<PAGE>
As filed with the Securities and Exchange Commission on April 30, 1998
Registration No. 2-68061
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-----------------------
FORM S-6
Post-Effective Amendment No. 25 to
Registration Statement Under
THE SECURITIES ACT OF 1933
----------------------
JOHN HANCOCK VARIABLE LIFE ACCOUNT U
(Exact name of trust)
JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY
(Name of depositor)
JOHN HANCOCK PLACE
BOSTON, MASSACHUSETTS 02117
(Complete address of depositor's principal executive offices)
--------------------
RONALD J. BOCAGE, ESQ.
JOHN HANCOCK MUTUAL LIFE INSURANCE COMPANY
JOHN HANCOCK PLACE, BOSTON, 02117
(Name and complete address of agent for service)
--------------------
Copy to:
GARY O. COHEN, ESQ.
Freedman, Levy, Kroll & Simonds
1050 Connecticut Avenue, N.W.
Washington, D.C. 20036
--------------------
It is proposed that this filing become effective(check appropriate box)
[ ]immediately upon filing pursuant to paragraph (b) of Rule 485
---
[X]on May 1, 1998 pursuant to paragraph (b) of Rule 485
---
[ ]60 days after filing pursuant to paragraph (a)(1) of Rule 485
---
[ ]on (date) pursuant to paragraph (a)(1) of Rule 485
---
If appropriate check the following box
[ ]this post-effective amendment designates a new effective date for a
---
previously filed amendment
Pursuant to the provisions of Rule 24f-2, Registrant has registered an
indefinite amount of the securities being offered and filed its Notice for
fiscal year 1997 pursuant to Rule 24f-2 on February 26, 1998.
<PAGE>
[LOGO OF JOHN HANCOCK APPEARS HERE]
Variable Life Insurance Company
(JHVLICO)
ANNUAL PREMIUM VARIABLE LIFE INSURANCE POLICIES JOHN HANCOCK VARIABLE LIFE
ACCOUNT U
John Hancock Place Boston, Massachusetts 02117
JOHN HANCOCK SERVICING OFFICE:
P.O. Box 111 Boston, Massachusetts 02117
TELEPHONE 1-800-REAL LIFE (1-800-732-5543) FAX 617-572-5410
PROSPECTUS MAY 1, 1998
The annual premium variable life Policies described in this prospectus can be
funded, at the discretion of the Owner, by one or more of seven subaccounts of
John Hancock Variable Life Account U ("Account"). The assets of each subaccount
will be invested in a corresponding Portfolio of John Hancock Variable Series
Trust I ("Fund"), a mutual fund advised by John Hancock Mutual Life Insurance
Company ("John Hancock").
The prospectus for the Fund, which is attached to this Prospectus, describes
the investment objectives, policies and risks of investing in a number of
Portfolios of the Fund. Of these Portfolios, only the Growth & Income Portfolio,
Sovereign Bond Portfolio, Money Market Portfolio, Large Cap Growth Portfolio,
Managed Portfolio, Real Estate Equity Portfolio and International Equities
Portfolio and their corresponding subaccounts are available to Owners of the
Policies described in this Prospectus.
Replacing existing insurance with a Policy described in this prospectus may
not be to your advantage.
THIS PROSPECTUS SHOULD BE READ AND RETAINED FOR FUTURE REFERENCE. IT IS NOT
VALID UNLESS ATTACHED TO A CURRENT PROSPECTUS FOR THE FUND.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THE PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<PAGE>
CROSS-REFERENCE TABLE
<TABLE>
<CAPTION>
Form N-8B-2 Item Caption in Prospectus
- ---------------- ---------------------
<S> <C>
1, 2 Cover, The Account and The Series
Fund, JHVLICO and John Hancock
3 Inapplicable
4 Cover, Distribution of Policies
5,6 The Account and The Series Fund, State
Regulation
7, 8, 9 Inapplicable
10(a),(b),(c),(d),(e) Principal Policy Provisions
10(f) Voting Privileges
10(g),(h) Changes in Applicable Laws--Funding and otherwise
10(i) Appendix--Other Policy
Provisions, The Account and
The Series Fund
11, 12 Summary of Policies, The Account and
The SeriesFund, Distribution of Policies
13 Charges and Expenses,
Appendix--Illustration of Death
Benefits, Cash Values
and Accumulated Premiums
14, 15 Summary of Policies, Premiums
16 The Account and The Series Fund
17 Summary of Policies, Principal
Policy Provisions
18 The Account and The Series Fund,
Tax Considerations
19 Reports
20 Changes in Applicable Law--Funding and
Otherwise
21 Principal Policy Provisions
22 Principal Policy Provisions
23 Distribution of Policies
24 Not Applicable
25 JHVLICO and John Hancock
26 Not Applicable
27,28,29,30 JHVLICO and John Hancock, Management
31,32,33,34 Not Applicable
35 JHVLICO and John Hancock
37 Not Applicable
38,39,40,41(a) Distribution of Policies,
JHVLICO and John Hancock,
Charges and Expenses
42, 43 Not Applicable
44 The Account and The Series Fund,
Principal Policy Provisions,
Appendix--Illustration of Death
Benefits,Cash Values
and Accumulated Premiums
45 Not Applicable
46 The Account and The Series Fund,
Principal Policy Provisions,
Appendix--Illustration of Death
Benefits, Surrender Values
and Accumulated Values
47, 48, 49, 50 Not Applicable
51 Principal Policy Provisions,
Appendix--Other Policy
Provisions
52 The Account and The Series Fund,
Changes in Applicable Law--Funding and
Otherwise
53,54,55 Not Applicable
56,57,58 Not Applicable
59 Financial Statements
</TABLE>
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
SUMMARY OF POLICIES . . . . . . . . . . . . . . . . . . . . . . . . . 1
JHVLICO AND JOHN HANCOCK . . . . . . . . . . . . . . . . . . . . . . 5
THE ACCOUNT AND THE SERIES FUND . . . . . . . . . . . . . . . . . . . 5
The Account . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
The Series Fund . . . . . . . . . . . . . . . . . . . . . . . . . . 6
PRINCIPAL POLICY PROVISIONS . . . . . . . . . . . . . . . . . . . . . 7
Death Benefit . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Account Net Investment Rate (ANIR) . . . . . . . . . . . . . . . . 9
Annual Dividends . . . . . . . . . . . . . . . . . . . . . . . . . 10
Surrender Value . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Loan Provision and Indebtedness . . . . . . . . . . . . . . . . . . 11
Premiums . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Investment Option . . . . . . . . . . . . . . . . . . . . . . . . . 13
Transfer Option . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Default and Options on Lapse . . . . . . . . . . . . . . . . . . . 13
Exchange of Policy During First 24 Months . . . . . . . . . . . . . 14
CHARGES AND EXPENSES . . . . . . . . . . . . . . . . . . . . . . . . 15
Charges Deducted from Premiums . . . . . . . . . . . . . . . . . . 15
Expenses Charged to Account . . . . . . . . . . . . . . . . . . . . 16
Guarantee of Premiums and Certain Charges . . . . . . . . . . . . . 16
DISTRIBUTION OF POLICIES . . . . . . . . . . . . . . . . . . . . . . 17
TAX CONSIDERATIONS . . . . . . . . . . . . . . . . . . . . . . . . . 18
Policy Proceeds . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Charge for JHVLICO's Taxes . . . . . . . . . . . . . . . . . . . . 18
Corporate and H.R. 10 Plans . . . . . . . . . . . . . . . . . . . . 18
MANAGEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
THE BOARD OF DIRECTORS AND EXECUTIVE OFFICERS OF JHVLICO . . . . . . 19
VOTING PRIVILEGES . . . . . . . . . . . . . . . . . . . . . . . . . . 19
CHANGES IN APPLICABLE LAW--FUNDING AND OTHERWISE . . . . . . . . . . 20
REPORTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
STATE REGULATION . . . . . . . . . . . . . . . . . . . . . . . . . . 21
LEGAL MATTERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
REGISTRATION STATEMENT . . . . . . . . . . . . . . . . . . . . . . . 21
EXPERTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . . . . . . . . . 21
APPENDIX--OTHER POLICY PROVISIONS . . . . . . . . . . . . . . . . . . 53
APPENDIX--IMPACT OF YEAR 2000 . . . . . . . . . . . . . . . . . . . .
APPENDIX--ILLUSTRATION OF DEATH BENEFITS, CASH VALUES AND ACCUMULATED
PREMIUMS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
</TABLE>
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING IN ANY JURISDICTION IN WHICH
SUCH OFFERING MAY NOT LAWFULLY BE MADE. NO PERSON IS AUTHORIZED TO MAKE ANY
REPRESENTATIONS IN CONNECTION WITH THIS OFFERING OTHER THAN THOSE CONTAINED IN
THIS PROSPECTUS.
<PAGE>
THE PURPOSE OF THE POLICIES IS TO PROVIDE INSURANCE PROTECTION FOR THE
BENEFICIARY NAMED IN THE POLICY.
NO CLAIM IS MADE THAT THE POLICIES ARE IN ANY WAY SIMILAR OR COMPARABLE TO A
SYSTEMATIC INVESTMENT PLAN OF A MUTUAL FUND.
- -------------------------------------------------------------------------------
SUMMARY OF POLICIES
WHAT ARE THE VARIABLE LIFE INSURANCE POLICIES BEING OFFERED?
JHVLICO issues variable life insurance policies. The Policies described in
this prospectus are fixed annual premium policies. JHVLICO also issues scheduled
annual premium policies that provide for additional premium flexibilities. These
other policies are offered by means of another prospectus, but use the same
underlying Fund.
As explained below, the death benefit under the Policies increases or
decreases monthly; the cash value increases or decreases daily. The Policies,
therefore, differ from ordinary fixed-benefit life insurance in the way they
work. However, the Policies are the same as ordinary fixed-benefit life
insurance in providing lifetime protection against economic loss resulting from
the death of the person insured. So, the Policies are primarily insurance and
not investments.
The Policies work generally as follows: A fixed premium is made to JHVLICO
each year. JHVLICO takes from the premium an amount for expenses. JHVLICO then
places the rest of the premium into one or more of the seven subaccounts of the
Account that are currently available under the Policies. The owner of the Policy
(the "Owner") decides how much goes into each subaccount. The assets in each
subaccount, other than assets attributable to policy loans, are invested in
shares of the corresponding Portfolio of the Fund. The seven Portfolios
currently available are Growth & Income Portfolio, Sovereign Bond Portfolio,
Money Market Portfolio, Large Cap Growth Portfolio, Managed Portfolio, Real
Estate Equity Portfolio and International Equities Portfolio. During the year
JHVLICO takes certain charges from each subaccount and credits or charges each
subaccount with its respective investment performance. Costs of insurance, which
are deducted from each Policy's cash value, vary monthly with the attained age
of the insured and with the Variable Sum Insured.
The death benefit increases or decreases monthly depending on the investment
experience of the subaccounts to which premiums are allocated. In general, if
the net investment experience is more favorable than4 1/2% per year, the death
benefit will increase, and, if less than4 1/2% per year, the death benefit will
decrease. However, JHVLICO guarantees that, regardless of the investment
experience, the death benefit will never be less than the amount originally
purchased. (This is called the Guaranteed Minimum Death Benefit.) The Owner,
therefore, bears the investment risk for the amount above the Guaranteed Minimum
Death Benefit, and JHVLICO bears the investment risk for the Guaranteed Minimum
Death Benefit.
The Owner may surrender a Policy for its cash value (the "Policy Cash Value")
at any time while the insured is living. The Policy Cash Value is initially the
amount of the premium that JHVLICO places in the Account, as explained above.
The Policy Cash Value increases or decreases daily depending on the investment
experience. However, JHVLICO does not guarantee a minimum amount of Policy Cash
Value. Therefore, the Owner bears the investment risk for the Policy Cash Value.
If the Owner surrenders in the early policy years, the amount of Policy Cash
Value would be low (as compared with the premiums accumulated with interest),
and, consequently, the insurance protection provided prior to surrender would be
costly.
1
<PAGE>
This Prospectus describes three types of Policies being offered by JHVLICO: a
Variable Whole Life Policy, a Variable Whole Life P 50 Policy and a Variable
Whole Life 100 Policy. The minimum death benefit that may be bought is $25,000
for the Whole Life Policy, $50,000 for the Whole Life P 50 Policy and $100,000
for the Whole Life 100 Policy. For the Whole Life Policy and the Whole Life P 50
Policy, all persons insured must meet certain health and other criteria called
"underwriting standards." All persons insured under the Whole Life 100 Policy
must meet "preferred risk" and non-smoking underwriting standards. All Policies
may be issued on insureds between ages of 0 and 75. Discounts are available to
insureds meeting non-smoking underwriting criteria.
WHAT IS THE AMOUNT OF THE PREMIUMS?
Premiums are fixed and level and do not vary with the Account's investment
experience. The amount of the premium depends on the type of Policy, the
Policy's Initial Sum Insured, the insured's age, sex and smoking habits, and the
frequency of premium payments. Premiums are payable annually or more frequently
over the insured's lifetime. Additional premiums are charged for Policies in
cases involving extra mortality risks and for additional insurance benefits.
There is a 31-day grace period in which to make premium payments due after the
first. (See "Premiums".)
WHAT IS JOHN HANCOCK VARIABLE LIFE ACCOUNT U?
The Account is a separate investment account of JHVLICO, operated as a unit
investment trust, which supports benefits payable under certain of its variable
life insurance policies. There are currently eighteen subaccounts within the
Account, but only seven of those subaccounts are currently available to the
Policies described in this Prospectus. Each is invested in a corresponding
Portfolio of John Hancock Variable Series Trust I, a "series" type of mutual
fund. The seven Portfolios of the Fund which are currently available under the
Policies are Growth & Income Portfolio, Sovereign Bond Portfolio, Money Market
Portfolio, Large Cap Growth Portfolio, Managed Portfolio, Real Estate Equity
Portfolio and International Equities Portfolio.
The Fund pays John Hancock a fee for providing investment management services
to each of its Portfolios. The Fund also pays for certain non-advisory Fund
expenses. The figures in the following chart are expressed as a percentage of
each Portfolio's average daily net assets. The figures reflect the investment
management fees currently payable and the 1996 non-advisory expenses that would
have been allocated to the Fund under the allocation rules currently in effect.
<TABLE>
<CAPTION>
Other Total Fund Other Fund
Investment Fund Operating Expenses Absent
rtfolio Management Fee Expenses Expenses Reimbursement*
- ------- -------------- -------- ---------- ---------------
<S> <C> <C> <C> <C>
Managed . . . . . . . 0.33% 0.04% 0.37% N/A
Growth & Income . . . 0.25% 0.03% 0.28% N/A
Large Cap Growth . . 0.39% 0.05% 0.44% N/A
Real Estate Equity . 0.60% 0.09% 0.69% N/A
International Equities 0.18% 0.19% 0.37% N/A
Sovereign Bond . . . 0.25% 0.06% 0.31% N/A
Money Market . . . . 0.25% 0.08% 0.33% N/A
</TABLE>
- ---------
*John Hancock reimburses a Portfolio when the Portfolio's other fund expenses
exceed 0.25% of the Portfolio's average daily net assets.
For a full description of the Fund, see the prospectus for the Fund attached
to this Prospectus.
2
<PAGE>
WHAT CHARGES ARE DEDUCTED FROM THE PREMIUM IN DETERMINING THE AMOUNT ALLOCATED
TO THE SUBACCOUNTS?
A modal net premium is allocated by JHVLICO from its general account to one or
more of the subaccounts on the premium due date. The modal net premium for each
Policy year is the actuarial equivalent, for the premium payment interval in
effect, of the basic annual premium for a standard or preferred mortality risk
payable for such year, less the charges deducted for sales loads, state premium
taxes, annual administrative expenses, contributions for dividends and risk
charge ("modal net premium"). An additional deduction for administrative
expenses in connection with the issuance of a Policy is made in the first Policy
year. Additional premiums are charged for Policies where the insured is
classified as a substandard mortality risk and a portion of these premiums may
be allocated to the subaccounts from time to time to support the reserves for
extra mortality risks. The additional premiums for extra mortality risks are
determined such that the Policy Cash Value for a substandard risk policy is the
same as for a comparable standard risk policy.
The charges deducted from premiums are for administrative expenses ($50 in
each Policy year plus a one-time charge the first Policy year of as much as $13
per $1,000 of initial guaranteed minimum death benefit), sales expenses (which
during the first two Policy years shall not exceed 30% of the basic annual
premium paid during the first Policy year plus 10% of the basic annual premium
paid for the second Policy year and which, including sales expenses in the third
and later Policy years, average up to 9% over 20 years), state premium taxes(2
1/2% of the basic annual premium), the risk that the death benefit payable will
be the guaranteed minimum death benefit rather than a lesser amount
(approximately 3% of the basic annual premium) and for dividends (approximately
5-9% of the basic annual premium). See "Charges Deducted from Premiums".
WHAT ARE THE OTHER CHARGES?
Charges are made against each subaccount for the mortality and expense risks
assumed by JHVLICO (at an effective annual rate of .50% of the assets of the
subaccount). The Policy Cash Value is charged monthly for the cost of insurance
for the insured (at varying levels). See "Expenses Charged to Account".
HOW ARE AMOUNTS ALLOCATED TO EACH SUBACCOUNT?
At issue and subsequently thereafter the Owner will have the option of
deciding what percentage or amount of the reserves held for the Policy will be
invested in the seven subaccounts. (See "Investment Option" and "Transfer
Option".)
ARE DIVIDENDS PAID ON THE POLICIES?
Beginning two or three years after issue, depending on the form of Policy
purchased, JHVLICO expects to pay dividends on each policy anniversary. (See
"Annual Dividends".)
WHAT COMMISSIONS ARE PAID TO AGENTS?
The Policies are sold through agents who are licensed by state authorities to
sell JHVLICO's insurance policies. Agent's commissions for the first Policy year
do not exceed a maximum of 55% of the premiums paid. Commissions payable for
later years are described under "Distribution of Policies". Sales expenses in
any year are not equal to the deduction for sales load in that year. Rather,
total sales expenses under the Policies are intended to be recovered over the
lifetimes of the insureds covered by the Policies.
3
<PAGE>
HOW DOES THE DEATH BENEFIT VARY IN RELATION TO THE SUBACCOUNTS' INVESTMENT
EXPERIENCE?
The Death Benefit during the first policy month is equal to the Initial Sum
Insured shown on the Policy at issue and thereafter will vary monthly depending
on the subaccounts' rates of return after charges against the subaccounts' (the
"Account Net Investment Rate"). In general, if the Account Net Investment Rate
on an annual basis is greater than4 1/2% the Death Benefit will increase and if
less than4 1/2% the Death Benefit will decrease (but never less than the
Guaranteed Minimum Death Benefit.) (See "Death Benefit".)
HOW DOES THE POLICY CASH VALUE VARY IN RELATION TO THE SUBACCOUNTS' INVESTMENT
EXPERIENCE?
In general, the Policy Cash Value for any day equals the Policy Cash Value for
the previous day, increased by any modal net premium placed in the subaccounts
for the Policy and decreased by any charge for the cost of insurance for the
insured, accumulated at the subaccounts' rates of return after charges against
the subaccounts. The Policy Cash Value for substandard risk policies is the same
as for comparable standard risk policies. (See "Surrender Value".)
WHAT IS THE LOAN PROVISION AND HOW DOES A LOAN AFFECT THE DEATH BENEFIT AND
POLICY CASH VALUE?
The Owner may obtain a Policy loan of up to 90% of the Policy Cash Value.
Interest charged on any loan will accrue and compound daily either at an annual
rate determined by JHVLICO at the start of each Policy Year (Variable Loan
Interest Rate) or, at the election of the Owner or in jurisdictions where a
Variable Loan Interest Rate is not available, at an effective annual rate of 8%.
A loan plus accrued interest may be repaid at the discretion of the Owner in
whole or in part in accordance with the terms of the Policy.
While a loan is outstanding, the portion of the Policy Cash Value equal to the
loan plus accrued interest is credited with the Policy Loan Rate (the Fixed or
Variable Loan Interest Rate less an amount not exceeding 2%, assuming no taxes)
rather than the subaccounts' net investment experience during such period.
Therefore, the Death Benefit above the Guaranteed Minimum Death Benefit and the
Policy Cash Value are permanently affected by any loan, whether or not it is
repaid in whole or in part. Also, the amount of any outstanding loan plus
accrued interest is subtracted from the Death Benefit or Policy Cash Value
otherwise payable. (See "Loan Provision and Indebtedness".)
IS THERE A SHORT-TERM CANCELLATION RIGHT?
The Owner may surrender this Policy by delivering or mailing it within 45 days
after the date of Part A of the application, or within 10 days after receipt of
the Policy by the Owner, or within 10 days after mailing by JHVLICO of the
Notice of Withdrawal Right, whichever is latest, to JHVLICO at Boston,
Massachusetts, or to the agent or agency office through which it was delivered.
Immediately on such delivery or mailing, the Policy shall be deemed void from
the beginning. Any premium paid on it will be refunded.
CAN A POLICY BE EXCHANGED FOR A FIXED BENEFIT LIFE INSURANCE POLICY?
Within twenty four months after a Policy's issue date, the Policy may be
exchanged without evidence of insurability for a fixed benefit policy on the
life of the Insured having the same face amount as the Initial Sum Insured of
the Policy. (See "Exchange of Policy During First 24 Months".)
4
<PAGE>
ARE THE BENEFITS UNDER A POLICY SUBJECT TO FEDERAL INCOME TAX?
There has been a determination by the Internal Revenue Service that death
benefits payable under variable life insurance policies (which appear to be
similar to those described in this Prospectus in all material respects) are
excludable from the beneficiary's gross income for Federal tax purposes. It is
also believed that an Owner will not be deemed to be in constructive receipt of
the cash values of his or her Policy until its actual surrender. The benefits
under Policies described in this Prospectus are expected to receive the same tax
treatment under the Internal Revenue Code of 1986 as benefits under traditional
fixed-benefit life insurance policies. (See "Tax Considerations".)
IS THERE A CHARGE AGAINST THE ACCOUNT FOR FEDERAL INCOME TAX?
Currently no charge is made against any subaccount for Federal income taxes
but if JHVLICO incurs, or expects to incur, income taxes attributable to any
subaccount or this class of Policies in future years, it reserves the right to
make a charge. JHVLICO expects that it will continue to be taxed as a life
insurance company. (See "Charge for JHVLICO's Taxes".)
JHVLICO AND JOHN HANCOCK
JHVLICO, a stock life insurance company chartered in 1979 under Massachusetts
law, is authorized to transact a life insurance and annuity business in
Massachusetts and all other states. JHVLICO began selling variable life
insurance policies in 1980.
JHVLICO is a wholly-owned subsidiary of John Hancock, a company chartered in
Massachusetts in 1862. Its Home Office is at John Hancock Place, Boston,
Massachusetts 02117. John Hancock's assets are approximately $59 billion and it
has invested over $380 million in JHVLICO in connection with JHVLICO's
organization and operations. It is anticipated that John Hancock will from time
to time make additional capital contributions to JHVLICO to enable it to meet
its reserve requirements and expenses in connection with its business and John
Hancock is committed to make additional capital contributions if necessary to
ensure that JHVLICO maintains a positive net worth.
THE ACCOUNT AND THE SERIES FUND
THE ACCOUNT
The Account, a separate account established under Massachusetts law, 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").
The Account's assets are the property of JHVLICO. Each Policy provides that
the portion of the Account's assets equal to the reserves and other liabilities
under the Policy shall not be chargeable with liabilities arising out of any
other business JHVLICO may conduct. In addition to the assets attributable to
variable life policies, the Account's assets include assets derived from daily
charges made by JHVLICO and, possibly, funds previously contributed by JHVLICO.
From time to time these additional assets may be transferred in cash by JHVLICO
to its general account. Before making any such transfer, JHVLICO will consider
any possible adverse impact the transfer might have on any subaccount.
Additional premiums are charged for Policies where the insured is classified as
a substandard risk and a portion of these premiums may be allocated to one or
more of the subaccounts from time to time to support the reserves for extra
mortality risks.
5
<PAGE>
The Account is registered with the Securities and Exchange Commission (the
"Commission") under the 1940 Act. Such registration does not involve the
supervision by the Commission of the management or policies of the Account,
JHVLICO or John Hancock.
There currently are eighteen subaccounts in the Account, but only seven of
those subaccounts are available to the Policies described in this Prospectus.
The assets in each, apart from assets attributable to policy loans, are invested
in a separate class of shares issued by the Fund, but the assets of one
subaccount are not necessarily legally insulated from liabilities associated
with another subaccount. New subaccounts may be added as new portfolios are
added to the Fund and made available to Owners.
THE SERIES FUND
The Fund is a "series" type of mutual fund registered with the Commission as
an open-end diversified management investment company. Pursuant to an Agreement
and Plan of Reorganization and with the approval of the Owners, the predecessor
to the Fund, a Maryland corporation, was dissolved on April 29, 1988 and all of
its assets, liabilities and operations were assumed and carried on by John
Hancock Variable Series Trust I, a Massachusetts business trust organized for
that purpose. The Fund serves as the investment medium for the Account and for
other unit investment trust separate accounts established for other variable
life insurance policies and for variable annuity contracts. (See the attached
Fund prospectus for the description of a need to monitor for possible conflicts
and other consequences.) A very brief summary of the investment objectives of
the Portfolios available to the Account is set forth below.
Growth & Income Portfolio
The investment objective of this Portfolio is to achieve intermediate and
long-term growth of capital, with income as a secondary consideration. This
objective will be pursued by investments principally in common stocks (and
securities convertible into or with rights to purchase common stocks) of
companies believed to offer growth potential over both the intermediate and the
long term.
Sovereign Bond Portfolio
The investment objective of this Portfolio is to provide as high a level of
long-term total rate of return as is consistent with prudent investment risk,
through investment primarily in a diversified portfolio of freely marketable
debt securities. Total rate of return consists of current income, including
interest and discount accruals, and capital appreciation.
Money Market Portfolio
The investment objective of this Portfolio is to provide maximum current
income consistent with capital preservation and liquidity. It seeks to achieve
this objective by investing in a managed portfolio of high quality money market
instruments.
