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PROSPECTUS DATED MAY 3, 1999
ANNUAL PREMIUM VARIABLE LIFE
scheduled premium variable life insurance policies
issued by
JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY ("JHVLICO")
JHVLICO LIFE SERVICING OFFICE
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EXPRESS DELIVERY U.S. MAIL
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529 Main Street (X-4) P.O. Box 111
Charlestown, MA 02129 Boston, MA 02117
PHONE: 1-800-732-5543 / FAX: 1-617-886-3048
The policies provide the following 7 variable investment options:
<TABLE>
<CAPTION>
VARIABLE INVESTMENT OPTION MANAGED BY
-------------------------- ----------
<S> <C>
Managed. . . . . . . . . . . . . . . . . . . . . . . . . . . Independence Investment Associates, Inc.
Growth & Income . . . . . . . . . . . . . . . . . . . . . . Independence Investment Associates, Inc.
Large Cap Growth . . . . . . . . . . . . . . . . . . . . . . Independence Investment Associates, Inc.
Real Estate Equity . . . . . . . . . . . . . . . . . . . . . Independence Investment Associates, Inc.
International Equity Index . . . . . . . . . . . . . . . . . Independence International Associates, Inc.
Sovereign Bond . . . . . . . . . . . . . . . . . . . . . . . John Hancock Advisers, Inc.
Money Market . . . . . . . . . . . . . . . . . . . . . . . . John Hancock Mutual Life Insurance Company
</TABLE>
We may add or delete variable investment options in the future.
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When you select one or more of these variable investment options, we invest
your money in the corresponding investment option(s) of the John Hancock
Variable Series Trust I (the "Trust"). The Trust is a mutual fund that offers a
number of different investment options (which are called "funds"). The
investment results of each variable investment option you select will depend on
those of the corresponding fund of the Trust. Attached to this prospectus is a
prospectus for the Trust that contains detailed information about each fund
offered under the policy. Be sure to read the prospectus for the Trust before
selecting any of the variable investment options shown on page 1.
GUIDE TO THIS PROSPECTUS
This prospectus contains information that you should know before you buy a
policy or exercise any of your rights under the policy. However, please keep in
mind that this is a prospectus - - it is not the policy. The prospectus
---
simplifies many policy provisions to better communicate the policy's essential
features. Your rights and obligations under the policy will be determined by the
language of the policy itself. When you receive your policy, read it carefully.
This prospectus is arranged in the following way:
. The section which follows is called "Basic Information". It is in a
question and answer format. We suggest you read the Basic Information
section before reading any other section of the prospectus.
. Behind the Basic Information section are illustrations of hypothetical
policy benefits that help clarify how the policy works. These start on
page 16.
. Behind the illustrations is a section called "Additional Information"
that gives more details about the policy. It generally does not
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repeat information that is in the Basic Information section. A table
of contents for the Additional Information section appears on page 27.
. Behind the Additional Information section are the financial statements
for JHVLICO and Separate Account U. These start on page 37.
. Finally, there is an Alphabetical Index of Key Words and Phrases at the
back of the prospectus on page 76.
After the Alphabetical Index of Key Words and Phrases, this prospectus ends
and the Trust prospectus begins.
**********
Please note that the Securities and Exchange Commission ("SEC") has not
approved or disapproved these securities, or determined if this prospectus is
truthful or complete. Any representation to the contrary is a criminal offense.
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BASIC INFORMATION
This part of the prospectus provides answers to commonly asked questions about
the policy. Here are the page numbers where the questions and answers appear:
<TABLE>
<CAPTION>
Question Pages to See
- -------- ------------
<S> <C>
.What is the policy?. . . . . . . . . . . . . . . . . . . . . . . . 4
.Who owns the policy? . . . . . . . . . . . . . . . . . . . . . . . 4
.How can I invest money in the policy?. . . . . . . . . . . . . . . 5
.How much must I invest?. . . . . . . . . . . . . . . . . . . . . . 5
.What happens to my remaining policy value if the policy lapses?. . 6
.How will the value of my investment in the policy change over
time?. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6-7
.Will I receive annual dividends? . . . . . . . . . . . . . . . . . 7-8
.What charges will JHVLICO deduct from my investment in the policy? 8-9
.What charges will the Trust deduct from my investment in the
policy?. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9-10
.What other charges could JHVLICO impose in the future? . . . . . . 10
.How can I change my policy's investment allocations? . . . . . . . 10
.How can I access my investment in the policy?. . . . . . . . . . . 11-12
.How much will JHVLICO pay when the insured person dies?. . . . . . 12
.Can I cancel my policy after it's issued?. . . . . . . . . . . . . 13
.Can I choose the form in which JHVLICO pays out policy proceeds? . 13-14
.To what extent can JHVLICO vary the terms and conditions of
its policies in particular cases?. . . . . . . . . . . . . . . . . 14
.How will my policy be treated for income tax purposes? . . . . . . 14
.How do I communicate with JHVLICO? . . . . . . . . . . . . . . . . 14-15
</TABLE>
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WHAT IS THE POLICY?
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 insured persons between ages of 0 and 75. Discounts are
available to insured persons meeting non-smoking underwriting criteria.
The policy's primary purpose is to provide lifetime protection against
economic loss due to the death of the insured person. The value of the amount
you have invested under the policy may increase or decrease daily based upon the
investment results of the variable investment options that you choose. The
amount we pay to the policy's beneficiary if the insured person dies (we call
this the "death benefit") may be similarly affected.
While the insured person is alive, you will have a number of options under the
policy. Here are some major ones:
. Determine how much of your premium you invest in the various investment
options
. Borrow amounts you have in the investment options
. Change the beneficiary who will receive the death benefit
. Turn in (i.e., "surrender") the policy for the full amount of its
surrender value
. Surrender a portion of the policy
. Choose the form in which we will pay out the death benefit or other
proceeds
Most of these options are subject to limits that are explained later in this
prospectus.
WHO OWNS THE POLICY?
That's up to the person who applies for the policy. The owner of the policy is
the person who can exercise most of the rights under the policy, such as the
right to choose the investment options or the right to surrender the policy. In
many cases, the person buying the policy is also the person who will be the
owner. However, the application for a policy can name another person or entity
(such as a trust) as owner. Whenever we've used the term "you" in this
prospectus, we've assumed that the reader is the person who has whatever right
or privilege is being discussed. There may be tax consequences if the owner and
the insured person are different, so you should discuss this issue with your tax
adviser.
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HOW CAN I INVEST MONEY IN THE POLICY?
Premium Payments
We call the investments you make in the policy "premiums" or "premium
payments".
Ways to pay premiums
If you pay premiums by check or money order, they must be drawn on a U.S. bank
in U.S. dollars and made payable to "John Hancock Variable Life Insurance
Company." Premiums after the first must be sent to the JHVLICO Life Servicing
Office at the appropriate address shown on page 1 of this prospectus.
We will also accept premiums:
. by wire or by exchange from another insurance company,
. via an electronic funds transfer program (any owner interested in
making monthly premium payments must use this method), or
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. if we agree to it, through a salary deduction plan with your
employer.
You can obtain information on these other methods of premium payment by
contacting your JHVLICO representative or by contacting the JHVLICO Life
Servicing Office.
HOW MUCH MUST I INVEST?
Payment period and frequency.
Premiums are payable annually or more frequently over the insured person's
lifetime in accordance with our published rules and rates. Premiums are payable
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 person dies.
Lapse and reinstatement
If you don't pay a premium when due, you will have a 31 day "grace period" to
make that payment. If you don't pay the premium by the end of the grace period,
your policy will terminate (i.e., lapse). All coverage under the policy will
then cease. Even if the policy terminates in this way, you can still reactivate
(i.e., "reinstate") it within 3 years from the beginning of the grace period,
unless the surrender value has been paid or otherwise exhausted, or the period
of any extended term coverage (discussed below) has expired. You will have to
provide evidence that the insured person still meets our requirements for
issuing coverage. You will also have to pay a prescribed amount of premium and
be subject to the other terms and conditions applicable to reinstatements, as
specified in the policy. If the insured person dies during the grace period, we
will deduct any unpaid premium from the death benefit, prorated to the end of
the month of the insured person's death.
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WHAT HAPPENS TO MY REMAINING POLICY VALUE IF THE POLICY LAPSES?
Prior to the end of the business day immediately preceding the 70th day after
the beginning of the grace period, any policy values available (as determined in
accordance with the policy) may be applied as of the beginning of the grace
period 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 person
commencing at the beginning of the grace period.
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 variable investment options.
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.
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:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Variable or Fixed
Paid-Up Whole Life Fixed Extended Term Insurance
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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 business day immediately
preceding the 70th day after the beginning of the grace period, 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 person is a substandard risk, in either of which
cases Fixed Paid-Up Insurance is provided.
If the insured person dies after the grace period but before the end of the
business day immediately preceding the 70th day after the beginning of the grace
period and prior to any election, and if the policy is then in force, we 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 person is living. Loans may be available under the Variable
and Fixed Paid-Up Insurance options, but not under the Fixed Extended Term
Insurance option.
HOW WILL THE VALUE OF MY INVESTMENT IN THE POLICY CHANGE OVER TIME?
From each premium payment you make, we deduct the charges described under
"Deductions from premium payments" below. We invest the rest (your so-called
"net
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premium") in the investment options you've elected. We invest an amount equal to
each net premium for your policy on the date of issue and on each premium due
date thereafter, even if we actually receive your corresponding premium payment
before or after that date.
Over time, the amount you've invested in any variable investment option will
increase or decrease the same as if you had invested the same amount directly in
the corresponding fund of the Trust and had reinvested all fund dividends and
distributions in additional fund shares; except that we will deduct certain
additional charges which will reduce your cash value. We describe these charges
under "What charges will JHVLICO deduct from my investment in the policy?"
below.
At any time, the "cash value" of your policy (assuming you take all dividend
payments in cash) is equal to:
. the amount you invested,
. plus or minus the investment experience of the investment options
you've chosen,
. minus all charges we deduct, and
. minus all partial surrenders you have made.
If you take a loan on the policy, however, your cash value will be computed
somewhat differently. This is discussed beginning on page 11.
WILL I RECEIVE 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 we 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, you do 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
7
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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 our actuaries analyze the current and recent past experience and
compare 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
actuaries then determine what dividends can be equitably apportioned to each
Policy class and make a recommendation to our 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.
You 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 least 3 1/2% a year; purchase fixed paid-up
insurance; purchase one year term insurance; or purchase variable paid-up
insurance.
WHAT CHARGES WILL JHVLICO DEDUCT FROM MY INVESTMENT IN THE POLICY?
Deductions from premium payments
. Premium tax charge - A charge to cover expected state premium taxes we must
------------------
pay, on average. This charge is 2.5% of each premium.
. Adjustment for premium payment frequency - If you select a premium payment
----------------------------------------
mode other than annual (so that we receive your premiums over the course of
the year, rather than all at the beginning), there will be less value in your
policy to support it during the course of the year. To compensate for the
risk to us that this creates, the rate we set for each non-annual premium
includes an additional amount that we retain, rather than crediting it to
your policy.
. Annual administrative charge - A charge of $50 in each policy year to help
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defray our annual administrative expenses.
. Charge for extra insurance risk - The amount of premiums we may require may
-------------------------------
include an additional component if the insured person presents particular
mortality risks. We retain these additional amounts to compensate us for that
risk.
. Optional benefits charge - The amount of premiums we require is increased by
------------------------
an additional component to cover any optional rider benefits you choose for
your policy. We retain such additional amounts to compensate us for the
obligations we assume under the rider(s).
. Premium sales charge - 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 person, based on the 1980 Commissioners Standard
Ordinary Mortality Table. (The basic annual premium is the annual premium
less the premiums for any optional rider benefits, additional charges for
extra mortality risks and the $50 annual administrative charge.) The charge
during the first two policy years shall not exceed
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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 year.
. Additional first year administrative charge - A charge in the first policy
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year at the rate of $13 per $1,000 of the Initial Sum Insured (as shown in
the policy) 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.
. Risk charge - A charge necessary to cover the risk we assumed that the
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Variable Sum Insured will be less than the guaranteed minimum death benefit.
This charge will vary by age of the insured person 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 person and duration of
the policy but is expected to average approximately 5-9% of the basic annual
premium.
Deductions from Account assets
. Insurance charge - A monthly charge for the cost of insurance. To determine
----------------
the charge, we multiply the amount of insurance for which we are at risk by a
cost of insurance rate. The rate is derived from an actuarial table. The
table in your policy will show the maximum cost of insurance rates.
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The cost of insurance rates will never be more than those based on the 1980
Commissioners Standard Ordinary Mortality Tables. Cost of insurance rates
generally increase each year that you own your policy, as the insured
person's attained age increases. (The insured person's "attained age" on any
date is his or her age on the birthday nearest that date.)
. M & E charge - A daily charge for mortality and expense risks we assume. This
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charge is deducted from the variable investment options. The current charge
is at an effective annual rate of .60% of the value of the assets in each
variable investment option. We guarantee that this charge will never exceed
an effective annual rate of .50%.
WHAT CHARGES WILL THE TRUST DEDUCT FROM MY INVESTMENT IN THE POLICY?
The Trust must pay investment management fees and other operating expenses.
These fees and expenses are different for each fund of the Trust and reduce the
investment return of each fund. Therefore, they also indirectly reduce the
return you will earn on any variable investment options you select. The figures
in the following chart are expressed as percentages of each fund's average daily
net assets for 1998 (rounded to two decimal places). The percentages reflect the
investment management fees that were payable for 1998 and the 1998 other
operating expenses that would have been allocated to the funds under the
allocation rules currently in effect.
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<TABLE>
<CAPTION>
Total Fund
Investment Other Operating Other Operating Expenses
Fund Name Management Fee Operating Expenses Expenses Absent Reimbursement*
- --------- -------------- ------------------ ---------- ------------------------
<S> <C> <C> <C> <C>
Managed . . . . . . . . . . 0.32% 0.05% 0.37% 0.05%
Growth & Income . . . . . . 0.25% 0.05% 0.30% 0.05%
Large Cap Growth. . . . . . 0.37% 0.05% 0.42% 0.05%
Real Estate Equity. . . . . 0.60% 0.05% 0.65% 0.05%
International Equity Index 0.17% 0.10% 0.27% 0.23%
Sovereign Bond. . . . . . . 0.25% 0.05% 0.30% 0.05%
Money Market. . . . . . . . 0.25% 0.05% 0.30% 0.05%
</TABLE>
* John Hancock reimburses a fund when the fund's other operating expenses exceed
0.10% of the fund's average daily net assets.
WHAT OTHER CHARGES COULD JHVLICO IMPOSE IN THE FUTURE?
We currently make no charge for our Federal income taxes, but if we incur, or
expect to incur, income taxes attributable to any subaccount of the Account or
this class of policies in future years, we reserve the right to make such a
charge. Any such charge would reduce what you earn on any affected investment
options. However, we expect that no such charge will be necessary.
Under current laws, we may incur state and local taxes (in addition to premium
taxes) in several states. At present, these taxes are not significant. If there
is a material change in applicable state or local tax laws, we may make charges
for such taxes.
HOW CAN I CHANGE MY POLICY'S INVESTMENT ALLOCATIONS?
Future premium payments
At any time, you may change the investment options in which future premium
payments will be invested. You make the original allocation in the application
for the policy. The percentages you select must be in whole numbers of not less
than 10% for any option and must equal 100% in total.
Transfers of existing cash value
You may also transfer your existing cash value from one investment option to
another. To do so, you must tell us how much to transfer, either as a whole
number percentage or as a specific dollar amount.You may not make more than six
transfers in each policy year.
Limitation on number of investment options
Whether through the allocation of premium or through the transfer of existing
cash value, you can never be invested in more than five investment options at
any one time.
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HOW CAN I ACCESS MY INVESTMENT IN THE POLICY?
Full surrender
You may surrender your policy in full at any time for its "surrender value."
You must return your policy when you request a full surrender. 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.
Partial Surrender
A policy may be partially surrendered in accordance with our 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.
Policy loans
You may borrow from your policy at any time after it has been in effect for 1
year by completing a form satisfactory to us or, if the telephone transaction
authorization form has been completed, by telephone. The maximum amount you can
borrow is what we call your "Loan Value." 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. However, if you elect the Fixed Loan Interest Rate or the
Variable Loan Interest Rate is unavailable in your 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. You may repay all or a portion of any indebtedness
while the insured person is living and premiums are being duly paid. Any loan is
charged against the variable investment options in proportion to the policy cash
value allocated to the variable investment options and, upon repayment, the
repayment is allocated to the variable investment options in proportion to the
outstanding indebtedness in each variable investment option at such time.
