ Net increase (decrease) in net assets 3,719,161 (503,894) 1,904,517 resulting from operations. . . . . . From policyholder transactions: Net premiums from 37,518,244 74,595,720 38,567,292 policyholders . . . . . . . . . . . Net benefits to policyholders. . . . (30,443,585) (68,312,320) (27,391,317) ------------- ------------ ------------ Net increase in net assets resulting from policyholder transactions . . . 7,074,659 6,283,400 11,175,975 ------------- ------------ ------------ Net increase in net assets. . . . . . 10,793,820 5,779,506 13,080,492 Net assets at beginning of period . . 38,321,473 32,541,967 19,461,475 ------------- ------------ ------------ Net assets at end of period . . . . . $ 49,115,293 $ 38,321,473 $ 32,541,967 ============= ============ ============
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). . . . . $ 1,667,526 $ 855,417 $ 1,885,059 $ 3,354,331 $ 3,637,734 $ (22,593) Net realized gains. . . . . . . . . . 670,269 753,750 152,030 2,830,901 2,548,944 58,729 Net unrealized appreciation (depreciation) during the period . . . . . . . . . . . . . . . (8,622,825) 4,871,167 78,480 (17,022,592) 3,920,455 1,070,805 ------------ ------------ ----------- ------------- ------------ ----------- Net increase (decrease) in net assets resulting from operations . . . . . . (6,285,030) 6,480,334 2,115,569 (10,837,360) 10,107,133 1,106,941 From policyholder transactions: Net premiums from policyholders. . . . . . . . . . . . 80,381,214 53,332,374 10,034,119 135,469,377 52,637,861 12,088,047 Net benefits to policyholders . . . . (72,181,237) (39,209,664) (8,344,107) (119,877,527) (40,800,272) (6,621,834) ------------ ------------ ----------- ------------- ------------ ----------- Net increase in net assets resulting from policyholder transactions. . . . 8,199,977 14,122,710 1,690,012 15,591,850 11,837,589 5,466,213 ------------ ------------ ----------- ------------- ------------ ----------- Net increase in net assets . . . . . . 1,914,947 20,603,044 3,805,581 4,754,490 21,944,722 6,573,154 Net assets at beginning of period. . . 33,198,674 12,595,630 8,790,049 31,022,828 9,078,106 2,504,952 ------------ ------------ ----------- ------------- ------------ ----------- Net assets at end of period. . . . . . $ 35,113,621 $ 33,198,674 $12,595,630 $ 35,777,318 $ 31,022,828 $ 9,078,106 ============ ============ =========== ============= ============ ===========
See accompanying notes. 109 JOHN HANCOCK VARIABLE LIFE ACCOUNT S STATEMENTS OF CHANGES IN NET ASSETS (continued) Years and periods ended December 31,
Global Balanced Subaccount Mid Cap Growth Subaccount --------------------------------------- ---------------------------------------------------- 2000 1999 1998 2000 1999 1998 ------------ ------------ ----------- ----------------- --------------- -------------- Increase (decrease) in net assets from operations: Net investment income . . . . . $ 175,751 $ 358,974 $ 176,073 $ 8,938,378 $ 6,389,535 $ 1,088,251 Net realized gains (losses) . . (506,008) 15,640 24,206 8,113,159 5,188,018 599,619 Net unrealized appreciation (depreciation) during the period . . . . . . . . . . . . (109,325) (173,912) 147,461 (49,252,941) 15,078,681 1,184,263 ----------- ----------- ----------- ----------------- --------------- ------------- Net increase (decrease) in net assets resulting from operations (439,582) 200,702 347,740 (32,201,404) 26,656,234 2,872,133 From policyholder transactions: Net premiums from policyholders. . . . . . . . . 8,122,728 6,295,052 3,163,316 196,712,586 65,183,285 11,323,614 Net benefits to policyholders . (8,741,933) (5,007,225) (1,882,974) (171,977,777) (41,018,347) (5,132,055) ----------- ----------- ----------- ----------------- --------------- ------------- Net increase (decrease) in net assets resulting from policyholder transactions . . . (619,205) 1,287,827 1,280,342 24,734,809 24,164,938 6,191,559 ----------- ----------- ----------- ----------------- --------------- ------------- Net increase (decrease) in net assets. . . . . . . . . . . . . (1,058,787) 1,488,529 1,628,082 (7,466,595) 50,821,172 9,063,692 Net assets at beginning of period 4,591,856 3,103,327 1,475,245 63,499,616 12,678,444 3,614,752 ----------- ----------- ----------- ----------------- --------------- ------------- Net assets at end of period. . . $ 3,533,069 $ 4,591,856 $ 3,103,327 $ 56,033,021 $ 63,499,616 $12,678,444 =========== =========== =========== ================= =============== =============
Large Cap Value Subaccount Money Market Subaccount ----------------------------------------- ------------------------------------------------ 2000 1999 1998 2000 1999 1998 ------------ ------------ ----------- --------------- -------------- ------------- Increase (decrease) in net assets from operations: Net investment income . . . . . . $ 2,529,526 $ 1,720,195 $ 756,459 $ 5,437,047 $ 2,988,530 $ 1,687,016 Net realized gains (losses) . . . (861,398) 705,454 330,827 -- -- -- Net unrealized appreciation (depreciation) during the period . . . . . . . . . . . . . 3,840,473 (2,181,112) 145,355 -- -- -- ------------ ------------ ----------- --------------- ------------- ------------- Net increase in net assets resulting from operations . . . . 5,508,601 244,537 1,232,641 5,437,047 2,988,530 1,687,016 From policyholder transactions: Net premiums from policyholders. . . . . . . . . . 88,007,994 37,432,039 15,144,316 1,369,116,199 890,376,545 340,377,358 Net benefits to policyholders . . (67,960,426) (27,199,179) (4,937,583) (1,246,419,884) (918,869,964) (269,723,839) ------------ ------------ ----------- --------------- ------------- ------------- Net increase (decrease) in net assets resulting from policyholder transactions . . . . 20,047,568 10,232,860 10,206,733 122,696,315 (28,493,419) 70,653,519 ------------ ------------ ----------- --------------- ------------- ------------- Net increase (decrease) in net assets. . . . . . . . . . . . . . 25,556,169 10,477,397 11,439,374 128,133,362 (25,504,889) 72,340,535 Net assets at beginning of period. 27,106,917 16,629,520 5,190,146 61,006,769 86,511,658 14,171,123 ------------ ------------ ----------- --------------- ------------- ------------- Net assets at end of period. . . . $ 52,663,086 $ 27,106,917 $16,629,520 $ 189,140,131 $ 61,006,769 $ 86,511,658 ============ ============ =========== =============== ============= =============
See accompanying notes. 110 JOHN HANCOCK VARIABLE LIFE ACCOUNT S STATEMENTS OF CHANGES IN NET ASSETS (continued) Years and periods ended December 31,
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. . . . . . . . $ 3,158,831 $ 41,579 $ 75,449 $ 1,206,888 $ 1,388,661 $ 108,037 Net realized gains (losses). . . . . 2,578,812 (860,332) (538,516) (652,532) 13,375 232,246 Net unrealized appreciation (depreciation) during the period. . 689,275 1,757,919 (830,390) 119,763 (1,001,208) 236,333 ------------ ------------ ----------- ------------ ------------ ------------- Net increase (decrease) in net assets resulting from operations. . . . . . 6,426,918 939,166 (1,293,457) 674,119 400,828 576,616 From policyholder transactions: Net premiums from policyholders. . . 87,480,655 32,024,751 18,837,112 27,528,989 11,809,133 4,563,154 Net benefits to policyholders. . . . (81,506,140) (29,579,995) (7,855,945) (26,015,925) (9,775,543) (6,481,542) ------------ ------------ ----------- ------------ ------------ ------------- Net increase (decrease) in net assets resulting from policyholder transactions . . . . . . . . . . . . 5,974,515 2,444,756 10,981,167 1,513,064 2,033,590 (1,918,388) ------------ ------------ ----------- ------------ ------------ ------------- Net increase (decrease) in net assets 12,401,433 3,383,922 9,687,710 2,187,183 2,434,418 (1,341,772) Net assets at beginning of period . . 19,138,533 15,754,611 6,066,901 9,925,831 7,491,413 8,833,185 ------------ ------------ ----------- ------------ ------------ ------------- Net assets at end of period . . . . . $ 31,539,966 $ 19,138,533 $15,754,611 $ 12,113,014 $ 9,925,831 $ 7,491,413 ============ ============ =========== ============ ============ =============
Real Estate Equity Subaccount Growth & Income Subaccount ----------------------------------------- -------------------------------------------- 2000 1999 1998 2000 1999 1998 ------------ ------------ ----------- ------------ ------------- ------------ Increase (decrease) in net assets from operations: Net investment income. . . . . . . . $ 1,524,133 $ 515,377 $ 283,067 $ 33,281,395 $ 22,850,302 $ 8,975,814 Net realized gains (losses). . . . . 1,851,413 (735,504) (454,979) 2,197,930 6,207,253 2,061,212 Net unrealized appreciation (depreciation) during the period. . 1,041,612 80,925 (698,676) (63,700,088) (5,814,839) 7,759,307 ------------ ------------ ----------- ------------ ------------- ------------ Net increase (decrease) in net assets resulting from operations. . . . . . 4,417,158 (139,202) (870,588) (28,220,763) 23,242,716 18,796,333 From policyholder transactions: Net premiums from policyholders. . . 102,840,441 22,699,314 6,964,604 86,946,862 196,639,863 60,975,616 Net benefits to policyholders. . . . (98,637,433) (18,093,640) (5,513,221) (85,615,541) (106,763,955) (31,360,866) ------------ ------------ ----------- ------------ ------------- ------------ Net increase in net assets resulting from policyholder transactions . . . 4,203,008 4,605,674 1,451,383 1,331,321 89,875,908 29,614,750 ------------ ------------ ----------- ------------ ------------- ------------ Net increase (decrease) in net assets 8,620,166 4,466,472 580,795 (26,889,442) 113,118,624 48,411,083 Net assets at beginning of period . . 9,238,646 4,772,174 4,191,379 209,525,899 96,407,275 47,996,192 ------------ ------------ ----------- ------------ ------------- ------------ Net assets at end of period . . . . . $ 17,858,812 $ 9,238,646 $ 4,772,174 $182,636,457 $ 209,525,899 $ 96,407,275 ============ ============ =========== ============ ============= ============
See accompanying notes. 111 JOHN HANCOCK VARIABLE LIFE ACCOUNT S STATEMENTS OF CHANGES IN NET ASSETS (continued) Years and periods ended December 31,
Managed Subaccount Short-Term Bond Subaccount ----------------------------------------- ------------------------------------------- 2000 1999 1998 2000 1999 1998 ------------ ------------ ----------- ------------ ------------ ------------- Increase (decrease) in net assets from operations: Net investment income. . . . . . . . $ 13,157,769 $ 10,756,436 $ 3,484,281 $ 883,541 $ 907,486 $ 926,217 Net realized gains (losses). . . . . (233,751) 2,233,258 278,186 (210,780) (441,667) 24,740 Net unrealized appreciation (depreciation) during the period. . . . . . . . . . . . . (13,708,391) (6,419,069) 1,791,231 451,906 (85,754) (136,999) ------------ ------------ ----------- ------------ ------------ ------------ Net increase (decrease) in net assets resulting from operations. . . . . . (784,373) 6,570,625 5,553,698 1,124,667 380,065 813,958 From policyholder transactions: Net premiums from policyholders. . . 33,494,293 113,292,872 21,019,273 20,531,773 41,259,110 27,490,588 Net benefits to policyholders. . . . (29,530,890) (34,219,380) (8,281,600) (16,825,756) (49,156,693) (21,534,195) ------------ ------------ ----------- ------------ ------------ ------------ Net increase (decrease) in net assets resulting from policyholder transactions . . . . . . . . . . . . 3,963,403 79,073,492 12,737,673 3,706,017 (7,897,583) 5,956,393 ------------ ------------ ----------- ------------ ------------ ------------ Net increase (decrease) in net assets 3,179,030 85,644,117 18,291,371 4,830,684 (7,517,518) 6,770,351 Net assets at beginning of period . . 125,710,809 40,066,692 21,775,321 11,728,988 19,246,506 12,476,155 ------------ ------------ ----------- ------------ ------------ ------------ Net assets at end of period . . . . . $128,889,839 $125,710,809 $40,066,692 $ 16,559,672 $ 11,728,988 $ 19,246,506 ============ ============ =========== ============ ============ ============
Small Cap Equity Subaccount International Opportunities Subaccount ----------------------------------------- ------------------------------------------- 2000 1999 1998 2000 1999 1998 ------------ ------------ ----------- ------------ ------------ ------------- Increase (decrease) in net assets from operations: Net investment income. . . . . . . . $ 1,934,297 $ 344,711 $ 14,015 $ 2,457,059 $ 2,006,004 $ 53,396 Net realized gains (losses). . . . . (158,893) (979,002) (9,919) 2,209,044 1,907,809 191,495 Net unrealized appreciation (depreciation) during the period. . (4,241,216) 325,684 (523,693) (11,479,826) 3,818,953 1,108,416 ------------ ------------ ----------- ------------ ------------ ------------ Net increase (decrease) in net assets resulting from operations. . . . . . (2,465,812) (308,607) (519,597) (6,813,723) 7,732,766 1,353,307 From policyholder transactions: Net premiums from policyholders. . . 61,706,400 39,172,672 11,420,833 91,465,296 43,216,216 23,844,756 Net benefits to policyholders. . . . (51,931,035) (30,591,417) (4,363,378) (74,820,451) (38,372,463) (12,275,087) ------------ ------------ ----------- ------------ ------------ ------------ Net increase in net assets resulting from policyholder transactions . . . 9,775,365 8,581,255 7,057,455 16,644,845 4,843,753 11,569,669 ------------ ------------ ----------- ------------ ------------ ------------ Net increase in net assets. . . . . . 7,309,553 8,272,648 6,537,858 9,831,122 12,576,519 12,922,976 Net assets at beginning of period . . 18,783,396 10,510,748 3,972,890 31,535,049 18,958,530 6,035,554 ------------ ------------ ----------- ------------ ------------ ------------ Net assets at end of period . . . . . $ 26,092,949 $ 18,783,396 $10,510,748 $ 41,366,171 $ 31,535,049 $ 18,958,530 ============ ============ =========== ============ ============ ============
See accompanying notes. 112 JOHN HANCOCK VARIABLE LIFE ACCOUNT S STATEMENTS OF CHANGES IN NET ASSETS (continued) Years and periods ended December 31,
Equity Index Subaccount Global Bond Subaccount -------------------------------------------- ------------------------------------------- 2000 1999 1998 2000 1999 1998 ------------- ------------- ------------ ------------ ------------ ------------- Increase (decrease) in net assets from operations: Net investment income. . . . . . . . $ 7,726,442 $ 5,503,450 $ 1,211,729 $ 430,194 $ 424,767 $ 283,651 Net realized gains (losses). . . . . 4,357,007 7,681,081 691,270 (302,157) (204,675) 81,659 Net unrealized appreciation (depreciation) during the period. . . . . . . . . . . . . (30,073,491) 4,678,509 6,098,919 688,537 (433,526) 43,608 ------------- ------------- ------------ ------------ ------------ ----------- Net increase (decrease) in net assets resulting from operations. . . . . . (17,990,042) 17,863,040 8,001,918 816,574 (213,434) 408,918 From policyholder transactions: Net premiums from policyholders. . . 155,703,961 225,994,914 60,690,933 8,796,366 11,387,398 9,258,713 Net benefits to policyholders. . . . (126,828,610) (147,909,470) (31,166,123) (10,301,347) (10,615,019) (3,008,341) ------------- ------------- ------------ ------------ ------------ ----------- Net increase (decrease) in net assets resulting from policyholder transactions . . . . . . . . . . . . 28,875,351 78,085,444 29,524,810 (1,504,981) 772,379 6,250,372 ------------- ------------- ------------ ------------ ------------ ----------- Net increase (decrease) in net assets 10,885,309 95,948,484 37,526,728 (688,407) 558,945 6,659,290 Net assets at beginning of period . . 149,913,131 53,964,647 16,437,919 8,838,516 8,279,571 1,620,281 ------------- ------------- ------------ ------------ ------------ ----------- Net assets at end of period . . . . . $ 160,798,440 $ 149,913,131 $ 53,964,647 $ 8,150,109 $ 8,838,516 $ 8,279,571 ============= ============= ============ ============ ============ ===========