Large Cap Growth Portfolio
The investment objective of this Portfolio is to achieve above-average capital
appreciation through the ownership of common stocks (and securities convertible
into or with rights to purchase common stocks) of companies believed to offer
above-average capital appreciation opportunities. Current income is not an
objective of the Portfolio.
6
<PAGE>
Managed Portfolio
The investment objective of this Portfolio is to achieve maximum long-term
total return consistent with prudent investment risk. Investments will be made
in common stocks, convertibles and other equity investments, in bonds and other
fixed income securities and in money market instruments.
Real Estate Equity Portfolio
The investment objective of this Portfolio is to provide above-average income
and long-term growth of capital by investment principally in equity securities
of companies in the real estate and related industries.
International Equity Index Portfolio
The investment objective of this Portfolio is to provide investment results
that correspond to the total return of the major developed international
(non-U.S.) equity markets, as represented by the MSCI AEFE GDP Index.
John Hancock acts as the investment manager for the Fund. Its indirectly owned
subsidiary, Independence Investment Associates, Inc., with its principal place
of business at 53 State Street, Boston, MA 02109 provides sub-investment advice
with respect to the Managed, Growth & Income, Large Cap Growth and Real Estate
Equity Portfolios. Independence International Associates, Inc., a subsidiary of
IIA located at the same address as IIA, is a sub-investment adviser to the
International Equity Index Portfolio. Another indirectly owned subsidiary of
John Hancock, John Hancock Advisers, Inc., located at 101 Huntington Avenue,
Boston, MA 02199, provides sub-investment advice with respect to the Sovereign
Bond Portfolio.
John Hancock will purchase and redeem Fund shares for the Account at their net
asset value without any sales or redemption charges. Shares of the Fund
represent an interest in one of the Portfolios of the Fund which corresponds to
the subaccount of the Account. Any dividend or capital gains distributions
received by the Account will be reinvested in Fund shares at their net asset
value as of the dates paid. Any such distribution will result in a reduction in
the value of the Fund shares of the Portfolio from which the distribution was
made. The total net asset value of the Account will not change because of such
distribution, however.
On each Valuation Date, shares of each Portfolio are purchased or redeemed by
John Hancock for each subaccount based on, among other things, the amount of
modal net premiums allocated to the subaccount, dividends and distributions
reinvested, and transfers to, from and among subaccounts, all to be effected as
of that date. Such purchases and redemptions are effected at the net asset value
per Fund share for each Portfolio determined on that same Valuation Date.
A full description of the Fund, its investment objectives, policies and
restrictions, its charges, expenses and all other aspects of its operation is
contained in the attached prospectus and the statement of additional information
referred to therein, which should be read together with this Prospectus.
PRINCIPAL POLICY PROVISIONS
The discussions which follow under "Death Benefit", "Surrender Value" and
"Loan Provision and Indebtedness" assume that premiums have been duly paid and,
in the case of Death Benefit and Surrender Value that there has been no Policy
loan. Benefits and values are affected if premiums are not paid or if a Policy
loan is made. For the effect of a default in payment of premiums, see "Default
and Options on Lapse", and of a loan, see
7
<PAGE>
"Loan Provision and Indebtedness". Determinations, applications, and payments
may be deferred, see "Deferral of Determinations and Payments".
DEATH BENEFIT
The Death Benefit will be an amount equal to the greater of the Initial Sum
Insured and the Variable Sum Insured on the date of death of the insured. The
Variable Sum Insured is an amount equal to the Initial Sum Insured at issue and
thereafter is the amount of life insurance determined according to the Valuation
Provisions of the Policy.
Guaranteed Minimum Death Benefit. The Guaranteed Minimum Death Benefit is
equal to the Initial Sum Insured on the date of issue of the Policy. JHVLICO
guarantees that, regardless of what the Account earns, the Death Benefit will
never be less than the Guaranteed Minimum Death Benefit.
Changes in Death Benefit. After the first policy month, the Death Benefit is
determined once each policy month on the Monthly Date. (The Monthly Date is the
first day of a policy month which day immediately follows a date which is a
Valuation Date.) The Death Benefit remains level during the policy month
following the determination. The Owner bears the investment risk that the Death
Benefit could decrease on any Monthly Date (but not below the Guaranteed Minimum
Death Benefit) and forgoes any increase in Death Benefit from favorable
investment results until the next Monthly Date.
Changes in the Death Benefit for each policy month are computed by a formula,
filed with the insurance supervisory officials of the jurisdiction in which the
Policy has been delivered or issued for delivery. Under the formula the
difference between the applicable Account Net Investment Rate (ANIR) for each
Valuation Period and the Policy's assumed annual rate of4 1/2% is translated, on
an actuarial basis, into a change in the Death Benefit.
If the Death Benefit were equal to the Guaranteed Minimum Death Benefit for a
policy month, it would increase above the Guaranteed Minimum Death Benefit on
the next Monthly Date only if the applicable ANIR for the last policy month were
sufficiently greater than a monthly rate equivalent to an annual rate of4 1/2%
to result in such an increase. If the ANIR was equivalent to an annual rate of
less than4 1/2% and the Death Benefit was greater than the Guaranteed Minimum
Death Benefit, the Death Benefit would be reduced (but not below the Guaranteed
Minimum Death Benefit). The percentage change in the Death Benefit is not the
same as the Account Net Investment Rate.
The changes in Death Benefit may be more readily understood by reference to
the following examples.
Using the Variable Whole Life P50 Policy (Age 25 Years Male--Smoker)
illustrated in this Prospectus and the 6% hypothetical gross annual investment
return assumption (equivalent to an ANIR of 4.85%), the Death Benefit shown at
the end of Policy year 5 would increase to the amount shown at the end of Policy
year 6, as follows:
<TABLE>
<CAPTION>
<S> <C>
Death Benefit at end of Policy year 5 . $62,736
Increase in Death Benefit . . . . . . . $ 322 (.51% increase)
Death Benefit at end of Policy year 6 . $63,058
</TABLE>
8
<PAGE>
If, instead, the 0% hypothetical gross annual investment return assumption
(equivalent to an ANIR of-1.09%) were used, the Death Benefit shown at the end
of Policy year 5 would decrease to an amount at the end of Policy year 6 as
follows:
<TABLE>
<CAPTION>
<S> <C>
Death Benefit at end of Policy year 5 . $62,736
Decrease in Death Benefit . . . . . . $ 298 (.48% decrease)
Death Benefit at end of Policy year 6 . $62,438
</TABLE>
In the case of a Death Benefit which was equal to the Guaranteed Minimum Death
Benefit because the Variable Sum Insured was less than the Guaranteed Minimum
Death Benefit, such Death Benefit would increase on a Monthly Date only if the
ANIR for the last policy month was sufficiently greater than an equivalent
annual rate of4 1/2% to result in an increase sufficiently large to bring the
Variable Sum Insured above the Guaranteed Minimum Death Benefit.
ACCOUNT NET INVESTMENT RATE (ANIR)
The ANIR for each subaccount in which the Policy reserve is invested is
determined separately for each Policy. The ANIR for a Valuation Period is
determined as of the end of the Valuation Period as a weighted average of the
Policy Loan Rate and the Account Equity Rate and reflects the Policy's
indebtedness allocated to the subaccounts. In the absence of any indebtedness,
the ANIR equals the Account Equity Rate. The ANIR may be positive or negative.
Valuation Date
A Valuation Date is any date on which the New York Stock Exchange is open for
trading and on which the Fund values its shares.
Valuation Period
A Valuation Period is that period of time from the beginning of the day
following a Valuation Date to the end of the next following Valuation Date.
Values during Valuation Periods
The values of the Fund shares in the Account will be determined as of the end
of each Valuation Period and shall be the same for each day of the Valuation
Period.
Account Equity Rate
For each subaccount the Account Equity Rate for a Valuation Period is
determined as of the end of the Valuation Period and reflects the subaccount's
accrued investment income (excluding accrued policy loan interest) and capital
gains and losses, realized or unrealized, of the subaccount for the Valuation
Period, and any applicable income taxes paid or change in any provision for
taxes maintained in the subaccount during the Valuation Period, and a Valuation
Period charge at an effective rate of .50% annually of the value of the
subaccount at the beginning of the Valuation Period.
9
<PAGE>
Policy Loan Rate
For each Policy the Policy Loan Rate for a Valuation Period is determined as
of the end of the Valuation Period and reflects the Policy's accrued Policy loan
interest for the Valuation Period, any applicable income taxes paid, or change
in any provision for taxes maintained by the Account during the Valuation
Period, and a Valuation Period charge at an effective rate of not more than 2%
annually of the total indebtedness of the Policy at the beginning of the
Valuation Period.
ANNUAL DIVIDENDS
These Policies are participating policies which, except while in force as
Fixed Extended Term Insurance, are entitled to the share, if any, of the
divisible surplus which JHVLICO shall annually determine and apportion to them.
Any share will be distributed as a dividend payable annually on the Policy
anniversary beginning not later than the end of the second Policy year for the
Variable Whole Life 100 Policy and not later than the end of the third Policy
year for the Variable Whole Life Policy and Variable Whole Life P50 Policy.
Dividends under participating policies may be described as refunds of premiums
which adjust the cost of a policy to the actual level of cost emerging over time
after the Policy's issue. Thus, participating policies generally have gross
premiums which are higher than those for comparable non-participating policies.
If a Policy is surrendered before dividends become payable, the Owner does not
benefit from having a participating policy.
Both Federal and state law recognize that dividends are considered to be a
refund of a portion of the premium paid and therefore are not treated as income
for Federal or state income tax purposes.
Dividend illustrations published at the time of issue of a Policy reflect the
actual recent experience of the issuing insurance company with respect to
factors such as interest, mortality, and expenses. State law generally prohibits
a company from projecting or estimating future results. State law also requires
that dividends must be based on surplus, after setting aside certain necessary
amounts, and that such surplus must be apportioned equitably among participating
policies. In other words, in principle and by statute, dividends must be based
on actual experience and cannot be guaranteed at issue of a Policy.
Each year JHVLICO's actuary analyzes the current and recent past experience
and compares it to the assumptions used in determining the premium rates at the
time of issue. Some of the more important data studied includes mortality and
withdrawal rates, investment yield in the general account, and actual expenses
incurred in administering the Policies. Such data is then allocated to each
dividend class, e.g., by year of issue, age, smoking habits and plan. The
actuary then determines what dividends can be equitably apportioned to each
Policy class and makes a recommendation to JHVLICO's Board of Directors. The
Board of Directors, which has the ultimate authority to ascertain dividends,
will vote the amount of surplus to be apportioned to each policy class, thereby
authorizing the distribution of each year's dividend.
Dividend Options. The Owner may in general elect to have any dividend paid or
applied under any one of the following options: paid in cash; applied to premium
payments; left to accumulate with interest of at least3 1/2% a year; purchase
fixed paid-up insurance; purchase one year term insurance; or purchase variable
paid-up insurance.
SURRENDER VALUE
Amount of Policy Cash Value. The Policy Cash Value increases or decreases
depending on the applicable subaccount's investment experience and the
proportion of the Policy's reserve invested in each subaccount. The
10
<PAGE>
Policy Cash Value for any day equals the Policy Cash Value for the previous day,
increased by any modal net premium placed in the subaccounts and decreased by
any charge for the cost of insurance for the insured, accumulated at the
subaccounts' rates of return after charges against the subaccounts. A modal net
premium is placed into the subaccounts on the Monthly Date if a premium is due
in that Policy Month. The cost of insurance for the insured is deducted from the
Account on every Monthly Date. No minimum amount of Policy Cash Value is
guaranteed.
Even though the premium is higher for a substandard mortality risk policy than
for a comparable standard risk policy and the premium is lower if a non-smoker
discount has been made available to an insured than in the case of a comparable
standard risk policy, the premium is determined such that the Policy Cash Value
in either instance is the same as the Policy Cash Value for a standard risk
policy of the same age and sex, for the same Initial Sum Insured and having the
same date of issue.
When Policy may be Surrendered. A Policy may be surrendered for its surrender
value at any time while the insured is living. Surrender takes effect and the
surrender value is determined as of the end of the Valuation Period in which
occurs the later of receipt of JHVLICO's Servicing Office of a signed request
and the surrendered policy. The surrender value will be the Policy Cash Value
plus any dividends and interest unpaid or unapplied, and the cash value of any
insurance purchased under any dividend option with an adjustment to reflect the
difference between the gross premium and the net premium for the period beyond
the date of surrender, less any indebtedness.
When Part of Policy may be Surrendered. A Policy may be partially surrendered
in accordance with JHVLICO's rules. The Policy after the partial surrender must
have an Initial Sum Insured at least as great as the minimum issue size for that
type of Policy. The premium and the Guaranteed Minimum Death Benefit for the
Policy will be based on the new Initial Sum Insured.
LOAN PROVISION AND INDEBTEDNESS
Loan Provision. Loans may be made at any time a Loan Value is available after
the first Policy year. The Owner may borrow money on completion of a form
satisfactory to JHVLICO assigning the Policy as the only security for the loan.
The Loan Value will be 90% of the total of the Policy Cash Value (assuming no
dividends) and any cash value under the variable paid-up insurance dividend
option, plus any cash value under the fixed paid up insurance dividend option.
Interest accrues and is compounded daily at an effective annual rate equal to
the then applicable Variable Loan Interest Rate. If the Owner elects the Fixed
Loan Interest Rate or the Variable Loan Interest Rate is unavailable in the
Owner's state, interest accrues and is compounded daily at an effective annual
rate of 8%.
The amount of any outstanding loan plus accrued interest is called the
"indebtedness". Except when used to pay premiums, a loan will not be permitted
unless it is at least $100. The Owner may repay all or a portion of any
indebtedness while the insured is living and premiums are being duly paid. Any
loan is charged against the subaccounts in proportion to the Policy Cash Value
allocated to the subaccounts and, upon repayment, the repayment is allocated to
the subaccounts in proportion to the outstanding indebtedness in each subaccount
at such time.
Loan Interest Rates. The Variable Loan Interest Rate is determined annually
for a Policy by JHVLICO. The Fixed Loan Interest Rate is 8% for the life of the
Policy. The Owner, at the time of issue, can elect which loan interest rate will
apply to any Policy Loan. If permitted by the law of the state in which the
Policy is issued, the Owner may change a prior choice of Loan Interest Rate. If
at the time of such request there is outstanding indebtedness, the change will
generally become effective on the next Policy anniversary.
11
<PAGE>
The Variable Loan Interest Rate determined annually for a Policy will apply to
all indebtedness outstanding during the policy year following the date of
determination. The rate will not exceed the higher of5 1/2% or the Published
Monthly Average (as defined below) for the calendar month which is two months
prior to the month in which the date of determination occurs. The Published
Monthly Average means Moody's Corporate Bond Yield Average as published by
Moody's Investors Service, Inc. or any successor thereto.
Effect of Loan and Indebtedness. A loan does not affect the amount of the
premiums due. While the indebtedness is outstanding, that portion of the
indebtedness attributable to the Account is credited with the Policy Loan Rate
rather than the Account Equity Rate. The Policy Loan Rate is either the Fixed or
Variable Loan Interest Rate less an amount not exceeding 2%, assuming no taxes.
Therefore, the Death Benefit above the Guaranteed Minimum Death Benefit, the
Policy Cash Value and any insurance and cash value under the variable paid up
dividend option are permanently affected by any indebtedness, whether or not it
is repaid in whole or in part. The amount of any outstanding indebtedness is
subtracted from the amount otherwise payable when the Policy proceeds become
payable.
Whenever the then outstanding indebtedness equals or exceeds the Policy Cash
Value, plus any cash values under a dividend option providing paid-up insurance,
the Policy terminates 31 days after notice has been mailed by JHVLICO to the
Owner and any assignee of record at their last known addresses, unless a
repayment of the excess indebtedness is made within that period.
PREMIUMS
Payment Period and Frequency. Premiums are payable annually or more frequently
over the insured's lifetime in accordance with JHVLICO's published rules and
rates. Premiums are payable at JHVLICO's Servicing Office on or before the due
date specified in the Policy. A refund or charge will be made to effect premium
payment to the end of the policy month in which the insured dies.
Level Premiums. The level premiums act as an averaging device to cover
expenses which are highest in the early Policy years and the cost of insurance
which increases with age. In the early Policy years premiums are higher than
needed to pay death claims, while in the later years premiums are less than
required to pay the death claims. Also, assets are allocated to JHVLICO's
general account to accumulate as a reserve to cover the contingency that the
insured will die at a time when the Guaranteed Minimum Death Benefit exceeds the
death benefit which would have been payable in the absence of such guarantee.
Illustration of Premium Rates. The tables below show premium rates on an
annual and special monthly basis for each Policy of various Initial Sums Insured
for various issue ages. Payments may also be made on a semiannual and quarterly
basis. When payments are made on other than an annual basis, the aggregate
premium amounts for a Policy year are higher, reflecting higher surrender
experience and additional billing and collection expenses.
12
<PAGE>
PREMIUMS FOR $1,000 OF INITIAL SUM INSURED
<TABLE>
<CAPTION>
% Excess of Total
Special Monthly
Premiums for Policy
Special Year Over
Initial Annual Basis Monthly Basis Annual Premiums
Issue Sum --------------- -------------- --------------------
Age Insured Male Female Male Female Male Female
- ----- ------- ---- ------ ---- ------ ---- ------
<S> <C> <C> <C> <C> <C> <C> <C>
VARIABLE WHOLE LIFE (STANDARD MORTALITY RATE)
$1.15 $1.08 6.0% 6.1%
25 . . . $ 25,000 $13.02 $12.22
1.08 1.01 5.6 5.7
40,000 12.27 11.47
VARIABLE WHOLE LIFE P50 (STANDARD MORTALITY RATE)
1.01 .94 5.0 4.7
25 . . . 50,000 11.54 10.77
.96 .89 4.3 4.0
100,000 11.04 10.27
1.82 1.66 4.2 4.2
40 . . . 50,000 20.95 19.12
1.77 1.61 3.9 3.8
100,000 20.45 18.62
VARIABLE WHOLE LIFE 100 (PREFERRED MORTALITY RATE)
.81 .80 3.6 4.0
25 . . . 100,000 9.38 9.23
1.52 1.48 3.6 3.7
40 . . . 100,000 17.61 17.13
</TABLE>
Policies issued in certain jurisdictions or in connection with certain
employee plans will not directly reflect the sex of the insured in the premium
rates.
INVESTMENT OPTION
The Owner has the option to allocate applicable premiums (other than premiums
for any additional insurance benefits) and dividends under the variable paid-up
insurance dividend option to any of the seven subaccounts. The Owner must select
allocation percentages in whole numbers. The minimum allocation to a subaccount
may not be less than 10% and the total allocated must equal 100%.
The initial election must be made by the Owner at the time of completion of
the application for the Policy. The Owner may thereafter change the election at
any time. The change will be effective as to any applicable premiums and
dividends applied after receipt at JHVLICO's Servicing Office of notice
satisfactory to JHVLICO.
TRANSFER OPTION
The Owner may reallocate the amounts held for the Policy in the subaccounts
six times in each Policy year with no charge. The Owner may use either
percentages (in whole numbers) or designate the amount of money to be
transferred between subaccounts. The reallocation must be such that the total
after reallocation equals 100%. The change will be effective at the end of the
Valuation Period in which JHVLICO receives at its Servicing Office notice
satisfactory to JHVLICO.
13
<PAGE>
DEFAULT AND OPTIONS ON LAPSE
A premium unpaid as of its due date is in default, but the Policy provides for
a 31-day grace period for the payment of each premium after the first. The
insurance continues in full force during the grace period but, if the insured
dies during the grace period, the portion of the premium due which is applicable
to the period from the premium due date to the end of the policy month in which
the insured dies is deducted from the amount otherwise payable.
Prior to the end of the Valuation Period immediately preceding the 70th day
after the date of default, any Policy values available determined in accordance
with the Policy may be applied as of the date of default under one of the
following options for continued insurance not requiring further payment of
premiums. These options provide for Variable or Fixed Paid-Up Insurance or Fixed
Extended Term Insurance on the life of the insured commencing on the date of
default.
Both the Variable and Fixed Paid-Up Insurance options provide an amount of
paid-up whole life insurance which the available Policy values will purchase.
The amount of Variable Paid-Up Insurance may then increase or decrease in
accordance with the investment experience of the Account. The Fixed Paid-Up
Insurance option provides a fixed and level amount of insurance. The Fixed
Extended Term Insurance option provides a fixed amount of insurance determined
in accordance with the Policy, with the insurance coverage continuing for as
long a period as the available Policy values will purchase.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
For example, using the Variable Whole Life P50 Policy (Age 25 years Male-Smoker) illustrated in this
Prospectus and the 6% hypothetical gross annual investment return assumption,
if an option was elected and became effective at the end of Policy year 5, the
insurance coverage provided by the options on lapse would be as follows:
Variable or Fixed
Paid-Up Whole Life Fixed Extended Term Insurance
------------------ -----------------------------
Death Benefit Death Benefit Term in Years and Days
------------- ------------- ----------------------
or
$10,427 $62,736 12 years 331 days
- -------------------------------------------------------------------------------------------------------------
</TABLE>
If no option has been elected before the end of the Valuation Period
immediately preceding the 70th day after the date of default, the Fixed Extended
Term Insurance option automatically applies unless the amount of Fixed Paid-Up
Insurance would equal or exceed the amount of Fixed Extended Term Insurance or
unless the insured is a substandard risk, in either of which cases Fixed Paid-Up
Insurance is provided.
If the insured dies after the grace period but before the end of the Valuation
Period immediately preceding the 70th day after the date of default and prior to
any election, and if the Policy is then in force, JHVLICO will pay a death
benefit equal to the greater of the death benefits provided under Fixed Extended
Term Insurance (if available) or Fixed Paid-Up Insurance determined in
accordance with the Policy.
A Policy continued under any option may be surrendered for its cash value
while the insured is living. Loans may be available under the Variable and Fixed
Paid-Up Insurance options, but not under the Fixed Extended Term Insurance
option.
Reinstatement. The Policy may be reinstated in accordance with its terms
(including evidence of insurability satisfactory to JHVLICO and payment of the
required charges) within 3 years after the due date of the first unpaid
14
<PAGE>
premium unless the surrender value has been paid or otherwise exhausted, or the
period of any extended term insurance has expired.
EXCHANGE OF POLICY DURING FIRST 24 MONTHS
At any time during the first twenty-four months after the issue date shown in
the Policy while premiums are being duly paid, the Owner may exchange the Policy
without evidence of insurability for the fixed benefit life insurance policy
specified in the Policy on the insured's life. The new policy will have the same
issue date, issue age, and risk classification for the insured as the Policy but
will be issued by John Hancock. The Sum Insured will be equal to the Initial Sum
Insured. Premiums for the new policy will be based on the premium rates which
were in effect on the issue date of the Policy.
The exchange will be effective on receipt of written notice at JHVLICO's
Servicing Office satisfactory to JHVLICO, the surrender of the Policy, and
payment to JHVLICO of any cost to exchange.
The exchange shall be subject to an equitable adjustment in premiums, cash
values and dividends to reflect variances, if any, in the premiums, cash values,
and dividends under the Policy and the new policy. Any outstanding indebtedness
must be repaid on or before the effective date of the exchange. The exchange is
subject to the restrictions and limitations stated in the Policy. The method of
calculating the adjustment is filed by JHVLICO with the appropriate state
insurance regulatory authorities and as an exhibit to the Registration Statement
which has been filed with the Commission.
The foregoing description of Policy provisions is qualified by reference to
the specimen Policies which have been filed as exhibits to the Registration
Statement and to any variations in Policy provisions required by the regulatory
authorities of the state that has approved the Policy for issue.
CHARGES AND EXPENSES
CHARGES DEDUCTED FROM PREMIUMS
The basic annual premium is the annual premium less the premiums for any
optional insurance benefits, additional charges for extra mortality risks and a
$50 annual administrative charge. Premiums paid more frequently than annually
(modal premiums) are higher.
Annual Administrative Charge. The $50 charge in each Policy year is for annual
administrative expenses, including premium billing and collection,
recordkeeping, processing Death Benefit claims, cash surrenders and Policy
changes, reporting and other communications to Owners and other similar expense
and overhead costs.
The amount allocated to the Account for a Policy equals the basic annual
premium less the charges and deduction listed below.
Charge for Sales Load. A charge not to exceed 9% of the basic annual premium
during the period equal to the lesser of 20 years or the anticipated life
expectancy of the insured named in the Policy based on the 1980 Commissioners
Standard Ordinary Mortality Table. The charge during the first two Policy years
shall not exceed 30% of the basic annual premium paid during the first Policy
year plus 10% of the basic annual premium paid for the second Policy year.
Charges of 10% or less are made for later Policy years. The amount of the charge
in any Policy year cannot be specifically related to sales expenses for that
year. To the extent that sales expenses are not
15
<PAGE>
recovered from the charge for sales load, such expenses may be recovered from
other sources, including any gains attributable to operations with respect to
the Policies or JHVLICO's general assets.
Additional First Year Administrative Charge. A charge in the first Policy year
at the rate of $13 per $1,000 of Initial Sum Insured for a Variable Whole Life
Policy, $7 per $1,000 for a Variable Whole Life P50 Policy and $4 per $1,000 for
a Variable Whole Life 100 policy or a pro rata portion thereof, to cover
administrative expenses in connection with the issuance of the Policy. Such
expenses include medical examination, insurance underwriting costs, and costs
incurred in processing applications and establishing permanent Policy records.
JHVLICO does not expect to profit from this charge.
State Premium Tax Charge. A charge equal to2 1/2% of the basic annual premium.
Premium taxes vary from state to state. The2 1/2% rate is the average rate
expected to be paid on premiums received in all states over the lifetimes of the
insureds covered by the Policies.
Risk Charge. A charge necessary to cover the risk assumed by JHVLICO that the
Variable Sum Insured will be less than the Guaranteed Minimum Death Benefit.
This charge will vary by age of the insured but averages approximately 3% of the
basic annual premium.
Deduction for Dividends. A deduction for dividends to be paid or credited in
accordance with the dividend scale in effect on the issue date of the Policy.