We determine the Variable Loan Interest Rate annually. The Fixed Loan Interest
Rate is 8% for the life of the policy. At the time of issue, you 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, you 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.
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 of 5 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
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Monthly Average means Moody's Corporate Bond Yield Average as published by
Moody's Investors Service, Inc. or any successor thereto.
The amount of the loan deducted from the investment options is placed in a
special loan account. This special loan account will earn interest at an
effective annual rate that is not more than 2% below the interest rate we are
then charging on the loan (assuming no taxes).
HOW MUCH WILL JHVLICO PAY WHEN THE INSURED PERSON DIES?
In your application for the policy, you will tell us how much life insurance
coverage you want on the life of the insured person. This is called the "Sum
Insured."
When the insured person dies, we will pay the death benefit minus any
indebtedness. The death benefit will be an amount equal to the greater of the
guaranteed minimum death benefit and the Variable Sum Insured on the date of
death of the insured person. The Variable Sum Insured is an amount equal to the
Initial Sum Insured at issue and thereafter varies, as discussed below.
Guaranteed minimum death benefit
The guaranteed minimum death benefit is equal to the Initial Sum Insured on
the date of issue of the policy. We guarantees that, regardless of what your
variable investment options earn, the death benefit will never be less than the
guaranteed minimum death benefit.
Variable Sum Insured
After the first policy month, the Variable Sum Insured 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 business day.) The Variable Sum Insured
remains level during the policy month following the determination.
Changes in the Variable Sum Insured 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 business day and the policy's assumed annual rate of 4 1/2% is translated,
on an actuarial basis, into a change in the Variable Sum Insured.
The Variable Sum Insured would increase 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 of 4 1/2% to result in such an
increase. If the ANIR was equivalent to an annual rate of less than 4 1/2%, the
Variable Sum Insured would be reduced. The percentage change in the Variable Sum
Insured is not the same as the Account Net Investment Rate, however.
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CAN I CANCEL MY POLICY AFTER IT'S ISSUED?
You have the right to cancel your policy within the latest of the following
periods:
. 10 days after you receive it (this period may be longer in some
states);
. 10 days after mailing by JHVLICO of the Notice of Withdrawal Right;
or
. 45 days after the date Part A of the application has been completed.
This is often referred to as the "free look" period. To cancel your policy,
simply deliver or mail the policy to JHVLICO at one of the addresses shown on
page 1, or to the JHVLICO representative who delivered the policy to you.
You will receive a refund of any premiums you've paid. The date of
cancellation will be the date of such mailing or delivery.
CAN I CHOOSE THE FORM IN WHICH JHVLICO PAYS OUT POLICY PROCEEDS?
Choosing a payment option
You may choose to receive proceeds from the policy as a single sum. This
includes proceeds that become payable because of death or full surrender.
Alternatively, you can elect to have proceeds of $1,000 or more applied to any
of a number of other payment options, including the following:
. Option 1 - Proceeds left with us to accumulate with interest
. Option 2A - Equal monthly payments of a specified amount until all
proceeds are paid out
. Option 2B - Equal monthly payments for a specified period of time
. Option 3 - Equal monthly payments for life, but with payments guaranteed
for a specific number of years
. Option 4 - Equal monthly payments for life with no refund
. Option 5 - Equal monthly payments for life with a refund if all of the
proceeds haven't been paid out
You cannot choose an option if the monthly payments under the option would be
less than $50. We will issue a supplementary agreement when the proceeds are
applied to any alternative payment option. That agreement will spell out the
terms of the option in full. We will credit interest on each of the above
options. For Options 1 and 2A, the interest will be at least an effective annual
rate of 3 1/2%.
13
<PAGE>
Changing a payment option
You can change the payment option at any time before the proceeds are payable.
If you haven't made a choice, the payee of the proceeds has a prescribed period
in which he or she can make that choice.
Tax impact
There may be tax consequences to you or your beneficiary depending upon which
payment option is chosen. You should consult with a qualified tax adviser before
making that choice.
TO WHAT EXTENT CAN JHVLICO VARY THE TERMS AND CONDITIONS OF ITS POLICIES IN
PARTICULAR CASES?
Insurance laws and regulations apply to JHVLICO in every state in which its
policies are sold. As a result, various terms and conditions described in the
prospectus may vary depending upon where you reside. These variations will be
reflected in your policy or in endorsements attached to your policy.
HOW WILL MY POLICY BE TREATED FOR INCOME TAX PURPOSES?
Generally, death benefits paid under policies such as yours are not subject to
income tax. Earnings on your cash value are not subject to income tax as long as
we don't pay them out to you. If we do pay out any amount of your cash value
upon surrender or partial withdrawal, all or part of that distribution should
generally be treated as a return of the premiums you've paid and should not be
subject to income tax. Amounts you borrow are generally not taxable to you.
For further information about the tax consequences of owning a policy, please
read "Tax considerations" beginning of page 31.
HOW DO I COMMUNICATE WITH JHVLICO?
General Rules
You should mail or express all checks and money orders for premium payments
and loan repayments to the JHVLICO Life Servicing Office at the appropriate
address shown on page 1.
Certain requests must be made in writing and be signed and dated by you. They
include the following:
. loans, surrenders or partial surrenders
. transfers of cash value among investment options
. change of allocation among investment options for new premium payments
. change of beneficiary
14
<PAGE>
. election of payment option for policy proceeds
. tax withholding elections
. election of telephone transaction privilege
You should mail or express these requests to the JHVLICO Life Servicing Office
at the appropriate address shown on page 1. You should also send notice of the
insured person's death and related documentation to the JHVLICO Life Servicing
Office. We don't consider that we've "received" any communication until such
time as it has arrived at the proper place and in the proper and complete form.
We have special forms that should be used for a number of the requests
mentioned above. You can obtain these forms from the JHVLICO Life Servicing
Office or your JHVLICO representative. Each communication to us must include
your name, your policy number and the name of the insured person. We cannot
process any request that doesn't include this required information. Any
communication that arrives after the close of our business day, or on a day that
is not a business day, will be considered "received" by us on the next following
business day. Our business day currently closes at 4:00 p.m. Eastern Standard
Time, but special circumstances (such as suspension of trading on a major
exchange) may dictate an earlier closing time.
Telephone Transactions
If you complete a special authorization form, you can request loans, transfers
among investment options and changes of allocation among investment options
simply by telephoning us at 1-800-732-5543 or by faxing us at 1-617-886-3048.
Any fax request should include your name, daytime telephone number, policy
number and, in the case of transfers and changes of allocation, the names of the
investment options involved. We will honor telephone instructions from anyone
who provides the correct identifying information, so there is a risk of loss to
you if this service is used by an unauthorized person. However, you will receive
written confirmation of all telephone transactions. There is also a risk that
you will be unable to place your request due to equipment malfunction or heavy
phone line usage. If this occurs, you should submit your request in writing.
The policies are not designed for professional market timing organizations or
other entities that use programmed and frequent transfers among investment
options. For reasons such as that, we reserve the right to change our telephone
transaction policies or procedures at any time. We also reserve the right to
suspend or terminate the privilege altogether.
15
<PAGE>
ILLUSTRATION OF DEATH BENEFITS, CASHVALUES, SURRENDER
VALUES AND ACCUMULATED PREMIUMS
The following tables illustrate the changes in death benefit, cash value and
surrender value of each of the three types of the policy under certain
hypothetical circumstances that we assume solely for this purpose. Each table
separately illustrates the operation of a policy for a specified issue age and
Initial Sum Insured. Each table illustrates the operation of a policy assuming
dividends WHICH ARE NOT GUARANTEED are used to purchase additional variable
paid-up death benefits. The amounts shown are for the end of each policy year
and assume that all of the cash value is invested in funds that achieve
investment returns at constant annual rates of 0%, 6% and 12% before any fees or
expenses. (Investment return reflects investment income and all realized and
unrealized capital gains and losses.) The tables assume annual premiums for a
standard risk that are paid at the beginning of each policy year.
With respect to fees and expenses deducted from Trust assets, the amounts
shown in all tables reflect (1) investment management fees equivalent to an
effective annual rate of .59%, and (2) an assumed average asset charge for all
other Trust operating expenses equivalent to an effective annual rate of .07%.
These rates are the arithmetic average for all funds of the Trust. In other
words, they are based on the hypothetical assumption that policy cash values are
allocated equally among the variable investment options. The actual rates
associated with any policy will vary depending upon the actual allocation of
policy values among the investment options.
The second column of each table shows the amount you would have at the end of
each policy year if an amount equal to the assumed premiums were invested to
earn interest, after taxes, at 5% compounded annually. This is not a policy
value. It is included for comparison purposes only.
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 our mortality and expense experience in the future is as
currently experienced and if our 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.
Because your circumstances will no doubt differ from those in the
illustrations that follow, values under your policy will differ, in most cases
substantially. Upon request, we will furnish you with a comparable illustration
reflecting your proposed insured person's issue age, sex and underwriting risk
classification, and the Initial Sum Insured requested.
16
<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)
<TABLE>
<CAPTION>
Dividends Purchasing Variable Paid-Up Additions (Var Pu Adds) Dividends are Not Guaranteed
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.
17
<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)
<TABLE>
<CAPTION>
Dividends Purchasing Variable Paid-Up Additions (Var Pu Adds) Dividends are Not Guaranteed
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.
18
<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)
<TABLE>
<CAPTION>
Dividends Purchasing Variable Paid-Up Additions (Var Pu Adds) Dividends are Not Qualified
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.
19
<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)
<TABLE>
<CAPTION>
Dividends Purchasing Variable Paid-Up Additions (Var Pu Adds) Dividends are Not Guaranteed
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.
20
<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)
<TABLE>
<CAPTION>
Dividends Purchasing Variable Paid-Up Additions (Var Pu Adds) Dividends are Not Guaranteed
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 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.
21
<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)
<TABLE>
<CAPTION>
Dividends Purchasing Variable Paid-Up Additions (Var Pu Adds) Dividends are Not Guaranteed
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.
22
<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)
<TABLE>
<CAPTION>
Dividends Purchasing Variable Paid-Up Additions (Var Pu Adds) Dividends are Not Guaranteed
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.
23
<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)
<TABLE>
<CAPTION>
Dividends Purchasing Variable Paid-Up Additions (Var Pu Adds) Dividends are Not Guaranteed
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 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.
24
<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)
<TABLE>
<CAPTION>
Dividends Purchasing Variable Paid-Up Additions (Var Pu Adds) Dividends are Not Guaranteed
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.
25
<PAGE>
PLAN: VARIABLE WHOLE LIFE
AGE 40 YEARS MALE--SMOKER
INITIAL SUM INSURED (GUARANTEED MINIMUM DEATH BENEFIT) $26,354
ANNUAL PREMIUM $600.00* (PRMS ACCUM MEANS PREMIUMS ACCUMULATED)
<TABLE>
<CAPTION>
Dividends Purchasing Variable Paid-Up Additions (Var Pu Adds) Dividends are Not Guaranteed
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 26,354 0 26,354 26,435 0 26,435 27,802 0 27,802
2 1,292 26,354 0 26,354 26,437 0 26,437 27,846 0 27,846
3 1,986 26,354 14 26,368 26,477 16 26,493 28,598 24 28,621
4 2,715 26,354 32 26,386 26,518 46 26,563 29,392 66 29,458
5 3,481 26,354 59 26,413 26,559 87 26,646 30,227 125 30,352
6 4,285 26,354 93 26,447 26,601 140 26,741 31,102 203 31,306
7 5,129 26,354 130 26,484 26,643 199 26,842 32,020 294 32,315
8 6,016 26,354 175 26,529 26,685 272 26,958 32,983 409 33,392
9 6,947 26,354 225 26,579 26,729 355 27,084 33,992 544 34,536
10 7,924 26,354 281 26,635 26,772 449 27,222 35,050 704 35,754
15 13,594 26,354 957 27,311 26,992 1,456 28,449 41,031 2,346 43,377
20 20,832 26,354 1,655 28,009 27,226 2,798 30,024 48,686 5,168 53,854
Age 65 30,068 26,354 2,078 28,432 27,485 4,114 31,599 58,865 9,190 68,055
30 41,856 26,354 2,310 28,664 27,748 5,423 33,170 71,673 14,943 86,616
35 56,902 26,354 2,418 28,772 28,014 6,751 34,765 87,823 23,207 111,030
</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 11 0 11 11 0 11 12 0 12
2 1,292 341 0 341 362 0 362 383 0 383
3 1,986 664 4 668 723 5 728 785 7 792
4 2,715 980 10 989 1,095 14 1,109 1,220 20 1,240
5 3,481 1,288 18 1,306 1,479 27 1,506 1,691 39 1,729
6 4,285 1,589 30 1,619 1,873 45 1,918 2,200 65 2,265
7 5,129 1,883 43 1,926 2,278 66 2,344 2,750 98 2,848
8 6,016 2,170 60 2,230 2,695 93 2,788 3,346 141 3,487
9 6,947 2,450 80 2,530 3,124 126 3,250 3,991 194 4,185
10 7,924 2,723 103 2,825 3,565 165 3,729 4,688 259 4,947
15 13,594 4,051 410 4,461 6,030 626 6,656 9,208 1,012 10,221
20 20,832 5,166 821 5,987 8,759 1,394 10,153 15,734 2,586 18,320
Age 65 30,068 5,912 1,180 7,092 11,522 2,346 13,868 24,789 5,264 30,053
30 41,856 6,453 1,479 7,932 14,359 3,487 17,846 37,260 9,652 46,912
35 56,902 6,803 1,718 8,521 17,169 4,818 21,987 54,071 16,636 70,707
</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 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.
26
<PAGE>
ADDITIONAL INFORMATION
This section of the prospectus provides additional detailed information that
is not contained in the Basic Information section on pages 3 through 15.
<TABLE>
<CAPTION>
CONTENTS OF THIS SECTION PAGES TO SEE
- ------------------------ ------------
<S> <C>
Description of JHVLICO ......................................... 28
How we support the policy and investment options................ 28
How we process certain policy transactions...................... 29
Effects of policy loans......................................... 29
Additional information about how certain policy charges work.... 29-30
How we market the policies...................................... 30-31
Tax considerations.............................................. 31-32
Reports that you will receive................................... 32
Voting privileges that you will have............................ 32
Changes that JHVLICO can make as to your policy................. 33
Adjustments we make to death benefits........................... 33
When we pay policy proceeds..................................... 33-34
Other details about exercising rights and paying benefits....... 34
Year 2000 Issues................................................ 34-35
Legal matters................................................... 35
Registration statement filed with the SEC....................... 35
Accounting and actuarial experts................................ 35
Financial statements of JHVLICO and the Account................. 35
List of Directors and Executive Officers of JHVLICO ............ 36
</TABLE>
27
<PAGE>
DESCRIPTION OF JHVLICO
We are JHVLICO, a stock life insurance company chartered in 1979 under
Massachusetts law. We are authorized to transact a life insurance and annuity
business in all states other than New York and in the District of Columbia. We
began selling variable life insurance policies in 1980.
We are regulated and supervised by the Massachusetts Commissioner of
Insurance, who periodically examines our affairs. We also are subject to the
applicable insurance laws and regulations of all jurisdictions in which we are
authorized to do business. We are required to submit annual statements of our
operations, including financial statements, to the insurance departments of the
various jurisdictions in which we do business for purposes of determining
solvency and compliance with local insurance laws and regulations. The
regulation to which we are subject, however, does not provide a guarantee as to
such matters.
We are a wholly-owned subsidiary of John Hancock Mutual Life Insurance Company
("John Hancock"), a company chartered in Massachusetts in 1862. John Hancock's
home office is at John Hancock Place, Boston, Massachusetts 02117. John
Hancock's assets are approximately $67 billion and it has invested over $380
million in JHVLICO in connection with our organization and operation. It is
anticipated that John Hancock will from time to time make additional capital
contributions to JHVLICO to enable us to meet our reserve requirements and
expenses in connection with our business. John Hancock is committed to make
additional capital contributions if necessary to ensure that we maintain a
positive net worth.