Turner Core Growth Subaccount Brandes International Equity Subaccount ---------------------------------------- ----------------------------------------- 2000 1999 1998 2000 1999 1998 ------------ ----------- ----------- ------------ ----------- ------------ Increase (decrease) in net assets from operations: Net investment income. . . . . . . . $ 3,072,760 $ 1,315,438 $ 77,203 $ 2,792,306 $ 515,681 $ 343,646 Net realized gains (losses). . . . . 2,749,177 1,038,462 156,278 1,629,793 507,727 89,337 Net unrealized appreciation (depreciation) during the period. . . . . . . . . . . . . (8,773,256) 1,626,646 562,620 (2,602,173) 3,486,097 91,915 ------------ ----------- ----------- ------------ ----------- ----------- Net increase (decrease) in net assets resulting from operations. . . . . . (2,951,319) 3,980,546 796,101 1,819,926 4,509,505 524,898 From policyholder transactions: Net premiums from policyholders. . . 57,091,019 23,098,524 4,779,974 34,606,916 12,134,533 5,520,633 Net benefits to policyholders. . . . (54,259,832) (9,308,254) (1,690,860) (17,063,755) (5,569,496) (2,041,375) ------------ ----------- ----------- ------------ ----------- ----------- Net increase in net assets resulting from policyholder transactions . . . 2,831,187 13,790,270 3,089,114 17,543,161 6,565,037 3,479,258 ------------ ----------- ----------- ------------ ----------- ----------- Net increase (decrease) in net assets (120,132) 17,770,816 3,885,215 19,363,087 11,074,542 4,004,156 Net assets at beginning of period . . 22,671,005 4,900,189 1,014,974 17,415,296 6,340,754 2,336,598 ------------ ----------- ----------- ------------ ----------- ----------- Net assets at end of period . . . . . $ 22,550,873 $22,671,005 $ 4,900,189 $ 36,778,383 $17,415,296 $ 6,340,754 ============ =========== =========== ============ =========== ===========
See accompanying notes. 113 JOHN HANCOCK VARIABLE LIFE ACCOUNT S STATEMENTS OF CHANGES IN NET ASSETS (continued) Years and periods ended December 31,
Frontier Capital Appreciation Subaccount Clifton Enhanced U.S. Equity Subaccount ----------------------------------------- ----------------------------------------- 2000 1999 1998 2000 1999 1998 ------------ ------------ ----------- ------------ ----------- ------------ Increase (decrease) in net assets from operations: Net investment income. . . . . . . . . . $ 5,746,620 $ 449,994 $ 9,897 $ 1,393,023 $ 518,137 $ 68,233 Net realized gains (losses). . . . . . . 4,402,175 624,068 (445,752) 132,736 264,436 87,723 Net unrealized appreciation (depreciation) during the period. . . . (9,587,258) 3,431,408 432,064 (2,553,428) 151,562 89,677 ------------ ------------ ----------- ------------ ----------- ----------- Net increase (decrease) in net assets resulting from operations. . . . . . . . 561,537 4,505,470 (3,791) (1,027,669) 934,135 245,633 From policyholder transactions: Net premiums from policyholders. . . . . 40,643,205 25,135,447 13,982,031 15,685,529 6,480,741 3,031,309 Net benefits to policyholders. . . . . . (34,557,509) (22,331,613) (9,695,520) (11,190,723) (3,151,279) (1,299,530) ------------ ------------ ----------- ------------ ----------- ----------- Net increase in net assets resulting from policyholder transactions. . . . . . . . 6,085,696 2,803,834 4,286,511 4,494,806 3,329,462 1,731,779 ------------ ------------ ----------- ------------ ----------- ----------- Net increase in net assets. . . . . . . . 6,647,233 7,309,304 4,282,720 3,467,137 4,263,597 1,977,412 Net assets at beginning of period . . . . 16,985,022 9,675,718 5,392,998 6,738,214 2,474,617 497,205 ------------ ------------ ----------- ------------ ----------- ----------- Net assets at end of period . . . . . . . $ 23,632,255 $ 16,985,022 $ 9,675,718 $ 10,205,351 $ 6,738,214 $ 2,474,617 ============ ============ =========== ============ =========== ===========
Emerging Markets Equity Subaccount Bond Index Subaccount ----------------------------------------- --------------------------------------- 2000 1999 1998 2000 1999 1998* ------------ ------------ ----------- ----------- ----------- ----------- Increase (decrease) in net assets from operations: Net investment income. . . . . . . . . . $ 432,227 $ 132,259 $ 135 $ 487,512 $ 130,136 $ 22,905 Net realized gains (losses). . . . . . . (1,410,734) 663,998 (45,975) (53,751) (104,174) 1,002 Net unrealized appreciation (depreciation) during the period. . . . (2,006,595) 432,248 2,289 472,128 (78,192) (10,217) ------------ ------------ ----------- ----------- ----------- ---------- Net increase (decrease) in net assets resulting from operations. . . . . . . . (2,985,102) 1,228,505 (43,551) 905,889 (53,230) 13,690 From policyholder transactions: Net premiums from policyholders. . . . . 72,543,484 18,579,194 2,434,226 14,954,848 6,472,518 1,176,234 Net benefits to policyholders. . . . . . (68,002,822) (16,271,324) (2,203,670) (8,187,184) (2,358,694) (124,467) ------------ ------------ ----------- ----------- ----------- ---------- Net increase in net assets resulting from policyholder transactions. . . . . . . . 4,540,662 2,307,870 230,556 6,767,664 4,113,824 1,051,767 ------------ ------------ ----------- ----------- ----------- ---------- Net increase in net assets. . . . . . . . 1,555,560 3,536,375 187,005 7,673,553 4,060,594 1,065,457 Net assets at beginning of period . . . . 3,723,380 187,005 -- 5,126,051 1,065,457 -- ------------ ------------ ----------- ----------- ----------- ---------- Net assets at end of period . . . . . . . $ 5,278,940 $ 3,723,380 $ 187,005 $12,799,604 $ 5,126,051 $1,065,457 ============ ============ =========== =========== =========== ==========
------------------------- * From May 1, 1998 (commencement of operations). See accompanying notes. 114 JOHN HANCOCK VARIABLE LIFE ACCOUNT S STATEMENTS OF CHANGES IN NET ASSETS (continued) Years and periods ended December 31,
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. . . . . . . . $ 100,765 $ 52,711 $ (535) $ 359,215 $ 340,435 $ 86,759 Net realized gains (losses). . . . . 52,147 65,733 (25,196) (207,326) 42,365 64,824 Net unrealized appreciation (depreciation) during the period. . . . . . . . . . . . . (145,708) (10,735) 18,718 (650,931) (139,659) 149,416 ------------ ----------- ---------- ----------- ------------ ----------- Net increase (decrease) in net assets resulting from operations. . . . . . 7,204 107,709 (7,013) (499,042) 243,141 300,999 From policyholder transactions: Net premiums from policyholders. . . 18,340,255 5,817,483 1,089,030 9,819,846 19,870,990 6,683,673 Net benefits to policyholders. . . . (16,306,841) (5,611,532) (778,864) (8,852,014) (20,368,501) (2,457,088) ------------ ----------- ---------- ----------- ------------ ----------- Net increase (decrease) in net assets resulting from policyholder transactions . . . . . . . . . . . . 2,033,414 205,951 310,166 967,832 (497,511) 4,226,585 ------------ ----------- ---------- ----------- ------------ ----------- Net increase in net assets. . . . . . 2,040,618 313,660 303,153 468,790 (254,370) 4,527,584 Net assets at beginning of period . . 616,813 303,153 -- 4,273,214 4,527,584 -- ------------ ----------- ---------- ----------- ------------ ----------- Net assets at end of period . . . . . $ 2,657,431 $ 616,813 $ 303,153 $ 4,742,004 $ 4,273,214 $ 4,527,584 ============ =========== ========== =========== ============ ===========
Large Cap American Aggressive Fundamental Leaders Large AIM V.I. Fidelity VIP Growth Growth Core Bond Cap Value Value Growth Subaccount Subaccount Subaccount Subaccount Subaccount Subaccount ----------- ------------ ---------- ------------- ------------ -------------- 2000** 2000*** 2000**** 2000**** 2000** 2000** ----------- ------------ ---------- ------------- ------------ -------------- Increase (decrease) in net assets from operations: Net investment income. . . . . . . . $ 5,904 $ 205,119 $ 247 $ 2,744 $ 47,633 $ (1,420) Net realized gains (losses). . . . . (11,798) (46,349) 89 8,325 (54,358) (8,731) Net unrealized appreciation (depreciation) during the period. . . . . . . . . . . . . (37,617) (568,635) 96 9,977 (101,244) (156,818) ---------- ----------- -------- ----------- ----------- ----------- Net increase (decrease) in net assets resulting from operations. . . . . . (43,511) (409,865) 432 21,046 (107,969) (166,969) From policyholder transactions: Net premiums from policyholders. . . 3,456,939 9,131,403 38,268 4,269,286 4,263,052 6,655,609 Net benefits to policyholders. . . . (3,068,441) (6,708,404) (22,638) (3,736,885) (2,990,639) (4,970,882) ---------- ----------- -------- ----------- ----------- ----------- Net increase in net assets resulting from policyholder transactions . . . 388,498 2,422,999 15,630 532,401 1,272,413 1,684,727 ---------- ----------- -------- ----------- ----------- ----------- Net increase in net assets. . . . . . 344,987 2,013,134 16,062 553,447 1,164,444 1,517,758 Net assets at beginning of period . . -- -- -- -- -- -- ---------- ----------- -------- ----------- ----------- ----------- Net assets at end of period . . . . . $ 344,987 $ 2,013,134 $ 16,062 $ 553,447 $ 1,164,444 $ 1,517,758 ========== =========== ======== =========== =========== ===========
------------------------- * From May 1, 1998 (commencement of operations). ** From April 24, 2000 (commencement of operations). *** From April 28, 2000 (commencement of operations). **** From June 29, 2000 (commencement of operations). See accompanying notes. 115 JOHN HANCOCK VARIABLE LIFE ACCOUNT S STATEMENTS OF CHANGES IN NET ASSETS (continued) Years and periods ended December 31,
Fidelity VIP II Janus Aspen Janus Aspen MFS New Templeton Contrafund Global Tech Worldwide Growth Discovery International Subaccount Subaccount Subaccount Series Subaccount Subaccount --------------- ------------ ---------------- ----------------- --------------- 2000** 2000*** 2000*** 2000** 2000** --------------- ------------ ---------------- ----------------- --------------- Increase (decrease) in net assets from operations: Net investment income. . . . . . . . $ (1,017) $ 2,028 $ 17,541 $ (1,349) $ (640) Net realized gains (losses). . . . . (11,057) (69,974) (140,835) 16,026 11,899 Net unrealized appreciation (depreciation) during the period. . (35,244) (98,497) (61,721) (94,403) 15,320 ---------- ----------- ----------- ----------- ------------ Net increase (decrease) in net assets resulting from operations. . . . . . (47,318) (166,443) (185,015) (79,726) 26,579 From policyholder transactions: Net premiums from policyholders. . . 1,758,982 2,902,504 8,457,498 4,148,131 11,365,793 Net benefits to policyholders. . . . (705,047) (2,293,755) (7,234,105) (2,889,948) (10,522,033) ---------- ----------- ----------- ----------- ------------ Net increase in net assets resulting from policyholder transactions . . . 1,053,935 608,749 1,223,393 1,258,183 843,760 ---------- ----------- ----------- ----------- ------------ Net increase in net assets. . . . . . 1,006,617 442,306 1,038,378 1,178,457 870,339 Net assets at beginning of period . . -- -- -- -- -- ---------- ----------- ----------- ----------- ------------ Net assets at end of period . . . . . $1,006,617 $ 442,306 $ 1,038,378 $ 1,178,457 $ 870,339 ========== =========== =========== =========== ============
------------------------- ** From May 1, 2000 (commencement of operations). *** From June 29, 2000 (commencement of operations). See accompanying notes. 116 JOHN HANCOCK VARIABLE LIFE ACCOUNT S NOTES TO FINANCIAL STATEMENTS December 31, 2000 1. Organization John Hancock Variable Life Account S (the Account) is a separate investment account of John Hancock Variable Life Insurance Company (JHVLICO), a wholly-owned subsidiary of John Hancock 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-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 other outside investment trusts (Outside Trusts). New subaccounts may be added as new funds are added to the Fund or to the Outside Trusts, or as other investment options are developed, and made available to policyholders. The thirty-seven funds of the Fund and of the Outside Trusts which are currently available are the Large Cap Growth, Active Bond (formerly, Sovereign Bond), International Equity Index, Small Cap Growth, Global Balanced, Mid Cap Growth, Large Cap Value, Money Market, Mid Cap Value, Small/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, Clifton Enhanced U.S. Equity, Emerging Markets Equity, Bond Index, Small/Mid Cap CORE, High Yield Bond, Large Cap Aggressive Growth, Fundamental Growth (formerly, Fundamental Mid Cap Growth), Core Bond, American Leaders Large Cap Value, AIM V.I. Value, Fidelity VIP Growth, Fidelity VIP II Contrafund, Janus Aspen Global Tech, Janus Aspen Worldwide Growth, MFS New Discovery Series, and Templeton International subaccounts. Each subaccount 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 accounting principles generally accepted in the United States 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 Outside Trusts 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 Subaccount shares are determined on the basis of identified cost. 117 JOHN HANCOCK VARIABLE LIFE ACCOUNT S NOTES TO FINANCIAL STATEMENTS (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. 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. 118 JOHN HANCOCK VARIABLE LIFE ACCOUNT S NOTES TO FINANCIAL STATEMENTS (continued) 4. Details of Investments The details of the shares owned and cost and value of investments in the Subaccounts of the Fund and of Outside Trusts at December 31, 2000 were as follows: Subaccount Shares Owned Cost Value ---------- ------------ ------------ -------------- Large Cap Growth. . . . . . 6,786,979 $174,728,187 $128,183,227 Active Bond . . . . . . . . 5,201,185 48,707,166 49,115,293 International Equity Index. 2,280,681 39,761,831 35,113,621 Small Cap Growth. . . . . . 2,655,623 47,684,616 35,777,318 Global Balanced . . . . . . 380,929 3,731,252 3,533,069 Mid Cap Growth. . . . . . . 3,591,624 88,530,392 56,033,021 Large Cap Value . . . . . . 3,662,576 50,555,367 52,663,086 Money Market. . . . . . . . 18,904,221 189,140,131 189,140,131 Mid Cap Value . . . . . . . 2,152,437 29,948,969 31,539,966 Small/Mid Cap Growth. . . . 883,924 12,955,583 12,113,014 Real Estate Equity. . . . . 1,306,333 17,222,359 17,858,812 Growth & Income . . . . . . 12,878,763 244,197,680 182,636,457 Managed . . . . . . . . . . 9,322,682 146,974,987 128,889,839 Short-Term Bond . . . . . . 1,678,910 16,342,442 16,559,672 Small Cap Equity. . . . . . 2,854,342 30,536,754 26,092,949 International Opportunities 3,490,460 48,142,626 41,366,171 Equity Index. . . . . . . . 9,113,511 179,646,466 160,798,440 Global Bond . . . . . . . . 788,308 7,863,809 8,150,109 Turner Core Growth. . . . . 1,284,218 29,088,181 22,550,873 Brandes International Equity 2,460,102 35,840,852 36,778,383 Frontier Capital Appreciation . . . . . . . 1,369,996 29,719,510 23,632,255 Clifton Enhanced U.S. Equity 625,328 12,510,697 10,205,351 Emerging Markets. . . . . . 787,996 6,850,998 5,278,940 Bond Index. . . . . . . . . 1,313,892 12,415,885 12,799,604 Small/Mid Cap CORE. . . . . 270,739 2,795,156 2,657,431 High Yield Bond . . . . . . 646,702 5,383,178 4,742,004 Large Cap Aggressive Growth 36,253 382,604 344,987 Fundamental Growth. . . . . 