This deduction will vary by age of the insured and duration of the Policy but is
expected to average approximately 5-9% of the basic annual premium.
EXPENSES CHARGED TO ACCOUNT
Charge for Mortality and Expense Risks. A daily charge is made for mortality
and expense risks assumed by JHVLICO at an effective annual rate of .50% of the
value of the Account's assets attributable to the Policies. The mortality risk
assumed is that insureds may live for a shorter period of time than estimated
and, therefore, a greater amount of Death Benefits than expected will be payable
in relation to the amount of premiums received. The expense risk assumed is that
expenses incurred in issuing and administering the Policies will be greater than
estimated. JHVLICO will realize a gain from this charge to the extent it is not
needed to provide for benefits and expenses under the Policies.
The charge for mortality and expense risks constitutes the Valuation Period
charge. See "Account Net Investment Rate (ANIR)".
Charge for Taxes. Currently no charge is made to the subaccounts for company
Federal income taxes but if JHVLICO incurs, or expects to incur, income taxes
attributable to the subaccounts or this class of Policies in future years, it
reserves the right to make a charge and any charge would affect what the
subaccounts earn. Charges for other taxes, if any, attributable to the
subaccounts may also be made.
Charge for Cost of Insurance. A charge for the cost of insurance for the
insured is deducted each month in advance over the life of the Policy. This
charge is based on the attained age of the insured and the Variable Sum Insured.
The cost of insurance rates for these Policies will not exceed the rates stated
in the 1980 Commissioners Standard Ordinary Mortality Table. The cost of
insurance generally increases over time. The increase in the cost of insurance
deducted reflects the increase in the attained age of the insured. Each charge
reduces the Policy Cash Value. See "Surrender Value".
16
<PAGE>
Fund Investment Management Fee. The Account purchases shares of the Fund at
net asset value, a value which reflects the deduction from the assets of the
Fund of its investment management fee and of certain non-advisory Fund operating
expenses which are described briefly in the Summary of this Prospectus. For a
full description of these deductions, see the attached prospectus for the Fund.
GUARANTEE OF PREMIUMS AND CERTAIN CHARGES
JHVLICO guarantees, and may not increase, the amount of the premiums, charges
deducted from premiums and charges to the Account for mortality and expense
risks. JHVLICO further guarantees that the method by which the ANIR is
calculated will not be changed for the life of any policy.
DISTRIBUTION OF POLICIES
Applications are solicited by agents who are licensed by state insurance
authorities to sell JHVLICO's Policies and who are also registered
representatives ("representatives") of John Hancock Distributors, Inc.
("Distributors"), an indirect wholly-owned subsidiary of John Hancock located at
197 Clarendon Street, Boston, MA 02117, or other broker-dealer firms, as
discussed below. John Hancock performs insurance underwriting and determines
whether to accept or reject the application for a Policy and each insured's risk
classification. Pursuant to a sales agreement among John Hancock, Distributors,
JHVLICO, and the Account, Distributors acts as the principal underwriter of the
Policies. The sales agreement will remain in effect until terminated upon sixty
days' written notice by any party. JHVLICO will make the appropriate refund if a
Policy ultimately is not issued or is returned under the short-term cancellation
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.
Distributors' representatives are compensated for sales of the Policies on a
commission and service fee basis by Distributors, and JHVLICO reimburses
Distributors 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 an agent for selling a Policy is 55% of the
premium in the first Policy year, 15% of the premium in the second Policy year,
10% of the premium in the third, fourth and fifth Policy years, 5% of the
premium in Policy years six through ten and 3% of the premium in the eleventh
and later Policy years.
Representatives with less than four years of service with Distributors 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.
Distributors is registered with the Commission under the Securities Exchange
Act of 1934 as a broker-dealer, is a member of the National Association of
Securities Dealers, Inc., and is a member of the Securities Investor Protection
Corporation. The Policies are also sold through other registered broker-dealers
that have entered into selling agreements with Distributors 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
Distributors' representatives. In addition, their qualified registered
representatives may be reimbursed by the
17
<PAGE>
broker-dealers under expense reimbursement allowance programs in any year for
approved voucherable expenses incurred. Distributors will compensate the
broker-dealers as provided in the selling agreements, and JHVLICO will reimburse
Distributors for such amounts and for certain other direct expenses in
connection with marketing the Policies through other broker-dealers. In
addition, these representatives may earn "credits" toward qualification for
attendance at certain business meetings sponsored by John Hancock.
Distributors serves as principal underwriter for other separate accounts
registered under the 1940 Act: John Hancock Variable Annuity Accounts U, I and
V, John Hancock Mutual Variable Life Insurance Account UV and John Hancock
Variable Life Accounts V and S. Distributors is also the principal underwriter
for John Hancock Variable Series Trust I.
TAX CONSIDERATIONS
POLICY PROCEEDS
Although the Policy contains provisions not found in fixed benefit life
insurance policies, JHVLICO believes the Policy will nevertheless receive the
same federal income and estate tax treatment. Section 7702 of the Internal
Revenue Code ("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 come within that definition. JHVLICO will monitor compliance with these
standards.
JHVLICO believes that the death benefit under the Policy will be excludable
from the beneficiary's gross income under Section 101 of the Code. The Owner of
a Policy is not deemed to be in constructive receipt of the cash values until a
partial withdrawal or surrender. A surrender, partial surrender or withdrawal
may have tax consequences. For example, the Owner will be taxed on a surrender
to the extent that the surrender value exceeds the net premiums paid under the
Policy, i.e., ignoring premiums paid for optional benefits and riders. But under
certain circumstances the Owner may be taxed on a withdrawal of Policy values
even if total withdrawals do not exceed total premiums paid.
JHVLICO also believes that 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, the amount of any loan outstanding will be taxed to the
Owner when the Policy lapses.
Federal estate and state and local estate, inheritance and other tax
consequences of ownership or receipt of Policy proceeds depend on the
circumstances of each Owner or beneficiary.
The above description of Federal tax consequences is only a brief summary and
is not intended as tax advice. For further information consult a qualified tax
adviser.
Federal and state tax laws can change from time to time and, as a result, the
tax consequences to the Owner and beneficiary may be altered.
CHARGE FOR JHVLICO'S TAXES
Currently JHVLICO makes no charge against the Account for Federal income taxes
that may be attributable to this class of policies. If JHVLICO incurs, or
expects to incur, income taxes attributable to this class of policies or any
subaccount in the future, it reserves the right to make a charge for those
taxes.
18
<PAGE>
Under current laws, JHVLICO 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, charges for
such taxes may be made.
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.
MANAGEMENT
THE BOARD OF DIRECTORS AND EXECUTIVE OFFICERS OF JHVLICO
The Directors and Executive Officers of JHVLICO and their principal
occupations during the past five years as follows:
<TABLE>
<CAPTION>
Directors--Officers Principal Occupation
- ------------------- --------------------
<S> <C>
David F. D'Alessandro Chairman of the Board and Chief
Executive Officer of JHVLICO; President and Chief
Operating Officer, John Hancock Mutual Life Insurance
Company.
Henry D. Shaw Vice Chairman of the Board and President of JHVLICO;
Senior Vice President, John Hancock Mutual Life
Insurance Company.
Thomas J. Lee Director of JHVLICO; Vice President, John Hancock
Mutual Life Insurance Company.
Robert R. Reitano Director of JHVLICO; Second Vice President, John
Hancock Mutual Life Insurance Company.
Ronald J. Bocage Director, Vice President and Counsel of JHVLICO; Vice
President and Counsel, John Hancock Mutual Life
Insurance Company.
Robert S. Paster Director of JHVLICO; Second Vice President, John
Hancock Mutual Life Insurance Company.
Michele G. Van Leer Director of JHVLICO; Senior Vice President, John
Hancock Mutual Life Insurance Company.
Daniel L. Ouellette Vice President, Marketing, of JHVLICO; Vice President,
John Hancock Mutual Life Insurance Company.
Joseph A. Tomlinson Director and Vice President of JHVLICO; Vice President,
John Hancock Mutual Life Insurance Company.
Barbara L. Luddy Director and Actuary of JHVLICO; Second Vice President,
John Hancock Mutual Life Insurance Company.
Patrick F. Smith Controller of JHVLICO; Assistant Controller, John
Hancock Mutual Life Insurance Company.
</TABLE>
The business address of all Directors and officers of JHVLICO is John Hancock
Place, Boston, Massachusetts 02117.
19
<PAGE>
VOTING PRIVILEGES
All of the assets in the subaccounts of the Account, apart from assets
attributable to policy loans, are invested in shares of the corresponding
Portfolios of the Fund. JHVLICO will vote the shares of each of the Portfolios
of the Fund which are deemed attributable to the qualifying variable life
insurance policies and variable annuity contracts at meetings of the Fund's
shareholders in accordance with instructions received from owners of all such
policies or contracts. Shares of the Fund which are not attributable to such
policies or contracts and shares for which instructions from owners are not
received will be represented by JHVLICO at the meeting and will be voted for and
against each matter in the same proportion as the votes based upon the
instructions received from the owners of all such policies and contracts.
The number of Fund shares held in each subaccount deemed attributable to each
owner is determined by dividing a Policy's cash value (less any outstanding
indebtedness) in the subaccount by the net asset value of one share in the
corresponding Fund Portfolio in which the assets of that subaccount are
invested. Fractional votes will be counted. The number of shares as to which the
owner may give instructions will be determined as of the record date for the
Fund's meeting.
Owners of Policies may give instructions regarding the election of the Board
of Trustees of the Fund, ratification of the selection of independent auditors,
approval of the Fund's investment management agreement and other matters
requiring a vote under the 1940 Act. Owners will be furnished information and
forms by JHVLICO in order that voting instructions may be given.
JHVLICO may, when required by state insurance regulatory authorities,
disregard voting instructions if the instructions require that the shares be
voted so as to change the investment objectives of the Portfolios of the Fund or
to approve or disapprove an investment advisory or underwriting contract for the
Fund. JHVLICO also may disregard voting instructions in favor of changes
initiated by an owner or the Fund's Board of Trustees in the investment policy,
investment adviser or principal underwriter of the Fund, if JHVLICO (i)
reasonably disapproves of such changes and (ii) in the case of a change of
investment policy or investment adviser, makes a good-faith determination that
the proposed change is contrary to state law or prohibited by state regulatory
authorities or that the change would be inconsistent with a subaccount's
investment objectives or would result in the purchase of securities which vary
from the general quality and nature of investments and investment techniques
utilized by other separate accounts of JHVLICO or of an affiliated life
insurance company, which separate accounts have investment objectives similar to
those of the subaccount. In the event JHVLICO does disregard voting
instructions, a summary of that action and the reasons for such action will be
included in the next semi-annual report to owners.
CHANGES IN APPLICABLE LAW--FUNDING AND OTHERWISE
The voting privileges described in this prospectus are afforded based on
JHVLICO's 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, JHVLICO reserves the
right to proceed in accordance with any such revised requirements. JHVLICO also
reserves 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 the Policies belong from
the Account to another separate account or subaccount by withdrawing the same
percentage of each investment in the Account with appropriate adjustments to
avoid odd lots and fractions, (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, an affiliate of John Hancock,
and (3) to deregister the Account under the 1940 Act. JHVLICO would notify
owners of any of
20
<PAGE>
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.
REPORTS
In each Policy year (except while the Policy is continued in effect under a
fixed option on lapse) a statement will be sent to the Owner setting forth the
Death Benefit, Policy Cash Value, any cash value of Variable Paid-Up Insurance
and any outstanding indebtedness (and interest charged for the preceding Policy
year) as of the last day of such year. Moreover, confirmations will be furnished
to the Owner of transfers between subaccounts, Policy loans, partial surrenders
and certain other Policy transactions.
Owners will be sent semiannually a report containing the financial statements
of the Fund, including a list of securities held in each Portfolio.
STATE REGULATION
JHVLICO is subject to regulation and supervision by the Massachusetts
Commissioner of Insurance who periodically examines its affairs. It also is
subject to the applicable insurance laws and regulations of all jurisdictions in
which it is authorized to do business.
JHVLICO is required to submit annual statements of its operations, including
financial statements, to the insurance departments of the various jurisdictions
in which it does business for purposes of determining solvency and compliance
with local insurance laws and regulations.
LEGAL MATTERS
The legal validity of the Policies described in this Prospectus has been
passed on by Ronald J. Bocage, Vice President and Counsel for JHVLICO. Messrs.
Freedman, Levy, Kroll & Simonds, Washington, D.C., have advised JHVLICO on
certain Federal securities law matters in connection with the Policies.
REGISTRATION STATEMENT
This Prospectus omits certain information contained in the Registration
Statement which has been filed with the Commission. More details may be obtained
from the Commission upon payment of the prescribed fee.
EXPERTS
The financial statements of JHVLICO and of 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 Malcolm
Cheung, F.S.A., an Actuary of JHVLICO.
21
<PAGE>
FINANCIAL STATEMENTS
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.
22
<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK]
23
<PAGE>
JOHN HANCOCK VARIABLE LIFE ACCOUNT U
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1997
<TABLE>
<CAPTION>
Large Cap Sovereign International Small Cap International Mid Cap Large Cap
Growth Bond Equities Growth Balanced Growth Value
Subaccount Subaccount Subaccount Subaccount Subaccount Subaccount Subaccount
----------- ------------ ------------- ---------- ------------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Investments in shares of
portfolios of John Hancock
Variable Series Trust I, at
value . . . . . . . . . . . $84,901,398 $232,146,861 $17,097,290 $2,734,209 $714,519 $1,498,159 $6,514,000
Investments in shares of
portfolios of M Fund Inc.,
at value . . . . . . . . . -- -- -- -- -- -- --
Policy loans and accrued
interest receivable . . . . 13,525,608 54,013,020 2,312,736 -- -- -- --
Receivable from:
John Hancock Variable Series
Trust I . . . . . . . . . 20,774 95,821 6,020 6,107 2,687 298 8,354
M Fund Inc. . . . . . . . . -- -- -- -- -- -- --
----------- ------------ ----------- ---------- -------- ---------- ----------
TOTAL ASSETS . . . . . . . . 98,447,780 286,255,702 19,416,046 2,740,316 717,206 1,498,457 6,522,354
LIABILITIES
Payable to John Hancock
Variable Life Insurance
Company . . . . . . . . . . 19,311 91,508 5,722 6,063 2,675 274 8,247
Asset charges payable . . . 1,463 4,313 298 44 12 24 107
----------- ------------ ----------- ---------- -------- ---------- ----------
TOTAL LIABILITIES . . . . . 20,774 95,821 6,020 6,107 2,687 298 8,354
----------- ------------ ----------- ---------- -------- ---------- ----------
NET ASSETS . . . . . . . . . $98,427,006 $286,159,881 $19,410,026 $2,734,209 $714,519 $1,498,159 $6,514,000
=========== ============ =========== ========== ======== ========== ==========
<CAPTION>
Money Mid Cap Special Real Estate
Market Value Opportunities Equity
Subaccount Subaccount Subaccount Subaccount
----------- ---------- ------------- -------------
<S> <C> <C> <C> <C>
ASSETS
Investments in shares of $52,325,203 $2,446,822 $10,287,366 $14,180,979
portfolios of John Hancock
Variable Series Trust I, at
value . . . . . . . . . . .
Investments in shares of -- -- -- --
portfolios of M Fund Inc.,
at value . . . . . . . . .
Policy loans and accrued 13,282,628 -- -- 2,061,136
interest receivable . . . .
Receivable from:
John Hancock Variable Series 51,609 24,870 168 23,348
Trust I . . . . . . . . .
M Fund Inc. . . . . . . . . -- -- -- --
----------- ---------- ----------- -----------
TOTAL ASSETS . . . . . . . . 65,659,440 2,471,692 10,287,534 16,266,463
LIABILITIES
Payable to John Hancock 50,609 24,831 -- 24,099
Variable Life Insurance
Company . . . . . . . . . .
Asset charges payable . . . 1,000 39 168 249
----------- ---------- ----------- -----------
TOTAL LIABILITIES . . . . . 51,609 24,870 168 24,348
----------- ---------- ----------- -----------
NET ASSETS . . . . . . . . . $65,607,831 $2,446,822 $10,287,366 $16,242,115
=========== ========== =========== ===========
</TABLE>
- ---------
See accompanying notes.
24
<PAGE>
JOHN HANCOCK VARIABLE LIFE ACCOUNT U
STATEMENT OF ASSETS AND LIABILITIES (CONTINUED)
DECEMBER 31, 1997
<TABLE>
<CAPTION>
Short-Term
Growth & U.S. Small Cap International Equity
Income Managed Government Value Opportunities Index
Subaccount Subaccount Subaccount Subaccount Subaccount Subaccount
------------ ------------ ---------- ---------- ------------- ----------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Investments in shares of portfolios of John
Hancock Variable Series Trust I, at value . $783,532,141 $343,560,761 $409,571 $3,342,888 $2,526,943 $7,576,153
Investments in shares of portfolios of M Fund
Inc., at value . . . . . . . . . . . . . . . -- -- -- -- -- --
Policy loans and accrued interest receivable 151,132,735 67,266,604 -- -- -- --
Receivable from:
John Hancock Variable Series Trust I . . . . 277,023 36,784 24 5,067 20,678 19,319
M Fund Inc. . . . . . . . . . . . . . . . . -- -- -- -- -- --
------------ ------------ -------- ---------- ---------- ----------
TOTAL ASSETS . . . . . . . . . . . . . . . . 934,941,899 410,864,149 409,595 3,347,955 2,547,621 7,595,472
LIABILITIES
Payable to John Hancock Variable Life
Insurance Company . . . . . . . . . . . . . 263,118 30,659 17 5,013 20,636 19,195
Asset charges payable . . . . . . . . . . . . 13,905 6,125 7 54 40 124
------------ ------------ -------- ---------- ---------- ----------
TOTAL LIABILITIES . . . . . . . . . . . . . . 277,023 36,784 24 5,067 20,678 19,319
------------ ------------ -------- ---------- ---------- ----------
NET ASSETS . . . . . . . . . . . . . . . . . $934,664,876 $410,827,365 $409,571 $3,342,888 $2,526,943 $7,576,153
============ ============ ======== ========== ========== ==========
<CAPTION>
Turner Edinburgh Frontier
Strategic Core International Capital
Bond Growth Equity Appreciation
Subaccount Subaccount Subaccount Subaccount
---------- ---------- ------------- --------------
<S> <C> <C> <C> <C>
ASSETS
Investments in shares of portfolios of John $1,365,657 $ -- $ -- $ --
Hancock Variable Series Trust I, at value .
Investments in shares of portfolios of M Fund -- 120,173 160,606 380,816
Inc., at value . . . . . . . . . . . . . . .
Policy loans and accrued interest receivable -- -- -- --
Receivable from:
John Hancock Variable Series Trust I . . . . 3,139 -- -- --
M Fund Inc. . . . . . . . . . . . . . . . . -- 2 3 6
---------- -------- -------- --------
TOTAL ASSETS . . . . . . . . . . . . . . . . 1,368,796 120,175 160,609 380,822
LIABILITIES
Payable to John Hancock Variable Life 3,117 -- -- --
Insurance Company . . . . . . . . . . . . .
Asset charges payable . . . . . . . . . . . . 22 2 3 6
---------- -------- -------- --------
TOTAL LIABILITIES . . . . . . . . . . . . . . 3,139 2 3 6
---------- -------- -------- --------
NET ASSETS . . . . . . . . . . . . . . . . . $1,365,657 $120,173 $160,606 $380,816
========== ======== ======== ========
</TABLE>
- ---------
See accompanying notes.
25
<PAGE>
JOHN HANCOCK VARIABLE LIFE ACCOUNT U
STATEMENTS OF OPERATIONS
FOR THE YEARS AND PERIODS ENDED DECEMBER 31,
<TABLE>
<CAPTION>
Large Cap Growth Subaccount Sovereign Bond Subaccount
-------------------------------------- --------------------------------------
1997 1996 1995 1997 1996 1995
----------- ------------ ----------- ----------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
Investment income:
Distributions received from:
John Hancock Variable Series
Trust I . . . . . . . . . . . $ 7,675,850 $ 9,763,606 $ 3,899,925 $17,409,990 $15,986,241 $16,214,565
M Fund Inc. . . . . . . . . . -- -- -- -- -- --
Interest income on policy loans 875,892 881,144 755,070 3,926,698 3,908,756 3,820,851
----------- ----------- ----------- ----------- ----------- -----------
Total investment income . . . . 8,551,742 10,644,750 4,654,995 21,336,688 19,894,997 20,035,416
Expenses:
Mortality and expense
risks . . . . . . . . . . . . 480,057 381,331 278,461 1,514,127 1,444,137 1,372,266
----------- ----------- ----------- ----------- ----------- -----------
Net investment income
(loss) . . . . . . . . . . . . 8,071,685 10,263,419 4,376,534 19,822,561 18,450,860 18,663,150
Net realized and unrealized gain
(loss) on investments:
Net realized gain (loss) . . . 4,216,904 840,044 465,096 1,088,488 690,912 331,252
Net unrealized appreciation
(depreciation) during the
period . . . . . . . . . . . . 7,920,403 (889,487) 6,578,435 2,987,952 (8,059,332) 18,687,187
----------- ----------- ----------- ----------- ----------- -----------
Net realized and unrealized gain
(loss) on investments . . . . . 12,137,307 (49,443) 7,043,531 4,076,440 (7,368,420) 19,018,439
----------- ----------- ----------- ----------- ----------- -----------
Net increase (decrease) in net
assets resulting from operations $20,208,992 $10,213,976 $11,420,065 $23,899,001 $11,082,440 $37,681,589
=========== =========== =========== =========== =========== ===========
<CAPTION>
Small Cap
International Equities Growth International Balanced
Subaccount Subaccount Subaccount
---------------------------------- ------------------- -----------------------
1997 1996 1995 1997 1996* 1997 1996*
------------ ---------- -------- --------- --------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Investment income:
Distributions received from:
John Hancock Variable Series $ 840,616 $ 166,193 $114,316 $ 976 $ 1,207 $ 30,867 $2,850
Trust I . . . . . . . . . . .
M Fund Inc. . . . . . . . . . -- -- -- -- -- -- --
Interest income on policy loans 170,905 161,938 146,076 -- -- -- --
----------- ---------- -------- -------- -------- -------- ------
Total investment income . . . . 1,011,521 328,131 260,392 976 1,207 30,867 2,850
Expenses:
Mortality and expense
risks . . . . . . . . . . . . 107,415 85,694 65,044 11,175 2,956 2,758 301
----------- ---------- -------- -------- -------- -------- ------
Net investment income 904,106 242,437 195,348 (10,199) (1,749) 28,109 2,549
(loss) . . . . . . . . . . . .
Net realized and unrealized gain (loss) on investments:
Net realized gain (loss) . . . 209,781 254,188 294,206 34,153 (2,047) 12,000 65
Net unrealized appreciation
(depreciation) during the (2,036,425)
period . . . . . . . . . . . . ----------- 676,006 353,155 226,085 (24,023) (41,999) 3,632
---------- -------- -------- -------- -------- ------
Net realized and unrealized gain
(loss) on investments . . . . . (1,826,644) 930,194 647,361 260,238 (26,070) (29,999) 3,697
----------- ---------- -------- -------- -------- -------- ------
Net increase (decrease) in net
assets resulting from operations $ (922,538) $1,172,631 $842,709 $250,039 $(27,819) $ (1,890) $6,246
=========== ========== ======== ======== ======== ======== ======
</TABLE>
- ---------
* From May 1, 1996 (commencement of operations).
See accompanying notes.
26
<PAGE>
JOHN HANCOCK VARIABLE LIFE ACCOUNT U
STATEMENTS OF OPERATIONS (CONTINUED)
FOR THE YEARS AND PERIODS ENDED DECEMBER 31,
<TABLE>
<CAPTION>
Mid Cap Growth Large Cap Value
Subaccount Subaccount Money Market Subaccount
------------------ ------------------ ----------------------------------
1997 1996* 1997 1996* 1997 1996 1995
--------- -------- -------- -------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Investment income:
Distributions received from:
John Hancock Variable Series
Trust I . . . . . . . . . . . . . . . . $ -- $ 1,635 $266,440 $ 72,511 $2,746,662 $2,527,378 $2,690,892
M Fund Inc. . . . . . . . . . . . . . . -- -- -- -- -- --
Interest income on policy loans . . . . . -- -- -- -- 957,390 929,499 952,455
-------- ------- -------- -------- ---------- ---------- ----------
Total investment income . . . . . . . . . -- 1,635 266,440 72,511 3,704,052 3,456,877 3,643,347
Expenses:
Mortality and expense risks . . . . . . . 5,801 814 25,295 8,169 361,409 342,603 340,195
-------- ------- -------- -------- ---------- ---------- ----------
Net investment income (loss) . . . . . . . (5,801) 821 241,145 64,342 3,342,641 3,114,274 3,303,152
Net realized and unrealized gain (loss) on
investments:
Net realized gain . . . . . . . . . . . . 394 1,295 217,073 11,265 -- -- --
Net unrealized appreciation (depreciation)
during the period . . . . . . . . . . . 199,441 (3,899) 532,936 197,424 -- -- --
-------- ------- -------- -------- ---------- ---------- ----------
Net realized and unrealized gain (loss) on
investments . . . . . . . . . . . . . . . 199,835 (2,604) 750,009 208,689 -- -- --
-------- ------- -------- -------- ---------- ---------- ----------
Net increase (decrease) in net assets
resulting from operations . . . . . . . . $194,034 $(1,783) $991,154 $273,031 $3,342,641 $3,114,274 $3,303,152
======== ======= ======== ======== ========== ========== ==========
<CAPTION>
Mid Cap Value
Subaccount Special Opportunities Subaccount
------------------ ----------------------------------
1997 1996* 1997 1996 1995
--------- ------- ------------- --------- -----------
<S> <C> <C> <C> <C> <C>
Investment income:
Distributions received from:
John Hancock Variable Series $178,590 $ 7,418 $ 1,022,881 $265,602 $ 39,684
Trust I . . . . . . . . . . . . . . . .