HOW WE SUPPORT THE POLICY AND INVESTMENT OPTIONS
Separate Account U
The variable investment options shown on page 1 are in fact subaccounts of
Separate Account U (the "Account"), a separate account established by us under
Massachusetts law. The Account meets the definition of "separate account" under
the Federal securities laws and is registered as a unit investment trust under
the Investment Company Act of 1940 ("1940 Act"). Such registration does not
involve supervision by the SEC of the management of the Account or JHVLICO.
The Account's assets are the property of JHVLICO. Each policy provides that
amounts we hold in the Account pursuant to the policies cannot be reached by any
other persons who may have claims against us.
The assets in each subaccount are invested in the corresponding fund of the
Trust, but the assets of one subaccount are not necessarily legally insulated
from liabilities associated with another subaccount. New subaccounts may be
added as new funds are added to the Trust and made available to policy owners.
Existing subaccounts may be deleted if existing funds are deleted from the
Trust.
We will purchase and redeem Trust shares for the Account at their net asset
value without any sales or redemption charges. Shares of the Trust represent an
interest in one of the funds of the Trust which corresponds to a subaccount of
the Account. Any dividend or capital gains distributions received by the Account
will be reinvested in shares of that same fund at their net asset value as of
the dates paid.
On each business day, shares of each fund are purchased or redeemed by us for
each subaccount based on, among other things, the amount of net premiums
allocated to the subaccount, distributions reinvested, and transfers to, from
and among subaccounts, all to be effected as of that date. Such purchases and
redemptions are effected at each fund's net asset value per share determined for
that same date. A "business day" is any date on which the New York Stock
Exchange is open for trading. We compute policy values for each business day as
of the close of that day (usually 4:00 p.m. Eastern Standard Time).
28
<PAGE>
HOW WE PROCESS CERTAIN POLICY TRANSACTIONS
Monthly deduction dates
Each charge that we deduct monthly is assessed against your cash value or the
subaccounts at the close of business on the date of issue and at the close of
the first business day in each subsequent policy month. The "date of issue" is
the date on which the policy takes effect. Policy months, policy years and
policy anniversaries are all measured from that date.
Transfers among investment options
Any reallocation among investment options must be such that the total in all
investment options after reallocation equals 100% of cash value. Transfers out
of a variable investment option will be effective at the end of the business day
in which we receive at our Life Servicing Office notice satisfactory to us.
Telephone transfers and policy loans
Once you have completed a written authorization, you may request a transfer or
policy loan by telephone or by fax. If the fax request option becomes
unavailable, another means of telecommunication will be substituted.
If you authorize telephone transactions, you will be liable for any loss,
expense or cost arising out of any unauthorized or fraudulent telephone
instructions which we reasonably believe to be genuine, unless such loss,
expense or cost is the result of our mistake or negligence. We employ procedures
which provide safeguards against the execution of unauthorized transactions, and
which are reasonably designed to confirm that instructions received by telephone
are genuine. These procedures include requiring personal identification, tape
recording calls, and providing written confirmation to the owner. If we do not
employ reasonable procedures to confirm that instructions communicated by
telephone are genuine, we may be liable for any loss due to unauthorized or
fraudulent instructions.
Effective date of other policy transactions
Reinstatements of lapsed policies take effect on the monthly deduction date on
or next following the date we approve your request.
We process loans, surrenders, partial surrenders and loan repayments as of the
day we receive such request or repayment.
EFFECTS OF POLICY LOANS
The cash value, the surrender value, and any death benefit above the face
amount are permanently affected by any loan, whether or not it is repaid in
whole or in part. This is because the amount of the loan is deducted from the
investment options and placed in a special loan account. The investment options
and the special loan account will generally have different rates of investment
return.
The amount of any outstanding indebtedness is subtracted from the amount
otherwise payable when the policy proceeds become payable.
Whenever the outstanding indebtedness equals or exceeds the policy's cash
value (plus any cash values under a dividend option providing paid-up
insurance), the policy will terminate 31 days after we have mailed notice of
termination to you (and to any assignee of record at such assignee's last known
address) specifying the minimum amount that must be paid to avoid termination,
unless a repayment of at least the amount specified is made within that period.
ADDITIONAL INFORMATION ABOUT HOW CERTAIN POLICY CHARGES WORK
Sales expenses and related charges
The premium sales charges help to compensate us for the cost of selling our
policies. (See "What charges will JHVLICO deduct from my investment in the
policy?" in the Basic Information section of this prospectus.) The amount of the
charges in any policy year does not specifically correspond to sales expenses
for that year. We expect to recover our total
29
<PAGE>
sales expenses over the life of the policies. To the extent that the sales
charges do not cover total sales expenses, the sales expenses may be recovered
from other sources, including gains from the charge for mortality and expense
risks and other gains with respect to the policies, or from our general assets.
(See "How we market the policies" below.)
Monthly charges
We deduct the monthly charges described in the Basic Information section from
your policy's investment options in proportion to the amount of cash value you
have in each.
HOW WE MARKET THE POLICIES
Signator Investors, Inc. ("Signator"), an indirect wholly-owned subsidiary of
John Hancock located at 197 Clarendon Street, Boston, MA 02117, is registered as
a broker-dealer under the Securities Exchange Act of 1934 and is a member of the
National Association of Securities Dealers, Inc. and the Securities Investor
Protection Corporation. Signator acts as principal underwriter and principal
distributor of the policies pursuant to a sales agreement among John Hancock,
Signator, JHVLICO, and the Account. Signator also serves as principal
underwriter for John Hancock Variable Annuity Accounts U, I and V, John Hancock
Mutual Variable Life Insurance Account UV and John Hancock Variable Life
Accounts V and S, all of which are registered under the 1940 Act. Signator is
also the principal underwriter for John Hancock Variable Series Trust I.
Applications for policies are solicited by agents who are licensed by state
insurance authorities to sell JHVLICO's policies and who are also registered
representatives ("representatives") of Signator or other broker-dealer firms, as
discussed below. John Hancock performs insurance underwriting and determines
whether to accept or reject the application for a policy and each insured
person's risk classification. JHVLICO will make the appropriate refund if a
policy ultimately is not issued or is returned under the "free look" provision.
Officers and employees of John Hancock and JHVLICO are covered by a blanket bond
by a commercial carrier in the amount of $25 million.
Signator's representatives are compensated for sales of the policies on a
commission and service fee basis by Signator, and JHVLICO reimburses Signator
for such compensation and for other direct and indirect expenses (including
agency expense allowances, general agent, district manager and supervisor's
compensation, agent's training allowances, deferred compensation and insurance
benefits of agents, general agents, district managers and supervisors, agency
office clerical expenses and advertising) actually incurred in connection with
the marketing and sale of the policies.
The maximum commission payable to a Signator representative for selling a
policy is 55% of the premium paid in the first policy year, 15% of the premium
paid in the second policy year, 10% of the premium paid in the third through
sixth policy years, 5% of the premium paid in the sixth through tenth policy
years, and 3% of the premium paid in each policy year thereafter.
Representatives with less than four years of service with Signator and those
compensated on salary plus bonus or level commission programs may be paid on a
different basis. Representatives who meet certain productivity and persistency
standards with respect to the sale of policies issued by JHVLICO and John
Hancock will be eligible for additional compensation.
The policies may also be sold through other registered broker-dealers that
have entered into selling agreements with Signator and whose representatives are
authorized by applicable law to sell variable life insurance policies. The
commissions which will be paid by such broker-dealers to their representatives
will be in accordance with their established rules. The commission rates may be
more or less than those set forth above for Signator's representatives. In
addition, their qualified registered
30
<PAGE>
representatives may be reimbursed by the broker-dealers under expense
reimbursement allowance programs in any year for approved voucherable expenses
incurred. Signator will compensate the broker-dealers as provided in the selling
agreements, and JHVLICO will reimburse Signator for such amounts and for certain
other direct expenses in connection with marketing the policies through other
broker-dealers.
Representatives of Signator and the other broker-dealers mentioned above may
also earn "credits" toward qualification for attendance at certain business
meetings sponsored by John Hancock.
Neither JHVLICO nor Signator is obligated to sell any particular amount of
policies.
TAX CONSIDERATIONS
This description of federal income tax consequences is only a brief summary
and is not intended as tax advice. Tax consequences will vary based on your own
particular circumstances, and for further information you should consult a
qualified tax advisor. Federal, state and local tax laws, regulations and
interpretations can change from time to time. As a result, the tax consequences
to you and the beneficiary may be altered, in some cases retroactively.
Policy proceeds
We believe the policy will receive the same federal income and estate tax
treatment as fixed benefit life insurance policies. Section 7702 of the Internal
Revenue Code (the "Code") defines life insurance for federal tax purposes. If
certain standards are met at issue and over the life of the policy, the policy
will satisfy that definition. We will monitor compliance with these standards.
If the policy complies with the definition of life insurance, we believe the
death benefit under the policy will be excludable from the beneficiary's gross
income under the Code. In addition, increases in cash value as a result of
interest or investment experience will not be subject to federal income tax
unless and until values are actually received through distributions.
Distributions for tax purposes can include amounts received upon surrender or
partial surrender. You may also be deemed to have received a distribution for
tax purposes if you assign all or part of your policy rights or change your
policy's ownership.
In general, the owner will be taxed on the amount of distributions that exceed
the premiums paid under the policy. But under certain circumstances within the
first 15 policy years, the owner may be taxed on a distribution even if total
withdrawals do not exceed total premiums paid. Any taxable distribution will be
ordinary income to the owner (rather than capital gains).
We also believe that, except as noted below, loans received under the policy
will be treated as indebtedness of an owner and that no part of any loan will
constitute income to the owner. However, the amount of any outstanding loan that
was not previously considered income (as discussed below) will be treated as if
it had been distributed to the owner if the policy terminates for any reason.
It is possible that, despite our monitoring, a policy might fail to qualify as
life insurance under Section 7702 of the Code. This could happen, for example,
if we inadvertently failed to return to you any premium payments that were in
excess of permitted amounts, or if the Trust failed to meet certain investment
diversification or other requirements of the Code. If this were to occur, you
would be subject to income tax on the income and gains under the policy for the
period of the disqualification and for subsequent periods and the death benefit
would lose its tax-free character.
In the past, the United States Treasury Department has stated that it
anticipated issuing guidelines prescribing circumstances in which the ability of
a policy owner to direct his or her investment to particular funds may cause the
policy owner, rather than the insurance company, to be treated as the owner of
the shares of those funds. In
31
<PAGE>
that case, any income and gains attributable to those shares would be included
in your current gross income for federal income tax purposes. Under current law,
however, we believe that we, and not the owner of a policy, would be considered
the owner of the fund's shares for tax purposes.
Tax consequences of ownership or receipt of policy proceeds under federal,
state and local estate, inheritance, gift and other tax laws depend on the
circumstances of each owner or beneficiary.
Because there may be unfavorable tax consequences (including recognition of
taxable income and the loss of income tax-free treatment for any death benefit
payable to the beneficiary), you should consult a qualified tax adviser prior to
changing the policy's ownership or making any assignment of ownership interests.
Corporate and H.R. 10 plans
The policy may be acquired in connection with the funding of retirement plans
satisfying the qualification requirements of Section 401 of the Code. If so, the
Code provisions relating to such plans and life insurance benefits thereunder
should be carefully scrutinized. We are not responsible for compliance with the
terms of any such plan or with the requirements of applicable provisions of the
Code.
REPORTS THAT YOU WILL RECEIVE
At least annually, we will send you a statement setting forth the following
information as of the end of the most recent reporting period: the amount of the
death benefit and cash value, and any outstanding policy loan (and interest
charged for the preceding policy year). Moreover, you also will receive
confirmations of transfers among investment options, policy loans, partial
surrenders and certain other policy transactions.
Semiannually we will send you a report containing the financial statements of
the Trust, including a list of securities held in each fund.
VOTING PRIVILEGES THAT YOU WILL HAVE
All of the assets in the subaccounts of the Account are invested in shares of
the corresponding funds of the Trust. We will vote the shares of each of the
funds of the Trust which are deemed attributable to variable life insurance
policies at regular and special meetings of the Trust's shareholders in
accordance with instructions received from owners of such policies. Shares of
the Trust held in the Account which are not attributable to such policies, as
well as shares for which instructions from owners are not received, will be
represented by us at the meeting. We will vote such shares for and against each
matter in the same proportions as the votes based upon the instructions received
from the owners of such policies.
We determine the number of a fund's shares held in a subaccount attributable
to each owner by dividing the amount of a policy's cash value held in the
subaccount by the net asset value of one share in the fund. Fractional votes
will be counted. We determine the number of shares as to which the owner may
give instructions as of the record date for the Trust's meeting. Owners of
policies may give instructions regarding the election of the Board of Trustees
of the Trust, ratification of the selection of independent auditors, approval of
Trust investment advisory agreements and other matters requiring a shareholder
vote. We will furnish owners with information and forms to enable owners to give
voting instructions.
However, we may, in certain limited circumstances permitted by the SEC's
rules, disregard voting instructions. If we do disregard voting instructions,
you will receive a summary of that action and the reasons for it in the next
semi-annual report to owners.
32
<PAGE>
CHANGES THAT JHVLICO CAN MAKE AS TO YOUR POLICY
Changes relating to the Trust or the Account
The voting privileges described in this prospectus reflect our understanding
of applicable Federal securities law requirements. To the extent that applicable
law, regulations or interpretations change to eliminate or restrict the need for
such voting privileges, we reserve the right to proceed in accordance with any
such revised requirements. We also reserve the right, subject to compliance with
applicable law, including approval of owners if so required, (1) to transfer
assets determined by JHVLICO to be associated with the class of policies to
which your policy belongs from the Account to another separate account or
subaccount, (2) to operate the Account as a "management-type investment company"
under the 1940 Act, or in any other form permitted by law, the investment
adviser of which would be JHVLICO, an affiliate or John Hancock, (3) to
deregister the Account under the 1940 Act, (4) to substitute for the fund shares
held by a subaccount any other investment permitted by law, and (5) to take any
action necessary to comply with or obtain any exemptions from the 1940 Act. We
would notify owners of any of the foregoing changes and, to the extent legally
required, obtain approval of owners and any regulatory body prior thereto. Such
notice and approval, however, may not be legally required in all cases.
Other permissible changes
We reserve the right to make any changes in the policy necessary to ensure the
policy is within the definition of life insurance under the Federal tax laws and
is in compliance with any changes in Federal or state tax laws.
In our policies, we reserve the right to make certain changes if they would
serve the best interests of policy owners or would be appropriate in carrying
out the purposes of the policies. Such changes include the following:
. Changes necessary to comply with or obtain or continue exemptions under the
federal securities laws
. Combining or removing investment options
. Changes in the form of organization of any separate account
Any such changes will be made only to the extent permitted by applicable laws
and only in the manner permitted by such laws. When required by law, we will
obtain your approval of the changes and the approval of any appropriate
regulatory authority.
ADJUSTMENTS WE MAKE TO DEATH BENEFITS
If the insured person commits suicide within certain time periods, the amount
of death benefit we pay will be limited as described in the policy. Also, if an
application misstated the age or gender of the insured person, we will adjust
the amount of any death benefit as described in the policy.
WHEN WE PAY POLICY PROCEEDS
General
We will pay any death benefit, surrender value or loan within 7 days after we
receive the last required form or request (and, with respect to the death
benefit, any other documentation that may be required). If we don't have
information about the desired manner of payment within 7 days after the date we
receive notification of the insured person's death, we will pay the proceeds as
a single sum, normally within 7 days thereafter.
Delay to challenge coverage
We may challenge the validity of your insurance policy based on any material
misstatements made to us in the application for the policy. We cannot make such
a challenge, however, beyond certain time limits that are specified in the
policy.
33
<PAGE>
Delay for check clearance
We reserve the right to defer payment of that portion of your cash value that
is attributable to a premium payment made by check for a reasonable period of
time (not to exceed 15 days) to allow the check to clear the banking system.
Delay of separate account proceeds
We reserve the right to defer payment of any death benefit, loan or other
distribution that is derived from a variable investment option if (a) the New
York Stock Exchange is closed (other than customary weekend and holiday
closings) or trading on the New York Stock Exchange is restricted; (b) an
emergency exists, as a result of which disposal of securities is not reasonably
practicable or it is not reasonably practicable to fairly determine the cash
value; or (c) the SEC by order permits the delay for the protection of owners.
Transfers and allocations of cash value among the investment options may also be
postponed under these circumstances. If we need to defer calculation of separate
cash values for any of the foregoing reasons, all delayed transactions will be
processed at the next values that we do compute.