160,819 2,581,768 2,013,134 Core Bond . . . . . . . . . 1,555 15,966 16,062 American Leaders Large Cap Value. . . . . . . . . . . 51,700 543,469 553,446 AIM V.I. Value. . . . . . . 42,638 1,265,687 1,164,444 Fidelity VIP Growth . . . . 34,891 1,674,576 1,517,758 Fidelity VIP II Contrafund. 42,527 1,041,861 1,006,617 Janus Aspen Global Technology . . . . . . . . 67,528 540,803 442,306 Janus Aspen Worldwide Growth 28,240 1,100,099 1,038,378 MFS New Discovery Series. . 70,949 1,272,860 1,178,457 Templeton International . . 46,617 855,019 870,339 119 JOHN HANCOCK VARIABLE LIFE ACCOUNT S NOTES TO FINANCIAL STATEMENTS (continued) 4. Details of Investments (continued) Purchases, including reinvestment of dividend distributions, and proceeds from sales of shares in the Subaccounts of the Fund and of the Outside Trusts during 2000 were as follows: Subaccount Purchases Sales ---------- ------------ -------------- Large Cap Growth. . . . . . . . . . . $ 89,881,309 $ 28,578,090 Active Bond . . . . . . . . . . . . . 24,913,661 15,559,539 International Equity Index. . . . . . 37,019,672 27,152,169 Small Cap Growth. . . . . . . . . . . 53,512,020 34,565,840 Global Balanced . . . . . . . . . . . 3,858,573 4,302,027 Mid Cap Growth. . . . . . . . . . . . 78,872,015 45,198,828 Large Cap Value . . . . . . . . . . . 39,021,154 16,444,062 Money Market. . . . . . . . . . . . . 361,256,133 233,122,771 Mid Cap Value . . . . . . . . . . . . 26,740,116 17,606,770 Small/Mid Cap Growth. . . . . . . . . 9,742,479 7,022,527 Real Estate Equity. . . . . . . . . . 28,353,777 22,626,636 Growth & Income . . . . . . . . . . . 61,940,512 27,327,794 Managed . . . . . . . . . . . . . . . 31,161,117 14,039,946 Short-Term Bond . . . . . . . . . . . 12,904,515 8,314,957 Small Cap Equity. . . . . . . . . . . 23,694,674 11,985,013 International Opportunities . . . . . 43,962,366 24,860,462 Equity Index. . . . . . . . . . . . . 91,907,277 55,305,432 Global Bond . . . . . . . . . . . . . 4,725,013 5,799,799 Turner Core Growth. . . . . . . . . . 29,551,898 23,647,952 Brandes International Equity. . . . . 26,297,624 5,962,158 Frontier Capital Appreciation . . . . 25,144,184 13,311,868 Clifton Enhanced U.S. Equity. . . . . 8,663,100 2,775,271 Emerging Markets. . . . . . . . . . . 23,022,963 18,050,075 Bond Index. . . . . . . . . . . . . . 11,497,614 4,242,437 Small/Mid Cap CORE. . . . . . . . . . 4,788,058 2,653,879 High Yield Bond . . . . . . . . . . . 5,174,660 3,847,612 Large Cap Aggressive Growth . . . . . 651,649 257,246 Fundamental Growth. . . . . . . . . . 4,866,453 2,238,336 Core Bond . . . . . . . . . . . . . . 59,471 43,594 American Leaders Large Cap Value. . . 1,624,447 1,089,303 AIM V.I. Value. . . . . . . . . . . . 2,359,372 1,039,326 Fidelity VIP Growth . . . . . . . . . 2,469,800 786,494 Fidelity VIP II Contrafund. . . . . . 1,602,045 549,127 Janus Aspen Global Tech.. . . . . . . 1,414,000 803,223 Janus Aspen Worldwide Growth. . . . . 3,668,964 2,428,030 MFS New Discovery Series. . . . . . . 2,107,378 850,544 Templeton International . . . . . . . 3,872,069 3,028,949 120 JOHN HANCOCK VARIABLE LIFE ACCOUNT S NOTES TO FINANCIAL STATEMENTS (continued) 5. Net Assets Accumulation shares attributable to net assets of policyholders and accumulation share values for each Subaccount at December 31, 2000 were as follows:
VEP Class #1 VEP Class #2 VEP Class #3 --------------------------------------- -------------------------- -------------------------- Accumulation Accumulation Accumulation Accumulation Accumulation Accumulation Subaccount Shares Share Values Shares Share Values Shares Share Values - ---------- ------------ ------------------------- ------------ ------------ ------------ -------------- Large Cap Growth 576,862 $27.90 539,812 $27.99 263,808 $28.09 Active Bond 248,741 15.14 191,827 15.20 67,026 15.25 International Equity Index 269,883 14.38 220,068 14.43 7,440 14.48 Small Cap Growth 240,278 16.92 248,242 16.96 116,733 17.00 Global Balanced 16,660 11.99 19,635 12.02 19,573 12.05 Mid Cap Growth 297,198 22.66 245,372 22.72 121,688 22.77 Large Cap Value 254,078 18.13 231,945 18.17 47,243 18.22 Money Market 660,417 13.82 1,143,571 13.86 182,706 13.91 Mid Cap Value 149,652 17.93 70,741 17.97 4,680 18.01 Small/Mid Cap Growth 107,428 21.47 103,477 21.54 15,354 21.61 Real Estate Equity 114,797 18.94 64,302 18.90 2,777 19.07 Growth & Income 1,114,469 26.69 669,845 26.78 215,461 26.87 Managed 603,781 20.76 277,080 20.83 50,153 20.90 Short-Term Bond 88,077 13.92 140,863 13.96 13,527 14.02 Small Cap Equity 135,488 11.14 90,575 11.17 66,286 11.19 International Opportunities 197,742 13.73 232,322 13.76 22,864 13.79 Equity Index 673,288 20.82 885,466 20.87 280,321 20.91 Global Bond 65,916 13.52 41,999 13.55 22,843 13.58 Turner Core Growth 29,366 24.98 15,617 25.05 0 25.11 Brandes International Equity 25,564 17.62 33,738 17.67 0 17.72 Frontier Capital Appreciation 22,811 24.34 14,874 24.40 0 24.46 Clifton Enhanced U.S. Equity 3,970 15.64 0 15.66 0 15.69 Emerging Markets 87,938 7.61 88,815 7.62 17,817 7.63 Bond Index 11,594 11.49 118,087 11.50 64,566 11.51 Small Mid Cap CORE 19,613 11.19 22,620 11.20 13,878 11.22 High Yield Bond 55,965 8.95 74,675 8.96 4,450 8.97 Large Cap Aggressive Growth 14,412 8.14 4,090 8.15 780 8.15 Fundamental Growth 21,231 10.29 0 10.29 0 10.30 Core Bond 404 10.67 0 10.67 0 10.67 American Leaders Large Cap Value 1,902 10.77 0 10.77 30,438 10.77 AIM V.I. Value 9,203 8.42 16,850 8.43 6,324 8.43 Fidelity VIP Growth 7,934 8.90 34,841 9.00 32,288 9.00 Fidelity VIP II Contrafund 8,536 9.64 1,372 9.64 36,536 9.65 Janus Aspen Global Technology 8,636 6.75 29,088 6.75 349 6.75 Janus Aspen Worldwide Growth 4,861 8.33 501 8.33 56,314 8.33 MFS New Discovery Series 13,615 10.00 28,583 10.01 0 10.02 Templeton International 10,474 9.79 13,869 9.80 292 9.80
121 JOHN HANCOCK VARIABLE LIFE ACCOUNT S NOTES TO FINANCIAL STATEMENTS (continued) 5. Net Assets (continued)
V Coli Class #4 V Coli Class #5 V Coli Class #6 -------------------------- -------------------------- --------------------------- Accumulation Accumulation Accumulation Accumulation Accumulation Accumulation SUBACCOUNT Shares Share Values Shares Share Values Shares Share Values - ---------- ------------ ------------ ------------ ------------ ------------ ------------- Large Cap Growth 722,564 $28.26 253,905 $28.30 326,282 $28.32 Active Bond 125,204 16.16 533,169 16.18 470,773 16.19 International Equity Index 44,439 13.40 150,610 13.42 362,019 13.43 Small Cap Growth 116,754 17.30 140,449 17.31 53,689 17.32 Global Balanced 7,808 12.26 8,507 12.27 18,538 12.28 Mid Cap Growth 180,243 23.17 99,843 23.18 157,443 23.09 Large Cap Value 156,329 18.53 56,957 18.54 441,339 18.55 Money Market 259,729 13.82 88,213 13.83 1,870,854 13.85 Mid Cap Value 102,783 18.32 23,395 18.34 246,353 18.35 Small/Mid Cap Growth 10,660 21.58 16,110 21.60 23,413 21.63 Real Estate Equity 99,831 19.72 143,590 19.74 78,202 19.76 Growth & Income 512,500 26.78 519,576 26.80 24,950 26.84 Managed 302,526 21.62 102,088 21.65 62,704 21.67 Short-Term Bond 243,189 14.25 382,494 14.27 0 14.28 Small Cap Equity 41,155 11.39 26,312 11.39 381,186 11.40 International Opportunities 259,202 14.03 270,816 14.04 101,524 14.05 Equity Index 361,447 21.28 97,069 21.29 740,388 21.30 Global Bond 64,229 13.82 5,886 13.83 0 13.84 Turner Core Growth 8,495 25.57 32,481 25.59 0 25.61 Brandes International Equity 133,504 18.04 123,280 18.06 87,200 18.07 Frontier Capital Appreciation 88,869 24.91 92,323 24.93 0 24.95 Clifton Enhanced U.S. Equity 79,844 15.90 84,628 15.91 0 15.91 Emerging Markets 0 7.71 44,995 7.71 0 7.71 Bond Index 11,474 11.64 987 11.64 0 11.64 Small Mid Cap CORE 8,758 11.34 0 11.34 0 11.34 High Yield Bond 1,837 9.07 2,616 9.07 18,021 9.07 Large Cap Aggressive Growth 0 7.89 2,687 7.89 0 7.89 Fundamental Growth 0 9.06 0 9.06 0 9.06 Core Bond 0 10.70 0 10.70 0 10.70 American Leaders Large Cap Value 0 10.80 1,530 10.80 0 10.80 AIM V.I. Value 0 8.17 0 8.17 0 8.17 Fidelity VIP Growth 0 8.68 0 8.68 0 8.68 Fidelity VIP II Contrafund 0 9.44 0 9.44 0 9.44 Janus Aspen Global Technology 0 6.77 0 6.77 0 6.77 Janus Aspen Worldwide Growth 0 8.35 0 8.35 0 8.35 MFS New Discovery Series 0 9.63 0 9.63 0 9.63 Templeton International 0 10.30 1,268 10.30 0 10.30
122 JOHN HANCOCK VARIABLE LIFE ACCOUNT S NOTES TO FINANCIAL STATEMENTS (CONTINUED) 5. NET ASSETS (CONTINUED)
MEDALLION EXECUTIVE VLI CLASS #7 MVEP CLASS #8 MVUL CLASS #9 --------------------------------- -------------------------- -------------------------- ACCUMULATION ACCUMULATION ACCUMULATION ACCUMULATION ACCUMULATION ACCUMULATION SUBACCOUNT SHARES SHARE VALUES SHARES SHARE VALUES SHARES SHARE VALUES - ---------- ---------------- --------------- ------------ ------------ ------------ ------------ Large Cap Growth 99,358 $65.04 821,225 $20.33 370,930 $18.10 Active Bond 65,607 26.00 321,494 13.70 113,356 12.90 International Equity Index 179,376 22.61 419,432 12.40 216,963 12.80 Small Cap Growth 189,793 16.94 245,064 17.16 228,995 19.29 Global Balanced 65,938 12.01 41,672 12.16 41,962 11.65 Mid Cap Growth 227,414 22.69 333,808 22.98 131,202 25.48 Large Cap Value 400,006 18.15 219,760 18.38 106,731 15.72 Money Market 510,754 19.12 1,184,054 12.66 481,486 12.11 Mid Cap Value 472,391 17.95 298,320 18.17 73,198 15.35 Small/Mid Cap Growth 53,822 21.50 249,517 13.76 44,087 14.00 Real Estate Equity 36,495 29.11 205,780 16.19 47,679 12.59 Growth & Income 783,478 58.85 1,152,308 18.97 422,452 16.58 Managed 2,290,063 39.43 198,704 16.77 82,923 15.33 Short-Term Bond 56,197 13.94 48,937 12.84 112,172 12.31 Small Cap Equity 646,933 11.15 421,327 11.29 135,432 10.72 International Opportunities 699,384 13.75 382,880 13.91 481,048 13.32 Equity Index 656,178 20.84 1,265,453 21.10 875,545 18.00 Global Bond 133,089 13.54 82,325 13.70 67,314 12.93 Turner Core Growth 0 23.25 329,025 22.74 52,862 21.86 Brandes International Equity 0 17.87 843,562 17.29 91,332 18.48 Frontier Capital Appreciation 0 22.59 456,703 20.65 57,881 19.99 Clifton Enhanced U.S. Equity 0 11.85 175,736 15.80 122,746 15.80 Emerging Markets 56,454 7.62 99,942 7.67 106,494 7.67 Bond Index 7,887 11.49 42,141 11.58 113,886 11.58 Small Mid Cap CORE 2,319 11.19 37,148 11.28 3,189 11.28 High Yield Bond 19,184 8.95 105,562 9.01 102,603 9.02 Large Cap Aggressive Growth 824 7.86 3,011 8.17 0 7.88 Fundamental Growth 600 9.03 151,170 10.31 1,628 9.05 Core Bond 0 10.67 0 10.69 0 10.69 American Leaders Large Cap Value 7,896 10.77 0 10.79 0 10.79 AIM V.I. Value 138 8.14 8,854 8.45 4,024 8.16 Fidelity VIP Growth 1,320 8.64 1,303 9.02 2,489 8.67 Fidelity VIP II Contrafund 225 9.41 0 9.67 893 9.44 Janus Aspen Global Technology 4,672 6.75 15,119 6.76 2,212 6.76 Janus Aspen Worldwide Growth 5,171 8.33 24,785 8.34 1,952 8.34 MFS New Discovery Series 2,981 9.60 38,185 10.04 3,465 9.62 Templeton International 29,370 10.26 27,939 9.82 0 10.29
123 JOHN HANCOCK VARIABLE LIFE ACCOUNT S NOTES TO FINANCIAL STATEMENTS (CONTINUED) 5. NET ASSETS (CONTINUED)
MVUL 98 CLASS #10 MVEP 98 CLASS #11 MEVL II CLASS #12 -------------------------- ---------------------------- ---------------------------- ACCUMULATION ACCUMULATION ACCUMULATION ACCUMULATION ACCUMULATION ACCUMULATION SUBACCOUNT SHARES SHARE VALUES SHARES SHARE VALUES SHARES SHARE VALUES - ---------- ------------ ------------ ------------- ------------- ------------- ------------- Large Cap Growth 438,723 $18.10 359,866 $20.33 70,905 $66.93 Active Bond 216,736 12.90 189,508 13.70 318,400 31.22 International Equity Index 75,101 12.80 11,061 12.40 218,233 24.02 Small Cap Growth 156,674 19.29 163,473 17.16 114,183 17.43 Global Balanced 40,732 11.65 8,491 12.16 3,467 12.35 Mid Cap Growth 240,925 25.48 249,175 22.98 81,408 23.33 Large Cap Value 415,249 15.72 251,071 18.38 264,965 18.67 Money Market 6,213,151 12.11 537,168 12.66 375,838 13.90 Mid Cap Value 109,787 15.35 91,242 18.17 103,443 18.46 Small/Mid Cap Growth 20,630 14.00 24,135 13.76 1,942 22.38 Real Estate Equity 27967 12.59 43,149 16.19 67,586 30.66 Growth & Income 1,125,909 16.58 329,743 18.97 54 70.82 Managed 103,085 15.33 70,980 16.77 -0 46.88 Short-Term Bond 55,761 12.31 44,540 12.84 4,860 14.51 Small Cap Equity 80,760 10.72 155,016 11.29 156,960 11.47 International Opportunities 60,506 13.32 102,396 13.92 141,250 14.13 Equity Index 1,099,477 18.00 749,323 21.10 64,849 21.43 Global Bond 52,024 12.93 0 0 9,250 13.92 Turner Core Growth 303,264 21.86 223,032 22.74 0 25.77 Brandes International Equity 316,261 18.48 421,949 12.29 0 18.18 Frontier Capital Appreciation 214,263 19.99 153,505 20.65 0 24.13 Clifton Enhanced U.S. Equity 108,049 15.80 69,015 15.80 0 15.98 Emerging Markets 77,825 7.67 43,356 7.67 24,208 7.74 Bond Index 279,686 11.58 310,051 11.58 25,981 11.68 Small/Mid Cap CORE 22,019 11.28 74,020 11.28 115 11.38 High Yield Bond 42,035 9.02 81,616 9.02 5,582 9.10 Large Cap Aggressive Growth 7,949 7.88 6,684 8.17 0 9.76 Fundamental Growth 12,812 9.05 5,303 10.32 0 14.99 Core Bond 72 10.69 0 10.69 0 10.70 American Leaders Large Cap Value 4,877 10.79 4,511 10.79 0 10.80 AIM V.I. Value 19,002 8.16 3,852 8.45 0 33.99 Fidelity VIP Growth 16,940 8.67 50,180 9.02 0 86.39 Fidelity VIP II Contrafund 27,664 9.44 6,479 9.67 7,784 31.63 Janus Aspen Global Technology 1,631 6.76 374 6.76 0 6.77 Janus Aspen Worldwide Growth 20,046 8.34 4,594 8.34 0 8.35 MFS New Discovery Series 3,260 9.62 13,139 10.04 0 17.36 Templeton International 1,311 10.29 1,862 9.82 0 25.15
124 JOHN HANCOCK VARIABLE LIFE ACCOUNT S NOTES TO FINANCIAL STATEMENTS (CONTINUED) 5. NET ASSETS (CONTINUED)
VEP CLASS #13 --------------------------- ACCUMULATION ACCUMULATION SUBACCOUNT SHARES SHARE VALUES - ---------- ------------ ------------ Large Cap Growth 44,609 $66.93 Active Bond 6,930 31.22 International Equity Index 34,018 24.02 Small Cap Growth 72,415 17.43 Global Balanced 2,039 12.35 Mid Cap Growth 71,199 23.33 Large Cap Value 93,108 18.67 Money Market 617,409 13.90 Mid Cap Value 21,876 18.46 Small/Mid Cap Growth 12,878 22.38 Real Estate Equity 2,843 30.66 Growth & Income 15,715 70.82 Managed 39,750 46.88 Short-Term Bond 8,469 14.51 Small Cap Equity 29,596 11.47 International Opportunities 50,192 14.13 Equity Index 169,868 21.43 Global Bond 9,078 13.92 Turner Core Growth 0 25.77 Brandes International Equity 0 18.18 Frontier Capital Appreciation 0 24.13 Clifton Enhanced U.S. Equity 0 15.98 Emerging Markets 40,754 7.74 Bond Index 20,722 11.68 Small/Mid Cap CORE 30,854 11.38 High Yield Bond 12,297 9.10 Large Cap Aggressive Growth 1,890 9.76 Fundamental Growth 2,929 14.99 Core Bond 973 10.70 American Leaders Large Cap Value 205 10.80 AIM V.I. Value 5,506 33.99 Fidelity VIP Growth 1,557 86.39 Fidelity VIP II Contrafund 7,022 31.63 Janus Aspen Global Technology 3,368 6.77 Janus Aspen Worldwide Growth 6,326 8.35 MFS New Discovery Series 8,502 17.36 Templeton International 340 25.15