M Fund Inc. . . . . . . . . . . . . . . -- -- -- -- --
Interest income on policy loans . . . . . -- -- -- -- --
-------- ------- ----------- -------- --------
Total investment income . . . . . . . . . 178,590 7,418 1,022,881 265,602 39,684
Expenses:
Mortality and expense risks . . . . . . . 6,329 580 54,469 23,603 3,373
-------- ------- ----------- -------- --------
Net investment income (loss) . . . . . . . 172,261 6,838 968,412 241,999 36,311
Net realized and unrealized gain (loss) on
investments:
Net realized gain . . . . . . . . . . . . 121,152 1,099 533,297 125,955 11,582
Net unrealized appreciation (depreciation)
during the period . . . . . . . . . . . (86,033) 23,234 (1,073,252) 615,079 124,460
-------- ------- ----------- -------- --------
Net realized and unrealized gain (loss) on
investments . . . . . . . . . . . . . . . 35,119 24,333 (539,955) 741,034 136,042
-------- ------- ----------- -------- --------
Net increase (decrease) in net assets
resulting from operations . . . . . . . . $207,380 $31,171 $ 428,457 $983,033 $172,353
======== ======= =========== ======== ========
</TABLE>
- ---------
* From May 1, 1996 (commencement of operations).
See accompanying notes.
27
<PAGE>
JOHN HANCOCK VARIABLE LIFE ACCOUNT U
STATEMENTS OF OPERATIONS (CONTINUED)
FOR THE YEARS AND PERIODS ENDED DECEMBER 31,
<TABLE>
<CAPTION>
Real Estate Equity Subaccount Growth & Income Subaccount
-------------------------------- ----------------------------------------
1997 1996 1995 1997 1996 1995
---------- ---------- -------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Investment income:
Distributions received from:
John Hancock Variable Series Trust
I . . . . . . . . . . . . . . . . $ 957,079 $ 477,763 $409,525 $ 99,799,718 $ 78,415,408 $ 51,822,706
M Fund Inc. . . . . . . . . . . . -- -- -- -- -- --
Interest income on policy
loans . . . . . . . . . . . . . . 140,515 117,955 121,494 10,448,315 9,420,070 8,594,774
---------- ---------- -------- ------------ ------------ ------------
Total investment income . . . . . . 1,097,596 595,718 531,019 110,248,033 87,835,478 60,417,480
Expenses:
Mortality and expense risks . . . . 76,454 50,069 41,982 4,658,703 3,854,562 3,246,229
---------- ---------- -------- ------------ ------------ ------------
Net investment income . . . . . . . 1,021,142 545,649 489,037 105,589,330 83,980,916 57,171,251
Net realized and unrealized gain
(loss) on investments:
Net realized gain (loss) . . . . . 551,925 9,177 97,602 16,543,458 15,416,898 6,161,063
Net unrealized appreciation
(depreciation) during the period . 447,661 1,862,071 184,090 67,250,127 12,987,718 81,121,360
---------- ---------- -------- ------------ ------------ ------------
Net realized and unrealized gain
(loss) on investments . . . . . . . 999,586 1,871,248 281,692 83,793,585 28,404,616 87,282,423
---------- ---------- -------- ------------ ------------ ------------
Net increase in net assets resulting
from operations . . . . . . . . . . $2,020,728 $2,416,897 $770,729 $189,382,915 $112,385,532 $144,453,674
========== ========== ======== ============ ============ ============
<CAPTION>
Short-Term U.S.
Managed Subaccount Government Subaccount
--------------------------------------- -------------------------
1997 1996 1995 1997 1996 1995
----------- ------------- ----------- ------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Investment income:
Distributions received from:
John Hancock Variable Series Trust $32,757,460 $ 37,103,617 $26,974,536 $22,079 $11,196 $2,910
I . . . . . . . . . . . . . . . .
M Fund Inc. . . . . . . . . . . . -- -- -- -- -- --
Interest income on policy
loans . . . . . . . . . . . . . . 4,669,363 4,337,281 3,999,425 -- -- --
----------- ------------ ----------- ------- ------- ------
Total investment income . . . . . . 37,426,823 41,440,898 30,973,961 22,079 11,196 2,910
Expenses:
Mortality and expense risks . . . . 2,111,314 1,886,000 1,677,243 2,202 1,201 312
----------- ------------ ----------- ------- ------- ------
Net investment income . . . . . . . 35,315,509 39,554,898 29,296,718 19,877 9,995 2,598
Net realized and unrealized gain
(loss) on investments:
Net realized gain (loss) . . . . . 5,663,060 3,870,923 2,658,955 235 (922) 945
Net unrealized appreciation
(depreciation) during the period . 16,843,903 (11,548,110) 30,787,175 1,405 (1,542) 1,166
----------- ------------ ----------- ------- ------- ------
Net realized and unrealized gain
(loss) on investments . . . . . . . 22,506,963 (7,677,187) 33,446,130 1,640 (2,464) 2,111
----------- ------------ ----------- ------- ------- ------
Net increase in net assets resulting
from operations . . . . . . . . . . $57,822,472 $ 31,877,711 $62,742,848 $21,517 $ 7,531 $4,709
=========== ============ =========== ======= ======= ======
</TABLE>
- ---------
See accompanying notes.
28
<PAGE>
JOHN HANCOCK VARIABLE LIFE ACCOUNT U
STATEMENTS OF OPERATIONS (CONTINUED)
FOR THE YEARS AND PERIODS ENDED DECEMBER 31,
<TABLE>
<CAPTION>
Small Cap
Value International Opportunities Equity Index Strategic Bond
Subaccount Subaccount Subaccount Subaccount
------------------ ---------------------------- ------------------- -----------------
1997 1996* 1997 1996* 1997 1996* 1997 1996*
--------- ------- --------------- ------------ ---------- ------- -------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Investment income:
Distributions received from:
John Hancock Variable Series
Trust I . . . . . . . . . . . $256,363 $23,766 $ 35,111 $ 5,965 $ 220,686 $ 7,847 $84,597 $29,029
M Fund Inc. . . . . . . . . . -- -- -- -- -- -- -- --
Interest income on policy
loans . . . . . . . . . . . . -- -- -- -- -- -- -- --
-------- ------- --------- ------- ---------- ------- ------- -------
Total investment income . . . . 256,363 23,766 35,111 5,965 220,686 7,847 84,597 29,029
Expenses:
Mortality and expense risks . . 10,530 2,451 11,575 3,038 28,637 575 5,827 1,782
-------- ------- --------- ------- ---------- ------- ------- -------
Net investment income (loss) . . 245,833 21,315 23,536 2,927 192,049 7,272 78,770 27,247
Net realized and unrealized gain
(loss) on investments:
Net realized gain (loss) . . . 129,604 891 78,058 304 38,987 3,982 5,891 1,518
Net unrealized appreciation
(depreciation) during the
period . . . . . . . . . . . . (32,439) 49,892 (141,034) 57,387 1,193,531 13,544 (3,195) 6,688
-------- ------- --------- ------- ---------- ------- ------- -------
Net realized and unrealized gain
(loss) on investments . . . . . 97,165 50,783 (62,976) 57,691 1,232,518 17,526 2,696 8,206
-------- ------- --------- ------- ---------- ------- ------- -------
Net increase (decrease) in net
assets resulting from operations $342,998 $72,098 $ (39,440) $60,618 $1,424,567 $24,798 $81,466 $35,453
======== ======= ========= ======= ========== ======= ======= =======
<CAPTION>
Edinburgh Frontier
Turner Core Growth International Equity Capital Appreciation
Subaccount Subaccount Subaccount
------------------- --------------------- ---------------------
1997 1996* 1997 1996* 1997 1996*
--------- -------- --------- ----------- --------- ------------
<S> <C> <C> <C> <C> <C> <C>
Investment income:
Distributions received from:
John Hancock Variable Series $11,090 $ -- $ -- $ -- $ -- $ --
Trust I . . . . . . . . . . .
M Fund Inc. . . . . . . . . . -- 415 2,278 255 8,986 --
Interest income on policy
loans . . . . . . . . . . . . -- -- -- -- --
------- ----- ------ ------- ------- -------
Total investment income . . . . 11,090 415 2,278 255 8,986
Expenses:
Mortality and expense risks . . 505 31 746 122 1,464 112
------- ----- ------ ------- ------- -------
Net investment income (loss) . . 10,585 384 1,532 133 7,522 (112)
Net realized and unrealized gain
(loss) on investments:
Net realized gain (loss) . . . 3,166 (238) 133 (1,091) 9,048 (1,199)
Net unrealized appreciation
(depreciation) during the 12,370
period . . . . . . . . . . . . ------- 456 2,674 (345) 40,541 2,105
----- ------ ------- ------- -------
Net realized and unrealized gain
(loss) on investments . . . . . 15,536 218 2,807 (1,436) 49,589 906
------- ----- ------ ------- ------- -------
Net increase (decrease) in net
assets resulting from operations $26,121 $ 602 $4,339 $(1,303) $57,111 $ 794
======= ===== ====== ======= ======= =======
</TABLE>
- ---------
* From May 1, 1996 (commencement of operations).
See accompanying notes.
29
<PAGE>
JOHN HANCOCK VARIABLE LIFE ACCOUNT U
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE YEARS AND PERIODS ENDED DECEMBER 31,
<TABLE>
<CAPTION>
Large Cap Growth Subaccount Sovereign Bond Subaccount
----------------------------------------- ------------------------------------------
1997 1996 1995 1997 1996 1995
------------- ------------- ------------ ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Increase (decrease) in net
assets from operations:
Net investment income (loss) $ 8,071,685 $ 10,263,419 $ 4,376,534 $ 19,822,561 $ 18,450,860 $ 18,663,150
Net realized gains
(losses) . . . . . . . . . . 4,216,904 840,044 465,096 1,088,488 690,912 331,252
Net unrealized appreciation
(depreciation) during the
period . . . . . . . . . . . 7,920,403 (889,487) 6,578,435 2,987,952 (8,059,332) 18,687,187
------------ ------------ ----------- ------------ ------------ ------------
Net increase (decrease) in net
assets resulting from
operations. . . . . . . . . . 20,208,992 10,213,976 11,420,065 23,899,001 11,082,440 37,681,589
From policyholder transactions:
Net premiums from
policyholders. . . . . . . . 18,819,133 20,123,261 12,618,748 31,136,450 34,090,208 31,560,554
Net benefits to policyholders (19,915,971) (11,910,005) (9,566,825) (39,506,771) (40,719,213) (39,010,974)
Net increase (decrease) in
policy loans . . . . . . . . (41,068) 2,044,193 1,614,283 1,612,490 897,069 2,053,700
------------ ------------ ----------- ------------ ------------ ------------
Net increase (decrease) in net
assets resulting from
policyholder
transactions . . . . . . . . (1,137,906) 10,257,449 4,666,206 (6,757,831) (5,731,936) (5,396,720)
------------ ------------ ----------- ------------ ------------ ------------
Net increase in net assets . . 19,071,086 20,471,425 16,086,271 17,141,170 5,350,504 32,284,869
Net assets at beginning of
period. . . . . . . . . . . . 79,355,920 58,884,495 42,798,224 269,018,711 263,668,207 231,383,338
------------ ------------ ----------- ------------ ------------ ------------
Net assets at end of
period . . . . . . . . . . . $ 98,427,006 $ 79,355,920 $58,884,495 $286,159,881 $269,018,711 $263,668,207
============ ============ =========== ============ ============ ============
<CAPTION>
Small Cap
Growth International Balanced
International Equities Subaccount Subaccount Subaccount
--------------------------------------- ----------------------- -----------------------
1997 1996 1995 1997 1996* 1997 1996*
------------ ------------ ------------ ----------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Increase (decrease) in net
assets from operations:
Net investment income (loss) $ 904,106 $ 242,437 $ 195,348 $ (10,199) $ (1,749) $ 28,109 $ 2,549
Net realized gains 209,781 254,188 294,206 34,153 (2,047) 12,000 65
(losses) . . . . . . . . . .
Net unrealized appreciation
(depreciation) during the (2,036,425)
period . . . . . . . . . . . ----------- 676,006 353,155 226,085 (24,023) (41,999) 3,632
----------- ----------- ---------- ---------- --------- --------
Net increase (decrease) in net (922,538) 1,172,631 842,709 250,039 (27,819) (1,890) 6,246
assets resulting from
operations. . . . . . . . . .
From policyholder transactions:
Net premiums from 6,398,146 8,485,184 4,546,347 1,906,439 1,361,402 602,033 216,486
policyholders. . . . . . . .
Net benefits to policyholders (4,052,306) (4,391,767) (4,766,724) (626,114) (129,738) (102,953) (5,403)
Net increase (decrease) in
policy loans . . . . . . . . 41,466 287,879 192,805 -- -- -- --
----------- ----------- ----------- ---------- ---------- --------- --------
Net increase (decrease) in net
assets resulting from 2,387,306 4,381,296 (27,572) 1,280,325 1,231,664 499,080 211,083
policyholder ----------- ----------- ----------- ---------- ---------- --------- --------
transactions . . . . . . . .
Net increase in net assets . . 1,464,768 5,553,927 815,137 1,530,364 1,203,845 497,190 217,329
Net assets at beginning of
period. . . . . . . . . . . . 17,945,258 12,391,331 11,576,194 1,203,845 -- 217,329 --
----------- ----------- ----------- ---------- ---------- --------- --------
Net assets at end of
period . . . . . . . . . . . $19,410,026 $17,945,258 $12,391,331 $2,734,209 $1,203,845 $ 714,519 $217,329
=========== =========== =========== ========== ========== ========= ========
</TABLE>
- ---------
* From May 1, 1996 (commencement of operations).
See accompanying notes.
30
<PAGE>
JOHN HANCOCK VARIABLE LIFE ACCOUNT U
STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED)
FOR THE YEARS AND PERIODS ENDED DECEMBER 31,
<TABLE>
<CAPTION>
Mid Cap Growth Large Cap Value
Subaccount Subaccount Money Market Subaccount
--------------------- ------------------------ ------------------------------------------
1997 1996* 1997 1996* 1997 1996 1995
----------- --------- ------------ ----------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Increase (decrease) in net
assets from operations:
Net investment income
(loss). . . . . . . . . . $ (5,801) $ 821 $ 241,145 $ 64,342 $ 3,342,641 $ 3,114,274 $ 3,303,152
Net realized gains . . . . 394 1,295 217,073 11,265 -- -- --
Net unrealized appreciation
(depreciation) during the
period. . . . . . . . . . 199,441 (3,899) 532,936 197,424 -- -- --
---------- -------- ----------- ---------- ------------ ------------ ------------
Net increase (decrease) in
net assets resulting from
operations . . . . . . . . 194,034 (1,783) 991,154 273,031 3,342,641 3,114,274 3,303,152
From policyholder
transactions:
Net premiums from
policyholders . . . . . . 1,031,218 599,576 3,739,319 2,999,086 19,023,054 15,561,906 11,104,365
Net benefits to
policyholders . . . . . . (294,344) (30,542) (1,140,574) (348,016) (20,817,572) (16,132,881) (12,775,695)
Net increase (decrease) in
policy loans . . . . . . -- -- -- -- 390,775 (260,051) (323,666)
---------- -------- ----------- ---------- ------------ ------------ ------------
Net increase (decrease) in
net assets resulting from
policyholder
transactions . . . . . . . 736,874 569,034 2,598,745 2,651,070 (1,403,743) (831,026) (1,994,996)
---------- -------- ----------- ---------- ------------ ------------ ------------
Net increase in net assets 930,908 567,251 3,589,899 2,924,101 1,938,898 2,283,248 1,308,156
Net assets at beginning of
period . . . . . . . . . . 567,251 -- 2,924,101 -- 63,668,933 61,385,685 60,077,529
---------- -------- ----------- ---------- ------------ ------------ ------------
Net assets at end of
period . . . . . . . . . . $1,498,159 $567,251 $ 6,514,000 $2,924,101 $ 65,607,831 $ 63,668,933 $ 61,385,685
========== ======== =========== ========== ============ ============ ============
<CAPTION>
Mid Cap Value
Subaccount Special Opportunities Subaccount
--------------------- --------------------------------------
1997 1996* 1997 1996 1995
----------- --------- ------------ ------------ -------------
<S> <C> <C> <C> <C> <C>
Increase (decrease) in net
assets from operations:
Net investment income $ 172,261 $ 6,838 $ 968,412 $ 241,999 $ 36,311
(loss). . . . . . . . . .
Net realized gains . . . . 121,152 1,099 533,297 125,955 11,582
Net unrealized appreciation
(depreciation) during the (86,033)
period. . . . . . . . . . ---------- 23,234 (1,073,252) 615,079 124,460
-------- ----------- ----------- ----------
Net increase (decrease) in 207,380 31,171 428,457 983,033 172,353
net assets resulting from
operations . . . . . . . .
From policyholder
transactions:
Net premiums from 2,070,644 337,092 6,338,416 5,492,467 1,682,424
policyholders . . . . . .
Net benefits to (190,430) (9,035) (3,379,629) (1,284,991) (182,908)
policyholders . . . . . .
Net increase (decrease) in
policy loans . . . . . . -- -- -- -- --
---------- -------- ----------- ----------- ----------
Net increase (decrease) in
net assets resulting from 1,880,214 328,057 2,958,787 4,207,476 1,499,516
policyholder ---------- -------- ----------- ----------- ----------
transactions . . . . . . .
Net increase in net assets 2,087,594 359,228 3,387,244 5,190,509 1,671,869
Net assets at beginning of
period . . . . . . . . . . 359,228 -- 6,900,122 1,709,613 37,744
---------- -------- ----------- ----------- ----------
Net assets at end of
period . . . . . . . . . . $2,446,822 $359,228 $10,287,366 $ 6,900,122 $1,709,613
========== ======== =========== =========== ==========
</TABLE>
- ---------
* From May 1, 1996 (commencement of operations).
See accompanying notes.
31
<PAGE>
JOHN HANCOCK VARIABLE LIFE ACCOUNT U
STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED)
FOR THE YEARS AND PERIODS ENDED DECEMBER 31,
<TABLE>
<CAPTION>
Real Estate Equity Subaccount Growth & Income Subaccount
--------------------------------------- --------------------------------------------
1997 1996 1995 1997 1996 1995
------------ ------------ ------------ -------------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Increase in net assets from
operations:
Net investment income . . . . . . . $ 1,021,142 $ 545,649 $ 489,037 $ 105,589,330 $ 83,980,916 $ 57,171,251
Net realized gains
(losses) . . . . . . . . . . . . . 551,925 9,177 97,602 16,543,458 15,416,898 6,161,063
Net unrealized appreciation
(depreciation) during the period . 447,661 1,862,071 184,090 67,250,127 12,987,718 81,121,360
----------- ----------- ----------- ------------- ------------- ------------
Net increase in net assets resulting
from operations . . . . . . . . . . 2,020,728 2,416,897 770,729 189,382,915 112,385,532 144,453,674
From policyholder transactions:
Net premiums from policyholders . . 7,786,904 3,620,035 2,176,970 86,308,294 76,046,396 73,672,198
Net benefits to
policyholders . . . . . . . . . . . (5,481,110) (2,413,828) (2,711,578) (115,839,460) (102,757,132) (90,829,678)
Net increase in policy
loans . . . . . . . . . . . . . . . 265,517 156,802 30,224 18,568,293 11,816,577 10,173,483
----------- ----------- ----------- ------------- ------------- ------------
Net increase (decrease) in net assets
resulting from policyholder
transactions. . . . . . . . . . . . 2,571,311 1,363,009 (504,384) (10,962,873) (14,894,159) (6,983,997)
----------- ----------- ----------- ------------- ------------- ------------
Net increase in net assets . . . . . 4,592,039 3,779,906 266,345 178,420,042 97,491,373 137,469,677
Net assets at beginning of
period . . . . . . . . . . . . . . 11,650,076 7,870,170 7,603,825 756,244,834 658,753,461 521,283,784
----------- ----------- ----------- ------------- ------------- ------------
Net assets at end of period . . . . $16,242,115 $11,650,076 $ 7,870,170 $ 934,664,876 $ 756,244,834 $658,753,461
=========== =========== =========== ============= ============= ============
<CAPTION>
Short-Term U.S.
Managed Subaccount Government Subaccount
------------------------------------------ -------------------------------
1997 1996 1995 1997 1996 1995
------------- ------------- ------------- ---------- --------- -----------
<S> <C> <C> <C> <C> <C> <C>
Increase in net assets from
operations:
Net investment income . . . . . . . $ 35,315,509 $ 39,554,898 $ 29,296,718 $ 19,877 $ 9,995 $ 2,598
Net realized gains 5,663,060 3,870,923 2,658,955 235 (922) 945
(losses) . . . . . . . . . . . . .
Net unrealized appreciation
(depreciation) during the period . 16,843,903 (11,548,110) 30,787,175 1,405 (1,542) 1,166
------------ ------------ ------------ --------- -------- --------
Net increase in net assets resulting 57,822,472 31,877,711 62,742,848 21,517 7,531 4,709
from operations . . . . . . . . . .
From policyholder transactions:
Net premiums from policyholders . . 40,318,523 40,512,423 38,619,260 278,114 328,192 94,623
Net benefits to (54,498,285) (52,043,620) (47,824,820) (218,771) (90,988) (21,753)
policyholders . . . . . . . . . . .
Net increase in policy
loans . . . . . . . . . . . . . . . 4,761,829 4,766,548 5,387,424 -- -- --
------------ ------------ ------------ --------- -------- --------
Net increase (decrease) in net assets
resulting from policyholder (9,417,933)
transactions. . . . . . . . . . . . ------------ (6,764,649) (3,818,136) 59,343 237,204 72,870
------------ ------------ --------- -------- --------
Net increase in net assets . . . . . 48,404,539 25,113,062 58,924,712 80,860 244,735 77,579
Net assets at beginning of
period . . . . . . . . . . . . . . 362,422,826 337,309,764 278,385,052 328,711 83,976 6,397
------------ ------------ ------------ --------- -------- --------
Net assets at end of period . . . . $410,827,365 $362,422,826 $337,309,764 $ 409,571 $328,711 $ 83,976
============ ============ ============ ========= ======== ========
</TABLE>
- ---------
See accompanying notes.
32
<PAGE>
JOHN HANCOCK VARIABLE LIFE ACCOUNT U
STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED)
FOR THE YEARS AND PERIODS ENDED DECEMBER 31,
<TABLE>
<CAPTION>
Small Cap
Value International Opportunities Equity Index
Subaccount Subaccount Subaccount
---------------------- ---------------------------- ---------------------
1997 1996* 1997 1996* 1997 1996*
----------- ---------- ------------- ------------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
Increase (decrease) in net
assets from operations:
Net investment income
(loss) . . . . . . . . . $ 245,833 $ 21,315 $ 23,536 $ 2,927 $ 192,049 $ 7,272
Net realized gains
(losses) . . . . . . . . 129,604 891 78,058 304 38,987 3,982
Net unrealized
appreciation
(depreciation) during the
period . . . . . . . . . (32,439) 49,892 (141,034) 57,387 1,193,531 13,544
---------- --------- ---------- ---------- ---------- --------
Net increase (decrease) in
net assets resulting from
operations. . . . . . . . 342,998 72,098 (39,440) 60,618 1,424,567 24,798
From policyholder
transactions:
Net premiums from
policyholders. . . . . . 2,466,836 925,601 1,969,364 1,364,628 6,068,371 350,310
Net benefits to
policyholders. . . . . . (358,679) (105,966) (709,490) (118,737) (260,531) (31,362)
Net increase in policy
loans. . . . . . . . . . -- -- -- -- -- --
---------- --------- ---------- ---------- ---------- --------
Net increase in net assets
resulting from
policyholder transactions 2,108,157 819,635 1,259,874 1,245,891 5,807,840 318,948
---------- --------- ---------- ---------- ---------- --------
Net increase in net assets 2,451,155 891,733 1,220,434 1,306,509 7,232,407 343,746
Net assets at beginning of
period. . . . . . . . . . 891,733 -- 1,306,509 -- 343,746 --
---------- --------- ---------- ---------- ---------- --------
Net assets at end of
period . . . . . . . . . $3,342,888 $ 891,733 $2,526,943 $1,306,509 $7,576,153 $343,746
========== ========= ========== ========== ========== ========
<CAPTION>
Frontier
Turner Core Edinburgh Capital
Strategic Bond Growth International Appreciation
Subaccount Subaccount Equity Subaccount Subaccount
--------------------- ------------------- ------------------- -------------------
1997 1996* 1997 1996* 1997 1996* 1997 1996*
----------- --------- --------- --------- --------- --------- --------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Increase (decrease) in net
assets from operations:
Net investment income $ 78,770 $ 27,247 $ 10,585 $ 384 $ 1,532 $ 133 $ 7,522 $ (112)
(loss) . . . . . . . . .
Net realized gains 5,891 1,518 3,166 (238) 133 (1,091) 9,048 (1,199)
(losses) . . . . . . . .
Net unrealized
appreciation (3,195) 6,688 12,370 456 2,674 (345) 40,541 2,105
(depreciation) during the ---------- -------- -------- -------- -------- -------- -------- --------
period . . . . . . . . .
Net increase (decrease) in 81,466 35,453 26,121 602 4,339 (1,303) 57,111 794
net assets resulting from
operations. . . . . . . .
From policyholder
transactions:
Net premiums from 807,985 718,958 91,440 26,825 146,796 68,170 327,804 58,477
policyholders. . . . . .
Net benefits to (201,240) (76,965) (9,878) (14,937) (34,985) (22,411) (47,276) (16,094)
policyholders. . . . . .
Net increase in policy
loans. . . . . . . . . . -- -- -- -- -- -- -- --
---------- -------- -------- -------- -------- -------- -------- --------
Net increase in net assets
resulting from 606,745
policyholder transactions ---------- 641,993 81,562 11,888 111,811 45,759 280,528 42,383
-------- -------- -------- -------- -------- -------- --------
Net increase in net assets 688,211 677,446 107,683 12,490 116,150 44,456 337,639 43,177
Net assets at beginning of
period. . . . . . . . . . 677,446 -- 12,490 -- 44,456 -- 43,177 --
---------- -------- -------- -------- -------- -------- -------- --------
Net assets at end of
period . . . . . . . . . $1,365,657 $677,446 $120,173 $ 12,490 $160,606 $ 44,456 $380,816 $ 43,177
========== ======== ======== ======== ======== ======== ======== ========
</TABLE>
- ---------
* From May 1, 1996 (commencement of operations).