OTHER DETAILS ABOUT EXERCISING RIGHTS AND PAYING BENEFITS
Joint ownership
If more than one person owns a policy, all owners must join in most requests
to exercise rights under the policy.
Assigning your policy
You may assign your rights in the policy to someone else as collateral for a
loan or for some other reason. Assignments do not require the consent of any
revocable beneficiary. A copy of the assignment must be forwarded to us. We are
not responsible for any payment we make or any action we take before we receive
notice of the assignment in good order. Nor are we responsible for the validity
of the assignment. An absolute assignment is a change of ownership. All
collateral assignees of record must consent to any full surrender, partial
withdrawal or loan from the policy.
Your beneficiary
You name your beneficiary when you apply for the policy. The beneficiary is
entitled to the proceeds we pay following the insured person's death. You may
change the beneficiary during the insured person's lifetime. Such a change
requires the consent of any irrevocable named beneficiary. A new beneficiary
designation is effective as of the date you sign it, but will not affect any
payments we make before we receive it. If no beneficiary is living when the
insured person dies, we will pay the insurance proceeds to the owner or the
owner's estate.
YEAR 2000 ISSUES
The advent of the Year 2000 presents a technological challenge to JHVLICO. In
close cooperation with John Hancock Mutual Life Insurance Company, its parent,
JHVLICO has developed and is executing 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 has substantially completed the process of remediating its systems and
expects the compliance testing component of the project to be substantially
complete by June, 1999. This completion target was derived utilizing numerous
34
<PAGE>
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. For more information about the impact
of year 2000, please refer to Note 12 of the Notes to Statutory-Basis Financial
Statements of John Hancock Variable Life Insurance Company included in this
prospectus.
LEGAL MATTERS
The legal validity of the policies described in this prospectus has been
passed on by Ronald J. Bocage, Vice President and Counsel for JHVLICO. Messrs.
Freedman, Levy, Kroll & Simonds, Washington, D.C., have advised us on certain
Federal securities law matters in connection with the policies.
REGISTRATION STATEMENT FILED WITH THE SEC
This prospectus omits certain information contained in the Registration
Statement which has been filed with the SEC. More details may be obtained from
the SEC upon payment of the prescribed fee.
ACCOUNTING AND ACTUARIAL EXPERTS
The financial statements of JHVLICO and the Account included in this
prospectus have been audited by Ernst & Young LLP, independent auditors, for the
periods indicated in their reports thereon which appear elsewhere herein and
have been included in reliance on their reports given on their authority as
experts in accounting and auditing. Actuarial matters included in this
prospectus have been examined by Malcolm Cheung, F.S.A.,an Actuary of JHVLICO
and Second Vice President of John Hancock.
FINANCIAL STATEMENTS OF JHVLICO AND THE ACCOUNT
The financial statements of JHVLICO included herein should be distinguished
from the financial statements of the Account and should be considered only as
bearing upon the ability of JHVLICO to meet its obligations under the policies.
35
<PAGE>
LIST OF DIRECTORS AND EXECUTIVE OFFICERS OF JHVLICO
The Directors and Executive Officers of JHVLICO and their principal
occupations during the past five years are as follows:
<TABLE>
<CAPTION>
Directors Principal Occupations
- --------- ---------------------
<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.
Michele G. Van Leer Vice Chairman of the Board and President of JHVLICO;
Senior 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.
Ronald J. Bocage Director, Vice President and Counsel of JHVLICO; Vice
President and Counsel, 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; Vice President, John Hancock Mutual
Life Insurance Company.
Malcolm Cheung Director of JHVLICO; Second Vice President, John Hancock
Mutual Life Insurance Company
Robert S. Paster Director of JHVLICO; Second 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.
Daniel L. Ouellette Vice President, Marketing, of JHVLICO; 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.
36
<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, 1998
and 1997, 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, 1998 and 1997, or the results of its operations or its cash flows for the
years then ended.
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, 1998 and 1997, 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 19, 1999
37
<PAGE>
JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY
STATUTORY-BASIS STATEMENTS OF FINANCIAL POSITION
<TABLE>
<CAPTION>
December 31
--------------------
1998 1997
-------- --------
(In millions)
<S> <C> <C>
ASSETS
Bonds--Note 6 . . . . . . . . . . . . . . . . . . . . $1,185.8 $1,092.7
Preferred stocks . . . . . . . . . . . . . . . . . . . 36.5 17.2
Common stocks . . . . . . . . . . . . . . . . . . . . 3.1 2.3
Investment in affiliates . . . . . . . . . . . . . . . 81.7 79.1
Mortgage loans on real estate--Note 6 . . . . . . . . 388.1 273.9
Real estate . . . . . . . . . . . . . . . . . . . . . 41.0 39.9
Policy loans . . . . . . . . . . . . . . . . . . . . . 137.7 106.8
Cash items:
Cash in banks . . . . . . . . . . . . . . . . . . . 11.4 83.1
Temporary cash investments . . . . . . . . . . . . . 8.5 60.1
-------- --------
19.9 143.2
Premiums due and deferred . . . . . . . . . . . . . . 32.7 33.8
Investment income due and accrued . . . . . . . . . . 29.8 24.7
Other general account assets . . . . . . . . . . . . . 47.5 16.8
Assets held in separate accounts . . . . . . . . . . . 6,595.2 4,691.1
-------- --------
TOTAL ASSETS . . . . . . . . . . . . . . . . . . . . . $8,599.0 $6,521.5
======== ========
OBLIGATIONS AND STOCKHOLDER'S EQUITY
OBLIGATIONS
Policy reserves . . . . . . . . . . . . . . . . . . $1,652.0 $1,124.3
Federal income and other taxes payable--Note 1 . . . 44.3 36.1
Other general account obligations . . . . . . . . . 150.9 481.9
Transfers from separate accounts, net . . . . . . . (190.3) (146.8)
Asset valuation reserve--Note 1 . . . . . . . . . . 21.9 18.6
Obligations related to separate accounts . . . . . . 6,589.4 4,685.7
-------- --------
TOTAL OBLIGATIONS . . . . . . . . . . . . . . . . . . 8,268.2 6,199.8
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 . . . . . . . . . . . . . . . . . (49.2) (58.3)
-------- --------
TOTAL STOCKHOLDER'S EQUITY . . . . . . . . . . . . . . 330.8 321.7
-------- --------
TOTAL OBLIGATIONS AND STOCKHOLDER'S EQUITY . . . . . . $8,599.0 $6,521.5
======== ========
</TABLE>
The accompanying notes are an integral part of the statutory-basis financial
statements.
38
<PAGE>
JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY
STATUTORY-BASIS STATEMENTS OF OPERATIONS AND UNASSIGNED DEFICIT
<TABLE>
<CAPTION>
Year ended December 31
-----------------------
1998 1997
--------- --------
(In millions)
<S> <C> <C>
INCOME
Premiums . . . . . . . . . . . . . . . . . . . . $1,272.3 $ 872.7
Net investment income--Note 3 . . . . . . . . . 122.8 89.7
Other, net . . . . . . . . . . . . . . . . . . . 618.1 449.1
-------- --------
2,013.2 1,411.5
BENEFITS AND EXPENSES
Payments to policyholders and beneficiaries . . 301.4 264.0
Additions to reserves to provide for future
payments to policyholders and beneficiaries . 1,360.2 826.2
Expenses of providing service to policyholders
and obtaining new insurance
--Note 5 . . . . . . . . . . . . . . . . . . . 274.2 233.2
State and miscellaneous taxes . . . . . . . . . 28.1 19.1
-------- --------
1,963.9 1,342.5
-------- --------
GAIN FROM OPERATIONS BEFORE FEDERAL INCOME
TAXES AND NET REALIZED CAPITAL LOSSES . . . 49.3 69.0
Federal income taxes--Note 1 . . . . . . . . . . . 33.1 38.5
-------- --------
GAIN FROM OPERATIONS BEFORE NET REALIZED
CAPITAL LOSSES . . . . . . . . . . . . . . . 16.2 30.5
Net realized capital losses--Note 4 . . . . . . . (0.6) (3.0)
-------- --------
NET INCOME . . . . . . . . . . . . . . . . . 15.6 27.5
Unassigned deficit at beginning of year . . . . . (58.3) (96.9)
Net unrealized capital (losses) gains and other
adjustments--Note 4 . . . . . . . . . . . . . . . (6.0) 5.0
Other reserves and adjustments . . . . . . . . . . (0.5) 6.1
-------- --------
UNASSIGNED DEFICIT AT END OF YEAR . . . . . . . . $ (49.2) $ (58.3)
======== ========
</TABLE>
The accompanying notes are an integral part of the statutory-basis financial
statements.
39
<PAGE>
JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY
STATUTORY-BASIS STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year ended December 31
-----------------------
1998 1997
-------- --------
(In millions)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Insurance premiums . . . . . . . . . . . . . . . $1,275.3 $ 877.0
Net investment income . . . . . . . . . . . . . . 118.2 89.9
Benefits to policyholders and beneficiaries . . . (275.5) (245.2)
Dividends paid to policyholders . . . . . . . . . (22.3) (18.7)
Insurance expenses and taxes . . . . . . . . . . (296.9) (267.2)
Net transfers to separate accounts . . . . . . . (874.4) (715.2)
Other, net . . . . . . . . . . . . . . . . . . . 551.3 408.9
-------- -------
NET CASH PROVIDED FROM OPERATIONS . . . . . . 475.7 129.5
-------- -------
CASH FLOWS USED IN INVESTING ACTIVITIES:
Bond purchases . . . . . . . . . . . . . . . . . (618.8) (621.6)
Bond sales . . . . . . . . . . . . . . . . . . . 340.7 197.3
Bond maturities and scheduled redemptions . . . . 111.8 34.1
Bond prepayments . . . . . . . . . . . . . . . . 76.5 51.6
Stock purchases . . . . . . . . . . . . . . . . . (23.4) (15.7)
Proceeds from stock sales . . . . . . . . . . . . 1.9 6.7
Real estate purchases . . . . . . . . . . . . . . (4.2) (1.3)
Real estate sales . . . . . . . . . . . . . . . . 2.1 0.4
Other invested assets purchases . . . . . . . . . 0.0 (1.0)
Proceeds from the sale of other invested assets . 0.0 0.3
Mortgage loans issued . . . . . . . . . . . . . . (145.5) (94.5)
Mortgage loan repayments . . . . . . . . . . . . 33.2 32.4
Other, net . . . . . . . . . . . . . . . . . . . (435.2) 393.1
-------- -------
NET CASH USED IN INVESTING ACTIVITIES . . . . (660.9) (18.2)
-------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in short-term note payable . . . . . 61.9 0.0
-------- -------
NET CASH PROVIDED FROM FINANCING ACTIVITIES . 61.9 0.0
-------- -------
(DECREASE) INCREASE IN CASH AND TEMPORARY CASH
INVESTMENTS. . . . . . . . . . . . . . . . . . . . (123.3) 111.3
Cash and temporary cash investments at beginning
of year . . . . . . . . . . . . . . . . . . . . . 143.2 31.9
-------- -------
CASH AND TEMPORARY CASH INVESTMENTS AT END OF YEAR $ 19.9 $ 143.2
======== =======
</TABLE>
The accompanying notes are an integral part of the statutory-basis financial
statements.
40
<PAGE>
JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS
NOTE 1--NATURE OF OPERATIONS AND SIGNIFICANT ACCOUNTING PRACTICES
John Hancock Variable Life Insurance Company (the Company) is a wholly-owned
subsidiary of John Hancock 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, are recorded directly to unassigned
deficit rather than being reflected in income. The effects of the foregoing
variances from GAAP have not been determined but are presumed to be material.
The significant accounting practices of the Company are as follows:
Pending Statutory Standards: During March 1998, the NAIC adopted the
codification of statutory accounting practices, which is effective in 2001.
Codification will likely change, to some extent, prescribed statutory accounting
practices and may result in changes to the accounting practices that the Company
uses to prepare its statutory-basis financial statements. Codification will
require adoption by the various states before it becomes the prescribed
statutory basis of accounting for insurance companies domesticated within those
states. Accordingly, before codification becomes effective for the Company, the
Massachusetts Division of Insurance must adopt codification as the prescribed
basis of accounting on which domestic insurers must report their statutory-basis
results to the Division of Insurance. The impact of any such changes on the
Company's unassigned deficit is not expected to be material.
Revenues and Expenses: Premium revenues are recognized over the premium-paying
period of the policies whereas expenses, including the acquisition costs of new
business, are charged to operations as incurred and policyholder dividends are
provided as paid or accrued.
41
<PAGE>
JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS--CONTINUED
NOTE 1--NATURE OF OPERATIONS AND SIGNIFICANT ACCOUNTING PRACTICES--CONTINUED
Cash and Temporary Cash Investments: Cash includes currency on hand and demand
deposits with financial institutions. Temporary cash investments are short-term,
highly-liquid investments both readily convertible to known amounts of cash and
so near maturity that there is insignificant risk of changes in value because of
changes in interest rates.
Valuation of Assets: General account investments are carried at amounts
determined on the following bases:
Bond and stock values are carried as prescribed by the NAIC; bonds generally
at amortized amounts or cost, preferred stocks generally at cost and common
stocks at fair value. The discount or premium on bonds is amortized using the
interest method.
Investments in affiliates are included on the statutory equity method.
Loan-backed bonds and structured securities are valued at amortized cost using
the interest method including anticipated prepayments. Prepayment assumptions
are obtained from broker dealer surveys or internal estimates and are based on
the current interest rate and economic environment. The retrospective
adjustment method is used to value all such securities except for
interest-only securities, which are valued using the prospective method.
The net interest effect of interest rate and currency rate swap transactions
is recorded as an adjustment of interest income as incurred. The initial cost
of interest rate cap agreements is amortized to net investment income over the
life of the related agreement. Gains and losses on financial futures contracts
used as hedges against interest rate fluctuations are deferred and recognized
in income over the period being hedged.
Mortgage loans are carried at outstanding principal balance or amortized cost.
Investment real estate is carried at depreciated cost, less encumbrances.
Depreciation on investment real estate is recorded on a straight-line basis.
Accumulated depreciation amounted to $3.0 million in 1998 and $2.1 million in
1997.
Real estate acquired in satisfaction of debt and real estate held for sale are
carried at the lower of cost or fair value.
Policy loans are carried at outstanding principal balance, not in excess of
policy cash surrender value.
Asset Valuation and Interest Maintenance Reserves: The Asset Valuation Reserve
(AVR) is computed in accordance with the prescribed NAIC formula and represents
a provision for possible fluctuations in the value of bonds, equity securities,
mortgage loans, real estate and other invested assets. Changes to the AVR are
charged or credited directly to the unassigned deficit.
The Company also records the NAIC prescribed Interest Maintenance Reserve (IMR)
that represents that portion of the after tax net accumulated unamortized
realized capital gains and losses on sales of fixed income securities,
principally bonds and mortgage loans, attributable to changes in the general
level of interest rates. Such gains and losses are deferred and amortized into
income over the remaining expected lives of the investments sold. At December
31, 1998, the IMR, net of 1998 amortization of $2.4 million, amounted to $10.7
million, which is included in policy reserves. The corresponding 1997 amounts
were $1.2 million and $7.8 million, respectively.
Goodwill: The excess of cost over the statutory book value of the net assets of
life insurance business acquired was $11.4 million and $13.1 million at December
31, 1998 and 1997, respectively, and generally is amortized over a ten-year
period using a straight-line method.
42
<PAGE>
JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS--CONTINUED
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.
Fair values for futures contracts are based on quoted market prices. Fair
values for interest rate swap, cap agreements, and currency swap agreements
are based on current settlement values. The current settlement values are
based on brokerage quotes that utilize pricing models or formulas using
current assumptions.
The fair value for mortgage loans is estimated using discounted cash flow
analyses using interest rates adjusted to reflect the credit characteristics
of the underlying loans. Mortgage loans with similar characteristics and
credit risks are aggregated into qualitative categories for purposes of the
fair value calculations.
The carrying amount in the statement of financial position for policy loans
approximates their fair value.
The fair value for outstanding commitments to purchase long-term bonds and
issue real estate mortgages is estimated using a discounted cash flow method
incorporating adjustments for the difference in the level of interest rates
between the dates the commitments were made and December 31, 1998.