125 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 . . . . . . . 28 modified endowment contract . . . . . 36 account value . . . . 8 monthly deduction date. . . . . . . . 30 Additional Sum Insured 16 Option A; Option B. . . . . . . . . . 16 asset-based risk optional extra death benefit feature. 16 charge . . . . . . . 9 owner . . . . . . . . . . . . . . . . 5 attained age. . . . . 10 partial withdrawal. . . . . . . . . . 15 Basic Sum Insured . . 16 partial withdrawal charge . . . . . . 10 beneficiary . . . . . 39 payment options . . . . . . . . . . . 18 business day. . . . . 29 Planned Premium . . . . . . . . . . . 6 changing Option A or B 17 policy anniversary. . . . . . . . . . 30 changing the Total Sum policy year . . . . . . . . . . . . . 30 Insured. . . . . . . 17 premium; premium payment. . . . . . . 5 charges . . . . . . . 9 prospectus. . . . . . . . . . . . . . 3 Code. . . . . . . . . 35 receive; receipt. . . . . . . . . . . 20 cost of insurance reinstate; reinstatement. . . . . . . 7 rates. . . . . . . . 10 sales charge. . . . . . . . . . . . . 9 date of issue . . . . 30 SEC . . . . . . . . . . . . . . . . . 2 death benefit . . . . 5 Separate Account S. . . . . . . . . . 28 deductions. . . . . . 9 Series Funds. . . . . . . . . . . . . 2 enhanced cash value Servicing Office. . . . . . . . . . . 2 rider. . . . . . . . 17 special loan account. . . . . . . . . 15 expenses of the Series subaccount. . . . . . . . . . . . . . 28 Funds. . . . . . . . 10 surrender . . . . . . . . . . . . . . 5 fixed investment option . . . . . . . 29 surrender value . . . . . . . . . . . 14 full surrender. . . . 14 Target Premium. . . . . . . . . . . . 9 fund. . . . . . . . . 2 tax considerations. . . . . . . . . . 35 grace period. . . . . 7 telephone transfers . . . . . . . . . 21 guaranteed minimum Total Sum Insured . . . . . . . . . . 15 death benefit . . . 7 transfers of account value. . . . . . 13 Guaranteed Minimum variable investment options . . . . . 1 Death Benefit Premium 7 we; us. . . . . . . . . . . . . . . . 28 insurance charge. . . 10 withdrawal. . . . . . . . . . . . . . 5 insured person. . . . 5 withdrawal charges. . . . . . . . . . 10 investment options. . 1 you; your . . . . . . . . . . . . . . 5 JHVLICO . . . . . . . 28 lapse . . . . . . . . 7 loan. . . . . . . . . 15 loan interest . . . . 15 maximum premiums. . . 6 Minimum Initial Premium. . . . . . . 29 minimum insurance amount . . . . . . . 16 minimum premiums. . . 5
126 CROSS-REFERENCE TABLE Form N-8B-2 Item Caption in Prospectus - ---------------- --------------------- 1, 2 Cover, The Account and The Series Funds, JHVLICO and John Hancock 3 Inapplicable 4 Cover, Distribution of Policies 5,6 The Account and The Series 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 Funds 11, 12 Summary, The Account and The Series Funds, Distribution of Policies 13 Summary, Charges and Expenses, Appendix--Illustration of Death Benefits, Surrender Values and Accumulated Premiums 14, 15 Summary, Distribution of Policies, Premiums 16 The Account and The Series Funds 17 Summary, Policy Provisions and Benefits 18 The Account and The Series Funds, Tax Considerations 19 Reports 20 Changes that JHVLICO Can Make 21 Policy Provisions and Benefits 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 Funds, Policy Provisions, Appendix--Illustration of Death Benefits, Surrender Values and Accumulated Premiums 45 Not Applicable 46 The Account and The Series Funds, Policy Provisions, Appendix--Illustration of Death Benefits, Surrender Values and Accumulated Values 47, 48, 49, 50 Not Applicable 51 Policy Provisions and Benefits, Appendix--Other Policy Provisions 52 The Account and The Series Funds, Changes that JHVLICO Can Make 53,54,55 Not Applicable 56,57,58 Not Applicable 59 Financial Statements 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 prospectus containing 126 pages. The undertaking to file reports. The representation of reasonableness The undertaking regarding indemnification. The signatures. The following exhibits: I.A. (1) JHVLICO Board Resolution establishing the separate account included in Post-Effective Amendment No. 2 to this Form S-6 Registration Statement filed January 11, 1996, is incorporated by reference. (2) Not Applicable (3) (a) Form of Distribution and Servicing Agreement by and among Signator Investors, Inc. (previously known as "John Hancock Distributors, Inc."), John Hancock Life Insurance (previously known as "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. 33-15075) 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. 33-15075) filed April 18, 1997. (c) Schedule of sales commissions included in Exhibit I.A.(3) (a) above. (4) Not Applicable (5) Form of flexible premium variable life insurance policy, filed herewith. (6) (a) JHVLICO Certificate of Incorporation incorporated by reference to Post-Effective Amendment No. 2 to this Form S-6 Registration Statement filed January 11, 1996. (b) JHVLICO By-laws incorporated by reference to Post-Effective Amendment No. 2 to this Form S-6 Registration Statement filed January 11, 1996. (7) Not Applicable. (8) (a) Participation Agreement Among Variable Insurance Products Fund II, Fidelity Distributors Corporation and John Hancock Mutual Life Insurance Company, filed in Post-Effective Amendment No. 1 to file No. 333-81127, filed May 4, 2000. (b) Participation Agreement Among Variable Insurance Products Fund, Fidelity Distributors Corporation and John Hancock Mutual Life Insurance Company, filed in Post-Effective Amendment No. 1 to file No. 333-81127, filed May 4, 2000. (c) Participation Agreement Among MFS Variable Insurance Trust, John Hancock Mutual Life Insurance Company and Massachusetts Financial Services Company, filed in Post-Effective Amendment No. 1 to file No. 333-81127, filed May 4, 2000. (d) Participation Agreement By And Among AIM Variable Insurance Funds, Inc., AIM Distributors, Inc., John Hancock Mutual Life Insurance Company and Certain Of Its Affiliated Insurance Companies, Each On Behalf Of Itself And Its Separate Accounts, And John Hancock Funds, Inc., filed in Post-Effective Amendment No. 1 to file No. 333-81127, filed May 4, 2000. (e) Participation Agreement between Janus Aspen Series, Janus Capital Corp., and John Hancock Variable Life Insurance Company, incorporated by reference to File 333-425, filed on Form S-6 on November 1, 2001. (9) Not Applicable. (10) Forms of applications for Policy, to be filed by amendment. (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, incorporated to be filed by amendment. 4. Not Applicable 5. Not Applicable 6. Opinion and consent of actuary, to be filed by amendment. 7. Consent of independent auditors, to be filed by amendment. 8. Memorandum describing JHVLICO's issuance, transfer and redemption procedures for the flexible policy pursuant to Rule 6e-3(T)(b)(12)(iii), incorporated by reference to the initial filing of this Form S-6 Registration Statement, filed May 18, 1994. 9. Powers of attorney for D'Alessandro, Shaw, Luddy, Lee, Reitano, Van Leer and Paster, incorporated by reference to Post-Effective Amendment No. 1 to this Form S-6 Registration Statement, filed April 1995. 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 Bruce M. Jones and Paul Strong, incorporated by reference from the Post-Effective Amendment No. 2 to file No. 333-81127, filed May 4, 2000. 10. Representations, Description and Undertaking pursuant to Rule 6e- 3(T)(b)(13)(iii)(F) under the Investment Company Act of 1940, incorporated by reference to Pre-Effective Amendment No. 1 to this Form S-6 Registration Statement, filed October 10, 1994. 11. Exemptive Relief Relied Upon, incorporated by reference to Pre-Effective Amendment No. 1 to this Form S-6 Registration Statement, filed October 10, 1994. Pursuant to the requirements of the Securities Act of 1933, this Post- Effective Amendment to the 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 May 4, 2001 Officer) /s/ JULIE H. INDGE - -------------------- Julie H. Indge Treasurer (Principal Financial May 4, 2001 Officer) /s/ MICHELE G. VAN LEER - ----------------------- Michele G. Van Leer Vice Chairman of the Board May 4, 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 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the John Hancock Variable Life Insurance Company has duly caused this 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 4th day of May, 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 Secretary EX-99.IA15 2 dex99ia15.txt FORM OF POLICY [LETTERHEAD OF JOHN HANCOCK] INSURED JOHN HANCOCK TOTAL SUM INSURED AT ISSUE $100,000 POLICY NUMBER 50-000-000 DATE OF ISSUE SEPTEMBER 1, 2000 DEATH BENEFIT OPTION A: (See Section 4) PLAN Majestic Variable COLI INDIVIDUAL VARIABLE LIFE INSURANCE The John Hancock Variable Life Insurance Company ("the Company") agrees, subject to the conditions and provisions of this policy, to pay the Death Benefit to the Beneficiary upon the death of the Insured if such death occurs while the policy is in full force, and to provide the other benefits, rights, and privileges of the policy. The Death Benefit (see Section 4) will be payable, subject to the "Deferral of Determinations and Payments" provision, on receipt at the Home Office of the Company of due proof of the Insured's death. The Death Benefit of this policy will increase or decrease based on the experience of the Separate Accounts. The policy, which includes any Riders which are a part of the policy on delivery, is issued in consideration of the application and payment of the Minimum Initial Premium. The Policy Specifications and the conditions and provisions on this and the following pages are part of the policy. Signed for the Company at Boston, Massachusetts: /s/ Michele G. Van Leer /s/ Peter Scavongelli President Secretary Variable Life Insurance policy Flexible Premiums Death Benefit payable at death of Insured Not eligible for dividends Benefits, premiums, and the policy class are shown in the Specifications Section of the policy. To the extent any benefit, payment, or value under this policy (including the Account Value) is based on the investment experience of a Separate Account, such benefit, payment, or value may increase or decrease in accordance with the investment experience of the Separate Account and is not guaranteed as to fixed dollar amount. However, this policy may provide a Guaranteed Minimum Death Benefit, if such option is elected at issue and provided that premiums are paid on a timely basis and other conditions are met as described in Sections 4, 6, and 7. Right to Cancel--The Owner may surrender this policy by delivering or mailing it to the Company at Boston, Massachusetts (or to the agent or agency office through which it was delivered) within 45 days after the date of Part A of the application, or within 10 days after receipt by the Owner of the policy, or within 10 days after mailing by the Company of the Notice of Withdrawal Right, whichever is latest. Immediately on such delivery or mailing, the policy shall be deemed void from the beginning. Any premium paid on this policy will be refunded within 10 days after timely receipt from the Owner of appropriate written notice (including the surrendered policy, if it has been delivered) exercising the rights described above. MAJ601 M60101 Policy Provisions Section 1. Policy Specifications 2. Table Of Rates 3. Definitions 4. Death Benefit 5. Payments 6. Guaranteed Minimum Death Benefit Premium Target 7. Grace Period 8. Account Value 9. Charges 10. Loans 11. Surrenders and Withdrawals 12. Basis of Computations 13. Separate Account and Fixed Account 14. Allocation To Subaccounts 15. Investment Policy Change 16. Reports To Owner 17. Reinstatement 18. Owner and Beneficiary 19. Interest On Proceeds 20. Deferral Of Determinations And Payments 21. Claims Of Creditors 22. Assignment 23. Incontestability 24. Misstatement Of Age Or Sex 25. Suicide 26. The Contract 27. Settlement Provisions 2 - -------------------------------------------------------------------------------- 1. POLICY SPECIFICATIONS - --------------------------------------------------------------------------------
Insured [John Hancock] Issue Age [35] Sex [Male] Premium Class [Standard] [NonSmoker] Owner, Beneficiary As designated in the application subject to Section 18 of the policy Policy Number [50-000-000] Plan Majestic Variable COLI Date of Issue [September 1, 2000] Sum Insured Basic Sum Insured at Issue $[50,000] Additional Sum Insured at Issue $[50,000] ---------- Total Sum Insured at Issue $[100,000] Death Benefit Option [Option A] State of Issue [MA] at Issue
Other Benefits and Specifications --------------------------------- Minimum Total Sum Insured $100,000 Minimum Basic Sum Insured $50,000 Definition of Life Insurance Elected [Cash Value Accumulation Test] PREMIUMS -------- Planned Premium $[2,029.50] per year for [all] Policy Years Target Premium $[2,029.50] per year Minimum Initial Premium $[1,014.75] Billing Interval [Annual] 3 M0301V - -------------------------------------------------------------------------------- 1. POLICY SPECIFICATIONS, continued - -------------------------------------------------------------------------------- CURRENT POLICY CHARGES* Deductions from Premium Payments -------------------------------- Sales Charge ----------------------------------------------------- Policy Up to Target Excess Years Premium ----------------------------------------------------- 1-10 6.5% 0% ----------------------------------------------------- 11+ 3.5% 0% ----------------------------------------------------- [Enhanced Cash Value 1% of all Premiums paid in Policy Year 1 Rider Charge] Monthly Deductions from Account Value ------------------------------------- Asset-Based Risk Charge [.03]% of Separate Account assets in Policy Years 1-20 and [.0125]% in Policy Years 21 and thereafter Administrative Charge $[2.50] plus $[0.03] per $1000 of Basic Sum Insured at Issue for all Policy Years, where the per $1000 portion will not exceed $[30.00] Issue Charge $[.066] per $1000 of Basic Sum Insured at Issue for the first 10 Policy Years Cost of Insurance Determined in accordance with Section 9, and Charge deducted for all Policy Years *We reserve the right to change the amount or percentage of any of these charges, but no charge will exceed the amount or percentage shown in the Maximum Policy Charges on page 3B. 3A M3A01V - -------------------------------------------------------------------------------- 1. POLICY SPECIFICATIONS, continued - -------------------------------------------------------------------------------- MAXIMUM POLICY CHARGES ---------------------- Deductions from Premium Payments -------------------------------- Sales Charge ----------------------------------------------------- Policy Up to Target Excess Years Premium ----------------------------------------------------- 1-10 10% 3.5% ----------------------------------------------------- 11+ 7% 3.5% ----------------------------------------------------- [Enhanced Cash Value 1% of all Premiums paid in Policy Year 1 Rider Charge] Monthly Deductions from Account Value ------------------------------------- Asset-Based Risk .05% of Separate Account assets in all Policy Years Charge Administrative Charge $5.00 plus $0.06 per $1000 of Basic Sum Insured at Issue for all Policy Years, where the per $1000 portion will not exceed $60.00. Issue Charge $[.066] per $1000 of Basic Sum Insured at Issue for the first 10 Policy Years. Cost of Insurance Determined in accordance with Section 9, and Charge deducted for all Policy Years; Maximum Monthly Rates are shown in Section 2 3B M3B01V - -------------------------------------------------------------------------------- 1. POLICY SPECIFICATIONS, continued - -------------------------------------------------------------------------------- Insured [JOHN HANCOCK] Plan Majestic Variable COLI Policy Number [50-000-000] Rider Date of Issue [September 1, 2000] Rider Information - -------------------------------------------------------------------------------- Type Description - -------------------------------------------------------------------------------- Enhanced Cash Additional cash value available upon surrender during the first Value Rider 7 Policy Years, equal to the following percentages of the cumulative premiums paid, less cumulative Withdrawals: Policy Year ECV Percentage 1 4.0% 2 3.5% 3 3.0% 4 2.5% 5 2.0% 6 1.5% 7 1.0% 8+ 0.0% - -------------------------------------------------------------------------------- 3C M3C01V - -------------------------------------------------------------------------------- 2. TABLE OF RATES - -------------------------------------------------------------------------------- A. RATE TABLE Maximum Monthly Rates per $1,000 of Required Additional Age1 Net Amount at Risk2 Death Benefit Factor - ------------------------------------------------------------------------ 35 0.1760 3.9726 36 0.1869 3.8433 37 0.2002 3.7186 38 0.2153 3.5985 39 0.2328 3.4829 40 0.2520 3.3717 41 0.2746 3.2649 42 0.2972 3.1623 43 0.3231 3.0636 44 0.3498 2.9689 45 0.3800 2.8779 46 0.4109 2.7904 47 0.4444 2.7064 48 0.4796 2.6255 49 0.5190 2.5477 50 0.5609 2.4728 51 0.6104 2.4008 52 0.6658 2.3317 53 0.7287 2.2654 54 0.8002 2.2019 55 0.8767 2.1412 56 0.9601 2.0831 57 1.0468 2.0275 58 1.1396 1.9742 59 1.2392 1.9230 60 1.3500 1.8740 61 1.4736 1.8269 62 1.6134 1.7818 63 1.7722 1.7387 64 1.9491 1.6976 65 2.1434 1.6584 66 2.3510 1.6211 67 2.5728 1.5855 68 2.8088 1.5516 69 3.0653 1.5191 70 3.3537 1.4880 1. On a Policy anniversary, "age" means the age of the Insured at his or her birthday nearest that date. That "age" will apply until the next anniversary. 