See accompanying notes.
33
<PAGE>
JOHN HANCOCK VARIABLE LIFE ACCOUNT U
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
1. ORGANIZATION
John Hancock Variable Life Account U (the Account) is a separate investment
account of John Hancock Variable Life Insurance Company (JHVLICO), a
wholly-owned subsidiary of John Hancock Mutual Life Insurance Company (John
Hancock). The Account was formed to fund variable life insurance policies
(Policies) issued by JHVLICO. The Account is operated as a unit investment trust
registered under the Investment Company Act of 1940, as amended, and currently
consists of twenty-one subaccounts. The assets of each subaccount are invested
exclusively in shares of a corresponding Portfolio of John Hancock Variable
Series Trust I (the Fund) or of M Fund Inc. (M Fund). New subaccounts may be
added as new Portfolios are added to the Fund or to M Fund, or as other
investment options are developed and made available to policyholders. The
twenty-one Portfolios of the Fund and M Fund which are currently available are
the Large Cap Growth, Sovereign Bond, International Equities, Small Cap Growth,
International Balanced, Mid Cap Growth, Large Cap Value, Money Market, Mid Cap
Value, Special Opportunities, Real Estate Equity, Growth & Income, Managed,
Short-Term U.S. Government, Small Cap Value, International Opportunities, Equity
Index, Strategic Bond, Turner Core Growth, Edinburgh International Equity and
Frontier Capital Appreciation Portfolios. Each Portfolio has a different
investment objective.
The net assets of the Account may not be less than the amount required under
state insurance law to provide for death benefits (without regard to the minimum
death benefit guarantee) and other policy benefits. Additional assets are held
in JHVLICO's general account to cover the contingency that the guaranteed
minimum death benefit might exceed the death benefit which would have been
payable in the absence of such guarantee.
The assets of the Account are the property of JHVLICO. The portion of the
Account's assets applicable to the policies may not be charged with liabilities
arising out of any other business JHVLICO may conduct.
2. SIGNIFICANT ACCOUNTING POLICIES
ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities, and disclosure of
contingent assets and liabilities, at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
VALUATION OF INVESTMENTS
Investment in shares of the Fund and of M Fund are valued at the reported net
asset values of the respective Portfolios. Investment transactions are recorded
on the trade date. Dividend income is recognized on the ex-dividend date.
Realized gains and losses on sales of Fund shares are determined on the basis of
identified cost.
FEDERAL INCOME TAXES
The operations of the Account are included in the federal income tax return of
JHVLICO, which is taxed as a life insurance company under the Internal Revenue
Code. JHVLICO has the right to charge the Account any federal
34
<PAGE>
JOHN HANCOCK VARIABLE LIFE ACCOUNT U
NOTES TO FINANCIAL STATEMENTS--CONTINUED
2. SIGNIFICANT ACCOUNTING POLICIES--CONTINUED
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 an annual rate of .50% of net
assets (excluding policy loans) of the Account. Additionally, a monthly charge
at varying levels for the cost of extra insurance is deducted from the net
assets of the Account.
JHVLICO makes certain deductions for administrative expenses and state premium
taxes from premium payments before amounts are transferred to the Account. With
respect to the single premium policy, during the first nine years after policy
issue, JHVLICO assesses a contingent deferred sales charge at varying levels in
the event of early surrender of the variable life insurance policy.
POLICY LOANS
Policy loans represent outstanding loans plus accrued interest. Interest is
accrued (net of a charge for policy loan administration determined at an annual
rate of .75% of the aggregate amount of policyowner indebtedness) and compounded
daily.
3. TRANSACTIONS WITH AFFILIATES
John Hancock acts as the distributor, principal underwriter and investment
advisor for the Fund.
Certain officers of the Account are officers and directors of JHVLICO, the
Fund or John Hancock.
35
<PAGE>
JOHN HANCOCK VARIABLE LIFE ACCOUNT U
NOTES TO FINANCIAL STATEMENTS--CONTINUED
4. DETAILS OF INVESTMENTS
The details of the shares owned and cost and value of investments in the
Portfolios of the Fund and of M Fund at December 31, 1997 are as follows:
<TABLE>
<CAPTION>
Subaccount Shares Owned Cost Value
- ---------- ------------ ---- -----
<S> <C> <C> <C>
Large Cap Growth . . . . . . . . . 4,078,092 $ 68,916,212 $ 84,901,398
Sovereign Bond . . . . . . . . . . 23,333,736 223,991,303 232,146,861
International Equities . . . . . . 1,124,834 18,037,326 17,097,290
Small Cap Growth . . . . . . . . . 241,028 2,532,147 2,734,209
International Balanced . . . . . . 70,673 752,885 714,519
Mid Cap Growth . . . . . . . . . . 125,626 1,302,617 1,498,159
Large Cap Value . . . . . . . . . 480,042 5,783,639 6,514,000
Money Market . . . . . . . . . . . 5,232,520 52,325,203 52,325,203
Mid Cap Value . . . . . . . . . . 176,461 2,509,621 2,446,822
Special Opportunities . . . . . . 668,657 10,620,059 10,287,366
Real Estate Equity . . . . . . . . 891,297 11,860,098 14,180,979
Growth & Income . . . . . . . . . 47,185,076 609,098,074 783,532,141
Managed . . . . . . . . . . . . . 23,942,536 299,610,112 343,560,761
Short-Term U.S. Government . . . . 40,619 408,569 409,571
Small Cap Value . . . . . . . . . 269,559 3,325,435 3,342,888
International Opportunities . . . 237,781 2,610,591 2,526,943
Equity Index . . . . . . . . . . . 533,037 6,369,079 7,576,153
Strategic Bond . . . . . . . . . . 133,330 1,362,164 1,365,657
Turner Core Growth . . . . . . . . 8,902 107,347 120,173
Edinburgh International Equity . . 16,125 157,586 160,606
Frontier Capital Appreciation . . 25,524 336,170 380,816
</TABLE>
36
<PAGE>
JOHN HANCOCK VARIABLE LIFE ACCOUNT U
NOTES TO FINANCIAL STATEMENTS--CONTINUED
4. DETAILS OF INVESTMENTS--CONTINUED
Purchases, including reinvestment of dividend distributions and proceeds from
the sales of shares in the Portfolios of the Fund and of M Fund during 1997,
were as follows:
<TABLE>
<CAPTION>
Subaccount Purchases Sales
- ---------- --------- -----
<S> <C> <C>
Large Cap Growth . . . . . . . . . . . . . . . . $ 18,054,626 $11,117,321
Sovereign Bond . . . . . . . . . . . . . . . . . 28,657,743 17,278,420
International Equities . . . . . . . . . . . . . 4,819,486 1,572,432
Small Cap Growth . . . . . . . . . . . . . . . . 1,734,388 464,262
International Balanced . . . . . . . . . . . . . 887,438 360,250
Mid Cap Growth . . . . . . . . . . . . . . . . . 975,209 244,136
Large Cap Value . . . . . . . . . . . . . . . . 4,063,067 1,223,177
Money Market . . . . . . . . . . . . . . . . . . 12,878,282 11,354,625
Mid Cap Value . . . . . . . . . . . . . . . . . 2,488,102 435,629
Special Opportunities . . . . . . . . . . . . . 6,380,222 2,453,024
Real Estate Equity . . . . . . . . . . . . . . . 5,670,281 2,350,798
Growth & Income . . . . . . . . . . . . . . . . 114,856,520 39,532,209
Managed . . . . . . . . . . . . . . . . . . . . 44,219,932 23,325,445
Short-Term U.S. Government . . . . . . . . . . . 258,130 178,910
Small Cap Value . . . . . . . . . . . . . . . . 2,975,644 621,653
International Opportunities . . . . . . . . . . 2,281,891 498,481
Equity Index . . . . . . . . . . . . . . . . . . 6,236,380 236,490
Strategic Bond . . . . . . . . . . . . . . . . . 916,713 231,199
Turner Core Growth . . . . . . . . . . . . . . . 107,920 15,771
Edinburgh International Equity . . . . . . . . . 153,964 41,308
Frontier Capital Appreciation . . . . . . . . . 340,664 52,575
</TABLE>
5. IMPACT OF YEAR 2000 (UNAUDITED)
The John Hancock Variable Life Account U, along with John Hancock Mutual Life
Insurance Company, its ultimate parent (together, John Hancock), have developed
a plan to modify or replace significant portions of the Account's computer
information and automated technologies so that its systems will function
properly with respect to the dates in the year 2000 and thereafter. The Account
presently believes that with modifications to existing systems and conversions
to new technologies, the year 2000 will not pose significant operational
problems for its computer systems. However, if certain modifications and
conversions are not made, or are not completed timely, the year 2000 issue could
have an adverse impact on the operations of the Account.
John Hancock as early as 1994 had begun assessing, modifying and converting
the software related to its significant systems and has initiated formal
communications with its significant business partners and customers to determine
the extent to which John Hancock's interface systems are vulnerable to those
third parties' failure to remediate their own year 2000 issues. While John
Hancock is developing alternative third-party processing arrangements as it
deems appropriate, there is no guarantee that the systems of other companies on
which the Account's systems rely will be converted timely or will not have an
adverse effect on the Account's systems.
37
<PAGE>
JOHN HANCOCK VARIABLE LIFE ACCOUNT U
NOTES TO FINANCIAL STATEMENTS--CONTINUED
5. IMPACT OF YEAR 2000 (UNAUDITED)--CONTINUED
The Account expects the project to be substantially complete by early 1999.
This completion target was derived utilizing numerous assumptions of future
events, including availability of certain resources and other factors. However,
there can be no guarantee that this completion target will be achieved.
38
<PAGE>
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
Policyholders
John Hancock Variable Life Account U of John Hancock Variable Life Insurance
Company
We have audited the accompanying statement of assets and liabilities of John
Hancock Variable Life Account U (the Account) (comprising, respectively, the
Large Cap Growth, Sovereign Bond, International Equities, Small Cap Growth,
International Balanced, Mid Cap Growth, Large Cap Value, Money Market, Mid Cap
Value, Special Opportunities, Real Estate Equity, Growth & Income, Managed,
Short-Term U.S. Government, Small Cap Value, International Opportunities, Equity
Index, Strategic Bond, Turner Core Growth, Edinburgh International Equity and
Frontier Capital Appreciation Subaccounts) as of December 31, 1997, and the
related statements of operations, and statements of 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 generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of each of the respective
subaccounts constituting John Hancock Variable Life Account U at December 31,
1997, the results of their operations and the changes in their net assets for
each of the periods indicated, in conformity with generally accepted accounting
principles.
Ernst & Young LLP
Boston, Massachusetts
February 6, 1998
39
<PAGE>
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
To the Directors and Policyholders
John Hancock Variable Life Insurance Company
We have audited the accompanying statutory-basis statements of financial
position of John Hancock Variable Life Insurance Company as of December 31, 1997
and 1996, and the related statutory-basis statements of operations and
unassigned deficit and cash flows for the years then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. 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 generally accepted accounting principles. The variances
between such practices and generally accepted accounting principles also are
described in Note 1. The effects on the financial statements of these variances
are not reasonably determinable but are presumed to be material.
In our opinion, because of the effects of the matter described in the preceding
paragraph, the financial statements referred to above do not present fairly, in
conformity with generally accepted accounting principles, the financial position
of John Hancock Variable Life Insurance Company at December 31, 1997 and 1996,
or the results of its operations or its cash flows for the year ended December
31, 1997.
Also, 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, 1997 and 1996, and the results of its
operations and its cash flows for the years then ended in conformity with
accounting practices prescribed or permitted by the Commonwealth of
Massachusetts Division of Insurance.
Ernst & Young LLP
Boston, Massachusetts
February 18, 1998
40
<PAGE>
STATUTORY-BASIS STATEMENTS OF FINANCIAL POSITION
JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY
<TABLE>
<CAPTION>
December 31
-------------------
1997 1996
---- ----
(In millions)
<S> <C> <C>
ASSETS
Bonds--Note 6 . . . . . . . . . . . . . . . . . . . . $1,092.7 $ 753.5
Preferred stocks . . . . . . . . . . . . . . . . . . . 17.2 9.6
Common stocks . . . . . . . . . . . . . . . . . . . . 2.3 1.4
Investment in affiliates . . . . . . . . . . . . . . . 79.1 72.0
Mortgage loans on real estate--Note 6 . . . . . . . . 273.9 212.1
Real estate . . . . . . . . . . . . . . . . . . . . . 39.9 38.8
Policy loans . . . . . . . . . . . . . . . . . . . . . 106.8 80.8
Cash items:
Cash in banks . . . . . . . . . . . . . . . . . . . 83.1 26.7
Temporary cash investments . . . . . . . . . . . . . 60.1 5.2
-------- --------
143.2 31.9
Premiums due and deferred . . . . . . . . . . . . . . 33.8 36.8
Investment income due and accrued . . . . . . . . . . 24.7 22.6
Other general account assets . . . . . . . . . . . . . 16.8 17.8
Assets held in separate accounts . . . . . . . . . . . 4,691.1 3,290.5
-------- --------
TOTAL ASSETS . . . . . . . . . . . . . . . . . . . . . $6,521.5 $4,567.8
======== ========
OBLIGATIONS AND STOCKHOLDER'S EQUITY
OBLIGATIONS
Policy reserves . . . . . . . . . . . . . . . . . . $1,124.3 $ 877.8
Federal income and other taxes payable--Note 1 . . . 36.1 29.4
Other accrued expenses . . . . . . . . . . . . . . . 335.1 75.1
Asset valuation reserve--Note 1 . . . . . . . . . . 18.6 16.6
Obligations related to separate accounts . . . . . . 4,685.7 3,285.8
-------- --------
TOTAL OBLIGATIONS . . . . . . . . . . . . . . . . . . 6,199.8 4,284.7
STOCKHOLDER'S EQUITY
Common Stock, $50 par value; authorized 50,000
shares;
issued and outstanding 50,000 shares . . . . . . . 2.5 2.5
Paid-in capital . . . . . . . . . . . . . . . . . . 377.5 377.5
Unassigned deficit . . . . . . . . . . . . . . . . . . (58.3) (96.9)
-------- --------
TOTAL STOCKHOLDER'S EQUITY . . . . . . . . . . . . . . 321.7 283.1
-------- --------
TOTAL OBLIGATIONS AND STOCKHOLDER'S EQUITY . . . . . . $6,521.5 $4,567.8
======== ========
</TABLE>
The accompanying notes are an integral part of the statutory-basis financial
statements.
41
<PAGE>
STATUTORY-BASIS STATEMENTS OF OPERATIONS AND UNASSIGNED DEFICIT
JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY
<TABLE>
<CAPTION>
Year ended December 31
-----------------------
1997 1996
---- ----
(In millions)
<S> <C> <C>
INCOME
Premiums . . . . . . . . . . . . . . . . . . . . $ 872.7 $ 820.6
Net investment income--Note 3 . . . . . . . . . 89.7 76.1
Other, net . . . . . . . . . . . . . . . . . . . 420.1 406.0
-------- --------
1,382.5 1,302.7
BENEFITS AND EXPENSES
Payments to policyholders and beneficiaries . . 264.0 236.1
Additions to reserves to provide for future
payments to policyholders and beneficiaries . 814.2 790.1
Expenses of providing service to policyholders
and obtaining new insurance--
Note 5 . . . . . . . . . . . . . . . . . . . . 216.2 183.8
State and miscellaneous taxes . . . . . . . . . 19.1 17.3
-------- --------
1,313.5 1,227.3
-------- --------
GAIN FROM OPERATIONS BEFORE FEDERAL INCOME
TAXES AND NET REALIZED CAPITAL LOSSES . . . 69.0 75.4
Federal income taxes--Note 1 38.5 38.6
-------- --------
GAIN FROM OPERATIONS BEFORE NET REALIZED
CAPITAL LOSSES . . . . . . . . . . . . . . . 30.5 36.8
Net realized capital losses--Note 4 . . . . . . . (3.0) (1.5)
-------- --------
NET INCOME . . . . . . . . . . . . . . . . . 27.5 35.3
Unassigned deficit at beginning of year . . . . . (96.9) (131.3)
Net unrealized capital gains and other
adjustments--Note 4 . . . . . . . . . . . . . . . 5.0 2.5
Other reserves and adjustments . . . . . . . . . . 6.1 (3.4)
-------- --------
UNASSIGNED DEFICIT AT END OF YEAR . . . . . . $ (58.3) $ (96.9)
======== ========
</TABLE>
The accompanying notes are an integral part of the statutory-basis financial
statements.
42
<PAGE>
STATUTORY-BASIS STATEMENTS OF CASH FLOWS
JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY
<TABLE>
<CAPTION>
Year ended December 31
-----------------------
1997 1996
---- ----
(In millions)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Insurance premiums . . . . . . . . . . . . . . . $ 877.0 $ 824.2
Net investment income . . . . . . . . . . . . . 89.9 73.4
Benefits to policyholders and beneficiaries . . (245.2) (212.7)
Dividends paid to policyholders . . . . . . . . (18.7) (15.7)
Insurance expenses and taxes . . . . . . . . . . (250.2) (196.6)
Net transfers to separate accounts . . . . . . . (703.2) (524.2)
Other, net . . . . . . . . . . . . . . . . . . . 379.9 386.7
------- -------
NET CASH PROVIDED FROM OPERATIONS . . . . . . 129.5 335.1
------- -------
CASH FLOWS USED IN INVESTING ACTIVITIES:
Bond purchases . . . . . . . . . . . . . . . . . (621.6) (489.9)
Bond sales . . . . . . . . . . . . . . . . . . . 197.3 228.3
Bond maturities and scheduled redemptions . . . 34.1 27.8
Bond prepayments . . . . . . . . . . . . . . . . 51.6 31.9
Stock purchases . . . . . . . . . . . . . . . . (15.7) (6.5)
Proceeds from stock sales . . . . . . . . . . . 6.7 0.4
Real estate purchases . . . . . . . . . . . . . (1.3) (10.5)
Real estate sales . . . . . . . . . . . . . . . 0.4 8.5
Other invested assets purchases . . . . . . . . (1.0) 0.0
Proceeds from the sale of other invested assets 0.3 1.5
Mortgage loans issued . . . . . . . . . . . . . (94.5) (84.4)
Mortgage loan repayments . . . . . . . . . . . . 32.4 17.7
Other, net . . . . . . . . . . . . . . . . . . . 393.1 (104.6)
------- -------
NET CASH USED IN INVESTING ACTIVITIES . . . . (18.2) (379.8)
------- -------
INCREASE (DECREASE) IN CASH AND TEMPORARY CASH
INVESTMENTS . . . . . . . . . . . . . . . . . . . 111.3 (44.7)
Cash and temporary cash investments at beginning of
year. . . . . . . . . . . . . . . . . . . . . . . 31.9 76.6
------- -------
CASH AND TEMPORARY CASH INVESTMENTS AT END OF YEAR $ 143.2 $ 31.9
======= =======
</TABLE>
The accompanying notes are an integral part of the statutory-basis financial
statements.
43
<PAGE>
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS
JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY
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 Mutual Life Insurance Company (John Hancock). The
Company, domiciled in the Commonwealth of Massachusetts, principally writes
variable and universal life insurance policies. Those policies primarily are
marketed through John Hancock's sales organization, which includes a career
agency system composed of company-owned, unionized branch offices and
independent general agencies. Policies also are sold through various
unaffiliated securities broker-dealers and certain other financial institutions.
Currently, the Company writes business in all states except New York.
The preparation of financial statements requires management to make estimates
and assumptions that affect amounts reported in the financial statements and
accompanying notes. Such estimates and assumptions could change in the future as
more information becomes known, which could impact the amounts reported and
disclosed herein.
Basis of Presentation: The financial statements have been prepared using
accounting practices prescribed or permitted by the Commonwealth of
Massachusetts Division of Insurance and in conformity with the practices of the
National Association of Insurance Commissioners (NAIC), which practices differ
from generally accepted accounting principles (GAAP).
The significant differences from GAAP include: (1) policy acquisition costs are
charged to expense as incurred rather than deferred and amortized over the
related premium-paying period; (2) policy reserves are based on statutory
mortality, morbidity, and interest requirements without consideration of
withdrawals and Company experience; (3) certain assets designated as
"nonadmitted assets" are excluded from the balance sheet by direct charges to
surplus; (4) reinsurance recoverables are netted against reserves and claim
liabilities rather than reflected as an asset; (5) bonds held as available for
sale are recorded at amortized cost or market value as determined by the NAIC
rather than at fair value; (6) an Asset Valuation Reserve and Interest
Maintenance Reserve as prescribed by the NAIC are not calculated under GAAP.
Under GAAP, realized capital gains and losses are reported in the income
statement on a pretax basis as incurred and investment valuation allowances are
provided when there has been a decline in value deemed other than temporary; (7)
investments in affiliates are carried at their net equity value with changes in
value being recorded directly to unassigned deficit rather than consolidated in
the financial statements; (8) no provision is made for the deferred income tax
effects of temporary differences between book and tax basis reporting; and (9)
certain items, including modifications to required policy reserves resulting
from changes in actuarial assumptions or increased benefits, are recorded
directly to unassigned deficit rather than being reflected in income. The
effects of the foregoing variances from GAAP have not been determined but are
presumed to be material.
The significant accounting practices of the Company are as follows:
Pending Statutory Standards: The NAIC currently is in the process of recodifying
statutory accounting practices, the result of which is expected to constitute
the only source of prescribed statutory accounting practices. Accordingly, that
project, which is expected to be approved by the NAIC in 1998 will likely
change, to some extent, prescribed statutory accounting practices, and may
result in changes to the accounting practices that the Company uses to prepare
its statutory-basis financial statements. The impact of any such changes on the
Company's unassigned deficit is not expected to be material.
44
<PAGE>
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS--CONTINUED
JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY
NOTE 1--NATURE OF OPERATIONS AND SIGNIFICANT ACCOUNTING PRACTICES--CONTINUED
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.
Goodwill is amortized on a straight-line basis over a ten year period.
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 $2.1 million in 1997 and $1.2 million in
1996.
Real estate acquired in satisfaction of debt and held for sale is carried at
the lower of cost or market as of the date of foreclosure.
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, 1997, the IMR, net of 1997 amortization of $1.2 million, amounted to $7.8
million, which is included in policy reserves. The corresponding 1996 amounts
were $1.2 million and $5.9 million, respectively.
Goodwill: The excess of cost over the statutory book value of the net assets of
life insurance business acquired was $13.1 million and $15.1 million at December
31, 1997 and 1996, respectively, and generally is amortized over a ten-year
period using a straight-line method.
Accumulated amortization was $8.8 million and $6.7 million at December 31, 1997
and 1996, respectively.
45
<PAGE>
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS--CONTINUED
JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY
NOTE 1--NATURE OF OPERATIONS AND SIGNIFICANT ACCOUNTING PRACTICES--CONTINUED
Separate Accounts: Separate account assets and liabilities reported in the
accompanying statements of financial position represent funds that are
separately administered, principally for variable life insurance policies, and
for which the contractholder, rather than the Company, generally bears the
investment risk. Separate account obligations are intended to be satisfied from
separate account assets and not from assets of the general account. Separate
accounts generally are reported at fair value. The operations of the separate
accounts are not included in the statement of operations; however, income earned
on amounts initially invested by the Company in the formation of new separate
accounts is included in other income.
Fair Value Disclosure of Financial Instruments: Statement of Financial
Accounting Standards (SFAS) No. 107, "Disclosure about Fair Value of Financial
Instruments," requires disclosure of fair value information about certain
financial instruments, whether or not recognized in the statement of financial
position, for which it is practicable to estimate the value. In situations where
quoted market prices are not available, fair values are based on estimates using
present value or other valuation techniques. SFAS No. 107 excludes certain
financial instruments and all nonfinancial instruments from its disclosure
requirements. Therefore, the aggregate fair value amounts presented do not
represent the underlying value of the Company. See Note 11.
The methods and assumptions utilized by the Company in estimating its fair value
disclosures for financial instruments are as follows:
The carrying amounts reported in the statement of financial position for cash
and temporary cash investments approximate their fair values.
Fair values for public bonds are obtained from an independent pricing service.
Fair values for private placement securities and publicly traded bonds not
provided by the independent pricing service are estimated by the 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.
The fair value of interest rate swaps and currency rate swaps is estimated
using a discounted cash flow method adjusted for the difference between the
rate of the existing swap and the current swap market rate. Discounted cash
flows in foreign currencies are converted to U.S. dollars using current
exchange rates.
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, 1997. The fair
value for commitments to purchase real estate approximates the amount of the
initial commitment.
46
<PAGE>
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS--CONTINUED
JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY
NOTE 1--NATURE OF OPERATIONS AND SIGNIFICANT ACCOUNTING PRACTICES--CONTINUED
Capital Gains and Losses: Realized capital gains and losses are determined
using the specific identification basis. 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 1997.
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
payments of $29.6 million in 1997 and $33.5 million in 1996.
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.
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 or increased benefits. Reserve modifications resulting
from such determinations are recorded directly to stockholder's equity. During
1997, the Company refined certain assumptions inherent in the calculation of
reserves related to AIDS claims under individual life policies resulting in a
$6.4 million increase in stockholder's equity at December 31, 1997.
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
47
<PAGE>
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS--CONTINUED
JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY
NOTE 1--NATURE OF OPERATIONS AND SIGNIFICANT ACCOUNTING PRACTICES--CONTINUED
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--ACQUISITION
On June 23, 1993, the Company acquired all of the outstanding shares of stock of
Colonial Penn Annuity and Life Insurance Company (CPAL) from Colonial Penn Life
Insurance Company for an aggregate purchase price of approximately $42.5
million. At the date of acquisition, assets of CPAL were approximately $648.5
million, consisting principally of cash and temporary cash investments and
liabilities were approximately $635.2 million, consisting principally of
reserves related to a block of interest sensitive single-premium whole life
insurance business assumed by CPAL from Charter National Life Insurance Company
(Charter). The purchase price includes contingent payments of up to
approximately $7.3 million payable between 1994 and 1998 based on the actual
lapse experience of the business in force on June 23, 1993. The Company made
contingent payments to CPAL of $1.5 million during each of 1997 and 1996.