Capital Gains and Losses: Realized capital gains and losses are determined using
the specific identification method. Realized capital gains and losses, net of
taxes and amounts transferred to the IMR, are included in net gain or loss.
Unrealized gains and losses, which consist of market value and book value
adjustments, are shown as adjustments to the unassigned deficit.
43
<PAGE>
JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS--CONTINUED
NOTE 1--NATURE OF OPERATIONS AND SIGNIFICANT ACCOUNTING PRACTICES--CONTINUED
Policy Reserves: Life reserves are developed by actuarial methods and are
determined based on published tables using statutorily specified interest rates
and valuation methods that will provide, in the aggregate, reserves that are
greater than or equal to the minimum or guaranteed policy cash values or the
amounts required by the Commonwealth of Massachusetts Division of Insurance.
Reserves for variable life insurance policies are maintained principally on the
modified preliminary term method using the 1958 and 1980 Commissioner's Standard
Ordinary (CSO) mortality tables, with an assumed interest rate of 4% for
policies issued prior to May 1, 1983 and 4 1/2% for policies issued on or
thereafter. Reserves for single premium policies are determined by the net
single premium method using the 1958 CSO mortality table, with an assumed
interest rate of 4%. Reserves for universal life policies issued prior to 1985
are equal to the gross account value which at all times exceeds minimum
statutory requirements. Reserves for universal life policies issued from 1985
through 1988 are maintained at the greater of the Commissioner's Reserve
Valuation Method (CRVM) using the 1958 CSO mortality table, with 4 1/2% interest
or the cash surrender value. Reserves for universal life policies issued after
1988 and for flexible variable policies are maintained using the greater of the
cash surrender value or the CRVM method with the 1980 CSO mortality table and 5
1/2% interest for policies issued from 1988 through 1992; 5% interest for
policies issued in 1993 and 1994; and 4 1/2% interest for policies issued in
1995 through 1998.
Federal Income Taxes: Federal income taxes are reported in the financial
statements based on amounts determined to be payable as a result of operations
within the current accounting period. The operations of the Company are
consolidated with John Hancock in filing a consolidated federal income tax
return basis for the affiliated group. The federal income taxes of the Company
are allocated on a separate return basis with certain adjustments. The Company
made payments of $38.2 million in 1998 and $29.6 million in 1997.
Income before taxes differs from taxable income principally due to tax-exempt
investment income, the limitation placed on the tax deductibility of
policyholder dividends, accelerated depreciation, differences in policy reserves
for tax return and financial statement purposes, capitalization of policy
acquisition expenses for tax purposes and other adjustments prescribed by the
Internal Revenue Code.
Amounts for disputed tax issues relating to the prior years are charged or
credited directly to policyholders' contingency reserve.
Adjustments to Policy Reserves: From time to time, the Company finds it
appropriate to modify certain required policy reserves because of changes in
actuarial assumptions. Reserve modifications resulting from such determinations
are recorded directly to stockholder's equity. During 1997, the Company refined
certain actuarial assumptions inherent in the calculation of reserves related to
AIDS claims under individual life insurance policies resulting in a $6.4 million
increase in stockholder's equity at December 31, 1997. No additional refinements
were made during 1998.
Reinsurance: Premiums, commissions, expense reimbursements, benefits and
reserves related to reinsured business are accounted for on bases consistent
with those used in accounting for the original policies issued and the terms of
the reinsurance contracts. Premiums ceded to other companies have been reported
as a reduction of premium income. Amounts applicable to reinsurance ceded for
future policy benefits, unearned premium reserves and claim liabilities have
been reported as reductions of these items.
Reclassification: Certain 1997 amounts have been reclassified to conform to the
1998 presentation.
44
<PAGE>
JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS--CONTINUED
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 1998 and 1997.
On June 24, 1993, the Company contributed $24.6 million in additional capital to
CPAL. CPAL was renamed John Hancock Life Insurance Company of America (JHLICOA)
on July 7, 1993. JHLICOA was subsequently renamed Investors Partner Life Company
(IPL) on March 5, 1998. IPL 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>
1998 1997
----- ----
(In millions)
<S> <C> <C>
Investment expenses . . . . . . . . . . . . . . . . . . . . $ 8.3 $5.0
Interest expense . . . . . . . . . . . . . . . . . . . . . 2.4 0.7
Depreciation expense . . . . . . . . . . . . . . . . . . . 0.8 1.1
Investment taxes . . . . . . . . . . . . . . . . . . . . . 0.7 0.4
----- ----
$12.2 $7.2
===== ====
</TABLE>
NOTE 4--NET CAPITAL GAINS (LOSSES) AND OTHER ADJUSTMENTS
Net realized capital gains (losses) consist of the following items:
<TABLE>
<CAPTION>
1998 1997
----- ----
(In millions)
<S> <C> <C>
Net gains from asset sales . . . . . . . . . . . . . . . . . $ 7.6 $ 0.8
Capital gains tax . . . . . . . . . . . . . . . . . . . . . (2.9) (0.7)
Net capital gains transferred to IMR . . . . . . . . . . . . (5.3) (3.1)
----- -----
Net Realized Capital Losses . . . . . . . . . . . . . . . $(0.6) $(3.0)
===== =====
</TABLE>
Net unrealized capital (losses) gains and other adjustments consist of the
following items:
<TABLE>
<CAPTION>
1998 1997
----- ----
(In millions)
<S> <C> <C>
Net (losses) gains from changes in security values
and book value adjustments . . . . . . . . . . . . . . . . $(2.7) $ 7.0
Increase in asset valuation reserve . . . . . . . . . . . . (3.3) (2.0)
----- -----
Net Unrealized Capital (Losses) Gains and Other
Adjustments . . . . . . . . . . . . . . . . . . . . . . $(6.0) $ 5.0
===== =====
</TABLE>
45
<PAGE>
JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS--CONTINUED
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 1998 and 1997 to reflect continuing changes in
the Company's operations. The amount of the service fee charged to the Company
was $157.5 million and $123.6 million in 1998 and 1997, 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 $0.7 million and
$0.9 million in 1998 and 1997, 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 1998 issues of flexible premium variable life insurance and
scheduled premium variable life insurance policies. In connection with this
agreement, John Hancock transferred $4.9 million and $22.0 million of cash for
tax, commission, and expense allowances to the Company, which increased the
Company's net gain from operations by $22.2 million and $10.1 million in 1998
and 1997, respectively.
The Company also has a modified coinsurance agreement with John Hancock to
reinsure 50% of 1995 through 1998 issues of certain retail annuity contracts
(Independence Preferred and Declaration). In connection with this agreement, the
Company received a net cash payment of $12.7 million in 1998 and made a net cash
payment of $1.1 million in 1997 for surrender benefits, tax, reserve increase,
commission, expense allowances and premium. This agreement increased the
Company's net gain from operations by $8.4 million and $9.8 million in 1998 and
1997, 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 1998 and 1997 for all policies that are not reinsured under
any other indemnity agreement. In connection with the agreement, John Hancock
received $1.0 million in 1998 and transferred $2.4 million in 1997 of cash for
mortality claims to the Company, which decreased by $0.5 million and increased
by $1.3 million the Company's net gain from operations in 1998 and 1997,
respectively.
At December 31, 1998, the Company had outstanding a short-term note of $61.9
million payable to an affiliate at a variable rate of interest. The note is part
of a revolving line of credit. Interest paid in 1998 was $2.9 million. The note
is included in other general account obligations.
46
<PAGE>
JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS--CONTINUED
NOTE 6--INVESTMENTS
The statement value and fair value of bonds are shown below:
<TABLE>
<CAPTION>
Gross Gross
Statement Unrealized Unrealized Fair
December 31, 1998 Value Gains Losses Value
----------------- --------- ---------- ---------- ----------
(In millions)
<S> <C> <C> <C> <C>
U.S. Treasury securities and
obligations of U.S. government
corporations and agencies . . $ 5.1 $ 0.1 $ 0.0 $ 5.2
Obligations of states and
political subdivisions . . . . 3.2 0.3 0.0 3.5
Corporate securities . . . . . 925.2 50.4 15.0 960.6
Mortgage-backed securities . . 252.3 10.0 0.1 262.2
-------- ----- ----- --------
Total bonds . . . . . . . . . $1,185.8 $60.8 $15.1 $1,231.5
======== ===== ===== ========
</TABLE>
<TABLE>
<CAPTION>
December 31, 1997
-----------------
<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 . . . . . . . . . $ 254.5 $48.6 $ 2.8 $1,138.5
======== ===== ===== ========
</TABLE>
The statement value and fair value of bonds at December 31, 1998, 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 . . . . . . . . . . . . . . . . $ 57.3 $ 59.1
Due after one year through five years . . . . . . . . . 283.4 294.1
Due after five years through ten years . . . . . . . . 374.9 388.7
Due after ten years . . . . . . . . . . . . . . . . . . 217.9 227.4
-------- --------
933.5 969.3
Mortgage-backed securities . . . . . . . . . . . . . . 252.3 262.2
-------- --------
$1,185.8 $1,231.5
======== ========
</TABLE>
Gross gains of $3.4 million in 1998 and $1.1 million in 1997 and gross losses of
$0.7 million in 1998 and $4.5 million in 1997 were realized from the sale of
bonds.
At December 31, 1998, bonds with an admitted asset value of $8.6 million were on
deposit with state insurance departments to satisfy regulatory requirements.
The cost of common stocks was $2.1 million and $0.0 million at December 31, 1998
and 1997, respectively. At December 31, 1998, gross unrealized appreciation on
common stocks totaled $1.3 million, and gross unrealized
47
<PAGE>
JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS--CONTINUED
NOTE 6--INVESTMENTS--CONTINUED
depreciation totaled $0.3 million. The fair value of preferred stock totaled
$36.5 million at December 31, 1998 and $17.2 million at December 31, 1997.
Bonds with amortized cost of $0.9 million were non-income producing for the
twelve months ended December 31, 1998.
At December 31, 1998, 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 . . . . . $106.4 East North Central . $ 56.4
Hotels . . . . . . . 9.6 East South Central . 0.9
Industrial . . . . . 71.9 Middle Atlantic . . . 26.2
Office buildings . . 78.2 Mountain . . . . . . 27.5
Retail . . . . . . . 29.6 New England . . . . . 36.9
Agricultural . . . . 71.5 Pacific . . . . . . . 96.4
Other . . . . . . . . 20.9 South Atlantic . . . 83.8
West North Central . 13.1
West South Central . 43.3
Other . . . . . . . . 3.6
------ ------
$388.1 $388.1
====== ======
</TABLE>
At December 31, 1998, the fair values of the commercial and agricultural
mortgage loans portfolios were $331.3 million and $70.0 million, respectively.
The corresponding amounts as of December 31, 1997 were approximately $243.8
million and $42.0 million, respectively.
The maximum and minimum lending rates for mortgage loans during 1998 were 9.19%
and 6.82% for agricultural loans and 8.88% and 6.56% for other properties.
Generally, the maximum percentage of any loan to the value of security at the
time of the loan, exclusive of insured, guaranteed or purchase money mortgages,
is 75%. For city mortgages, fire insurance is carried on all commercial and
residential properties at least equal to the excess of the loan over the maximum
loan which would be permitted by law on the land without the building, except as
permitted by regulations of the Federal Housing Commission on loans fully
insured under the provisions of the National Housing Act. For agricultural
mortgage loans, fire insurance is not normally required on land based loans
except in those instances where a building is critical to the farming operation.
Fire insurance is required on all agri-business facilities in an aggregate
amount equal to the loan balance.
NOTE 7--REINSURANCE
The Company cedes business to reinsurers to share risks under variable life,
universal life and flexible variable life insurance policies for the purpose of
reducing exposure to large losses. Premiums, benefits and reserves ceded to
reinsurers in 1998 were $590.2 million, $21.5 million, and $8.2 million,
respectively. The corresponding amounts in 1997 were $427.4 million, $18.3
million, and $10.1 million, respectively.
48
<PAGE>
JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS--CONTINUED
NOTE 7--REINSURANCE--CONTINUED
Reinsurance ceded contracts do not relieve the Company from its obligations to
policyholders. The Company remains liable to its policyholders for the portion
reinsured to the extent that any reinsurer does not meet its obligations for
reinsurance ceded to it under the reinsurance agreements. Failure of the
reinsurers to honor their obligations could result in losses to the Company;
consequently, estimates are established for amounts deemed or estimated to be
uncollectible. To minimize its exposure to significant losses from reinsurance
insolvencies, the Company evaluates the financial condition of its reinsurers
and monitors concentration of credit risk arising from similar characteristics
of the reinsurer.
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, 1998 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 notional amounts, carrying values and estimated fair values of the Company's
derivative instruments were as follows at December 31:
<TABLE>
<CAPTION>
Assets (Liabilities)
Number of Contracts/ ---------------------------------------
Notional Amounts 1998 1997
--------------------- --------------------- ----------------
Carrying Fair Carrying Fair
1998 1997 Value Value Value Value
---------- --------- --------- -------- -------- -----
($ In millions)
<S> <C> <C> <C> <C> <C> <C>
Futures contracts to
sell securities . . 947 367 $(0.5) $ (0.5) $(0.4) $(0.4)
Interest rate swap
agreements . . . . . $365.0 $245.0 -- (17.7) -- (7.8)
Interest rate cap
agreements . . . . . 89.4 89.4 3.1 3.1 1.4 1.4
Currency rate swap
agreements . . . . . 15.8 14.3 -- (3.3) -- (2.1)
</TABLE>
The Company uses futures contracts, interest rate swap, cap agreements, and
currency rate swap agreements for other than trading purposes to hedge and
manage its exposure to changes in interest rate levels, foreign exchange rate
fluctuations and to manage duration mismatch of assets and liabilities.
The futures contracts expire in 1999. The interest rate swap agreements expire
in 1999 to 2009. The interest rate cap agreements expire in 2006 to 2007. The
currency rate swap agreements expire in 2006 to 2009.
The Company's exposure to credit risk is the risk of loss from a counterparty
failing to perform to the terms of the contract. The Company continually
monitors its position and the credit ratings of the counterparties to these
derivative instruments. To limit exposure associated with counterparty
nonperformance on interest rate and currency swap agreements, the Company enters
into master netting agreements with its counterparties. The Company believes the
risk of incurring losses due to nonperformance by its counterparties is remote
and that such losses, if any, would be immaterial. Futures contracts trade on
organized exchanges and, therefore, have minimal credit risk.
49
<PAGE>
JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS--CONTINUED
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, 1998 Percent
----------------- ---------
(In millions)
<S> <C> <C>
Subject to discretionary withdrawal (with
adjustment)
With market value adjustment . . . . . . . . . $ 0.9 0.1%
At book value less surrender charge . . . . . 1,677.9 88.8
-------- -----
Total with adjustment . . . . . . . . . . . 1,678.8 88.9
Subject to discretionary withdrawal at book value
(without adjustment) . . . . . . . . . . . . . 203.6 10.8
Not subject to discretionary withdrawal--general
account . . . . . . . . . . . . . . . . . . . . 6.5 0.3
-------- -----
Total annuity reserves and deposit
liabilities. . . . . . . . . . . . . . . . $1,888.9 100.0%
======== =====
</TABLE>
NOTE 10--COMMITMENTS AND CONTINGENCIES
The Company has extended commitments to purchase long-term bonds and issue real
estate mortgages totaling $5.9 million and $24.8 million, respectively, at
December 31, 1998. 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 $32.1 million at December 31, 1998. The majority of these commitments
expire in 1999.
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, 1998. 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.