2. Maximum Monthly Rates and Minimum Values are based on the 1980 Commissioners Standard Ordinary Mortality Table. 4 M0401V - -------------------------------------------------------------------------------- 2. TABLE OF RATES, continued - -------------------------------------------------------------------------------- A. RATE TABLE (cont'd.) Age/1/ Maximum Monthly Rates per $1,000 of Net Required Additional Amount at Risk/2/ Death Benefit Factor - ------------------------------------------------------------------------ 71 3.6820 1.4583 72 4.0603 1.4301 73 4.4962 1.4033 74 4.9835 1.3781 75 5.5133 1.3546 76 6.0765 1.3325 77 6.6657 1.3117 78 7.2759 1.2922 79 7.9239 1.2737 80 8.6352 1.2560 81 9.4308 1.2392 82 10.3390 1.2232 83 11.3735 1.2082 84 12.5138 1.1942 85 13.7377 1.1812 86 15.0218 1.1692 87 16.3566 1.1580 88 17.7380 1.1475 89 19.1720 1.1374 90 20.6777 1.1277 91 22.2871 1.1181 92 24.0635 1.1082 93 26.1199 1.0979 94 28.8130 1.0869 95 32.8176 1.0748 96 39.6429 1.0616 97 53.0660 1.0476 98 83.3333 1.0334 99 83.3333 1.0198 1. On a Policy anniversary, "age" means the age of the Insured at his or her birthday nearest that date. That "age" will apply until the next anniversary. 2. Maximum Monthly Rates and Minimum Values are based on the 1980 Commissioners Standard Ordinary Mortality Table. 4A M4A01V - -------------------------------------------------------------------------------- 3. DEFINITIONS - -------------------------------------------------------------------------------- The term "Account Value" is as defined in Section 8. The term "Annual Processing Date" means every 12th Processing Date starting with the Processing Date next after the Date of Issue. The term "Excess Premium" means that portion of the total Premiums received during any Policy Year that exceeds the Target Premium. The term "Fixed Account" means an account established by us which accumulates at rates which we will determine and declare from time to time, but which will not be less than 4%. The assets of a Fixed Account are invested in a segment of our General Account. The term "Fund" means each division of a Series Fund which has a specific investment objective. The term "Guaranteed Death Benefit Premium" is as defined the amount defined is Section 6. The term "in full force" means that the policy has not lapsed in accordance with Section 7. The term "indebtedness" means the unpaid balance of a policy loan. As provided in Section 10, the policy loan amount includes accrued interest. The term "Minimum Initial Premium" means the amount shown on page 3. The term "Modal Processing Date" means the first Processing Date of each premium billing interval. The term "Net Premium" is as defined in Section 5. The term "Payment" means, unless otherwise stated, payment at our Servicing Office. The term "Planned Premium" means the amount shown on Page 3. The term "Policy Year" means (a) or (b) below whichever is applicable: (a) The first Policy Year is the period beginning on the Date of Issue and ending on the Valuation Date immediately preceding the first Annual Processing Date; (b) Each subsequent Policy Year is the period beginning on an Annual Processing Date and ending on the Valuation Date immediately preceding the next Annual Processing Date. The term Premium" is as defined in Section 5. The term "Processing Date" means the first day of a policy month. A policy month shall begin on the day in each calendar month which corresponds to the day of the calendar month on which the Date of Issue occurred. If the Date of Issue is the 29th, 30th, or 31st day of a calendar month, then for any calendar month which has fewer days, the first day of the policy month will be the last day of such calendar month. The Date of Issue is not a Processing Date. The term "Separate Account", unmodified, means a separate investment account, established by us pursuant to applicable law, in which you are eligible to invest under this policy. The term "Series Fund" means a series type mutual fund registered under the Investment Company Act of 1940 as an open-end diversified management investment company. The term "Servicing Office" means the office of the Company that provides administrative services with respect to this policy and others like it. The address of the Servicing Office on this policy's Date of Issue is shown on the back cover of this policy. The term "Subaccount" means a Variable Account or a Fixed Account. The term "Target Premium" means the amount shown on Page 3. The term "Valuation Date" means any date on which the New York Stock Exchange is open for trading. The term "Valuation Period" means the period of time from the beginning of the day following a Valuation Date to the end of the next following Valuation Date. The term "Variable Account" means each division of a Separate Account which has a specific investment objective. The assets of each Variable Account are invested solely in shares of the corresponding Fund of a Series Fund. The terms "we", "us", and "our" refer only to the Company. The term "written notice" means, unless otherwise stated, a written notice filed at our Servicing Office. The terms "you" and "your" refer only to the Owner of this policy. 5 M0501V - -------------------------------------------------------------------------------- 4. DEATH BENEFIT - -------------------------------------------------------------------------------- The Death Benefit is payable when the Insured dies while the policy is in full force. The Death Benefit will equal the death benefit of the policy minus any indebtedness on the date of death. We will also deduct any unpaid charges under Section 9. In addition, if the Insured dies during a grace period as described in Subsection A of Section 7, we will also deduct the amount of any unpaid shortfall described in that subsection. The death benefit of the policy depends on which of the following Options is selected in the application for the policy. The determination of the death benefit under each of these Options will be affected by withdrawals as described in Section 11. Option A: The death benefit is the Total Sum Insured, plus any Required Additional Death Benefit as described below. Option B: The death benefit is the Total Sum Insured plus the Account Value on the date of death of the Insured, plus any Required Additional Death Benefit as described below. The Total Sum Insured equals the sum of the Basic Sum Insured and any Additional Sum Insured, subject to the provisions on withdrawals in Section 11. Required Additional Death Benefit The death benefit of the policy will be increased if necessary to ensure that the policy will continue to qualify as life insurance under federal tax law. The amount of any such increase is the Required Additional Death Benefit. With respect to Option A, the Required Additional Death Benefit on any given date will be equal to the Total Required Death Benefit as of such date, as defined below, minus the Total Sum Insured. With respect to Option B, the Required Additional Death Benefit on any given date will be equal to the Total Required Death Benefit as of such date, as defined below, minus the sum of the Total Sum Insured and the Account Value. The Total Required Death Benefit, if determined on a date during the first 3 Policy Years, will be equal to (i) the sum of the Account Value on such date plus 50% of the amount of any Sales Charges which have been deducted from any Target Premium payments received during the 365 days immediately preceding such date multiplied by (ii) the applicable Required Additional Death Benefit factor shown in Section 2. The Total Required Death Benefit, if being determined on a date after the first 3 Policy Years, will equal (i) the Account Value multiplied by (ii) the applicable Required Additional Death Benefit factor shown in Section 2. A charge for any Required Additional Death Benefit in effect on any Processing Date will be deducted from the Account Value on such date. Such charge will be determined by applying the Cost of Insurance formulation described in Section 9 at the time the deduction is made. Change of Death Benefit Option You may change from Option B to Option A. At the time of a change from Option B to Option A, the Death Benefit under the new Option will be the same as it was under the old Option. A change from Option B will therefore increase the Basic Sum Insured by the Account Value at the time the new Option takes effect. Guaranteed Minimum Death Benefit The Guaranteed Minimum Death Benefit Feature ("the GMDB Feature") is only available if page 3 indicates that the GMDB Feature applies to this policy. If the GMDB Feature is in effect, even though unpaid Section 9 charges exceed the policy's Surrender Value, a Guaranteed Minimum Death Benefit will be guaranteed upon the death of the Insured, provided that the funding requirements described in Sections 6 and 7 continue to be met and there has not been a failure to repay on a timely basis any excess indebtedness in accordance with Section 10. The Guaranteed Minimum Death Benefit will be equal to the Basic Sum Insured less withdrawals as described in Section 11, less any indebtedness on the date of death and less any unpaid monthly charges under Section 9. 6 - -------------------------------------------------------------------------------- 5. PAYMENTS - -------------------------------------------------------------------------------- Payments under the policy shall be made only to us at our Servicing Office. A premium reminder notice for Planned Premiums, as shown in the application for the policy, will be sent to you at the beginning of each payment interval. When we receive a payment, we first deduct any amount specified as payment of accrued interest on loans then due under Section 11 and any amount specified as loan repayment. The remainder will constitute Premium. We then deduct all of the applicable charges listed under "Deductions from Premium Payments" in Section 1. The remainder will constitute Net Premium. If coverage under the policy takes effect in accordance with the provisions of the application, we will process any premium payment as of the Valuation Period in which we receive it, unless one of the following exceptions applies: (i) We will process a payment received prior to the Date of Issue as if received on the Date of Issue; (ii) We will process the portion of any premium payment for which we require evidence of the Insured's continued insurability on the first Valuation Date after we have received such evidence and found it satisfactory to us; (iii) If a payment equal to the Minimum Initial Premium is not received prior to the Date of Issue, a portion of each payment subsequently received will be processed as if received on the Date of Issue. Each such portion will be equal to the (i) Minimum Initial Premium minus (ii) all payments previously received. The remainder, if any, of each such payment will be processed as of the date of receipt; (iv) If our receipt of any premium payment (or portion thereof) would cause a problem for the policy under the Federal income tax laws, we will not process such payment or portion. However, in the case of certain tax problems, we will process the payment or portion on the first Valuation Date after we have received written instructions satisfactory to us from the owner to process such payment or portion notwithstanding the existence of the tax problem. Premiums are payable in advance and a premium receipt will be furnished upon request. Except as provided above, all payments will be processed as of the date of receipt. Subject to our maximum limits, you may pay Premiums in excess of the Planned Premium while the policy is in full force. We may require evidence of insurability for any such excess premium. The following applies if the Tax Test elected for Federal income tax purposes is "Guideline Premium Test", as shown in Section 1. The provisions of this policy are to be interpreted to ensure or maintain qualification as a life insurance contract for federal tax purposes, notwithstanding any other provisions to the contrary. If at any time the premiums paid under the Policy exceed the amount allowable for such tax qualification, such excess amount shall be removed from the policy as of the date of its payment, together with investment experience thereon from such date, and any appropriate adjustment in the Death Benefit shall be made as of such date. This excess amount (plus or minus any investment experience) shall be refunded to you no later than 60 days after the end of the applicable Policy Year. If this excess amount (plus or minus any investment experience) is not refunded by then, the Sum Insured under the policy shall be increased retroactively so that at no time is the Death Benefit ever less than the amount necessary to ensure or maintain such tax qualification. In no event, however, will we refuse to accept any premium necessary to prevent the policy from terminating. The following applies if the Tax Test elected for Federal income tax purposes is "Cash Value Accumulation Test", as shown in Section 1. We reserve the right to modify the Required Additional Death Benefit Factors shown in Section 1, retroactively if necessary, to ensure or maintain qualification of this policy as a life insurance contract for Federal tax purposes, notwithstanding any other provisions of this policy to the contrary. 