Unamortized goodwill at December 31, 1997 was $13.1 million and is being
amortized over ten years on a straight-line basis.
On June 24, 1993, the Company contributed $24.6 million in additional capital to
CPAL. CPAL was renamed John Hancock Life Insurance Company of America (JHLICOA)
on July 7, 1993. JHLICOA manages the business assumed from Charter and does not
currently issue new business.
NOTE 3--NET INVESTMENT INCOME
Investment income has been reduced by the following amounts:
<TABLE>
<CAPTION>
1997 1996
---- ----
(In millions)
<S> <C> <C>
Investment expenses . . . . . . . . . . . . . . . . . $ 5.0 $7.0
Interest expense . . . . . . . . . . . . . . . . . . . 0.7 0.0
Depreciation expense . . . . . . . . . . . . . . . . . 1.1 0.9
Investment taxes . . . . . . . . . . . . . . . . . . . 0.4 0.5
-------------- ----
$ 7.2 $8.4
============== ====
</TABLE>
NOTE 4--NET CAPITAL GAINS (LOSSES) AND OTHER ADJUSTMENTS
Net realized capital losses consist of the following items:
<TABLE>
<CAPTION>
1997 1996
---- ----
(In millions)
<S> <C> <C>
Net gains (losses) from asset sales . . . . . . . . $ 0.8 $(0.2)
Capital gains tax . . . . . . . . . . . . . . . . . (0.7) (1.0)
Net capital gains transferred to IMR . . . . . . . (3.1) (0.3)
-------------- -----
Realized Capital Losses . . . . . . . . . . . . . . $ (3.0) $(1.5)
============== =====
</TABLE>
48
<PAGE>
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS--CONTINUED
JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY
NOTE 4--NET CAPITAL GAINS (LOSSES) AND OTHER ADJUSTMENTS--CONTINUED Net
unrealized capital gains and other adjustments consist of the following
items:
<TABLE>
<CAPTION>
1997 1996
---- ----
(In millions)
<S> <C> <C>
Net gains from changes in security values and book
value adjustments . . . . . . . . . . . . . . . . $ 7.0 $ 3.7
Increase in asset valuation reserve . . . . . . . . (2.0) (1.2)
-------------- -----
Net Unrealized Capital Gains and Other Adjustments $ 5.0 $ 2.5
============== =====
</TABLE>
NOTE 5--TRANSACTIONS WITH PARENT
The Company's Parent provides the Company with personnel, property and
facilities in carrying out certain of its corporate functions. The Parent
annually determines a fee for these services and facilities based on a number of
criteria which were revised in 1997 and 1996 to reflect continuing changes in
the Company's operations. The amount of the service fee charged to the Company
was $123.6 million and $111.7 million in 1997 and 1996, respectively, which has
been included in insurance and investment expenses. The Parent has guaranteed
that, if necessary, it will make additional capital contributions to prevent the
Company's stockholder's equity from declining below $1.0 million.
The service fee charged to the Company by the Parent includes $0.9 million and
$1.6 million in 1997 and 1996, respectively, representing the portion of the
provision for retiree benefit plans determined under the accrual method,
including a provision for the 1993 transition liability which is being amortized
over twenty years, that was allocated to the Company.
The Company has a modified coinsurance agreement with John Hancock to reinsure
50% of 1994 through 1997 issues of flexible premium variable life insurance and
scheduled premium variable life insurance policies. In connection with this
agreement, John Hancock transferred $22.0 million and $24.5 million of cash for
tax, commission, and expense allowances to the Company, which increased the
Company's net gain from operations by $10.1 million and $15.7 million in 1997
and 1996, respectively.
The Company has a modified coinsurance agreement with John Hancock to reinsure
50% of 1995 through 1997 issues of certain retail annuity contracts
(Independence Preferred and Declaration). In connection with this agreement, the
Company made a net cash payment of $1.1 million and received a net cash payment
of $35.0 million for surrender benefits, tax, reserve increase, commission,
expense allowances and premium. This agreement increased the Company's net gain
from operations by $9.8 million and $15.1 million and in 1997 and 1996,
respectively.
Effective January 1, 1997, the Company entered into a stop-loss agreement with
John Hancock to reinsure mortality claims in excess of 110% of expected
mortality claims in 1997 for all policies that are not reinsured under any other
indemnity agreement. In connection with the agreement, John Hancock transferred
$2.4 million of cash for mortality claims to the Company, which increased the
Company's net gain from operations by $1.3 million.
49
<PAGE>
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS--CONTINUED
JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY
NOTE 6--INVESTMENTS
The statement value and fair value of bonds are shown below:
<TABLE>
<CAPTION>
Gross Gross
Statement Unrealized Unrealized Fair
Year ended December 31, 1997 Value Gains Losses Value
- ---------------------------- --------- ---------- ---------- -----
(In millions)
<S> <C> <C> <C> <C>
U.S. Treasury securities and
obligations of U.S. government
corporations and agencies . . $ 254.5 $ 0.2 $0.1 $ 254.6
Obligations of states and
political subdivisions . . . . 12.1 1.0 0.0 13.1
Debt securities issued by
foreign governments . . . . . 0.2 0.0 0.0 0.2
Corporate securities . . . . . 712.7 43.9 2.7 753.9
Mortgage-backed securities . . 113.2 3.5 0.0 116.7
-------- ----- ---- --------
Total bonds . . . . . . . . . . $1,092.7 $48.6 $2.8 $1,138.5
======== ===== ==== ========
</TABLE>
<TABLE>
<CAPTION>
Gross Gross
Statement Unrealized Unrealized Fair
Year ended December 31, 1996 Value Gains Losses Value
- ---------------------------- --------- ---------- ---------- -----
(In millions)
<S> <C> <C> <C> <C>
U.S. Treasury securities and
obligations of U.S.
government corporations and
agencies. . . . . . . . . . $ 44.4 $ 0.2 $0.2 $ 44.4
Obligations of states and
political subdivisions . . 12.6 0.4 0.0 13.0
Debt securities issued by
foreign governments . . . . 0.8 0.1 0.0 0.9
Corporate securities . . . . 623.2 29.8 3.4 649.6
Mortgage-backed securities . 72.5 10.2 0.1 82.6
-------------- ----- ---- ------
Total bonds . . . . . . . . $ 753.5 $40.7 $3.7 $790.5
============== ===== ==== ======
</TABLE>
The statement value and fair value of bonds at December 31, 1997, 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.
<TABLE>
<CAPTION>
Statement Fair
Value Value
--------- -----
(In millions)
<S> <C> <C>
Due in one year or less . . . . . . . . . . . . . . . . $ 89.1 $ 90.7
Due after one year through five years . . . . . . . . . 466.8 477.0
Due after five years through ten years . . . . . . . . 284.2 299.2
Due after ten years . . . . . . . . . . . . . . . . . . 139.4 154.9
-------- --------
979.5 1,021.8
Mortgage-backed securities . . . . . . . . . . . . . . 113.2 116.7
-------- --------
$1,092.7 $1,138.5
======== ========
</TABLE>
Gross gains of $1.1 million in 1997 and $1.3 million in 1996 and gross losses of
$4.5 million in 1997 and $2.1 million in 1996 were realized from the sale of
bonds.
50
<PAGE>
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS--CONTINUED
JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY
NOTE 6--INVESTMENTS--CONTINUED
At December 31, 1997, bonds with an admitted asset value of $3.6 million were on
deposit with state insurance departments to satisfy regulatory requirements.
The cost of common stocks was $0.0 million at December 31, 1997 and 1996,
respectively. Gross unrealized appreciation on common stocks totaled $2.3
million, and gross unrealized depreciation totaled $0.0 million at December 31,
1997. The fair value of preferred stock totaled $17.2 million at December 31,
1997 and $9.6 million at December 31, 1996.
Bonds with amortized cost of $2.0 million were nonincome producing for the
twelve months ended December 31, 1997.
At December 31, 1997, 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.
<TABLE>
<CAPTION>
Statement Geographic Statement
Property Type Value Concentration Value
------------- --------- ------------- ---------
(In millions) (In millions)
<S> <C> <C> <C>
Apartments. . . . . . $104.1 East North Central . . $ 32.7
Hotels. . . . . . . . 3.8 Middle Atlantic . . . 11.3
Industrial. . . . . . 51.3 Mountain . . . . . . . 17.9
Office buildings . . 32.2 New England . . . . . 35.8
Retail. . . . . . . . 33.2 Pacific . . . . . . . 64.2
Agricultural. . . . . 38.8 South Atlantic . . . . 67.9
Other . . . . . . . . 10.5 West North Central . . 2.5
West South Central . . 41.6
------ ------
$273.9 $273.9
====== ======
</TABLE>
At December 31, 1997, the fair values of the commercial and agricultural
mortgage loans portfolios were $243.8 million and $42.0 million, respectively.
The corresponding amounts as of December 31, 1996 were approximately $189.0
million and $30.4 million, respectively.
The maximum and minimum lending rates for mortgage loans during 1997 were 10.49%
and 8.14% for agricultural loans and 8.53% and 7.42% 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.
51
<PAGE>
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS--CONTINUED
JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY
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 1997 were $427.4 million, $18.3 million, and $10.1 million,
respectively. The corresponding amounts in 1996 were $384.3 million, $9.9
million, and $12.1 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, 1997 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.
NOTE 8--FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK
The Company utilizes a variety of off-balance sheet financial instruments as
part of its efforts to hedge and manage fluctuations in the market value of its
investment portfolio attributable to changes in general interest rate levels and
to manage duration mismatch of assets and liabilities. Those instruments include
swaps, caps, and future contracts.
The Company enters into interest rate swap contracts for the purpose of
converting the interest rate characteristics (fixed or variable) of certain
investments to match those of related insurance liabilities. Maturities of
current agreements range through 2011. These swaps involve, to varying degrees,
interest rate risk in excess of amounts recognized in the statement of financial
position.
The Company enters into interest rate cap contracts to manage exposure on
underlying security values due to a rise in interest rates. Maturities of
current agreements range through 2007.
The Company also uses financial futures contracts to hedge public bonds intended
for future sale in order to lock in the market value at the date of contract.
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
changes in the value of the hedged items. The contract or notional amounts of
the contracts represent the extent of the Company's involvement
52
<PAGE>
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS--CONTINUED
JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY
NOTE 8--FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK--CONTINUED but not
in the future cash requirements, as the Company intends to close the open
positions prior to settlement. Net deferred losses on financial contracts were
$2.8 million and $0.0 million at December 31, 1997 and 1996, respectively.
The Company enters into currency rate swap agreements to manage exposure to
foreign exchange rate fluctuations. Maturities of current agreements range
through 2009. Should the counterparty fail to meet the terms of the contract,
the Company's market risk is limited to the currency rate differential.
The contract or notional amount of the foregoing financial instruments, which
indicates the Company's involvement and in certain instances, maximum credit
risk related to those instruments, is as follows:
<TABLE>
<CAPTION>
December 31
----------------------
1997 1996
---- ----
(In millions)
<S> <C> <C>
Futures contracts to sell securities . . . . . . . . $ 40.8 $ 73.0
============== ======
Notional amount of interest rate swaps, currency rate swaps, and interest rate
caps to:
Receive variable rates . . . . . . . . . . . . . . $ 323.7 $215.9
============== ======
Receive fixed rates . . . . . . . . . . . . . . . $ 25.0 $ 26.6
============== ======
</TABLE>
The Company's exposure to credit risk is the risk of loss from a counterparty
failing to perform according to the terms of the contract. The Company
continually monitors its positions and the credit ratings of the counterparties
to these financial instruments. To limit exposure associated with counterparty
nonperformance on interest rate and currency 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 not be material.
Based on the market rates in effect at December 31, 1997, the Company's interest
rate swaps, currency rate swaps and interest rate caps represented (assets)
liabilities to the Company with fair values of $7.8 million, $2.1 million and
$(1.4) million, respectively. The corresponding amounts as of December 31, 1996
were $2.3 million, $(8.2) million, and $(2.0) million, respectively. The fair
values of the swap agreements are not recognized in the financial statements.
53
<PAGE>
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS--CONTINUED
JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY
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:
<TABLE>
<CAPTION>
December 31, 1997 Percent
----------------- -------
(In millions)
<S> <C> <C>
Subject to discretionary withdrawal (with
adjustment)
With market value adjustment . . . . . . . . . . $ 0.4 0.0%
At book value less surrender charge . . . . . . 970.3 88.7
-------- -----
Total with adjustment . . . . . . . . . . . . . 970.7 88.7
Subject to discretionary withdrawal at book value
(without adjustment) . . . . . . . . . . . . . 118.9 10.9
Not subject to discretionary withdrawal--general
account . . . . . . . . . . . . . . . . . . . . 4.1 0.4
-------- -----
Total annuity reserves and deposit liabilities . $1,093.7 100.0%
======== =====
</TABLE>
NOTE 10--COMMITMENTS AND CONTINGENCIES
The Company has extended commitments to purchase long-term bonds and issue real
estate mortgages totalling $168.6 million and $28.3 million, respectively, at
December 31, 1997. 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 is $194.5 million at December 31, 1997. The majority of these commitments
expire in 1998.
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, 1997. 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.
54
<PAGE>
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS--CONTINUED
JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY
NOTE 11--FAIR VALUE OF FINANCIAL INSTRUMENTS
The following table presents the carrying amounts and fair values of the
Company's financial instruments:
<TABLE>
<CAPTION>
Year ended December 31
-----------------------------------------
1997 1996
----------------------- ----------------
Carrying Fair Carrying Fair
Amount Value Amount Value
-------- ----- -------- -----
(In millions)
<S> <C> <C> <C> <C>
Assets
Bonds--Note 6 . . . . . . . . $1,092.7 $1,138.5 $753.5 $790.5
Preferred stocks--Note 6 . . . 17.2 17.2 9.6 9.6
Common stocks--Note 6 . . . . 2.3 2.3 1.4 1.4
Mortgage loans on real
estate--Note 6 . . . . . . . 273.9 285.8 212.1 219.4
Policy loans--Note 1 . . . . . 106.8 106.8 80.8 80.8
Cash and cash equivalents--Note
1. . . . . . . . . . . . . . 143.2 143.2 31.9 31.9
Derivatives liabilities relating
to:--Note 8
Interest rate swaps . . . . . -- 7.8 -- 2.3
Currency rate swaps . . . . . -- 2.1 -- (8.2)
Interest rate caps . . . . . . -- (1.4) -- (2.0)
Liabilities
Commitments--Note 10 . . . . . -- 194.5 -- 76.2
</TABLE>
The carrying amounts in the table are included in the statutory-basis statements
of financial position. The method and assumptions utilized by the Company in
estimating its fair value disclosures are described in Note 1.
NOTE 12--IMPACT OF YEAR 2000 (UNAUDITED)
The Company relies on John Hancock, its parent company, for information
processing services. John Hancock has developed a plan to modify or replace
significant portions of its computer information and automated technologies so
that its systems, including those relied upon by the Company, will function
properly with respect to the dates in the year 2000 and thereafter. The Company,
along with John Hancock, presently believes that with modifications to existing
systems and conversions to new technologies, the year 2000 will not pose
significant operational problems for the computer systems upon which the Company
relies. However, if certain modifications and conversions are not made, or are
not completed timely, the year 2000 issue could have an adverse impact on the
operations of the Company.
John Hancock as early as 1994 had begun assessing, modifying and converting the
software related to its significant systems and has initiated formal
communications with significant business partners and customers to determine the
extent to which interface systems are vulnerable to those third parties' failure
to remediate their own year 2000 issues. While John Hancock is developing
alternative third party processing arrangements as it deems appropriate, there
is no guarantee that the systems of other companies on which John Hancock's
systems rely will be converted timely or will not have an adverse effect on John
Hancock's systems, including those upon which the Company relies.
55
<PAGE>
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS--CONTINUED
JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY
NOTE 12--IMPACT OF YEAR 2000 (UNAUDITED)--CONTINUED
John Hancock expects the project to be substantially complete by early 1999.
This completion target was derived utilizing numerous assumptions of future
events, including availability of certain resources and other factors. However,
there can be no guarantee that this completion target will be achieved.
56
<PAGE>
APPENDIX--OTHER POLICY PROVISIONS
SETTLEMENT PROVISIONS
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 JHVLICO
under the terms of a supplementary agreement. The agreement will be issued when
the proceeds are applied through the election of any one of the options below.
The following options are subject to the restrictions and limitations stated
in the Policies.
Option 1--Interest Income at the declared rate but not less than3 1/2% a
year on proceeds held on deposit.
Option 2A--Income of a Specified Amount, with payments each year totaling
at least 1/12th of the proceeds, until the proceeds, with interest credited at
the declared rate but not less than3 1/2% a year on unpaid balances, are fully
paid.
Option 2B--Income for a Fixed Period, with each payment as declared.
Option 3--Life Income with Payments for a Guaranteed Period.
Option 4--Life Income without Refund at the death of the Payee of any part
of the proceeds applied. Only one payment is made if the Payee dies before the
second payment is due.
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.
No election of an option may provide for income payments of less than $50.
Other options may be arranged with JHVLICO's approval, including optional
methods of settlement available from John Hancock.
ADDITIONAL INSURANCE BENEFITS
On payment of an additional premium and subject to certain age and insurance
underwriting requirements, certain additional provisions, such as Disability
Waiver of Premiums and Accidental Death Benefits, which are subject to the
restrictions and limitations set forth therein, may be included in a Policy.
GENERAL PROVISIONS
BENEFICIARY. The Beneficiary will be as shown in the application for the
Policy, unless thereafter changed by the Owner in accordance with the terms of
the Policy. If the insured dies and there is no surviving Beneficiary, the Owner
will be the Beneficiary, but if the insured was the Owner, the Owner's estate
will be the Beneficiary.
ASSIGNMENT. The Owner's interest in the Policy may be assigned without the
consent of any revocable Beneficiary. JHVLICO will not be on notice of any
assignment unless it is in writing and until a duplicate of the original
assignment has been filed at JHVLICO's Servicing Office. JHVLICO assumes no
responsibility for the validity or sufficiency of any assignment.
AGE AND SEX. If the age or sex of the insured has been misstated, JHVLICO will
adjust the Initial Sum Insured and every other benefit to that which the premium
paid would have purchased at the correct age and sex.
57
<PAGE>
SUICIDE. If the insured commits suicide, while sane or insane, within 2 years
(except where state law requires a shorter period) from the issue date shown in
the Policy, JHVLICO will pay in place of all other benefits an amount equal to
the premiums paid less any indebtedness.
AVIATION ACTIVITY EXCLUSION. If the insured dies in an aviation accident while
a crew member on other than a commercial aircraft and the Policy provides at the
request of the Owner for a limited benefit in such situation, JHVLICO will pay
in place of all other benefits an amount equal to the greater of the premiums
paid or the surrender value, less indebtedness.
INCONTESTABILITY. The Policy, except for any provision for a disability
benefit or additional benefits provisions added after issue, shall be
incontestable after it has been in force during the lifetime of the insured for
2 years from its issue date except for nonpayment of premium.
DEFERRAL OF DETERMINATIONS AND PAYMENTS. If the Policy is not on a fixed
non-forfeiture option, payment of any death, surrender, or loan proceeds will
ordinarily be made within seven days after receipt at JHVLICO's Servicing Office
of all documents required for any such payment. Approximately two-thirds of the
claims for death proceeds which are made within two years after the date of
issue of the Policy will be investigated to determine whether the claim should
be contested and payment of these claims will therefore be delayed.
JHVLICO may defer the determination, payment or application of such amounts if
the effective date for determining such amounts falls within any period during
which: (1) the disposal or valuation of the Accounts' assets is not reasonably
practicable because the New York Stock Exchange is closed or conditions are such
that, under the Commissions' rules and regulations, trading is restricted or an
emergency is deemed to exist or (2) the Commission by order permits postponement
of such actions for the protection of JHVLICO Owners.
Under a Policy being continued under a fixed non-forfeiture option payment of
the cash value or loan proceeds may be deferred by JHVLICO for up to six months
after receipt of a request therefor. Interest will be accrued at an annual rate
of3 1/2% if such a deferment extends beyond 29 days.
The foregoing description of Policy provisions is qualified by reference to
the specimen Policies which have been filed as exhibits to the Registration
Statement and to any variations in Policy provisions required by the regulatory
authorities of the state that has approved the Policy for issue.
58
<PAGE>
APPENDIX--IMPACT OF YEAR 2000
The advent of the Year 2000 presents a technological challenge to JHVLICO. In
close cooperation with John Hancock Mutual Life Insurance Company, its ultimate
parent, JHVLICO has developed a plan to modify or replace significant portions
of JHVLICO's computer information and automated technologies so that its systems
will function properly with respect to dates in the year 2000 and thereafter.
The plan also involves coordination and testing with business partners to
ensure that external factors do not adversely impact JHVLICO's systems. JHVLICO
presently believes that with modifications to existing systems and conversions
to new technologies, the year 2000 will not pose significant operational
problems for its computer systems. However, if certain modifications and
conversions are not made, or are not completed on time, the year 2000 issue
could have an adverse impact on the operations of JHVLICO.
JHVLICO expects the project to be substantially complete by early 1999. This
completion target was derived utilizing numerous assumptions of future events,
including availability of certain resources and other factors. However, there
can be no guarantee that this estimate will be achieved, that these steps will
be sufficient or that actual results may not differ materially from those
anticipated.
59
<PAGE>
APPENDIX--ILLUSTRATION OF DEATH BENEFITS, CASH VALUES AND ACCUMULATED PREMIUMS.
The following tables illustrate the way in which the three types of Policies
operate. Each table illustrates the changes in the death benefit and cash value
of the base Policy, disregarding any dividends or Policy loans. Each table
separately illustrates the operation of a Policy assuming dividends WHICH ARE
NOT GUARANTEED are used to purchase additional variable paid-up death benefits.
The tables show how the death benefit and cash value may vary over an extended
period of time assuming the subaccounts experience hypothetical rates of
investment return (i.e., investment income and capital gains and losses,
realized or unrealized) equivalent to constant gross annual rates of 0%, 6% and
12%. The tables are based on given annual premiums for a standard risk and will
assist in a comparison of the total death benefit and cash value figures set
forth in the tables with those under other variable life insurance policies
which may be issued by JHVLICO or other companies. The death benefit and cash
value for a Policy would be different from those shown if premiums are paid more
frequently than annually or if the actual gross rates of investment return
applicable to the Policy average 0%, 6% or 12% over a period of years, but
nevertheless fluctuated above or below the average for individual Policy years.
The amounts shown for the death benefit and cash value as of the end of each
Policy year reflect a total asset charge of 1.086% comprised of the daily charge
against the Account for mortality and expense risks (equivalent to an effective
annual rate of .50% of the value of the Account's assets), an average asset
charge for the daily investment advisory expense charges to the Portfolios of
the Fund (equivalent to an effective annual rate of .39%) and an assumed average
asset charge for the annual non-advisory operating expenses of each Portfolio of
the Fund (equivalent to an effective annual rate of .20%). For a description of
expenses charged to the Portfolios, including the reimbursement of any Portfolio
for annual non-advisory operating expenses in excess of an effective annual rate
of .25%, a continuing obligation of the Fund's investment adviser, see the
attached prospectus for the Fund. The charges for the daily investment
management fee and the annual non-advisory operating expenses are based on the
hypothetical assumption that Policy values are allocated equally among the seven
subaccounts. The actual charges and expenses associated with any Policy may be
more or less than 1.086% and will vary depending upon the actual allocation of
Policy values among subaccounts.
The tables reflect that no charge is currently made to the Account for Federal
income taxes. However, JHVLICO reserves the right to make such a charge in the
future and any charge would require higher rates of investment return in order
to produce the same Policy values.
The second column of each table shows the amount to which the total premiums
to the end of a Policy year during the premium paying period would accumulate if
an amount equal to those premiums were invested to earn interest, after taxes,
at 5% compounded annually.
The death benefits (and resulting cash values) shown for additional variable
paid-up death benefits purchased with dividends paid under a Policy are
illustrative of those which would be paid if investment returns of 0%, 6% and
12% are realized, if JHVLICO's mortality and expense experience in the future is
as currently experienced and if its dividend scale remains unchanged. However,
as experience has clearly shown, conditions cannot be expected to continue
unchanged, and accordingly dividend scales must be expected to change from time
to time. MOREOVER, THERE IS NO GUARANTEE AS TO THE AMOUNT OF DIVIDENDS, IF ANY,
THAT WILL BE PAID UNDER A POLICY. Although the tables are based on the
assumption that dividends will be used to purchase additional variable paid-up
death benefits, other dividend options are available. (See "Annual Dividends".)
JHVLICO will furnish upon request a comparable illustration reflecting the
proposed insured's age, sex, smoking status and the Initial Sum Insured or
premium amount requested, and assuming that premiums are paid on an annual basis
and the proposed insured is a standard risk.