50
<PAGE>
JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS--CONTINUED
NOTE 11--FAIR VALUE OF FINANCIAL INSTRUMENTS
The following table presents the carrying amounts and fair values of the
Company's financial instruments:
<TABLE>
<CAPTION>
Year Ended December 31
---------------------------------------------
1998 1997
--------------------- --------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
-------- -------- -------- --------
(In millions)
<S> <C> <C> <C> <C>
Assets
Bonds--Note 6 . . . . . . $1,185.8 $1,231.5 $1,092.7 $1,138.5
Preferred stocks--Note 6 . 36.5 36.5 17.2 17.2
Common stocks--Note 6 . . 3.1 3.1 2.3 2.3
Mortgage loans on real
estate--Note 6 . . . . . 388.1 401.3 273.9 285.8
Policy loans--Note 1 . . . 137.7 137.7 106.8 106.8
Cash and cash
equivalents--Note 1 . . 19.9 19.9 143.2 143.2
Derivatives assets
(liabilities) relating
to:--Note 8
Futures contracts . . . . (0.5) (0.5) (0.4) (0.4)
Interest rate swaps . . . -- (17.7) -- (7.8)
Currency rate swaps . . . -- (3.3) -- (2.1)
Interest rate caps . . . . 3.1 3.1 1.4 1.4
Liabilities
Commitments--Note 10 . . . -- 32.1 -- 194.5
</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 is executing its plan to address the impact of
the Year 2000 issues that result from computer programs being written using two
digits to reflect the year rather than four to define the applicable year and
century. Historically, the first two digits were hardcoded to save memory. Many
of John Hancock's computer programs that have date-sensitive software, including
those relied upon by the Company, may recognize a date using "00" as the year
1900 rather than the year 2000. This could result in an information technology
(IT) system failure or miscalculations causing disruptions of operations,
including, among other things, a temporary inability to process transactions,
send invoices or engage in similar normal business activities. In addition,
non-IT systems including, but not limited to, security alarms, elevators and
telephones are subject to malfunction due to their dependence on embedded
technology such as microcontrollers for proper operation. As described, the Year
2000 project presents a number of challenges for financial institutions since
the correction of Year 2000 issues in IT and non-IT systems will be complex and
costly for the entire industry.
John Hancock began to address the Year 2000 project as early as 1994. John
Hancock's plan to address the Year 2000 Project includes an awareness campaign,
an assessment period, a renovation stage, validation work and an implementation
of Company solutions.
The continuous awareness campaign serves several purposes: defining the problem,
gaining executive level support and sponsorship, establishing a team and overall
strategy, and assessing existing information system management resources.
Additionally, the awareness campaign establishes an education process to ensure
that all employees are aware of the Year 2000 issue and knowledgeable of their
role in securing solutions.
51
<PAGE>
JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS--CONTINUED
NOTE 12--IMPACT OF YEAR 2000 (UNAUDITED)--CONTINUED
The assessment phase, which was completed for both IT and non-IT systems as of
April 1998, included the identification, inventory, analysis, and prioritization
of IT and non-IT systems and processes to determine their conversion or
replacement.
The renovation stage reflects the conversion, validation, replacement, or
elimination of selected platforms, applications, databases and utilities,
including the modification of applicable interfaces. Additionally, the
renovation stage includes performance, functionality, and regression testing and
implementation. As of December 31, 1998, the renovation phase was substantially
complete for computer applications, systems and desktops. For all remaining
components, the renovation phase is underway and will be complete before the end
of the second quarter of 1999.
The validation phase consists of the compliance testing of renovated systems.
The validation phase is expected to be complete by mid 1999, after renovation is
accomplished. Testing facilities will be used through the remainder of 1999 to
perform special functional testing. Special functional testing includes testing,
as required, with material third parties and industry groups and performing
reviews of "dry runs" of year-end activities. Scheduled testing of material
relationships with third parties, including those impacting the Company, is
underway. It is anticipated that testing with material business partners will
continue through much of 1999.
Finally, the implementation phase involves the actual implementation of
converted or replaced platforms, applications, databases, utilities, interfaces,
and contingency planning. Implementation is being performed concurrently during
the renovation phase and is expected to be completed before the end of the
second quarter of 1999.
The costs of the Year 2000 project consist of internal IT personnel and external
costs such as consultants, programmers, replacement software, and hardware. The
costs of the Year 2000 project are expensed as incurred. The project is funded
partially through a reallocation of resources from discretionary projects.
Through December 31, 1998, John Hancock has incurred and expensed approximately
$9.8 million in related payroll costs for its internal IT personnel on the
project. The estimated range of remaining internal IT personnel costs of the
project is approximately $8 to $9 million. Through December 31, 1998, John
Hancock has incurred and expensed approximately $36.4 million in external costs
for the project. The estimated range of remaining external costs of the project
is approximately $35 to $36 million. The total costs of the Year 2000 project to
John Hancock, based on management's best estimates, include approximately $18
million in internal IT personnel, $7.4 million in the external modification of
software, $34.2 million for external solution providers, $19.4 million in
replacement costs of non-compliant IT systems and $12.6 million in oversight,
test facilities and other expenses. Accordingly, the estimated range of total
costs of the Year 2000 project to John Hancock, internal and external, is
approximately $90 to $95 million. However, there can be no guarantee that these
estimates will be achieved and actual results could materially differ from those
plans. Specific factors that might cause such material differences include, but
are not limited to, the availability and cost of personnel trained in this area,
the ability to locate and correct all relevant computer codes, and similar
uncertainties.
52
<PAGE>
JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS--CONTINUED
NOTE 12--IMPACT OF YEAR 2000 (UNAUDITED)--CONTINUED
John Hancock's total Year 2000 project costs include the estimated impact of
external solution providers and are based on presently available information.
However, there is no guarantee that the systems of other companies that John
Hancock's systems rely on will be timely converted, or that a failure to convert
by another company, or a conversion that is incompatible with John Hancock's
systems, including those upon which the Company relies, would not have material
adverse effect on John Hancock or the Company. It is documented in trade
publications that companies in foreign countries are not acting as intensively
as domestic companies to remediate Year 2000 issues. Accordingly, it is expected
that Company facilities based outside the United States face higher degrees of
risks from data exchanges with material business partners. In addition, the
Company has numerous customers that hold products of the Company. Nearly all
products sold by the Company contain date sensitive data, examples of which are
policy expiration dates, birth dates and premium payment dates. Finally, the
regulated nature of the Company's industry exposes it to potential supervisory
or enforcement actions relating to Year 2000 issues.
John Hancock's contingency planning initiative related to the Year 2000 project
is underway. The plan is addressing John Hancock's readiness as well as that of
material business partners on whom John Hancock and the Company depend. John
Hancock's contingency plans are being designed to keep each subsidiary's
operations functioning in the event of a failure or delay due to the Year 2000
record format and date calculation changes. Contingency plans are being
constructed based on the foundation of extensive business resumption plans that
John Hancock has maintained and updated periodically, which outline responses to
situations that may affect critical business functions. These plans also provide
emergency operations guidance, which defines a documented order of actions to
respond to problems. These extensive business resumption plans are being
enhanced to cover Year 2000 situations.
53
<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 Equity Index (formerly,
International Equities), Small Cap Growth, International Balanced, Mid Cap
Growth, Large Cap Value, Money Market, Mid Cap Value, Diversified Mid Cap Growth
(formerly, Special Opportunities), Real Estate Equity, Growth & Income, Managed,
Short-Term Bond, Small Cap Value, International Opportunities, Equity Index,
Strategic Bond, Turner Core Growth, Brandes International Equity (formerly,
Edinburgh International Equity), Frontier Capital Appreciation, Emerging Markets
Equity, Global Equity, Bond Index, Small/Mid Cap CORE, and High Yield Bond
Subaccounts) as of December 31, 1998, 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,
1998, 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 10, 1999
54
<PAGE>
JOHN HANCOCK VARIABLE LIFE ACCOUNT U
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1998
<TABLE>
<CAPTION>
INTERNATIONAL
LARGE CAP SOVEREIGN EQUITY SMALL CAP INTERNATIONAL
GROWTH BOND INDEX GROWTH BALANCED
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
------------ ------------ ------------- ---------- -------------
<S> <C> <C> <C> <C> <C>
ASSETS
Investments in shares
of portfolios of John
Hancock Variable
Series Trust I, at
value. . . . . . . . $119,067,616 $246,843,261 $22,131,950 $4,671,821 $ 872,075
Policy loans and
accrued interest
receivable . . . . . 16,147,381 55,619,144 2,397,098 -- --
Receivable from:
John Hancock Variable
Series Trust I . . 44,746 22,608 11,043 4,432 193
M Fund Inc. . . . . -- -- -- -- --
------------ ------------ ----------- ---------- -----------
Total assets . . . . 135,259,743 302,485,013 24,540,091 4,676,253 872,268
LIABILITIES
Payable to John
Hancock Variable Life
Insurance Company . 42,743 18,041 10,668 4,358 179
Asset charges payable 2,003 4,566 375 75 14
------------ ------------ ----------- ---------- -----------
Total liabilities . . 44,746 22,607 11,043 4,433 193
------------ ------------ ----------- ---------- -----------
Net assets . . . . . $135,214,997 $302,462,406 $24,529,048 $4,671,820 $ 872,075
============ ============ =========== ========== ===========
</TABLE>
<TABLE>
<CAPTION>
DIVERSIFIED
MID CAP LARGE CAP MONEY MID CAP MID CAP
GROWTH VALUE MARKET VALUE GROWTH
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
---------- ---------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C>
ASSETS
Investments in shares
of portfolios of John
Hancock Variable
Series Trust I, at
value. . . . . . . . $5,215,506 $8,099,391 $56,379,509 $4,865,793 $ 1,474,379
Policy loans and
accrued interest
receivable . . . . . -- -- 13,719,225 -- --
Receivable from:
John Hancock Variable
Series Trust I . . 503 7,325 75,021 6,683 4,875
M Fund Inc. . . . . -- -- -- -- --
---------- ---------- ----------- ---------- -----------
Total assets . . . . 5,216,009 8,106,716 70,173,755 4,872,476 11,479,254
LIABILITIES
Payable to John
Hancock Variable Life
Insurance Company . 421 7,193 73,949 6,605 4,692
Asset charges payable 83 133 1,072 78 183
---------- ---------- ----------- ---------- -----------
Total liabilities . . 504 7,326 75,021 6,683 4,875
---------- ---------- ----------- ---------- -----------
Net assets . . . . . $5,215,505 $8,099,390 $70,098,734 $4,865,793 $ 1,474,379
========== ========== =========== ========== ===========
</TABLE>
See accompanying notes.
55
<PAGE>
JOHN HANCOCK VARIABLE LIFE ACCOUNT U
STATEMENT OF ASSETS AND LIABILITIES (CONTINUED)
DECEMBER 31, 1998
<TABLE>
<CAPTION>
REAL ESTATE GROWTH & SHORT-TERM SMALL CAP
EQUITY INCOME MANAGED BOND VALUE
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
----------- -------------- ------------ ---------- ----------
<S> <C> <C> <C> <C> <C>
ASSETS
Investments in shares
of portfolios of John
Hancock Variable
Series Trust I, at
value. . . . . . . . $12,567,328 $ 979,131,341 $399,830,146 $594,889 $4,397,861
Policy loans and
accrued interest
receivable . . . . . 1,977,690 169,750,538 72,723,821 -- --
Receivable from:
John Hancock Variable
Series Trust I . . 10,031 171,398 369,333 121 2,535
M Fund Inc. . . . . -- -- -- -- --
----------- -------------- ------------ -------- ----------
Total assets . . . . 14,555,349 1,149,053,277 472,923,300 595,010 4,400,396
LIABILITIES
Payable to John
Hancock Variable Life
Insurance Company . 10,108 154,335 362,291 111 2,465
Asset charges payable 223 17,063 7,043 10 71
----------- -------------- ------------ -------- ----------
Total liabilities . . 10,331 171,398 369,334 121 2,536
----------- -------------- ------------ -------- ----------
Net assets . . . . . $14,545,018 $1,148,881,879 $472,553,966 $594,889 $4,397,860
=========== ============== ============ ======== ==========
</TABLE>
<TABLE>
<CAPTION>
TURNER BRANDES
INTERNATIONAL EQUITY STRATEGIC CORE INTERNATIONAL
OPPORTUNITIES INDEX BOND GROWTH EQUITY
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
------------- ----------- ---------- ---------- -------------
<S> <C> <C> <C> <C> <C>
ASSETS
Investments in shares
of portfolios of John
Hancock Variable
Series Trust I, at
value. . . . . . . . $3,699,780 $13,609,150 $1,105,468 $ -- $ --
Investments in shares
of portfolios of M
Fund Inc., at value 314,594 234,377
Policy loans and
accrued interest
receivable . . . . . -- -- -- -- --
Receivable from:
John Hancock Variable
Series Trust I . . 1,445 4,574 332 -- --
M Fund Inc. . . . . -- -- -- 2,393 4
---------- ----------- ---------- -------- --------
Total assets . . . . 3,701,225 13,613,724 1,105,800 316,987 234,381
LIABILITIES
Payable to John
Hancock Variable Life
Insurance Company . 1,384 4,350 314 2,388 --
Asset charges payable 61 224 18 5 4
---------- ----------- ---------- -------- --------
Total liabilities . . 1,445 4,574 332 2,393 4
---------- ----------- ---------- -------- --------
Net assets . . . . . $3,699,780 $13,609,150 $1,105,468 $314,594 $234,377
========== =========== ========== ======== ========
</TABLE>
See accompanying notes.
56
<PAGE>
JOHN HANCOCK VARIABLE LIFE ACCOUNT U
STATEMENT OF ASSETS AND LIABILITIES (CONTINUED)
DECEMBER 31, 1998
<TABLE>
<CAPTION>
FRONTIER EMERGING
CAPITAL MARKETS GLOBAL SMALL/MID HIGH YIELD
APPRECIATION EQUITY EQUITY BOND INDEX CAP CORE BOND
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. . . . . . . . $ -- $2,029 $949 $10,134 $108 $2,879
Investments in shares
of portfolios of M
Fund Inc., at value 357,497 -- -- -- -- --
Policy loans and
accrued interest
receivable . . . . . -- -- -- -- -- --
Receivable from:
John Hancock Variable
Series Trust I . . -- -- -- -- -- --
M Fund Inc. . . . . 2,404 -- -- -- -- --
-------- ------ ---- ------- ---- ------
Total assets . . . . 359,901 2,029 949 10,134 108 2,879
LIABILITIES
Payable to John
Hancock Variable Life
Insurance Company . 2,398 -- -- -- -- --
Asset charges payable 6 -- -- -- -- --
-------- ------ ---- ------- ---- ------
Total liabilities . . 2,404 -- -- -- --
-------- ------ ---- ------- ---- ------
Net assets . . . . . $357,497 $2,029 $949 $10,134 $108 $2,879
======== ====== ==== ======= ==== ======
</TABLE>
See accompanying notes.
57
<PAGE>
JOHN HANCOCK VARIABLE LIFE ACCOUNT U
STATEMENTS OF OPERATIONS
FOR THE YEARS AND PERIODS ENDED DECEMBER 31,
<TABLE>
<CAPTION>
LARGE CAP GROWTH SOVEREIGN BOND
SUBACCOUNT SUBACCOUNT
------------------------------------- ---------------------------------------
1998 1997 1996 1998 1997 1996
----------- ----------- ----------- ------------ ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
Investment income:
Distributions received from:
John Hancock Variable Series Trust I . . $11,641,271 $ 7,675,850 $ 9,763,606 $19,685,096 $17,409,990 $15,986,241
M Fund Inc. . . . . . . . . . . . . . . . -- -- -- -- -- --
Interest income on policy loans . . . . . 1,008,607 875,892 881,144 4,027,376 3,926,698 3,908,756
----------- ----------- ----------- ----------- ----------- -----------
Total investment income . . . . . . . . . . 12,649,878 8,551,742 10,644,750 23,712,472 21,336,688 19,894,997
Expenses:
Mortality and expense risks . . . . . . . 624,665 480,057 381,331 1,624,615 1,514,127 1,444,137
----------- ----------- ----------- ----------- ----------- -----------
Net investment income . . . . . . . . . . . 12,025,213 8,071,685 10,263,419 22,087,857 19,822,561 18,450,860
Net realized and unrealized gain (loss) on
investments:
Net realized gain . . . . . . . . . . . . 3,520,199 4,216,904 840,044 1,600,539 1,088,488 690,912
Net unrealized appreciation (depreciation)
during the period . . . . . . . . . . . . 18,509,310 7,920,403 (889,487) (2,317,324) 2,987,952 (8,059,332)
----------- ----------- ----------- ----------- ----------- -----------
Net realized and unrealized gain (loss) on
investments. . . . . . . . . . . . . . . . 22,029,509 12,137,307 (49,443) (716,785) 4,076,440 (7,368,420)
----------- ----------- ----------- ----------- ----------- -----------
Net increase in net assets resulting from
operations . . . . . . . . . . . . . . . . $35,054,722 $20,208,992 $10,213,976 $21,371,072 $23,899,001 $11,082,440
=========== =========== =========== =========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
INTERNATIONAL EQUITY INDEX SMALL CAP GROWTH
SUBACCOUNT SUBACCOUNT
------------------------------------ -------------------------------
1998 1997 1996 1998 1997 1996*
---------- ------------ ---------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Investment income:
Distributions
received from:
John Hancock
Variable Series
Trust I . . . . . $3,394,842 $ 840,616 $ 166,193 $ -- $ 976 $ 1,207
M Fund Inc. . . . . -- -- -- -- -- --
Interest income on
policy loans . . . 170,285 170,905 161,938 -- -- --
---------- ----------- ---------- -------- -------- --------
Total investment
income . . . . . . . 3,565,127 1,011,521 328,131 -- 976 1,207
Expenses:
Mortality and expense
risks . . . . . . . 124,891 107,415 85,694 20,335 11,175 2,956
---------- ----------- ---------- -------- -------- --------
Net investment income
(loss) . . . . . . . 3,440,236 904,106 242,437 (20,335) (10,199) (1,749)
Net realized and
unrealized gain
(loss) on
investments:
Net realized gain
(loss). . . . . . . 148,419 209,781 254,188 55,393 34,153 (2,047)
Net unrealized
appreciation
(depreciation)
during the period . 105,161 (2,036,425) 676,006 518,731 226,085 (24,023)
---------- ----------- ---------- -------- -------- --------
Net realized and
unrealized gain
(loss) on investments 253,580 (1,826,644) 930,194 574,124 260,238 (26,070)
---------- ----------- ---------- -------- -------- --------
Net increase
(decrease) in net
assets resulting from
operations . . . . . $3,693,816 $ (922,538) $1,172,631 $553,789 $250,039 $(27,819)
========== =========== ========== ======== ======== ========
</TABLE>
- ---------
* From May 1, 1996 (commencement of operations).