7 M0701A - -------------------------------------------------------------------------------- 6. GUARANTEED MINIMUM DEATH BENEFIT PREMIUM TARGET - -------------------------------------------------------------------------------- If the Guaranteed Minimum Death Benefit ("GMDB") Feature described in Section 4 is in effect at the Date of Issue, it will only continue to be available if at all times, other than a grace period described in Subsection A of Section 7, the GMDB Premium Balance equals or exceeds the GMDB Premium Target described below. The GMDB Premium Balance, as of any given Processing Date, equals (a) the sum of all Premiums paid plus interest applied to each Premium payment from the date of payment to such Processing Date (with interest calculated at an annual effective rate of 4%) reduced by (b) the sum of all withdrawals as described in Section 11 plus interest applied to each withdrawal amount from the date of withdrawal to such Processing Date (with interest calculated at an annual effective rate of 4%). The GMDB Premium Target, as of any given Processing Date, equals (a) the Monthly GMDB Premium times the number of GMDB Premium Monthly Due Dates that have occurred since the Date of Issue (including the Date of Issue and such Processing Date) plus (b) interest applied to each Monthly GMDB Premium from its GMDB Premium Monthly Due Date to such Processing Date, with interest calculated at an annual effective rate of 4%. GMDB Premium Monthly Due Date shall mean the Date of Issue and each Processing Date thereafter. Monthly GMDB Premium shall equal the Guaranteed Minimum Death Benefit Premium shown on page 3 (if the GMDB Feature is in effect) divided by 12. - -------------------------------------------------------------------------------- 7. GRACE PERIOD - -------------------------------------------------------------------------------- On any Processing Date the provisions of Subsection A or Subsection B, or both, will apply as described below. The Policy will be tested under the Subsection A grace period provisions on any Processing Date that the Guaranteed Minimum Death Benefit Feature is in effect under the policy and there is no Additional Sum Insured in effect under the policy. The Policy will be tested under the Subsection B grace period provisions on any Processing Date that there is an Additional Sum Insured in effect under the policy or there is not a Guaranteed Minimum Death Benefit Feature in effect under the policy. A. If the Guaranteed Minimum Death Benefit Feature is in effect and if there is no Additional Sum Insured in effect: On each Processing Date, we will compare the GMDB Premium Balance on such Processing Date to the GMDB Premium Target on such Processing Date. If, on any such Processing Date, the GMDB Premium Balance is less than the GMDB Premium Target, the GMDB Feature will be deemed to be in default as of such Processing Date. The amount by which the GMDB Premium Target exceeds the GMDB Premium Balance is the "GMDB shortfall". In order to keep the Guaranteed Minimum Death Benefit Feature in effect, a GMDB shortfall must be paid within a period which ends on the second Processing Date after the date of default, which period shall be referred to as "GMDB Grace Period". We will send notice to your last known address and the last known address of any assignee of record with us at least 31 days before the end of the GMDB Grace Period specifying the minimum payment that you must make to continue the Guaranteed Minimum Death Benefit Feature in force beyond the end of the GMDB Grace Period. If a payment at least equal to the GMDB shortfall is received before the end of the GMDB Grace Period, the Guaranteed Minimum Death Benefit Feature will remain in effect under the policy subject to the requirements described in Section 6 and this section. Any payment will be processed as of the date of receipt at our Servicing Office. If a payment at least equal to the GMDB shortfall is not received by the end of the GMDB Grace Period, the Guaranteed Minimum Death Benefit Feature will be discontinued and no longer be in effect. If such Feature is discontinued, then on the Processing Date on which the GMDB Grace Period ends and on each Processing Date thereafter, the policy will be tested as described in subsection B and the provisions of that subsection will apply whether or not those provisions have been applied previously. If the Insured dies during the GMDB Grace Period, we will deduct from the proceeds the GMDB shortfall. 8 B. If there is an Additional Sum Insured in effect or if the Guaranteed Minimum Death Benefit Feature has not been elected or has been removed: On each Processing Date, we will determine whether the total of all unpaid Section 9 charges as of such date are greater than the Account Value minus indebtedness as of such date. If, on any such Processing Date, the Account Value minus indebtedness is less than the total of all Section 9 charges for that Processing Date, there will be a default as of the Processing Date on which such determination is made. If on such date of default, there is both the Guaranteed Minimum Death Benefit Feature in effect and an Additional Sum Insured in effect, then only the Additional Sum Insured will be in danger of discontinuance and the default will be an Additional Sum Insured Default (referred to below as an "ASI Default"). If there is not a Guaranteed Minimum Death Benefit Feature in effect, the entire policy will be in danger of lapsing and the default will be a "Policy Default". The minimum amount you must pay to cure either type of default is "the Default Payment". The Default Payment will be equal to a payment which, after deduction of all Section 5 charges equals: (i) any and all Section 9 charges unpaid prior to the date of default plus (ii) three times the total of all Section 9 charges for the date of default. An amount at least equal to the Default Payment must be received within a grace period of 61 days after the date of default. We will send notice to your last known address and to the last known address of any assignee of record with us at least 31 days before the end of this grace period specifying whether there is an ASI Default or a Policy Default and the Default Payment which you must make to cure the default. If a payment at least equal to the Default Payment is received before the end of the grace period, there will no longer be a default. Any payment received will be processed as of the date of receipt at our Servicing Office. When payment is received, any Section 9 charges which are past due and unpaid will be deducted from the Account Value. If there is an ASI Default and a payment at least equal to the Default Payment is not received by the end of the grace period, then any Additional Sum Insured will cease to be in effect and will be removed from the policy. If there is a Policy Default and a payment at least equal to the Default Payment is not received by the end of the grace period, then the policy will lapse and will no longer be in full force. Upon a lapse of the policy the remaining Surrender Value, if any, will be paid to the Owner. If the Insured dies during a Policy Default, we will deduct the Default Payment from the proceeds. The policy may also lapse due to excess indebtedness as described in Section 10. No Rider provisions will be in effect after the policy ceases to be in full force. - -------------------------------------------------------------------------------- 8. ACCOUNT VALUE - -------------------------------------------------------------------------------- The Account Value as of the end of any Valuation Period is derived as follows: (a) We will determine the value of each Subaccount as of the close of business on the last day of the Valuation Period in accordance with Section 13. (Call our Servicing Office to determine when the "close of business" currently occurs.) (b) We will then determine the share of this policy in each Subaccount and the total value of such shares. (c) We will then add any amount of Loan Assets, as defined in Section 10. (d) We will then add any Net Premium received during the Valuation Period to the value derived in (c) above. If applicable, we will then compute and deduct all Section 9 charges in the manner specified in Section 9. Number of Shares in Variable Accounts When transactions are made which affect a Variable Account, dollar amounts are converted to number of shares. The number of shares for a transaction is determined by dividing the dollar amount of the transaction by the unit value of the Variable Account as of the end of the Valuation Period in which the transaction occurs. The number of shares increases when: (a) any portion of a Net Premium is credited to that Variable Account; (b) transfers from the Fixed Account or other Variable Accounts are credited to that Variable Account; or (c) any portion of a loan is repaid to that Variable Account. The number of shares in a Variable Account decreases when: (a) any portion of a loan is taken from that Variable Account; (b) any portion of the charges described in Section 9 is deducted from that Variable Account; (c) any portion of a partial withdrawal is made from that Variable Account; or (d) a transfer is made from that Variable Account to the Fixed Account or other Variable Account. 9 M0901A Unit Value of Variable Accounts The unit value will vary from Valuation Date to Valuation Date to reflect the investment performance of the Variable Account. The unit value in any Variable Account is $10.00 (ten dollars) on the first Valuation Date for the Variable Account. The unit value at the end of any subsequent Valuation Period is equal to the unit value at the end of the preceding Valuation Period multiplied by the Net Investment Factor for that Variable Account for that Valuation Period. Net Investment Factor The Net Investment Factor is determined for each Variable Account for each Valuation Period. The Net Investment Factor equals the amount of investment income and capital gains and losses (realized and unrealized) of the Variable Account reduced by any amount charged against the Variable Account for taxes paid, divided by the total assets of the Variable Account at the beginning of the Valuation Period. - -------------------------------------------------------------------------------- 9. CHARGES - -------------------------------------------------------------------------------- In computing the Account Value as of the end of the Date of Issue or any Processing Date, we will compute and deduct, in order, each of the charges (a) through (g), where: (a) is the Asset-Based Risk Charge; (b) is the Administrative Charge; (c) is the Guaranteed Minimum Death Benefit Charge, if elected and if the GMDB Feature is in effect; (d) is the sum of the charges for Riders which are part of the policy, if any, provided such charges are deducted from the Account Value; (e) is the sum of all charges for ratings, if applicable; (f) is the Issue Charge, if any; and (g) is the Cost of Insurance Charge. The Cost of Insurance Charge on the Date of Issue or on any Processing Date is an amount equal to the applicable Applied Monthly Rate on that date divided by 1,000, multiplied by the Net Amount at Risk on that date. Each Cost of Insurance Charge is deducted in advance of the insurance coverage to which it applies. The Net Amount at Risk is the amount determined by subtracting (a) from the greater of (b) or (c) where: (a) is the Account Value at the end of the immediately preceding Valuation Period less all charges due on the Date of Issue or Processing Date; (b) (i)is the Sum Insured divided by 1.0032737 for death benefit Option A; or (ii) is the Sum Insured divided by 1.0032737, plus the Account Value for death benefit Option B; and (c) is the amount defined in (a) multiplied by the applicable Required Additional Death Benefit Factor described in Section 4. The Applied Monthly Rates are the actual rates used to calculate the Cost of Insurance. We will determine the Applied Monthly Rates to be used for this policy. They will not exceed the Maximum Monthly Rates shown in the applicable Table of Rates in Section 2. The Applied Monthly Rates will be based on our expectations of future mortality experience. They will be reviewed at least once every 5 Policy Years. Any change in Applied Monthly Rates will be made on a uniform basis for insureds of the same sex, Issue Age, and premium class, including smoker status, and whose policies have been in force for the same length of time. - -------------------------------------------------------------------------------- 10. LOANS - -------------------------------------------------------------------------------- You may borrow money from us on receipt at our Home Office of a completed form satisfactory to us assigning the policy as the only security for the loan. Loans may be made if a Loan Value is available. Each loan must be for at least $1,000. We may defer loans as provided by law or as provided in Section 20. Loans may not be made if the policy is in a grace period. The Loan Value while the Policy is in full force will be equal to (a) minus (b) minus (c) where: (a) is the Account Value, (b) is twelve times the sum of all monthly charges deducted from the Account Value for the policy month in which the loan is obtained, and (c) is (a) above minus (b) above multiplied by .75% in Policy Years 1-20 and .25% thereafter. The amount of loan available will be the Loan Value less any existing indebtedness. Values will be determined, subject to the "Deferral of Determinations and Payments" provision, at the end of the Valuation Period in which the loan application is received at our Servicing Office. 10 The effective annual rate of Loan Interest for Policy Years 1-20 is 4.75%. The effective annual rate of Loan Interest for Policy Years 21 and after is 4.25%. The Loan Interest will accrue daily and will be payable on each Annual Processing Date and on the date the loan is settled. Accrued interest will be added to the loan daily and will bear interest from that date at the same rate. Interest may be paid in advance at the equivalent effective rate. A loan may be repaid in full or in part at any time before the Insured's death, and while the policy is in full force. When excess indebtedness occurs, the policy will terminate on the 31st day after the Notice Date occurs if such excess has not been repaid by that date. "Excess indebtedness" is the amount, if any, by which indebtedness exceeds an amount equal to the Account Value. "Notice Date" is the date on which notice of excess indebtedness is mailed to you and any assignee of record with us at the address last known to us. When a loan is made, the amount of the loan will be transferred to Loan Assets. The amount of the loan also will be removed from the Subaccounts in proportion to your policy investment in each Subaccount on the date such loan is made (unless our then current rules allow you to designate different proportions in your loan request and you in fact do so). Upon loan repayment, Loan Assets will be reduced by the amount of the repayment. The same proportionate amount of the entire loan as was borrowed from the Fixed Account will be repaid to the Fixed Account. The remainder of the loan repayment will be allocated to the appropriate Subaccounts as stipulated in the then current Subaccount Investment Option (unless our then current rules allow you to designate a different allocation with your loan repayment and you do in fact do so). Loan Assets are the total of all loans advanced plus interest credited on each loan amount from the date of the loan at an effective annual rate of 4%. - -------------------------------------------------------------------------------- 11. SURRENDERS AND WITHDRAWALS - -------------------------------------------------------------------------------- We will determine the Surrender Value of the policy if the Insured is then alive, subject to Section 20, and if the policy is in full force. The policy will terminate as of the Surrender Date. The Surrender Date is the end of the day in which we have received at our Servicing Office (i) written notice requesting full surrender of the policy, and (ii) the surrendered policy. During the first 3 Policy Years, the Surrender Value will be an amount equal to the Account Value less any