60
<PAGE>
PLAN: VARIABLE WHOLE LIFE 100 AGE 25 YEARS MALE--NON-SMOKER INITIAL SUM INSURED
(GUARANTEED MINIMUM DEATH BENEFIT) $135,135 ANNUAL PREMIUM $1,250.00* (PRMS
ACCUM MEANS PREMIUMS ACCUMULATED)
Dividends Purchasing Variable Paid-Up Additions (Var Pu Adds) Dividends are Not
Guaranteed
<TABLE>
<CAPTION>
0% 6% 12%
------------------------ ------------------------ -------------------------
Death Benefit Death Benefit Death Benefit
Prms Accum ------------------------ ------------------------ -------------------------
at Base Var Pu Base Var Pu Base Var Pu
Year 5%/Annum Policy Adds Total Policy Adds Total Policy Adds Total
- ------- ---------- ------- ------ ------- ------- ------ ------- ------- ------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 1,313 135,135 0 135,135 135,550 0 135,550 142,561 0 142,561
2 2,691 135,135 208 135,343 135,588 208 135,796 143,283 208 143,491
3 4,138 135,135 400 135,535 135,786 410 136,196 147,033 421 147,454
4 5,657 135,135 575 135,710 135,993 608 136,600 151,098 642 151,739
5 7,252 135,135 734 135,869 136,206 799 137,005 155,417 869 156,286
6 8,928 135,135 879 136,014 136,423 986 137,409 159,987 1,105 161,092
7 10,686 135,135 1,011 136,146 136,644 1,168 137,812 164,813 1,350 166,164
8 12,533 135,135 1,153 136,288 136,870 1,374 138,244 169,906 1,679 171,585
9 14,472 135,135 1,302 136,437 137,099 1,601 138,700 175,277 2,126 177,403
10 16,508 135,135 1,458 136,593 137,332 1,853 139,185 180,939 2,712 183,652
15 28,322 135,135 2,420 137,555 138,519 3,981 142,500 213,370 8,251 221,620
20 43,399 135,135 3,384 138,519 139,804 7,708 147,512 255,762 19,892 275,654
25 62,642 135,135 4,103 139,238 141,231 12,607 153,838 312,737 40,264 353,002
30 87,201 135,135 4,595 139,730 142,712 18,666 161,378 386,200 74,054 460,254
35 118,545 135,135 4,986 140,121 144,248 26,213 170,461 481,203 129,322 610,525
Age 65 158,550 135,135 5,342 140,477 145,835 35,315 181,150 604,241 217,588 821,829
</TABLE>
<TABLE>
<CAPTION>
0% 6% 12%
---------------------- ---------------------- -------------------------
Cash Value Cash Value Cash Value
Base Prem ---------------------- ---------------------- -------------------------
Accum at Base Var Pu Base Var Pu Base Var Pu
Year 5%/Annum Policy Adds Total Policy Adds Total Policy Adds Total
- ------- --------- ------ ------ ------ ------ ------ ------ ------- ------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 1,313 94 0 94 99 0 99 105 0 105
2 2,691 934 34 968 995 34 1,028 1,056 34 1,090
3 4,138 1,774 67 1,841 1,937 69 2,007 2,108 71 2,179
4 5,657 2,613 100 2,713 2,929 106 3,035 3,269 112 3,381
5 7,252 3,448 132 3,580 3,968 145 4,112 4,548 158 4,706
6 8,928 4,278 164 4,443 5,056 185 5,241 5,957 208 6,165
7 10,686 5,101 196 5,297 6,192 227 6,420 7,503 264 7,767
8 12,533 5,915 232 6,147 7,379 277 7,656 9,202 340 9,542
9 14,472 6,720 271 6,991 8,614 335 8,949 11,063 447 11,510
10 16,508 7,513 315 7,828 9,899 402 10,301 13,102 591 13,693
15 28,322 11,495 627 12,123 17,345 1,036 18,381 26,840 2,156 28,996
20 43,399 15,037 1,045 16,082 26,110 2,390 28,499 47,986 6,193 54,178
25 62,642 17,723 1,498 19,221 35,800 4,623 40,423 79,639 14,826 94,465
30 87,201 19,972 1,967 21,938 46,822 8,025 54,847 127,290 31,977 159,267
35 118,545 21,708 2,473 24,181 58,936 13,060 71,996 197,510 64,715 262,225
Age 65 158,550 22,958 3,032 25,990 71,982 20,142 92,124 299,610 124,650 424,260
</TABLE>
- ---------
* Corresponding to modal premiums of: Semi-annual $638.73, Quarterly $325.90,
Special Monthly $108.30
DIVIDENDS ILLUSTRATED ARE BASED ON CURRENT SCALES AND EXPERIENCE AND ARE NOT
GUARANTEED. IT IS EMPHASIZED THAT HYPOTHETICAL INVESTMENT RESULTS ARE
ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED REPRESENTATIVE 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 AN OWNER. THE DEATH BENEFIT AND CASH 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 NEVERTHELESS FLUCTUATED ABOVE
OR BELOW THE AVERAGE FOR INDIVIDUAL POLICY YEARS. NO REPRESENTATIONS CAN BE MADE
THAT THESE HYPOTHETICAL INVESTMENT RESULTS CAN BE ACHIEVED FOR ANY ONE YEAR OR
SUSTAINED OVER ANY PERIOD OF TIME.
61
<PAGE>
PLAN: VARIABLE WHOLE LIFE 100 AGE 40 YEARS MALE--NON-SMOKER INITIAL SUM INSURED
(GUARANTEED MINIMUM DEATH BENEFIT) $113,968 ANNUAL PREMIUM $2,000.00* (PRMS
ACCUM MEANS PREMIUMS ACCUMULATED)
Dividends Purchasing Variable Paid-Up Additions (Var Pu Adds) Dividends are Not
Guaranteed
<TABLE>
<CAPTION>
0% 6% 12%
------------------------ ------------------------ -------------------------
Death Benefit Death Benefit Death Benefit
Prms Accum ------------------------ ------------------------ -------------------------
at Base Var Pu Base Var Pu Base Var Pu
Year 5%/Annum Policy Adds Total Policy Adds Total Policy Adds Total
- ------- ---------- ------- ------ ------- ------- ------ ------- ------- ------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 2,100 113,968 0 113,968 114,318 0 114,318 120,231 0 120,231
2 4,305 113,968 102 114,070 114,417 102 114,519 122,111 102 122,213
3 6,620 113,968 196 114,164 114,581 202 114,783 125,257 262 125,519
4 9,051 113,968 282 114,250 114,754 342 115,096 128,695 511 129,206
5 11,604 113,968 362 114,330 114,931 536 115,467 132,341 854 133,196
6 14,284 113,968 459 114,427 115,112 780 115,892 136,184 1,296 137,479
7 17,098 113,968 577 114,545 115,295 1,072 116,367 140,221 1,840 142,061
8 20,053 113,968 735 114,703 115,480 1,437 116,917 144,460 2,529 146,989
9 23,156 113,968 923 114,891 115,667 1,867 117,535 148,909 3,365 152,273
10 26,413 113,968 1,139 115,107 115,857 2,366 118,224 153,577 4,367 157,944
15 45,315 113,968 2,421 116,389 116,823 5,812 122,635 180,222 12,462 192,684
20 69,438 113,968 3,776 117,744 117,844 10,765 128,609 214,207 27,661 241,868
Age 65 100,226 113,968 4,895 118,863 118,945 16,990 135,935 258,552 53,375 311,927
30 139,521 113,968 5,836 119,804 120,069 24,212 144,791 314,489 95,727 410,216
35 189,672 113,968 6,651 120,619 121,212 34,125 155,337 385,101 163,843 548,944
</TABLE>
<TABLE>
<CAPTION>
0% 6% 12%
---------------------- ---------------------- -------------------------
Cash Value Cash Value Cash Value
Base Prem ---------------------- ---------------------- -------------------------
Accum at Base Var Pu Base Var Pu Base Var Pu
Year 5%/Annum Policy Adds Total Policy Adds Total Policy Adds Total
- ------- --------- ------ ------ ------ ------ ------ ------ ------- ------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 2,100 591 0 591 626 0 626 662 0 662
2 4,305 1,986 28 2,014 2,137 28 2,165 2,291 28 2,319
3 6,620 3,350 57 3,407 3,694 58 3,752 4,056 76 4,132
4 9,051 4,682 84 4,767 5,296 102 5,399 5,967 154 6,121
5 11,604 5,984 112 6,096 6,947 166 7,113 8,036 266 8,302
6 14,284 7,254 147 7,401 8,644 250 8,894 10,273 417 10,690
7 17,098 8,494 191 8,685 10,391 356 10,746 12,695 613 13,308
8 20,053 9,705 251 9,956 12,187 493 12,680 15,315 871 16,186
9 23,156 10,886 326 11,212 14,035 662 14,697 18,151 1,198 19,350
10 26,413 12,037 416 12,453 15,934 868 16,801 21,218 1,607 22,826
15 45,315 17,504 1,037 18,541 26,385 2,499 28,884 40,891 5,380 46,270
20 69,438 22,070 1,878 23,948 37,910 5,381 43,291 69,226 13,883 83,110
Age 65 100,226 25,346 2,780 28,126 49,861 9,691 59,552 108,880 30,573 139,453
30 139,521 27,731 3,736 31,467 62,133 15,892 78,025 163,488 61,828 225,316
35 189,672 29,282 4,725 34,007 74,287 24,354 98,641 237,100 117,438 354,538
</TABLE>
- ---------
* Corresponding to modal premiums of: Semi-annual $1,021.60, Quarterly $520.90,
Special Monthly $172.80
DIVIDENDS ILLUSTRATED ARE BASED ON CURRENT SCALES AND EXPERIENCE AND ARE NOT
GUARANTEED. IT IS EMPHASIZED THAT HYPOTHETICAL INVESTMENT RESULTS ARE
ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED REPRESENTATIVE 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 AN OWNER. THE DEATH BENEFIT AND CASH 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 NEVERTHELESS FLUCTUATED ABOVE
OR BELOW THE AVERAGE FOR INDIVIDUAL POLICY YEARS. NO REPRESENTATIONS CAN BE MADE
THAT THESE HYPOTHETICAL INVESTMENT RESULTS CAN BE ACHIEVED FOR ANY ONE YEAR OR
SUSTAINED OVER ANY PERIOD OF TIME.
62
<PAGE>
PLAN: VARIABLE WHOLE LIFE P50 AGE 25 YEARS MALE--NON-SMOKER INITIAL SUM INSURED
(GUARANTEED MINIMUM DEATH BENEFIT) $65,723 ANNUAL PREMIUM $700.00* (PRMS
ACCUM MEANS PREMIUMS ACCUMULATED)
Dividends Purchasing Variable Paid-Up Additions (Var Pu Adds) Dividends are Not
Qualified
<TABLE>
<CAPTION>
0% 6% 12%
---------------------- ---------------------- ------------------------
Death Benefit Death Benefit Death Benefit
Prms Accum ---------------------- ---------------------- ------------------------
at Base Var Pu Base Var Pu Base Var Pu
Year 5%/Annum Policy Adds Total Policy Adds Total Policy Adds Total
- ------- ---------- ------ ------ ------ ------ ------ ------ ------- ------ ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 735 65,723 0 65,723 65,925 0 65,925 69,335 0 69,335
2 1,507 65,723 0 65,723 65,930 0 65,930 69,442 0 69,442
3 2,317 65,723 175 65,898 66,029 192 66,221 71,304 211 71,515
4 3,168 65,723 352 66,075 66,130 402 66,533 73,289 456 73,745
5 4,061 65,723 527 66,250 66,234 625 66,859 75,389 735 76,124
6 4,999 65,723 702 66,425 66,340 862 67,202 77,607 1,052 78,659
7 5,984 65,723 876 66,599 66,448 1,114 67,562 79,948 1,407 81,356
8 7,019 65,723 1,056 66,779 66,557 1,388 67,945 82,417 1,816 84,234
9 8,105 65,723 1,240 66,963 66,669 1,684 68,352 85,021 2,282 87,302
10 9,245 65,723 1,428 67,151 66,782 2,002 68,784 87,765 2,810 90,575
15 15,860 65,723 2,434 68,157 67,358 4,007 71,365 103,443 6,732 110,175
20 24,303 65,723 3,406 69,129 67,982 6,620 74,601 123,953 13,481 137,433
25 35,079 65,723 4,135 69,858 68,677 9,555 78,232 151,610 23,919 175,529
30 48,833 65,723 4,571 70,294 69,399 12,600 81,999 187,256 39,210 226,466
35 66,385 65,723 4,740 70,463 70,147 15,688 85,835 233,343 61,314 294,657
Age 65 88,788 65,723 4,692 70,415 70,919 18,763 89,682 293,022 92,895 385,917
</TABLE>
<TABLE>
<CAPTION>
0% 6% 12%
---------------------- ---------------------- ------------------------
Cash Value Cash Value Cash Value
Base Prem ---------------------- ---------------------- ------------------------
Accum at Base Var Pu Base Var Pu Base Var Pu
Year 5%/Annum Policy Adds Total Policy Adds Total Policy Adds Total
- ------- --------- ------ ------ ------ ------ ------ ------ ------- ------ ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 735 13 0 13 14 0 14 15 0 15
2 1,507 423 0 423 450 0 450 476 0 476
3 2,317 834 29 863 908 32 941 985 35 1,021
4 3,168 1,244 61 1,305 1,390 70 1,461 1,548 80 1,628
5 4,061 1,652 95 1,747 1,896 113 2,009 2,168 133 2,301
6 4,999 2,057 131 2,188 2,425 162 2,587 2,850 198 3,048
7 5,984 2,459 170 2,629 2,978 217 3,195 3,600 275 3,874
8 7,019 2,857 212 3,069 3,555 280 3,835 4,423 368 4,790
9 8,105 3,250 258 3,508 4,156 352 4,508 5,324 479 5,804
10 9,245 3,637 309 3,946 4,781 435 5,216 6,312 612 6,925
15 15,860 5,592 631 6,223 8,416 1,043 9,459 12,984 1,759 14,743
20 24,303 7,332 1,051 8,383 12,696 2,052 14,749 23,256 4,197 27,453
25 35,079 8,636 1,509 10,145 17,409 3,503 20,912 38,608 8,808 47,416
30 48,833 9,727 1,956 11,683 22,769 5,417 28,186 61,719 16,933 78,652
35 66,385 10,569 2,351 12,920 28,660 7,817 36,477 95,776 30,686 126,461
Age 65 88,788 11,176 2,664 13,839 35,004 10,702 45,706 145,295 53,222 198,517
</TABLE>
- ---------
* Corresponding to modal premiums of: Semi-annual $357.95, Quarterly $182.90,
Special Monthly $61.00
DIVIDENDS ILLUSTRATED ARE BASED ON CURRENT SCALES AND EXPERIENCE AND ARE NOT
GUARANTEED. IT IS EMPHASIZED THAT HYPOTHETICAL INVESTMENT RESULTS ARE
ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED REPRESENTATIVE 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 AN OWNER. THE DEATH BENEFIT AND CASH 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 NEVERTHELESS FLUCTUATED ABOVE
OR BELOW THE AVERAGE FOR INDIVIDUAL POLICY YEARS. NO REPRESENTATIONS CAN BE MADE
THAT THESE HYPOTHETICAL INVESTMENT RESULTS CAN BE ACHIEVED FOR ANY ONE YEAR OR
SUSTAINED OVER ANY PERIOD OF TIME.
63
<PAGE>
PLAN: VARIABLE WHOLE LIFE P50 AGE 40 YEARS MALE--NON-SMOKER INITIAL SUM INSURED
(GUARANTEED MINIMUM DEATH BENEFIT) $62,945 ANNUAL PREMIUM $1,200.00* (PRMS
ACCUM MEANS PREMIUMS ACCUMULATED)
Dividends Purchasing Variable Paid-Up Additions (Var Pu Adds) Dividends are Not
Guaranteed
<TABLE>
<CAPTION>
0% 6% 12%
---------------------- ---------------------- ------------------------
Death Benefit Death Benefit Death Benefit
Prms Accum ---------------------- ---------------------- ------------------------
at Base Var Pu Base Var Pu Base Var Pu
Year 5%/Annum Policy Adds Total Policy Adds Total Policy Adds Total
- ------- ---------- ------ ------ ------ ------ ------ ------ ------- ------ ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 1,260 62,945 0 62,945 63,138 0 63,138 66,404 0 66,404
2 2,583 62,945 0 62,945 63,183 0 63,183 67,251 0 67,251
3 3,972 62,945 98 63,043 63,273 119 63,392 68,979 140 69,119
4 5,431 62,945 212 63,157 63,369 264 63,633 70,870 322 71,192
5 6,962 62,945 338 63,283 63,467 435 63,901 72,875 547 73,422
6 8,570 62,945 472 63,417 63,566 627 64,193 74,988 814 75,802
7 10,259 62,945 605 63,550 63,667 829 64,496 77,207 1,114 78,321
8 12,032 62,945 752 63,697 63,769 1,060 64,830 79,536 1,471 81,007
9 13,893 62,945 903 63,848 63,873 1,311 65,184 81,981 1,879 83,860
10 15,848 62,945 1,061 64,006 63,977 1,584 65,562 84,546 2,345 86,890
15 27,189 62,945 1,911 64,856 64,509 3,297 67,806 99,150 5,778 104,928
20 41,663 62,945 2,691 65,636 65,071 5,414 70,486 117,795 11,414 129,209
Age 65 60,136 62,945 3,279 66,224 65,682 7,724 73,406 142,241 19,839 162,080
30 83,713 62,945 3,713 66,658 66,304 10,211 76,516 173,058 32,226 205,284
35 113,804 62,945 3,971 66,916 66,936 12,826 79,673 211,949 50,237 262,186
</TABLE>
<TABLE>
<CAPTION>
0% 6% 12%
---------------------- ---------------------- ------------------------
Cash Value Cash Value Cash Value
Prms Accum ---------------------- ---------------------- ------------------------
at Base Var Pu Base Var Pu Base Var Pu
Year 5%/Annum Policy Adds Total Policy Adds Total Policy Adds Total
- ------- ---------- ------ ------ ------ ------ ------ ------ ------- ------ ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 1,260 251 0 251 266 0 266 281 0 281
2 2,583 1,026 0 1,026 1,101 0 1,101 1,177 0 1,177
3 3,972 1,784 28 1,813 1,962 34 1,996 2,149 41 2,189
4 5,431 2,525 63 2,588 2,848 79 2,927 3,200 97 3,296
5 6,962 3,248 104 3,353 3,760 135 3,895 4,338 170 4,508
6 8,570 3,954 151 4,105 4,699 201 4,900 5,568 262 5,830
7 10,259 4,643 200 4,843 5,664 275 5,939 6,900 371 7,271
8 12,032 5,316 257 5,573 6,657 364 7,021 8,341 507 8,848
9 13,893 5,972 319 6,292 7,679 465 8,144 9,901 669 10,570
10 15,848 6,612 388 7,000 8,729 581 9,310 11,588 863 12,451
15 27,189 9,670 818 10,488 14,530 1,418 15,947 22,435 2,494 24,929
20 41,663 12,227 1,335 13,562 20,933 2,698 23,631 38,068 5,711 43,780
Age 65 60,136 14,029 1,862 15,892 27,533 4,405 31,938 59,900 11,365 71,265
30 83,713 15,340 2,377 17,717 34,311 6,567 40,878 89,965 20,816 110,781
35 113,804 16,191 2,821 19,013 41,023 9,154 50,177 130,493 36,012 166,505
</TABLE>
- ---------
*Corresponding to modal premiums of Semi-annual $613.20, Quarterly $312.90,
Special Monthly $104.00.
DIVIDENDS ILLUSTRATED ARE BASED ON CURRENT SCALES AND EXPERIENCE AND ARE NOT
GUARANTEED. IT IS EMPHASIZED THAT HYPOTHETICAL INVESTMENT RESULTS ARE
ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED REPRESENTATIVE 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 AN OWNER. THE DEATH BENEFIT AND CASH 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 NEVERTHELESS FLUCTUATED ABOVE
OR BELOW THE AVERAGE FOR INDIVIDUAL POLICY YEARS. NO REPRESENTATIONS CAN BE MADE
THAT THESE HYPOTHETICAL INVESTMENT RESULTS CAN BE ACHIEVED FOR ANY ONE YEAR OR
SUSTAINED OVER ANY PERIOD OF TIME.
64
<PAGE>
PLAN: VARIABLE WHOLE LIFE P50 AGE 25 YEARS MALE--SMOKER INITIAL SUM INSURED
(GUARANTEED MINIMUM DEATH BENEFIT) $61,670 ANNUAL PREMIUM $700.00* (PRMS
ACCUM MEANS PREMIUMS ACCUMULATED)
Dividends Purchasing Variable Paid-Up Additions (Var Pu Adds) Dividends are Not
Guaranteed
<TABLE>
<CAPTION>
0% 6% 12%
---------------------- ---------------------- ------------------------
Death Benefit Death Benefit Death Benefit
Prms Accum ---------------------- ---------------------- ------------------------
at Base Var Pu Base Var Pu Base Var Pu
Year 5%/Annum Policy Adds Total Policy Adds Total Policy Adds Total
- ------- ---------- ------ ------ ------ ------ ------ ------ ------- ------ ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 735 61,670 0 61,670 61,859 0 61,859 65,059 0 65,059
2 1,507 61,670 0 61,670 61,865 0 61,865 65,160 0 65,160
3 2,317 61,670 164 61,834 61,957 181 62,138 66,907 198 67,105
4 3,168 61,670 331 62,001 62,052 378 62,430 68,769 428 69,198
5 4,061 61,670 495 62,165 62,150 586 62,736 70,740 690 71,430
6 4,999 61,670 659 62,329 62,249 809 63,058 72,821 987 73,808
7 5,984 61.670 822 62,492 62,350 1,045 63,395 75,018 1,321 76,339
8 7,019 61,670 991 62,661 62,453 1,303 63,755 77,335 1,705 79,039
9 8,105 61,670 1,163 62,833 62,557 1,580 64,137 79,778 2,141 81,919
10 9,245 61,670 1,339 63,009 62,664 1,879 64,543 82,352 2,637 84,989
15 15,860 61,670 2,283 63,953 63,204 3,760 66,964 97,064 6,317 103,381
20 24,303 61.670 3,195 64,865 63,789 6,211 70,001 116,309 12,650 128,959
25 35,079 61,670 3,880 65,550 64,442 8,965 73,408 142,261 22,445 164,705
30 48,833 61,670 4,289 65,959 65,119 11,823 76,942 175,708 36,793 212,501
35 66,385 61,670 4,448 66,118 65,821 14,721 80,542 218,954 57,534 276,488
Age 65 88,788 61,670 4,402 66,072 66,546 17,606 84,152 274,952 87,168 362,121
</TABLE>
<TABLE>
<CAPTION>
0% 6% 12%
---------------------- ---------------------- ------------------------
Cash Value Cash Value Cash Value
Base Prem ---------------------- ---------------------- ------------------------
Accum at Base Var Pu Base Var Pu Base Var Pu
Year 5%/Annum Policy Adds Total Policy Adds Total Policy Adds Total
- ------- --------- ------ ------ ------ ------ ------ ------ ------- ------ ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 735 12 0 12 13 0 13 14 0 14
2 1,507 397 0 397 422 0 422 446 0 446
3 2,317 782 28 810 852 30 883 924 33 958
4 3,168 1,167 58 1,224 1,305 66 1,370 1,452 75 1,527
5 4,061 1,550 89 1,639 1,779 106 1,885 2,034 125 2,159
6 4,999 1,930 123 2,053 2,276 152 2,428 2,675 186 2,860
7 5,984 2,307 159 2,466 2,794 203 2,998 3,378 258 3,635
8 7,019 2,681 199 2,880 3,336 263 3,599 4,150 345 4,495
9 8,105 3,049 242 3,292 3,900 331 4,230 4,996 450 5,446
10 9,245 3,413 290 3,702 4,486 408 4,894 5,923 575 6,498
15 15,860 5,247 592 5,839 7,897 979 8,876 12,183 1,651 13,834
20 24,303 6,880 986 7,866 11,913 1,926 13,839 21,822 3,939 25,760
25 35,079 8,103 1,416 9,519 16,335 3,287 19,622 36,227 8,265 44,492
30 48,833 9,127 1,836 10,963 21,365 5,083 26,448 57,913 15,889 73,802
35 66,385 9,918 2,206 12,123 26,893 7,334 34,227 89,870 28,794 118,663
Age 65 88,788 10,487 2,499 12,986 32,846 10,042 42,888 136,335 49,941 186,276
</TABLE>
- ---------
* Corresponding to modal premiums of: Semi-annual $357.95, Quarterly $182.90.
Special Monthly $61.00.
DIVIDENDS ILLUSTRATED ARE BASED ON CURRENT SCALES AND EXPERIENCE AND ARE NOT
GUARANTEED. IT IS EMPHASIZED THAT THE HYPOTHETICAL INVESTMENT RESULTS SHOWN
ABOVE ARE ILLLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED REPRESENTATIVE 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 AN OWNER. THE DEATH BENEFIT AND CASH 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 NEVERTHELESS FLUCTUATED
ABOVE OR BELOW THE AVERAGE FOR INDIVIDUAL POLICY YEARS. NO REPRESENTATIONS CAN
BE MADE THAT THESE HYPOTHETICAL INVESTMENT RESULTS CAN BE ACHIEVED FOR ANY ONE
YEAR OR SUSTAINED OVER ANY PERIOD OF TIME.