See accompanying notes.
58
<PAGE>
JOHN HANCOCK VARIABLE LIFE ACCOUNT U
STATEMENTS OF OPERATIONS (CONTINUED)
FOR THE YEARS AND PERIODS ENDED DECEMBER 31,
<TABLE>
<CAPTION>
INTERNATIONAL BALANCED MID CAP GROWTH
SUBACCOUNT SUBACCOUNT
------------------------------- ------------------------------------
1998 1997 1996* 1998 1997 1996*
---------- --------- -------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Investment income:
Distributions
received from:
John Hancock
Variable Series
Trust I . . . . . $ 57,587 $ 30,867 $ 2,850 $ 461,919 $ -- $ 1,635
M Fund Inc. . . . . -- -- -- -- -- --
Interest income on
policy loans . . . -- -- -- -- -- --
--------- -------- -------- ---------- ---------- ----------
Total investment
income . . . . . . . 57,587 30,867 2,850 461,919 -- 1,635
Expenses:
Mortality and expense
risks . . . . . . . 4,696 2,758 301 16,758 5,801 814
--------- -------- -------- ---------- ---------- ----------
Net investment income
(loss) . . . . . . . 52,891 28,109 2,549 445,161 (5,801) 821
Net realized and
unrealized gain
(loss) on
investments:
Net realized gain
(loss). . . . . . . (4,506) 12,000 65 73,958 394 1,295
Net unrealized
appreciation
(depreciation)
during the
period . . . . . . 78,455 (41,999) 3,632 647,137 199,441 (3,899)
--------- -------- -------- ---------- ---------- ----------
Net realized and
unrealized gain
(loss) on investments 73,949 (29,999) 3,697 721,095 199,835 (2,604)
--------- -------- -------- ---------- ---------- ----------
Net increase
(decrease) in net
assets resulting from
operations . . . . . $ 126,840 $ (1,890) $ 6,246 $1,166,256 $ 194,034 $ (1,783)
========= ======== ======== ========== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
LARGE CAP VALUE MONEY MARKET
SUBACCOUNT SUBACCOUNT
------------------------------ -----------------------------------
1998 1997 1996* 1998 1997 1996
---------- -------- -------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
Investment income:
Distributions
received from:
John Hancock
Variable Series
Trust I . . . . . $ 433,626 $266,440 $ 72,511 $2,888,490 $2,746,662 $2,527,378
M Fund Inc. . . . . -- -- -- -- --
Interest income on
policy loans . . . -- -- -- 973,241 957,390 929,499
--------- -------- -------- ---------- ---------- ----------
Total investment
income . . . . . . . 433,626 266,440 72,511 3,861,731 3,704,052 3,456,877
Expenses:
Mortality and expense
risks . . . . . . . 44,753 25,295 8,169 380,002 361,409 342,603
--------- -------- -------- ---------- ---------- ----------
Net investment income 388,873 241,145 64,342 3,481,729 3,342,641 3,114,274
Net realized and
unrealized gain
(loss) on
investments:
Net realized gain . 673,582 217,073 11,265 -- -- --
Net unrealized
appreciation
(depreciation)
during the
period . . . . . . (479,093) 532,936 197,424 -- -- --
--------- -------- -------- ---------- ---------- ----------
Net realized and
unrealized gain
(loss) on investments 194,489 750,009 208,689 -- -- --
--------- -------- -------- ---------- ---------- ----------
Net increase in net
assets resulting from
operations . . . . . $ 583,362 $991,154 $273,031 $3,481,729 $3,342,641 $3,114,274
========= ======== ======== ========== ========== ==========
</TABLE>
- ---------
* From May 1, 1996 (commencement of operations).
See accompanying notes.
59
<PAGE>
JOHN HANCOCK VARIABLE LIFE ACCOUNT U
STATEMENTS OF OPERATIONS (CONTINUED)
FOR THE YEARS AND PERIODS ENDED DECEMBER 31,
<TABLE>
<CAPTION>
MID CAP VALUE DIVERSIFIED MID CAP GROWTH
SUBACCOUNT SUBACCOUNT
------------------------------------ -----------------------------------------
1998 1997 1996* 1998 1997 1996
----------- ----------- ---------- ------------ ------------- ------------
<S> <C> <C> <C> <C> <C> <C>
Investment income:
Distributions received from:
John Hancock Variable Series Trust I . . . . $ 40,338 $ 178,590 $ 7,418 $ 217,686 $ 1,022,881 $ 265,602
M Fund Inc. . . . . . . . . . . . . . . . . . -- -- -- -- -- --
Interest income on policy loans . . . . . . . -- -- -- -- -- --
---------- ---------- ---------- ------------ ------------ -----------
Total investment income . . . . . . . . . . . . 40,338 178,590 7,418 217,686 1,022,881 265,602
Expenses:
Mortality and expense risks . . . . . . . . . 23,760 6,329 580 63,334 54,469 23,603
---------- ---------- ---------- ------------ ------------ -----------
Net investment income . . . . . . . . . . . . . 16,578 172,261 6,838 154,352 968,412 241,999
Net realized and unrealized gain (loss) on
investments:
Net realized gain (loss) . . . . . . . . . . . (422,902) 121,152 1,099 56,968 533,297 125,955
Net unrealized appreciation (depreciation)
during the period . . . . . . . . . . . . . . (260,362) (86,033) 23,234 334,213 (1,073,252) 615,079
---------- ---------- ---------- ------------ ------------ -----------
Net realized and unrealized gain (loss) on
investments. . . . . . . . . . . . . . . . . . (683,264) 35,119 24,333 391,181 (539,955) 741,034
---------- ---------- ---------- ------------ ------------ -----------
Net increase (decrease) in net assets resulting
from operations . . . . . . . . . . . . . . . $ (666,686) $ 207,380 $ 31,171 $ 545,533 $ 428,457 $ 983,033
========== ========== ========== ============ ============ ===========
</TABLE>
<TABLE>
<CAPTION>
REAL ESTATE EQUITY GROWTH & INCOME
SUBACCOUNT SUBACCOUNT
------------------------------------ ----------------------------------------
1998 1997 1996 1998 1997 1996
------------ ---------- ---------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Investment income:
Distributions received from:
John Hancock Variable Series Trust I . . . . . $ 817,633 $ 957,079 $ 477,763 $ 96,326,313 $ 99,799,718 $ 78,415,408
M Fund Inc. . . . . . . . . . . . . . . . . . -- -- -- -- -- --
Interest income on policy loans . . . . . . . . 145,212 140,515 117,955 11,727,553 10,448,315 9,420,070
----------- ---------- ---------- ------------ ------------ ------------
Total investment income . . . . . . . . . . . . 962,845 1,097,596 595,718 108,053,866 110,248,033 87,835,478
Expenses:
Mortality and expense risks . . . . . . . . . . 86,610 76,454 50,069 5,589,689 4,658,703 3,854,562
----------- ---------- ---------- ------------ ------------ ------------
Net investment income . . . . . . . . . . . . . 876,235 1,021,142 545,649 102,464,177 105,589,330 83,980,916
Net realized and unrealized gain (loss) on
investments:
Net realized gain . . . . . . . . . . . . . . . 442,876 551,925 9,177 22,835,488 16,543,458 15,416,898
Net unrealized appreciation (depreciation)
during the period . . . . . . . . . . . . . . (3,720,942) 447,661 1,862,071 112,457,395 67,250,127 12,987,718
----------- ---------- ---------- ------------ ------------ ------------
Net realized and unrealized gain (loss) on
investments . . . . . . . . . . . . . . . . . . (3,278,066) 999,586 1,871,248 135,292,883 83,793,585 28,404,616
----------- ---------- ---------- ------------ ------------ ------------
Net increase (decrease) in net assets resulting
from operations . . . . . . . . . . . . . . . . $(2,401,831) $2,020,728 $2,416,897 $237,757,060 $189,382,915 $112,385,532
=========== ========== ========== ============ ============ ============
</TABLE>
- ---------
* From May 1, 1996 (commencement of operations).
See accompanying notes.
60
<PAGE>
JOHN HANCOCK VARIABLE LIFE ACCOUNT U
STATEMENTS OF OPERATIONS (CONTINUED)
FOR THE YEARS AND PERIODS ENDED DECEMBER 31,
<TABLE>
<CAPTION>
MANAGED SHORT-TERM BOND
SUBACCOUNT SUBACCOUNT
-------------------------------------- -----------------------------
1998 1997 1996 1998 1997 1996
----------- ----------- ------------- --------- --------- -------
<S> <C> <C> <C> <C> <C> <C>
Investment income:
Distributions
received from:
John Hancock
Variable Series
Trust I . . . . . $37,907,821 $32,757,460 $ 37,103,617 $ 31,261 $ 22,079 $11,196
M Fund Inc. . . . . -- -- -- -- -- --
Interest income on
policy loans . . . 4,949,021 4,669,363 4,337,281 -- -- --
----------- ----------- ------------ -------- --------- -------
Total investment
income . . . . . . . 42,856,842 37,426,823 41,440,898 31,261 22,079 11,196
Expenses:
Mortality and expense
risks . . . . . . . 2,381,406 2,111,314 1,886,000 3,542 2,202 1,201
----------- ----------- ------------ -------- --------- -------
Net investment income 40,475,436 35,315,509 39,554,898 28,209 19,877 9,995
Net realized and
unrealized gain
(loss) on
investments:
Net realized gain
(loss). . . . . . . 5,853,076 5,663,060 3,870,923 2,008 235 (922)
Net unrealized
appreciation
(depreciation)
during the period . 24,834,482 16,843,903 (11,548,110) (5,287) 1,405 (1,542)
----------- ----------- ------------ -------- --------- -------
Net realized and
unrealized gain
(loss) on
investments . . . . 30,687,558 22,506,963 (7,677,187) (3,279) 1,640 (2,464)
----------- ----------- ------------ -------- --------- -------
Net increase in net
assets resulting from
operations . . . . . $71,162,994 $57,822,472 $ 31,877,711 $ 24,930 $ 21,517 $ 7,531
=========== =========== ============ ======== ========= =======
</TABLE>
<TABLE>
<CAPTION>
SMALL CAP VALUE INTERNATIONAL OPPORTUNITIES
SUBACCOUNT SUBACCOUNT
--------------------------------- -----------------------------
1998 1997 1996* 1998 1997 1996*
----------- ---------- -------- -------- ---------- -------
<S> <C> <C> <C> <C> <C> <C>
Investment income:
Distributions
received from:
John Hancock
Variable Series
Trust I . . . . . $ 24,781 $ 256,363 $ 23,766 $ 27,799 $ 35,111 $ 5,965
M Fund Inc. . . . . -- -- -- -- -- --
Interest income on
policy loans . . . -- -- -- -- -- --
---------- --------- -------- -------- --------- -------
Total investment
income . . . . . . . 24,781 256,363 23,766 27,799 35,111 5,965
Expenses:
Mortality and expense
risks . . . . . . . 23,711 10,530 2,451 19,481 11,575 3,038
---------- --------- -------- -------- --------- -------
Net investment income 1,070 245,833 21,315 8,318 23,536 2,927
Net realized and
unrealized gain
(loss) on
investments:
Net realized gain . 61,917 129,604 891 64,757 78,058 304
Net unrealized
appreciation
(depreciation)
during the period . (364,359) (32,439) 49,892 339,709 (141,034) 57,387
---------- --------- -------- -------- --------- -------
Net realized and
unrealized gain
(loss) on
investments . . . . (302,422) 97,165 50,783 404,466 (62,976) 57,691
---------- --------- -------- -------- --------- -------
Net increase
(decrease) in net
assets resulting from
operations . . . . . $ (301,372) $ 342,998 $ 72,098 $412,784 $ (39,440) $60,618
========== ========= ======== ======== ========= =======
</TABLE>
- ---------
* From May 1, 1996 (commencement of operations).
See accompanying notes.
61
<PAGE>
JOHN HANCOCK VARIABLE LIFE ACCOUNT U
STATEMENTS OF OPERATIONS (CONTINUED)
FOR THE YEARS AND PERIODS ENDED DECEMBER 31,
<TABLE>
<CAPTION>
EQUITY INDEX STRATEGIC BOND
SUBACCOUNT SUBACCOUNT
------------------------------- --------------------------
1998 1997 1996* 1998 1997 1996*
---------- ---------- ------- ------- -------- -------
<S> <C> <C> <C> <C> <C> <C>
Investment income:
Distributions
received from:
John Hancock
Variable Series
Trust I . . . . . $ 367,284 $ 220,686 $ 7,847 $62,244 $84,597 $29,029
M Fund Inc. . . . . -- -- -- -- -- --
Interest income on
policy loans . . . -- -- -- -- -- --
---------- ---------- ------- ------- ------- -------
Total investment
income . . . . . . . 367,284 220,686 7,847 62,244 84,597 29,029
Expenses:
Mortality and expense
risks . . . . . . . 60,274 28,637 575 7,516 5,827 1,782
---------- ---------- ------- ------- ------- -------
Net investment income 307,010 192,049 7,272 54,728 78,770 27,247
Net realized and
unrealized gain
(loss) on
investments:
Net realized gain . 132,619 38,987 3,982 32,917 5,891 1,518
Net unrealized
appreciation
(depreciation)
during the
period . . . . . . 2,082,107 1,193,531 13,544 11,342 (3,195) 6,688
---------- ---------- ------- ------- ------- -------
Net realized and
unrealized gain
(loss) on investments 2,214,726 1,232,518 17,526 44,259 2,696 8,206
---------- ---------- ------- ------- ------- -------
Net increase in net
assets resulting from
operations . . . . . $2,521,736 $1,424,567 $24,798 $98,987 $81,466 $35,453
========== ========== ======= ======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
TURNER CORE GROWTH BRANDES INTERNATIONAL EQUITY
SUBACCOUNT SUBACCOUNT
-------------------------- -----------------------------
1998 1997 1996* 1998 1997 1996*
-------- -------- ------ --------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Investment income:
Distributions
received from:
John Hancock
Variable Series
Trust I . . . . . . $ -- $ 11,090 $ -- $ 13,237 $ -- $ --
M Fund Inc. . . . . 5,535 -- 415 -- 2,278 255
Interest income on
policy loans . . . . -- -- -- -- --
-------- -------- ------ -------- ------- --------
Total investment
income. . . . . . . 5,535 11,090 415 13,237 2,278 255
Expenses:
Mortality and expense
risks. . . . . . . 1,022 505 31 1,143 746 122
-------- -------- ------ -------- ------- --------
Net investment income 4,513 10,585 384 12,094 1,532 133
Net realized and
unrealized gain
(loss) on
investments:
Net realized gain
(loss). . . . . . . 14,364 3,166 (238) 1,184 133 (1,091)
Net unrealized
appreciation
(depreciation)
during the
period . . . . . . . 49,605 12,370 456 15,813 2,674 (345)
-------- -------- ------ -------- ------- --------
Net realized and
unrealized gain
(loss) on investments 63,969 15,536 218 16,997 2,807 (1,436)
-------- -------- ------ -------- ------- --------
Net increase
(decrease) in net
assets resulting from
operations . . . . . $ 68,482 $ 26,121 $ 602 $ 29,091 $ 4,339 $ (1,303)
======== ======== ====== ======== ======= ========
</TABLE>
- ---------
* From May 1, 1996 (commencement of operations).