indebtedness as of the Surrender Date, plus 50% of any Sales Charges deducted from any Target Premium payments received during the 365 days immediately preceding the Surrender Date. After the first 3 Policy Years, the Surrender Value will be an amount equal to the Account Value less any indebtedness as of the Surrender Date. When the policy ceases to be in full force under Subsection B of Section 7, we will pay the Surrender Value, if any, to you. You may request a withdrawal of part of the Surrender Value in accordance with our rules then in effect. The amount of the withdrawal will be removed from the Subaccounts in proportion to your policy investment in each Subaccount on the date such withdrawal is made (unless our then current rules allow you to designate different proportions in your withdrawal request and you do in fact do so). For each withdrawal, we reserve the right to make a charge to the Account Value of an amount not to exceed $20. Each withdrawal must be at least $1,000. We will not permit the portion of any withdrawal and its related charge that causes the Surrender Value to fall below 3 months' worth of Section 9 charges. Nor will we permit the portion of any withdrawal that causes the policy to fail qualification as a life insurance contract for federal tax purposes. We also reserve the right to refuse the portion of any withdrawal and its related charge that causes the Total Sum Insured to fall below the minimum amount shown in Section 1. All amounts withdrawn will be subtracted from the GMDB Premium Balance as described in Section 6 and will also be subtracted from your Account Value. Further, your death benefit will be affected as provided below. With respect to determining the death benefit under Option A, the Total Sum Insured will be reduced by the total of all withdrawals other than any Terminated ASI Withdrawal Amounts. Your Death Benefit will continue to be determined in accordance with Section 4, subject to these provisions. With respect to determining the death benefit under Option B, the death benefit will only be affected to the extent that the Account Value will be reduced by all amounts withdrawn. However, withdrawals will not affect the Total Sum Insured. Your Death Benefit will continue to be determined in accordance with Section 4, subject to these provisions. With respect to determining the death benefit under the Guaranteed Minimum Death Benefit Feature, the Basic Sum Insured will be reduced by the total of all withdrawals other than any Terminated ASI Withdrawal Amounts. Your Death Benefit will continue to be determined in accordance with Section 4, subject to these provisions. 11 M1101A Terminated ASI Withdrawal Amounts are any withdrawals made while there is an Additional Sum Insured in effect which is later discontinued under the policy because a timely default payment has not been made in connection with an ASI Default as described in subsection B of Section 7. Under no circumstances may the total of Terminated ASI Withdrawal Amounts exceed the Additional Sum Insured in effect at the time the Additional Sum Insured is discontinued under subsection B of Section 7. - -------------------------------------------------------------------------------- 12. BASIS OF COMPUTATIONS - -------------------------------------------------------------------------------- Minimum surrender values, reserves and net single premiums referred to in the policy, if any, are computed on the basis of the Commissioners 1980 Standard Ordinary Mortality Tables with percentage ratings, if applicable, and based on the underwriting class of the Insured on the Date of Issue. The computations are made using interest at the rate of 4% a year and using continuous functions. The Account Value while the policy is in full force is computed as described in Section 8. A detailed statement of the method of computation of values has been filed with insurance supervisory officials of the jurisdiction in which this policy has been delivered or issued for delivery. The values are not less than the minimum values under the law of that jurisdiction. Any values, reserves and premiums applicable to any provision for an additional benefit shall be specified in the provision and have no effect in determining the values available under the provisions of this Section 12. - -------------------------------------------------------------------------------- 13. SEPARATE ACCOUNT AND FIXED ACCOUNT - -------------------------------------------------------------------------------- We will allocate Net Premiums, other credits, and charges to the Variable Accounts and the Fixed Account in accordance with Section 14. We will allocate a proportional share of the investment results of the Variable Accounts to your policy. We reserve the right to make a charge for any applicable income taxes. The assets of the Variable Accounts will be invested in shares of corresponding Funds of a Series Fund. The Portfolios will be valued at the end of each Valuation Period at a fair value in accordance with applicable law. We will deduct liabilities attributable to a Variable Account when determining the value of a Variable Account. The Variable Accounts available on the Date of Issue of this policy are shown in the Prospectus for this policy, along with any investment management fees associated with the corresponding Funds. The assets of the Separate Account are the property of the Company. They shall be available to cover liabilities of our general account only to the extent that the assets of the Separate Account exceed the liabilities of the Separate Account arising under the variable life insurance policies supported by the Separate Account. We reserve the right to make certain changes if, in our judgment, they would best serve the interests of the owners of policies such as this or would be appropriate in carrying out the purposes of such policies. Any changes will be made only to the extent and in the manner permitted by applicable laws. Also, when required by law, we will obtain your approval of the changes and approval from any appropriate regulatory authority. Examples of the changes we may make include the following: (a) To operate a Separate Account in any form permitted under the Investment Company Act of 1940, or in any other form permitted by law. (b) To take any action necessary to comply with or obtain and continue any exemptions from the Investment Company Act of 1940. (c) To transfer any assets in a Variable Account to another Variable Account; or to add, combine or remove Subaccounts. (d) To substitute, for the investment company stock held in any Portfolio, another class of stock of the investment company or the stock of another investment company or any other investment permitted by law. (e) To make any other necessary technical changes in this policy in order to conform with any action this provision permits us to take. If any of these changes results in a material change in the underlying investments of Variable Accounts to which the reserves for this policy are allocated, we will notify you of such change. You may then make a new election under the Subaccount Investment Option and the Variable Account Transfer Provision. 12 - -------------------------------------------------------------------------------- 14. ALLOCATION TO SUBACCOUNTS - -------------------------------------------------------------------------------- Any Net Premium processed prior to the 20th day after the Date of Issue will be invested in the Money Market Subaccount. On the 20th day after the Date of Issue (or on the date such Net Premium is received, if later), we will reallocate the amount in the Money Market Subaccount attributable to any such Net Premium in accordance with the Subaccount Investment Option then in effect. We will allocate all other Net Premiums and all other credits among the Subaccounts in accordance with the Subaccount Investment Option then in effect. You may elect to change the Subaccount Investment Option at any time. A change will be effective at the end of the Valuation Period in which we receive notice satisfactory to us; however fund transfers will not be made if the policy is in a grace period. We reserve the right to impose limits on the number and frequency of such changes. The minimum percentage that may be allocated to any Subaccount and the maximum number of Subaccounts in which assets may be held will be subject to our administrative rules in effect at the time of election. We will allocate any charges under Section 9 among the applicable Subaccounts in proportion to the value of your policy investment in each Subaccount on the date of the charge (unless our then current rules allow you to designate different proportions and you do in fact do so). Account Transfer Restrictions General Restrictions - -------------------- Subject to the limitations below, you may elect to transfer amounts among the Subaccounts at any time while the policy is in full force. We reserve the right to (i) impose limits on the number of such transfers in any Policy Year, (ii) impose limits on the frequency of such transfers, and (iii) impose a charge for each transfer that exceeds an annual limit in any Policy Year. Such charge will not exceed $25 per transfer. The annual limits in items (i) and (iii) above will not be less than 12. A transfer will be effective at the end of the Valuation Period in which we receive notice satisfactory to us. The maximum number of Subaccounts in which assets may be held will be subject to our rules in effect at the time of transfer. Restrictions on Transfers to and from Subaccounts - ------------------------------------------------- Without our prior approval, the maximum amount which may be transferred to or from a Subaccount in any Policy Year is $1,000,000. Restrictions on Transfers to and from the Fixed Account - ------------------------------------------------------- At any time during the first two Policy Years, you may elect to transfer all assets held in the Variable Accounts to the Fixed Account. No charge will be made for any such transfer, regardless of the number of transfers previously made. We reserve the right to impose restrictions on transfers to the Fixed Account after the first two Policy Years. Transfers from the Fixed Account will be permitted only once in each Policy Year and, except as provided in Section 15, only once during the period beginning 60 days before each policy anniversary and ending 30 days after such anniversary. If notice is served on or before the anniversary, the transfer will be effective on the anniversary date. If notice is received after the anniversary, the transfer will be effective on the day we receive the notice. The maximum transfer amount in each Policy Year is 20% of the value of the Fixed Account as of the effective date of the transfer, or $500, if greater. We may defer the transfer for up to 6 months after the date your election would have been effective. - -------------------------------------------------------------------------------- 15. INVESTMENT POLICY CHANGE - -------------------------------------------------------------------------------- The investment policy of the Funds shall not be materially changed unless a statement of the change is filed with, and not disapproved by, the Insurance Commissioner of Massachusetts. In the event of such a change in investment policy, and while this policy is in full force you may elect a transfer in accordance with Section 14 within 60 days after (i) the effective date of the material change or (ii) the receipt of a notice of the available options, whichever is later. No charge will be made for any such transfer (regardless of the number of transfers previously made). Any such transfer will be effective as of the day we receive the notice. If required, any statement of material change filed with the Insurance Commissioner of Massachusetts will be filed with the insurance supervisory officials of the jurisdiction in which this policy is delivered or issued for delivery. 13 M1301A - -------------------------------------------------------------------------------- 16. REPORTS TO OWNER - -------------------------------------------------------------------------------- While the policy is in full force, we will send you a statement at least annually, setting forth the following information: (a) The Death Benefit, in connection with the Death Benefit Option elected, the Account Value as of the date of the report and the Surrender Value as of the date of the report; (b) Payments received and charges made since the last report; (c) Withdrawals since the last report; and (d) Loan information. We will furnish other reports if required by law or regulation. - -------------------------------------------------------------------------------- 17. REINSTATEMENT - -------------------------------------------------------------------------------- A. Restoration of Guaranteed Minimum Death Benefit Feature If the Guaranteed Minimum Death Benefit Feature (GMDB Feature) has been removed from the policy under subsection A of Section 7, the GMDB Feature may be restored within 5 policy years after the beginning of the grace period described in subsection A of Section 7, provided that the policy continues to be in full force. The date of restoration of the GMDB Feature is the date on which we determine that all 3 requirements below have been satisfied: (1) Receipt of a written request to restore the GMDB Feature. (2) Receipt of evidence of insurability satisfactory to us, unless restoration is requested within 1 year after the beginning of the grace period described in Subsection A of Section 7. (3) Receipt of a payment equal to the difference between the then current GMDB Premium Target and the then current GMDB Premium Balance. Requirements (2) and (3) above must be satisfied within 30 days after the date we receive the restoration request. On the Processing Date on which the restoration takes effect or which next follows the date of restoration, we will deduct from the Account Value any unpaid Guaranteed Minimum Death Benefit charges under Section 9. We reserve the right to disallow restoration of the GMDB Feature more than once during the life of the policy. B. Reinstatement of Policy If the policy lapses under Subsection B of Section 7, it may be reinstated within 1 year after the beginning of the grace period. The date of reinstatement is the date on which we determine that all 3 requirements below have been satisfied: (1) Receipt of a written application for reinstatement. (2) Receipt of evidence of insurability satisfactory to us. (3) Receipt of a payment which, after deduction of all applicable charges listed under "Deductions from Premium Payments" in Section 1 is at least equal to the sum of (i) all unpaid charges described in Section 9, plus interest on each such charge from the date due up to and including the date of reinstatement at an annual effective rate of 6%, plus (ii) the total of all Section 9 charges for the three Processing Dates next following the date of reinstatement, where the charges for each of the next three Processing Dates are assumed to be equal to such charges on the date of default. If the Guaranteed Minimum Death Benefit Feature had been elected at issue and had not been removed more than 4 years prior to the beginning of the grace period described in Subsection B of Section 7, it may be restored by paying the difference between the then current GMDB Premium Target and the then current GMDB Premium Balance. Requirements (2) and (3) above must be satisfied within 60 days after the date we receive the application for reinstatement. On the date of reinstatement (i) a death benefit of the policy will be the same as if no lapse had occurred and (ii) the policy will have indebtedness equal to any indebtedness at the end of the day immediately preceding the date of reinstatement. The Account Value on the date of reinstatement will be the payment received in connection with the reinstatement less the sum of all Section 9 charges that would have been made from the date of lapse to the date of reinstatement if the policy had not lapsed and less interest on each such charge at an effective annual rate of 6% from the date such charge would have been due to the date of reinstatement. 