65
<PAGE>
PLAN: VARIABLE WHOLE LIFE P50 AGE 40 YEARS MALE--SMOKER INITIAL SUM INSURED
(GUARANTEED MINIMUM DEATH BENEFIT) $57,644 ANNUAL PREMIUM $1,200.00* (PRMS
ACCUM MEANS PREMIUMS ACCUMULATED)
Dividends Purchasing Variable Paid-Up Additions (Var Pu Adds) Dividends are Not
Guaranteed
<TABLE>
<CAPTION>
0% 6% 12%
---------------------- ---------------------- ------------------------
Death Benefit Death Benefit Death Benefit
Prms Accum ---------------------- ---------------------- ------------------------
at Base Var Pu Base Var Pu Base Var Pu
Year 5%/Annum Policy Adds Total Policy Adds Total Policy Adds Total
- ------- ---------- ------ ------ ------ ------ ------ ------ ------- ------ ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 1,260 57,644 0 57,644 57,821 0 57,821 60,812 0 60,812
2 2,583 57,644 0 57,644 57,862 0 57,862 61,587 0 61,587
3 3,972 57,644 90 57,734 57,945 109 58,053 63,170 128 63,299
4 5,431 57,644 194 57,838 58,032 242 58,274 64,902 295 65,197
5 6,962 57,644 309 57,953 58,122 398 58,520 66,738 501 67,239
6 8,570 57,644 432 58,076 58,213 574 58,787 68,672 746 69,418
7 10,259 57,644 554 58,198 58,305 759 59,065 70,705 1,020 71,725
8 12,032 57,644 688 58,332 58,399 971 59,370 72,838 1,347 74,185
9 13,893 57,644 827 58,471 58,494 1,201 59,695 75,077 1,721 76,797
10 15,848 57,644 972 58,616 58,589 1,451 60,040 77,425 2,148 79,573
15 27,189 57,644 1,750 59,394 59,076 3,019 62,096 90,800 5,291 96,092
20 41,663 57,644 2,464 60,108 59,591 4,959 64,550 107,875 10,453 118,327
Age 65 60,136 57,644 3,003 60,647 60,151 7,073 67,224 130,262 18,169 148,430
30 83,712 57,644 3,400 61,044 60,720 9,351 70,072 158,484 29,512 187,996
35 113,803 57,644 3,637 61,281 61,299 11,746 73,045 194,100 46,007 240,106
</TABLE>
<TABLE>
<CAPTION>
0% 6% 12%
---------------------- ---------------------- ------------------------
Cash Value Cash Value Cash Value
Base Prem ---------------------- ---------------------- ------------------------
Accum at Base Var Pu Base Var Pu Base Var Pu
Year 5%/Annum Policy Adds Total Policy Adds Total Policy Adds Total
- ------- --------- ------ ------ ------ ------ ------ ------ ------- ------ ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 1,260 230 0 230 244 0 244 258 0 258
2 2,583 940 0 940 1,008 0 1,008 1,078 0 1,078
3 3,972 1,634 26 1,660 1,797 31 1,828 1,968 37 2,005
4 5,431 2,312 58 2,370 2,608 72 2,681 2,930 88 3,019
5 6,962 2,975 96 3,070 3,444 123 3,567 3,972 156 4,128
6 8,570 3,621 138 3,759 4,303 184 4,487 5,099 240 5,339
7 10,259 4,252 183 4,435 5,187 252 5,439 6,319 340 6,659
8 12,032 4,868 235 5,103 6,097 333 6,430 7,639 464 8,103
9 13,893 5,469 292 5,762 7,032 426 7,458 9,067 613 9,680
10 15,848 6,055 355 6,410 7,994 532 8,526 10,612 790 11,402
15 27,189 8,856 749 9,605 13,306 1,298 14,604 20,545 2,284 22,830
20 41,663 11,197 1,222 12,420 19,170 2,471 21,641 34,862 5,230 40,093
Age 65 60,136 12,848 1,705 14,553 25,214 4,034 29,249 54,855 10,408 65,263
30 83,712 14,048 2,177 16,225 31,421 6,014 37,435 82,389 19,063 101,451
35 113,803 14,828 2,584 17,412 37,568 8,383 45,951 119,504 32,979 152,483
</TABLE>
- ---------
* Corresponding to modal premiums of: Semi-Annual $613.20, Quarterly $312.90,
Special Monthly $104.00
DIVIDENDS ILLUSTRATED ARE BASED ON CURRENT SCALES AND EXPERIENCE AND ARE NOT
GUARANTEED. IT IS EMPHASIZED THAT HYPOTHETICAL INVESTMENT RESULTS ARE
ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED REPRESENTATIVE 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 AN OWNER. THE DEATH BENEFIT AND CASH 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 NEVERTHELESS FLUCTUATED ABOVE
OR BELOW THE AVERAGE FOR INDIVIDUAL POLICY YEARS. NO REPRESENTATIONS CAN BE MADE
THAT THESE HYPOTHETICAL INVESTMENT RESULTS CAN BE ACHIEVED FOR ANY ONE YEAR OR
SUSTAINED OVER ANY PERIOD OF TIME.
66
<PAGE>
PLAN: VARIABLE WHOLE LIFE AGE 25 YEARS MALE--NON-SMOKER INITIAL SUM INSURED
(GUARANTEED MINIMUM DEATH BENEFIT) $28,930 ANNUAL PREMIUM $350.00* (PRMS
ACCUM MEANS PREMIUMS ACCUMULATED)
Dividends Purchasing Variable Paid-Up Additions (Var Pu Adds) Dividends are Not
Guaranteed
<TABLE>
<CAPTION>
0% 6% 12%
---------------------- ---------------------- ------------------------
Death Benefit Death Benefit Death Benefit
Prms Accum ---------------------- ---------------------- ------------------------
at Base Var Pu Base Var Pu Base Var Pu
Year 5%/Annum Policy Adds Total Policy Adds Total Policy Adds Total
- ------- ---------- ------ ------ ------ ------ ------ ------ ------- ------ ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 368 28,930 0 28,930 29,019 0 29,019 30,520 0 30,520
2 753 28,930 0 28,930 29,021 0 29,021 30,567 0 30,567
3 1,159 28,930 26 28,956 29,065 26 29,090 31,387 33 31,419
4 1,584 28,930 49 28,979 29,109 61 29,171 32,260 81 32,341
5 2,031 28,930 79 29,009 29,155 106 29,261 33,185 143 33,328
6 2,500 28,930 114 29,044 29,202 160 29,361 34,161 222 34,383
7 2,992 28,930 152 29,082 29,249 222 29,471 35,192 316 35,508
8 3,509 28,930 199 29,129 29,297 296 29,593 36,279 432 36,711
9 4,052 28,930 251 29,181 29,346 382 29,729 37,424 573 37,997
10 4,622 28,930 310 29,240 29,396 482 29,878 38,632 739 39,371
15 7,930 28,930 1,001 29,931 29,650 1,533 31,183 45,534 2,474 48,008
20 12,152 28,930 1,741 30,671 29,924 3,006 32,931 54,562 5,636 60,198
25 17,540 28,930 2,208 31,138 30,230 4,526 34,756 66,736 10,369 77,105
30 24,416 28,930 2,440 31,370 30,548 6,022 36,570 82,426 17,198 99,625
35 33,193 28,930 2,513 31,443 30,877 7,507 38,384 102,713 27,021 129,734
Age 65 44,394 28,930 2,479 31,409 31,217 8,977 40,194 128,983 41,035 170,018
</TABLE>
<TABLE>
<CAPTION>
0% 6% 12%
--------------------- ---------------------- ----------------------
Cash Value Cash Value Cash Value
Base Prem --------------------- ---------------------- ----------------------
Accum at Base Var Pu Base Var Pu Base Var Pu
Year 5%/Annum Policy Adds Total Policy Adds Total Policy Adds Total
- ------- --------- ------ ------ ----- ------ ------ ------ ------ ------ --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 368 6 0 6 6 0 6 7 0 7
2 753 186 0 186 198 0 198 209 0 209
3 1,159 367 4 371 400 4 404 434 5 439
4 1,584 547 9 556 612 11 623 681 14 695
5 2,031 727 14 741 835 19 854 954 26 980
6 2,500 905 21 927 1,068 30 1,098 1,255 42 1,296
7 2,992 1,082 30 1,112 1,311 43 1,354 1,585 62 1,646
8 3,509 1,257 40 1,297 1,565 60 1,625 1,947 88 2,034
9 4,052 1,430 52 1,483 1,829 80 1,909 2,344 120 2,464
10 4,622 1,601 67 1,668 2,105 105 2,209 2,779 161 2,940
15 7,930 2,462 260 2,721 3,705 399 4,104 5,715 646 6,362
20 12,152 3,227 538 3,765 5,589 932 6,521 10,237 1,755 11,991
25 17,540 3,801 806 4,607 7,663 1,659 9,322 16,994 3,818 20,813
30 24,416 4,282 1,044 5,326 10,022 2,589 12,612 27,167 7,427 34,595
35 33,193 4,652 1,247 5,899 12,616 3,740 16,356 42,159 13,523 55,682
Age 65 44,394 4,919 1,407 6,327 15,408 5,120 20,528 63,956 23,510 87,466
</TABLE>
- ---------
* Corresponding to modal premiums of: Semi-annual $179.28, Quarterly $91.90,
Special Monthly $30.90
DIVIDENDS ILLUSTRATED ARE BASED ON CURRENT SCALES AND EXPERIENCE AND ARE NOT
GUARANTEED. IT IS EMPHASIZED THAT HYPOTHETICAL INVESTMENT RESULTS ARE
ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED REPRESENTATIVE 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 AN OWNER. THE DEATH BENEFIT AND CASH 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 NEVERTHELESS FLUCTUATED ABOVE
OR BELOW THE AVERAGE FOR INDIVIDUAL POLICY YEARS. NO REPRESENTATIONS CAN BE MADE
THAT THESE HYPOTHETICAL INVESTMENT RESULTS CAN BE ACHIEVED FOR ANY ONE YEAR OR
SUSTAINED OVER ANY PERIOD OF TIME.
67
<PAGE>
PLAN: VARIABLE WHOLE LIFE AGE 40 YEARS MALE--NON-SMOKER INITIAL SUM INSURED
(GUARANTEED MINIMUM DEATH BENEFIT) $28,661 ANNUAL PREMIUM $600.00* (PRMS
ACCUM MEANS PREMIUMS ACCUMULATED)
Dividends Purchasing Variable Paid-Up Additions (Var Pu Adds) Dividends are Not
Guaranteed
<TABLE>
<CAPTION>
0% 6% 12%
---------------------- ---------------------- -----------------------
Death Benefit Death Benefit Death Benefit
Prms Accum ---------------------- ---------------------- -----------------------
at Base Var Pu Base Var Pu Base Var Pu
Year 5%/Annum Policy Adds Total Policy Adds Total Policy Adds Total
- ------- ---------- ------ ------ ------ ------ ------ ------ ------ ------ ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 630 28,661 0 28,661 28,749 0 28,749 30,236 0 30,236
2 1,291 28,661 0 28,661 28,752 0 28,752 30,284 0 30,284
3 1,986 28,661 15 28,676 28,795 17 28,812 31,101 26 31,127
4 2,715 28,661 35 28,696 28,839 50 28,889 31,965 72 32,037
5 3,481 28,661 64 28,725 28,884 94 28,978 32,873 136 33,009
6 4,285 28,661 102 28,763 28,929 152 29,082 33,825 221 34,046
7 5,129 28,661 142 28,803 28,975 217 29,192 34,823 320 35,144
8 6,016 28,661 190 28,851 29,021 296 29,317 35,870 445 36,315
9 6,947 28,661 245 28,906 29,068 386 29,455 36,968 592 37,559
10 7,924 28,661 305 28,966 29,116 489 29,604 38,119 765 38,884
15 13,594 28,661 1,041 29,702 29,355 1,584 30,939 44,623 2,551 47,174
20 20,831 28,661 1,800 30,461 29,610 3,043 32,652 52,948 5,621 58,569
Age 65 30,068 28,661 2,260 30,921 29,891 4,474 34,365 64,018 9,994 74,012
30 41,856 28,661 2,512 31,173 30,177 5,897 36,074 77,947 16,251 94,198
35 56,901 28,661 2,630 31,291 30,466 7,342 37,809 95,511 25,239 120,750
</TABLE>
<TABLE>
<CAPTION>
0% 6% 12%
--------------------- ---------------------- ----------------------
Cash Value Cash Value Cash Value
Base Prem --------------------- ---------------------- ----------------------
Accum at Base Var Pu Base Var Pu Base Var Pu
Year 5%/Annum Policy Adds Total Policy Adds Total Policy Adds Total
- ------- --------- ------ ------ ----- ------ ------ ------ ------ ------ --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 630 12 0 12 12 0 12 13 0 13
2 1,291 371 0 371 394 0 394 417 0 417
3 1,986 722 4 726 787 5 792 854 8 861
4 2,715 1,065 11 1,076 1,191 15 1,206 1,327 22 1,348
5 3,481 1,401 20 1,421 1,608 29 1,637 1,839 42 1,881
6 4,285 1,728 32 1,761 2,037 49 2,085 2,392 71 2,463
7 5,129 2,048 47 2,095 2,477 72 2,549 2,991 107 3,098
8 6,016 2,360 65 2,425 2,931 102 3,032 3,639 153 3,792
9 6,947 2,664 87 2,751 3,397 137 3,534 4,341 211 4,551
10 7,924 2,961 112 3,073 3,877 179 4,056 5,099 282 5,380
15 13,594 4,406 446 4,851 6,558 681 7,239 10,014 1,101 11,115
20 20,831 5,618 893 6,511 9,525 1,516 11,041 17,112 2,812 19,924
Age 65 30,068 6,429 1,283 7,712 12,530 2,552 15,082 26,959 5,725 32,684
30 41,856 7,018 1,608 8,626 15,616 3,792 19,408 40,521 10,497 51,018
35 56,901 7,398 1,868 9,267 18,672 5,240 23,912 58,804 18,092 76,897
</TABLE>
- ---------
* Corresponding to modal premiums of: Semi-Annual $306.90. Quarterly $156.90,
Special Monthly $52.40.
DIVIDENDS ILLUSTRATED ARE BASED ON CURRENT SCALES AND EXPERIENCE AND ARE NOT
GUARANTEED. IT IS EMPHASIZED THAT THE HYPOTHETICAL INVESTMENT RESULTS SHOWN
ABOVE ARE ILLLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED REPRESENTATIVE 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 AN OWNER. THE DEATH BENEFIT AND CASH 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 NEVERTHELESS FLUCTUATED
ABOVE OR BELOW THE AVERAGE FOR INDIVIDUAL POLICY YEARS. NO REPRESENTATIONS CAN
BE MADE THAT THESE HYPOTHETICAL INVESTMENT RESULTS CAN BE ACHIEVED FOR ANY ONE
YEAR OR SUSTAINED OVER ANY PERIOD OF TIME.
68
<PAGE>
PLAN: VARIABLE WHOLE LIFE AGE 25 YEARS MALE--SMOKER INITIAL SUM INSURED
(GUARANTEED MINIMUM DEATH BENEFIT) $27,223 ANNUAL PREMIUM $350.00* (PRMS
ACCUM MEANS PREMIUMS ACCUMULATED)
Dividends Purchasing Variable Paid-Up Additions (Var Pu Adds) Dividends are Not
Guaranteed
<TABLE>
<CAPTION>
0% 6% 12%
---------------------- ---------------------- ------------------------
Death Benefit Death Benefit Death Benefit
Prms Accum ---------------------- ---------------------- ------------------------
at Base Var Pu Base Var Pu Base Var Pu
Year 5%/Annum Policy Adds Total Policy Adds Total Policy Adds Total
- ------- ---------- ------ ------ ------ ------ ------ ------ ------- ------ ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 368 27,223 0 27,223 27,307 0 27,307 28,719 0 28,719
2 753 27,223 0 27,223 27,309 0 27,309 28,764 0 28,764
3 1,159 27,223 24 27,247 27,350 24 27,374 29,535 31 29,565
4 1,584 27,223 47 27,270 27,392 58 27,450 30,357 76 30,433
5 2,031 27,223 74 27,297 27,435 100 27,534 31,227 135 31,361
6 2,500 27,223 107 27,330 27,479 150 27,629 32,146 209 32,354
7 2,992 27,223 143 27,366 27,523 208 27,732 33,115 297 33,413
8 3,509 27,223 187 27,410 27,569 278 27,847 34,138 407 34,545
9 4,052 27,223 236 27,459 27,615 360 27,975 35,216 539 35,755
10 4,622 27,223 291 27,514 27,662 453 28,115 36,353 696 37,048
15 7,930 27,223 942 28,165 27,900 1,443 29,343 42,847 2,328 45,175
20 12,152 27,223 1,638 28,861 28,159 2,829 30,987 51,342 5,303 56,646
25 17,540 27,223 2,077 29,300 28,447 4,258 32,705 62,798 9,757 72,555
30 24,416 27,223 2,296 29,519 28,746 5,667 34,412 77,563 16,183 93,746
35 33,193 27,223 2,365 29,588 29,055 7,064 36,119 96,653 25,426 122,079
Age 65 44,394 27,223 2,332 29,555 29,375 8,447 37,822 121,372 38,613 159,985
</TABLE>
<TABLE>
<CAPTION>
0% 6% 12%
--------------------- ---------------------- ----------------------
Cash Value Cash Value Cash Value
Base Prem --------------------- ---------------------- ----------------------
Accum at Base Var Pu Base Var Pu Base Var Pu
Year 5%/Annum Policy Adds Total Policy Adds Total Policy Adds Total
- ------- --------- ------ ------ ----- ------ ------ ------ ------ ------ --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 368 5 0 5 6 0 6 6 0 6
2 753 175 0 175 186 0 186 197 0 197
3 1,159 345 4 349 376 4 380 408 5 413
4 1,584 515 8 523 576 10 586 641 13 654
5 2,031 684 13 697 785 18 803 898 24 922
6 2,500 852 20 872 1,005 28 1,033 1,181 39 1,220
7 2,992 1,018 28 1,046 1,234 41 1,274 1,491 58 1,549
8 3,509 1,183 38 1,221 1,473 56 1,529 1,832 82 1,914
9 4,052 1,346 49 1,395 1,721 75 1,797 2,205 113 2,319
10 4,622 1,506 63 1,570 1,980 98 2,079 2,615 152 2,766
15 7,930 2,316 244 2,561 3,486 375 3,861 5,378 608 5,986
20 12,152 3,037 506 3,543 5,259 877 6,136 9,633 1,651 11,284
25 17,540 3,577 758 4,335 7,211 1,561 8,772 15,992 3,593 19,585
30 24,416 4,029 983 5,012 9,431 2,436 11,867 25,564 6,989 32,553
35 33,193 4,378 1,173 5,551 11,871 3,519 15,391 39,671 12,725 52,396
Age 65 44,394 4,629 1,324 5,953 14,499 4,818 19,317 60,182 22,122 82,305
</TABLE>
- ---------
* Corresponding to modal premiums of: Semi-Annual $179.28, Quarterly $91.90,
Special Monthly $30.90
DIVIDENDS ILLUSTRATED ARE BASED ON CURRENT SCALES AND EXPERIENCE AND ARE NOT
GUARANTEED. IT IS EMPHASIZED THAT THE HYPOTHETICAL INVESTMENT RESULTS SHOWN
ABOVE ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED REPRESENTATIVE 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 AN OWNER. THE DEATH BENEFIT AND CASH 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 NEVERTHELESS FLUCTUATED
ABOVE OR BELOW THE AVERAGE FOR INDIVIDUAL POLICY YEARS. NO REPRESENTATIONS CAN
BE MADE THAT THESE HYPOTHETICAL INVESTMENT RESULTS CAN BE ACHIEVED FOR ANY ONE
YEAR OR SUSTAINED OVER ANY PERIOD OF TIME.
69
<PAGE>
[LOGO OF JOHN HANCOCK APPEARS HERE]
POLICIES ISSUED BY JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY JOHN HANCOCK
PLACE, BOSTON, MASSACHUSETTS 02117
H6001 5/98
70
<PAGE>
PART II
UNDERTAKING TO FILE REPORTS
Subject to the terms and conditions of Section 15(d) of the Securities and
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 of
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 annual premium prospectus consisting of 70 pages.
The undertaking to file reports.
The signatures.
The following exhibits:
1.A. (1) JHVLICO Board Resolution establishing the separate account, previously
filed electronically on April 12, 1996.
(2) Not Applicable
(3) (a) Form of Distribution Agreement by and among John Hancock
Distributors, Inc., John Hancock Mutual Life Insurance Company, and
John Hancock Variable Life Insurance Company, incorporated by
reference from Pre-Effective Amendment No. 2 to Form S-6
Registration Statement of John Hancock Variable Life Account S
(File No. 333-15075) filed April 18, 1997.
(b) Specimen Variable Contracts Selling Agreement between John Hancock
Distributors, Inc., and selling broker-dealers, incorporated by
reference from Pre-Effective Amendment No. 2 to Form S-6
Registration Statement of John Hancock Variable Life Account S
(File No. 333-15075) filed April 18, 1997.
(c) Schedule of sales commissions included in Exhibit 1. A. (3) (a)
above.
(4) Not Applicable
(5) (a) Form of annual premium policy, included in Post-Effective
Amendment No. 15 to this File No. 2-68061 filed in October,
1988.
(b) Form of single premium policy, incorporated in Post-Effective
Amendment No. 6 to this File No. 2-68061 filed in October,
1984.
<PAGE>
(c) Forms of endorsement for annual premium policies to reflect
separate account restructuring included in Post-Effective
Amendment No. 8 to this File No. 2-68061 filed December, 1985
(d) Forms of endorsement for single premium policies to reflect
separate account restructuring included in Post-Effective
Amendment No. 8 to this File No. 2-68061 filed December, 1985
(6) (a) JHVLICO Certificate of Incorporation, included in the initial
Registration Statement under this File No. 2-68061, filed in
June, 1980
(b) JHVLICO By-laws, included in the initial Registration Statement
under this File No. 2-68061, filed in June, 1980
(7) Not Applicable
(8) Not Applicable
(9) Not Applicable
(10) Forms of application for Policies, included in Post-Effective
Amendment No. 3 to this File No. 2-68061 filed in March, 1983
(annual premium policies) and Post-Effective Amendment No. 6 to
this File No. 2-68061 filed in October, 1984 (single premium
policy)
2. Included as Exhibit 1.A (5) above
3. Opinion and consent of counsel as to securities being registered included
in Post-Effective Amendment No. 14 to this File No. 2-68061 filed in June,
1988
4. Not Applicable
5. Not Applicable
6.(a) Opinion and consent of actuary as to annual premium policy and
prospectus included in Post-Effective Amendment No. 15 to this File No.
2-6806l filed in October, l988.
(b) Opinion and consent of actuary as to single premium policy and prospectus,
included in Post-Effective Amendment No. 14 to this File No. 2-68061
filed in June, 1988.
7. Consent of independent auditors.
8. Memorandum describing JHVLICO's issuance, transfer and redemption procedures
for Policies pursuant to Rule 6e-2(b)(12)(ii) and method of computing
adjustments in payments and cash values of Policies upon conversion to fixed
benefit policies pursuant to Rule 6e-2(b)(13)(v)(B), included in Post-
Effective Amendment No. 10 to this File No. 2-68061 filed in March, 1986
<PAGE>
9. Power of attorney for Ronald J. Bocage, incorporated by reference from
Form 10-K annual report for John Hancock Variable Life Insurance Company
(File No. 33-62895) filed March 28, 1997. Powers of attorney for
D'Alessandro, Shaw, Lee, Van Leer, Tomlinson, Reitano, Luddy and
Paster. included in Post-Effective Amendment No. 22 to this file no. 2-68061
filed in April, 1995.
10. Opinion of counsel as to eligibility of this Post-Effective Amendment for
filing pursuant to Rule 485(b).
PRIOR EXEMPTIVE ORDER
JHVLICO, its Variable Life Account U (formerly JHVLICO's Variable Life Bond
Account) and John Hancock intend to continue to rely, to the extent necessary,
on the exemptive relief granted to them in SEC Release No. IC-14,365 (February
11, 1985).
- ----------------------------------------
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the John
Hancock Variable Life Insurance Company has duly caused this Post-Effective
Amendment to the Registration Statement to be signed on its behalf by the
undersigned, thereunder duly authorized, and its seal to be hereunto fixed and
attested, all in the City of Boston and Commonwealth of Massachusetts on the
28th day of April, 1998.
JOHN HANCOCK VARIABLE LIFE
INSURANCE COMPANY
(SEAL)
By HENRY D. SHAW
----------------------
Henry D. Shaw
President
Attest: RONALD J. BOCAGE
---------------------------
Ronald J. Bocage
Vice President and Counsel
<PAGE>
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.
<TABLE>
<CAPTION>
Signatures Title Date
- ---------- ----- ----
<S> <C> <C>
PATRICK F. SMITH
- ----------------------
Patrick F. Smith Controller (Principal Accounting Officer April 28, 1998
and Acting Principal Financial Officer)
HENRY D. SHAW
- --------------------
Henry D. Shaw Vice Chairman of the Board
for himself and as and President(Acting Principal
Attorney-in-Fact Executive Officer) April 28, 1998
</TABLE>
For: David F. D'Alessandro Chairman of the Board
Robert S. Paster Director
Thomas J. Lee Director
Michele G. Van Leer Director
Joseph A. Tomlinson Director
Barbara L. Luddy Director
Ronald J. Bocage Director
<PAGE>
-3-
Pursuant to the requirements of the Securities Act of 1933, the
Registrant, John Hancock Variable Life Account U, certifies that it meets all of
the requirements for effectiveness of this Registration Statement pursuant to
Rule 485(b) under the Securitles Act of 1933 and has duly caused this Post-
Effective Amendment to the Registration Statement to be signed on its behalf by
the undersigned, thereunto duly authorized, and its seal to be hereunto fixed
and attested, all in the City of Boston and Commonwealth of Massachusetts on the
28th day of April, 1998.
JOHN HANCOCK VARIABLE LIFE ACCOUNT U
(Registrant)
By John Hancock Variable Life Insurance Company
(Depositor)
(SEAL)
By HENRY D. SHAW
-------------
Henry D. Shaw
President
Attest RONALD J. BOCAGE
----------------------
Ronald J. Bocage
Vice President and
Counsel
<PAGE>
EXHIBIT 7
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" in the
Prospectus and to the use of our reports dated February 6, 1998, with respect to
the financial statements of John Hancock Variable Life Account U and dated
February 18, 1998, with respect to the financial statements of John Hancock
Variable Life Insurance Company, included in this Post-Effective Amendment No.
25 to the Registration Statement (Form S-6, No. 2-68061).
/s/Ernst & Young LLP
ERNST & YOUNG LLP
Boston, Massachusetts
April 29, 1998
<PAGE>
EXHIBIT 10
[LETTERHEAD OF JOHN HANCOCK MUTUAL LIFE INSURANCE COMPANY APPEARS HERE]
April 28, 1998
United States Securities
and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
John Hancock Variable Life Account U
File Nos. 2-68061 811-3068
Commissioners:
This opinion is being furnished with respect to the filing of this post-
effective amendment of the Registrant's Registration Statement with the
Securities and Exchange Commission as required by Rule 485 under the Securities
Act of 1933.
We have acted as counsel to Registrant for the purpose of preparing this
post-effective amendment which is being filed pursuant to paragraph (b) of Rule
485 and hereby represent to the Commission that in our opinion this post-
effective amendment does not contain disclosures which would render it
ineligible to become effective pursuant to paragraph (b).
We hereby consent to the filing of this opinion with and as a part of this
post-effective amendment to Registrant's Registration Statement with the
Commission.
Very truly yours,
/s/ Sandra M. DaDalt
--------------------
Sandra M. DaDalt
Counsel