14 - -------------------------------------------------------------------------------- 18. OWNER AND BENEFICIARY - -------------------------------------------------------------------------------- The Owner, the Contingent Owner (if any) and the Beneficiary will be as shown in the application unless you change them or they are changed by the terms of this provision. You shall have the sole and absolute power to exercise all rights and privileges without the consent of any other person unless you provide otherwise by written notice. If you die, the Contingent Owner will become the Owner. If there is no surviving Contingent Owner, the Insured will become the Owner. If there is no surviving Beneficiary upon the death of the Insured, you will be the Beneficiary, but if you were the Insured, your estate will be Beneficiary. While the Insured is alive, you may change the Owner, the Contingent Owner (if any) and Beneficiary by written notice. You may also revoke any change of Owner or Contingent Owner prior to its effective date by written notice. No change or revocation will take effect unless we acknowledge receipt on the notice. If such acknowledgment occurs, then (i) a change of Beneficiary will take effect on the date the notice is signed, and (ii) a change or a revocation of Owner or Contingent Owner will take effect as of the date specified in the notice, or if no such date is specified, on the date the notice is signed. A change or revocation will take effect whether or not you or the Insured is alive on the date we acknowledge receipt. A change or revocation will be subject to the rights of any assignee of record with us and subject to any payment made or other action taken by us before we acknowledge receipt. - -------------------------------------------------------------------------------- 19. INTEREST ON PROCEEDS - -------------------------------------------------------------------------------- We will pay interest on proceeds paid in one sum in the event of the Insured's death from the date of death to the date of payment at a rate not less than 3 1/2 %. - -------------------------------------------------------------------------------- 20. DEFERRAL OF DETERMINATIONS AND PAYMENTS - -------------------------------------------------------------------------------- During any period when the New York Stock Exchange is closed for trading (except for normal holiday closings) or when the Securities and Exchange Commission ("the SEC") has determined that a state of emergency exists which may make payment impractical, or the SEC by order permits postponement for the protection of our policyholders, we reserve the right to do the following: (1) To defer determination of the Account Value, and if such determination has been deferred, to defer: (a) determination of the values for a loan as of the end of the day we receive the loan application at our Servicing Office, and payment of the loan; and (b) payment or application of any Death Benefit in excess of the Guaranteed Minimum Death Benefit, if elected. (2) To defer determination, application, processing, or payment of a Surrender Value or any other policy transaction dependent upon Account Value. A deferral, as described above, will be applicable only if any portion of the Account Value is invested in a Variable Account. We reserve the right to defer payment of the Surrender Value from the Fixed Account for a period of up to six months. Except as provided in this provision we will make payment of the Death Benefit, any Surrender Value, any withdrawal, or any loan amount within 7 days of the date it becomes payable. - -------------------------------------------------------------------------------- 21. CLAIMS OF CREDITORS - -------------------------------------------------------------------------------- The proceeds and any income payments under the policy will be exempt from the claims of creditors to the extent permitted by law. These proceeds and payments may not be assigned or withdrawn before becoming payable without our agreement. - -------------------------------------------------------------------------------- 22. ASSIGNMENT - -------------------------------------------------------------------------------- Your interest in this policy may be assigned without the consent of any revocable Beneficiary. Your interest, any interest of the Insured and of any revocable Beneficiary shall be subject to the terms of the assignment. We will not be on notice of any assignment unless it is in writing, nor will we be on notice until a duplicate of the original assignment has been filed at our Servicing Office. We assume no responsibility for the validity or sufficiency of any assignment. 15 M1501A - -------------------------------------------------------------------------------- 23. INCONTESTABILITY - -------------------------------------------------------------------------------- This policy, except any provision for a disability benefit, shall be incontestable after it has been in force during the lifetime of the Insured for 2 years from its Date of Issue, except for nonpayment of premium or fraud. However, if we require evidence of insurability with respect to any payment we are authorized to refuse under Section 5, any increase in the Death Benefit resulting from such payment shall be incontestable after such increase has been in force during the lifetime of the Insured for 2 years from the effective date of such increase. Further, any reinstatement will be contestable as to material misrepresentations in the reinstatement application for two years from the effective date of such reinstatement. - -------------------------------------------------------------------------------- 24. MISSTATEMENT OF AGE OR SEX - -------------------------------------------------------------------------------- If the age or sex of the Insured has been misstated, we will adjust the Basic Sum Insured, any Additional Sum Insured, and every other benefit to that which would have been purchased at the correct age or sex by the most recent Cost of Insurance charge deducted under Section 9. - -------------------------------------------------------------------------------- 25. SUICIDE - -------------------------------------------------------------------------------- If the Insured commits suicide, while sane or insane, within 2 years from the Date of Issue, the policy will terminate on the date of such suicide and we will pay (in place of all other benefits, if any) an amount equal to the premiums paid less the amount of any indebtedness on the date of death and less any withdrawals under Section 11. If the Insured commits suicide, while sane or insane, after 2 years from the Date of Issue and within 2 years from the effective date of any increase in the Death Benefit resulting from any payment of Premium we are authorized to refuse under Section 5, the benefits payable under the policy will not include the amount of such Death Benefit increase but will include the amount of such Premium. - -------------------------------------------------------------------------------- 26. THE CONTRACT - -------------------------------------------------------------------------------- The written application for the policy is attached at issue. The entire contract between the applicant and us consists of the policy, such application and any riders and endorsements. However, additional written applications for policy changes or acceptance of excess payment under Section 5 may be submitted to us after issue and such additional applications may become part of the policy. All statements made in any application shall, in the absence of fraud, be deemed representations and not warranties. We will use no statement made by or on behalf of the Insured to defend a claim under the policy unless it is in a written application. Policy years, policy months, and policy anniversaries are measured from the Date of Issue. Any reference in this policy to a date means a calendar day ending at midnight local time at our Servicing Office. An exchange of this policy for a new policy on a different plan may be made by agreement between you and us in accordance with our published rules in effect at that time. We reserve the right to make any changes necessary in order to keep this policy in compliance with any changes in federal or state tax laws. Other changes in this policy may be made by agreement between you and us. Only the President, Vice President, the Secretary, or an Assistant Secretary of the Company has authority to waive or agree to change in any respect any of the conditions or provisions of the policy, or to extend credit or to make an agreement for us. 16 - -------------------------------------------------------------------------------- 27. SETTLEMENT PROVISIONS - -------------------------------------------------------------------------------- Optional Methods of Settlement In place of a single payment, an amount of $1,000 or more payable under the policy as a benefit or as the Surrender Value, if any, may be left with us, under the terms of a supplementary agreement. The agreement will be issued when the proceeds are applied through the choice of any one of the options below, or any additional options we, in our sole discretion, may make available after issue. We shall at least annually declare the rate of interest or amount of payment for each option. Such declaration shall be effective until the date specified in the next declaration. Option 1--Interest income at the declared rate but not less than 3.5% a year on proceeds held on deposit. The proceeds may be paid or withdrawn in whole or in part at any time as elected. Option 2A--Income of a Specified Amount, with payments each year totaling at least 1/12th of the proceeds, until the proceeds plus interest is paid in full. We will credit interest on unpaid balances at the declared rate but not less than 3.5% a year. Option 2B--Income for a Fixed Period with each payment as declared but not less than that shown in the Table for Option 2B. Option 3--Life Income with Payments for a Guaranteed Period, with each payment as declared but not less than that shown in the Table for Option 3. If the Payee dies within that period, we will pay the present value of the remaining payments. In determining present value, we will use the same interest rate used to determine the payments for this option. Option 4--Life Income without Refund at the death of the Payee of any part of the proceeds applied. The amount of each payment shall be as declared but not less than that shown in the Table for Option 4. Option 5--Life Income with Cash Refund at the death of the Payee of the amount, if any, equal to the proceeds applied less the sum of all income payments made. The amount of each payment shall be as declared but not less than that shown in the Table for Option 5. You may choose an option by written notice to us: (a) while the Insured is alive; and (b) before the proceeds become payable. If you have made no effective choice, the Payee may make one by written notice within: (a) 6 months after the death of the Insured; or (b) 2 months after the date on which the proceeds, if any, are payable in any case except death. No choice of an option may provide for payments of less than $50.00. The first payment will be payable as of the date the proceeds are applied, except that under Option 1 it will be payable at the end of the first payment interval. The Payee under an option shall be the Insured, if living, and otherwise the Beneficiary. No option may be chosen without our consent if the proceeds are payable: (1) in any case, except death, before the policy has been in force on the same plan for at least 5 years; or (2) in any case to an executor, administrator, trustee, corporation, partnership, association, or assignee. A Payee may, by written notice, name and change a Contingent Payee to receive any final amount that would otherwise be payable to the Payee's estate. 17 M1701A Table for Settlement Options 2B, 3, 4, and 5 (Monthly payments for each $1,000 of proceeds applied)
- ---------------------------- -------------------------------------------------------------------------------- Age of Payee on Option 2B Birthday Nearest Option 3 Option 4 Option 5 Income for a Fixed Date of First Life Income with Life Life Period Payment Guaranteed Period Income Income - ---------------------------- ------------------------------------------------------ Period without with Cash of Years Payment 10 Years 20 Years Refund Refund - ---------------------------- -------------------------------------------------------------------------------- 1 84.46 40 3.53 3.50 3.54 3.46 2 42.86 41 3.57 3.54 3.58 3.50 3 28.99 42 3.62 3.58 3.63 3.54 4 22.06 43 3.66 3.62 3.68 3.58 5 17.91 44 3.77 3.66 3.73 3.62 6 15.14 45 3.76 3.71 3.78 3.66 7 13.16 46 3.82 3.75 3.83 3.71 8 11.68 47 3.87 3.80 3.89 3.75 9 10.53 48 3.93 3.85 3.95 3.80 10 9.61 49 3.99 3.90 4.02 3.85 11 8.86 50 4.05 3.95 4.08 3.91 12 8.24 51 4.12 4.01 4.15 3.96 13 7.71 52 4.19 4.06 4.22 4.02 14 7.26 53 4.26 4.12 4.30 4.08 15 6.87 54 4.34 4.81 4.38 4.15 16 6.53 55 4.42 4.24 4.47 4.21 17 6.23 56 4.50 4.31 4.56 4.28 18 5.96 57 4.59 4.37 4.66 4.36 19 5.73 58 4.69 4.44 4.76 4.44 20 5.51 59 4.79 4.50 4.87 4.52 21 5.32 60 4.89 4.57 4.99 4.60 22 5.15 61 5.00 4.64 5.11 4.69 23 4.99 62 5.12 4.71 5.25 4.78 24 4.84 63 5.24 4.77 5.39 4.88 25 4.71 64 5.37 4.84 5.54 4.99 26 4.59 65 5.50 4.91 5.70 5.09 27 4.47 66 5.64 4.97 5.87 5.21 28 4.37 67 5.79 5.03 6.06 5.33 29 4.27 68 5.94 5.09 6.26 5.46 30 4.18 69 6.10 5.14 6.47 5.59 - ---------------------------- Annual, Semi-annual, or 70 6.27 5.19 6.69 5.73 quarterly payments under 71 6.44 5.24 6.94 5.88 Option 2B are 11.839, 72 6.61 5.28 7.20 6.04 5.963, and 2.993 73 6.79 5.32 7.48 6.20 respectively times the 74 6.98 5.36 7.79 6.38 monthly payments. - ---------------------------- 75 7.16 5.38 8.11 6.56 76 7.35 5.41 8.47 6.75 77 7.54 5.43 8.84 6.96 78 7.72 5.45 9.25 7.17 79 7.91 5.46 9.69 7.39 80 8.08 5.48 10.17 7.64 81 8.25 5.49 10.68 7.88 82 8.41 5.49 11.23 8.13 83 8.56 5.50 11.82 8.43 84 8.71 5.50 12.46 8.70 85 & over 8.83 5.51 13.14 8.99 -------------------------------------------------------------------------------- Options 3, 4 and 5 are available only at the ages as shown --------------------------------------------------------------------------------
18 Communications about this policy may be sent to the Company Servicing Office, which is currently at [P.O. Box 111, John Hancock Place, Boston, Massachusetts 02117]. Variable Life Insurance policy Flexible Premiums Death Benefit payable at death of Insured Not eligible for dividends Benefits and premiums and the policy class are shown in the Specifications Section of the policy. MAJ601 M6BP01 Printed in U.S.A. -----END PRIVACY-ENHANCED MESSAGE-----