See accompanying notes.
62
<PAGE>
JOHN HANCOCK VARIABLE LIFE ACCOUNT U
STATEMENTS OF OPERATIONS (CONTINUED)
FOR THE YEARS AND PERIODS ENDED DECEMBER 31,
<TABLE>
<CAPTION>
EMERGING GLOBAL SMALL/MID HIGH YIELD
FRONTIER CAPITAL APPRECIATION MARKETS EQUITY EQUITY BOND INDEX CAP CORE BOND
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
------------------------------ -------------- ---------- ---------- ---------- ------------
1998 1997 1996* 1998** 1998** 1998** 1998** 1998**
---------- -------- --------- -------------- ---------- ---------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Investment income:
Distributions
received from:
John Hancock
Variable Series
Trust I . . . . . . . . . . $ -- $ -- $ -- $ 1 $ 1 $ 149 $-- $ 19
M Fund Inc. . . . . . . . . 1,888 8,986 -- -- -- -- -- --
Interest income on policy
loans. . . . . . . . . . . . -- -- -- -- -- -- -- --
-------- ------- ------- --- --- ----- --- ----
Total investment income . . . 1,888 8,986 1 1 149 19
Expenses:
Mortality and expense risks . 2,096 1,464 112 -- -- 3 -- 1
-------- ------- ------- --- --- ----- --- ----
Net investment income (loss) . (208) 7,522 (112) 1 1 146 -- 18
Net realized and unrealized
gain (loss) on investments:
Net realized gain (loss) . . 12,123 9,048 (1,199) -- 1 (1) -- --
Net unrealized appreciation
(depreciation) during the
period . . . . . . . . . . . (17,930) 40,541 2,105 10 45 (196) 6 (26)
-------- ------- ------- --- --- ----- --- ----
Net realized and unrealized
gain (loss) on investments . (5,807) 49,589 906 10 46 (197) 6 (26)
-------- ------- ------- --- --- ----- --- ----
Net increase (decrease) in net
assets resulting from
operations. . . . . . . . . . $ (6,015) $57,111 $ 794 $12 $46 $ (52) $ 6 $ (8)
======== ======= ======= === === ===== === ====
</TABLE>
- ---------
* From May 1, 1996 (commencement of operations).
** From May 1, 1998 (commencement of operations).
See accompanying notes.
63
<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 SOVEREIGN BOND
SUBACCOUNT SUBACCOUNT
------------------------------------------ ------------------------------------------
1998 1997 1996 1998 1997 1996
------------- ------------- ------------- ------------- ------------- ------------
<S> <C> <C> <C> <C> <C> <C>
Increase (decrease) in net assets from
operations:
Net investment income . . . . . . . . $ 12,025,213 $ 8,071,685 $ 10,263,419 $ 22,087,857 $ 19,822,561 $ 18,450,860
Net realized gains . . . . . . . . . 3,520,199 4,216,904 840,044 1,600,539 1,088,488 690,912
Net unrealized appreciation
(depreciation) during the period . . 18,509,310 7,920,403 (889,487) (2,317,324) 2,987,952 (8,059,332)
------------ ------------ ------------ ------------ ------------ ------------
Net increase (decrease) in net assets
resulting from operations . . . . . . 34,054,722 20,208,992 10,213,976 21,371,072 23,899,001 11,082,440
From policyholder transactions:
Net premiums from policyholders . . . 21,681,632 18,819,133 20,123,261 32,901,747 31,136,450 34,090,208
Net benefits to policyholders . . . . (21,510,240) (19,915,971) (11,910,005) (39,577,750) (39,506,771) (40,719,213)
Net increase (decrease) in policy
loans. . . . . . . . . . . . . . . . 2,561,877 (41,068) 2,044,193 1,607,456 1,612,490 897,069
------------ ------------ ------------ ------------ ------------ ------------
Net increase (decrease) in net assets
resulting from policyholder
transactions. . . . . . . . . . . . . 2,733,269 (1,137,906) 10,257,449 (5,068,547) (6,757,831) (5,731,936)
------------ ------------ ------------ ------------ ------------ ------------
Net increase in net assets . . . . . . 36,787,991 19,071,086 20,471,425 16,302,525 17,141,170 5,350,504
Net assets at beginning of period . . 98,427,006 79,355,920 58,884,495 286,159,881 269,018,711 263,668,207
------------ ------------ ------------ ------------ ------------ ------------
Net assets at end of period . . . . . $135,214,997 $ 98,427,006 $ 79,355,920 $302,462,406 $286,159,881 $269,018,711
============ ============ ============ ============ ============ ============
</TABLE>
<TABLE>
<CAPTION>
INTERNATIONAL EQUITIES INDEX SMALL CAP GROWTH
SUBACCOUNT SUBACCOUNT
------------------------------------------ ---------------------------------------
1998 1997 1996 1998 1997 1996*
------------- ------------- ------------- ------------ ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
Increase (decrease) in net assets from
operations:
Net investment income (loss) $ 3,440,236 $ 904,106 $ 242,437 $ (20,335) $ (10,199) $ (1,749)
Net realized gains (losses) 148,419 209,781 254,188 55,393 34,153 (2,047)
Net unrealized appreciation
(depreciation) during the period 105,161 (2,036,425) 676,006 518,731 226,085 (24,023)
------------ ------------ ------------ ----------- ----------- -----------
Net increase (decrease) in net assets
resulting from operations 3,693,816 (922,538) 1,172,631 553,789 250,039 (27,819)
From policyholder transactions:
Net premiums from policyholders 6,549,988 6,398,146 8,485,184 2,382,203 1,906,439 1,361,402
Net benefits to policyholders (5,210,982) (4,052,306) (4,391,767) (998,381) (626,114) (129,738)
Net increase in policy loans 86,200 41,466 287,879 -- -- --
------------ ------------ ------------ ----------- ----------- -----------
Net increase in net assets resulting from
policyholder transactions 1,425,206 2,387,306 4,381,296 1,383,822 1,280,325 1,231,664
------------ ------------ ------------ ----------- ----------- -----------
Net increase in net assets 5,119,022 1,464,768 5,553,927 1,937,611 1,530,364 1,203,845
Net assets at beginning of period 19,410,026 17,945,258 12,391,331 2,734,209 1,203,845 0
------------ ------------ ------------ ----------- ----------- -----------
Net assets at end of period $ 24,529,048 $ 19,410,026 $ 17,945,258 $ 4,671,820 $ 2,734,209 $ 1,203,845
============ ============ ============ =========== =========== ===========
</TABLE>
- ---------
* From May 1, 1996 (commencement of operations).
See accompanying notes.
64
<PAGE>
JOHN HANCOCK VARIABLE LIFE ACCOUNT U
STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED)
FOR THE YEARS AND PERIODS ENDED DECEMBER 31,
<TABLE>
<CAPTION>
INTERNATIONAL BALANCED MID CAP GROWTH
SUBACCOUNT SUBACCOUNT
------------------------------------- --------------------------------------
1998 1997 1996* 1998 1997 1996*
----------- ----------- ------------ ------------ ------------ ----------
<S> <C> <C> <C> <C> <C> <C>
Increase (decrease) in net assets from
operations:
Net investment income (loss) . . . . . . . . . $ 52,891 $ 28,109 $ 2,549 $ 445,161 $ (5,801) $ 821
Net realized gains (losses) . . . . . . . . . (4,506) 12,000 65 73,958 394 1,295
Net unrealized appreciation (depreciation)
during the period . . . . . . . . . . . . . . 78,455 (41,999) 3,632 647,137 199,441 (3,899)
---------- ---------- ----------- ----------- ----------- ----------
Net increase (decrease) in net assets resulting
from operations . . . . . . . . . . . . . . . 126,840 (1,890) 6,246 1,166,256 194,034 (1,783)
From policyholder transactions:
Net premiums from policyholders . . . . . . . 341,482 602,033 216,486 3,164,065 1,031,218 599,576
Net benefits to policyholders . . . . . . . . (310,766) (102,953) (5,403) (612,975) (294,344) (30,542)
Net increase in policy loans . . . . . . . . . -- -- -- -- -- --
---------- ---------- ----------- ----------- ----------- ----------
Net increase in net assets resulting from
policyholder transactions . . . . . . . . . . 30,716 499,080 211,083 2,551,090 736,874 569,034
---------- ---------- ----------- ----------- ----------- ----------
Net increase in net assets . . . . . . . . . . 157,556 497,190 217,329 3,717,346 930,908 567,251
Net assets at beginning of period . . . . . . . 714,519 217,329 0 1,498,159 567,251 0
---------- ---------- ----------- ----------- ----------- ----------
Net assets at end of period . . . . . . . . . . $ 872,075 $ 714,519 $ 217,329 $ 5,215,505 $ 1,498,159 $ 567,251
========== ========== =========== =========== =========== ==========
</TABLE>
<TABLE>
<CAPTION>
LARGE CAP VALUE MONEY MARKET
SUBACCOUNT SUBACCOUNT
-------------------------------------- ------------------------------------------
1998 1997 1996* 1998 1997 1996
------------ ------------ ----------- ------------- ------------- ------------
<S> <C> <C> <C> <C> <C> <C>
Increase (decrease) in net assets from
operations:
Net investment income $ 388,873 $ 241,145 $ 64,342 $ 3,481,729 $ 3,342,641 $ 3,114,274
Net realized gains . 673,582 217,073 11,265 -- -- --
Net unrealized appreciation (depreciation)
during the period . (479,093) 532,936 197,424 -- -- --
----------- ----------- ---------- ------------ ------------ ------------
Net increase in net assets resulting from
operations. . . . . 583,362 991,154 273,031 3,481,729 3,342,641 3,114,274
From policyholder transactions:
Net premiums from policyholders 4,214,076 3,739,319 2,999,086 24,612,731 19,023,054 15,561,906
Net benefits to policyholders (3,212,048) (1,140,574) (348,016) (24,024,723) (20,817,572) (16,132,881)
Net increase (decrease) in policy loans -- -- -- 421,166 390,775 (260,051)
----------- ----------- ---------- ------------ ------------ ------------
Net increase (decrease) in net assets
resulting from policyholder transactions 1,002,028 2,598,745 2,651,070 1,009,174 (1,403,743) (831,026)
----------- ----------- ---------- ------------ ------------ ------------
Net increase in net assets 1,585,390 3,589,899 2,924,101 4,490,903 1,938,898 2,283,248
Net assets at beginning of period 6,514,000 2,924,101 0 65,607,831 63,668,933 61,385,685
----------- ----------- ---------- ------------ ------------ ------------
Net assets at end of period $ 8,099,390 $ 6,514,000 $2,924,101 $ 70,098,734 $ 65,607,831 $ 63,668,933
=========== =========== ========== ============ ============ ============
</TABLE>
- ---------
* From May 1, 1996 (commencement of operations).
See accompanying notes.
65
<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 VALUE DIVERSIFIED MID CAP GROWTH
SUBACCOUNT SUBACCOUNT
---------------------------------------------- ----------------------------------------------
1998 1997 1996* 1998 1997 1996
----------------- ------------ -------------- ----------------- ------------- ------------
<S> <C> <C> <C> <C> <C> <C>
Increase (decrease) in net
assets from operations:
Net investment income . . . . $ 16,578 $ 172,261 $ 6,838 $ 154,352 $ 968,412 $ 241,999
Net realized gains (losses) . (422,902) 121,152 1,099 56,968 533,297 125,955
Net unrealized appreciation
(depreciation) during the
period . . . . . . . . . . . (260,362) (86,033) 23,234 334,213 (1,073,252) 615,079
---------------- ----------- ------------- ---------------- ------------ ------------
Net increase (decrease) in net
assets resulting from
operations. . . . . . . . . . (666,686) 207,380 31,171 545,533 428,457 983,033
From policyholder transactions:
Net premiums from
policyholders. . . . . . . . 5,997,691 2,070,644 337,092 3,953,326 6,338,416 5,492,467
Net benefits to policyholders (2,912,034) (190,430) (9,035) (3,311,846) (3,379,629) (1,284,991)
Net increase in policy loans -- -- -- -- -- --
---------------- ----------- ------------- ---------------- ------------ ------------
Net increase in net assets
resulting from policyholder
transactions. . . . . . . . . 3,085,657 1,880,214 328,057 641,480 2,958,787 4,207,476
---------------- ----------- ------------- ---------------- ------------ ------------
Net increase in net assets . . 2,418,971 2,087,594 359,228 1,187,013 3,387,244 5,190,509
Net assets at beginning of
period. . . . . . . . . . . . 2,446,822 359,228 0 10,287,366 6,900,122 1,709,613
---------------- ----------- ------------- ---------------- ------------ ------------
Net assets at end of period . $ 4,865,793 $ 2,446,822 $ 359,228 $ 11,474,379 $ 10,287,366 $ 6,900,122
================ =========== ============= ================ ============ ============
</TABLE>
<TABLE>
<CAPTION>
REAL ESTATE EQUITY GROWTH & INCOME
SUBACCOUNT SUBACCOUNT
--------------------------------------- ----------------------------------------------
1998 1997 1996 1998 1997 1996
------------ ------------ ------------ --------------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Increase (decrease) in net assets from
operations:
Net investment income . . . . . . . $ 876,235 $ 1,021,142 $ 545,649 $ 102,464,177 $ 105,589,330 $ 83,980,916
Net realized gains . . . . . . . . . 442,876 551,925 9,177 22,835,488 16,543,458 15,416,898
Net unrealized appreciation
(depreciation) during the period . (3,720,942) 447,661 1,862,071 112,457,395 67,250,127 12,987,718
----------- ----------- ----------- -------------- ------------- -------------
Net increase (decrease) in net assets
resulting from operations . . . . . (2,401,831) 2,020,728 2,416,897 237,757,060 189,382,915 112,385,532
From policyholder transactions:
Net premiums from policyholders . . 6,295,255 7,786,904 3,620,035 92,955,980 86,308,294 76,046,396
Net benefits to policyholders . . . (5,507,305) (5,481,110) (2,413,828) (134,661,151) (115,839,460) (102,757,132)
Net increase (decrease) in policy
loans . . . . . . . . . . . . . . . (83,216) 265,517 156,802 18,165,114 18,568,293 11,816,577
----------- ----------- ----------- -------------- ------------- -------------
Net increase (decrease) in net assets
resulting from policyholder
transactions . . . . . . . . . . . . 704,734 2,571,311 1,363,009 (23,540,057) (10,962,873) (14,894,159)
----------- ----------- ----------- -------------- ------------- -------------
Net increase in net assets . . . . . (1,697,097) 4,592,039 3,779,906 214,217,003 178,420,042 97,491,373
Net assets at beginning of period . . 16,242,115 11,650,076 7,870,170 934,664,876 756,244,834 658,753,461
----------- ----------- ----------- -------------- ------------- -------------
Net assets at end of period . . . . . $14,545,018 $16,242,115 $11,650,076 $1,148,881,879 $ 934,664,876 $ 756,244,834
=========== =========== =========== ============== ============= =============
</TABLE>
- ---------
* From May 1, 1996 (commencement of operations).
See accompanying notes.
66
<PAGE>
JOHN HANCOCK VARIABLE LIFE ACCOUNT U
STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED)
FOR THE YEARS AND PERIODS ENDED DECEMBER 31,
<TABLE>
<CAPTION>
MANAGED SHORT-TERM BOND
SUBACCOUNT SUBACCOUNT
------------------------------------------ ----------------------------------------
1998 1997 1996 1998 1997 1996
------------- ------------- ------------- ----------- ------------- ------------
<S> <C> <C> <C> <C> <C> <C>
Increase (decrease) in net assets from
operations:
Net investment income . . . . . . . . . $ 40,475,436 $ 35,315,509 $ 39,554,898 $ 28,209 $ 19,877 $ 9,995
Net realized gains (losses) . . . . . . 5,853,076 5,663,060 3,870,923 2,008 235 (922)
Net unrealized appreciation
(depreciation) during the period . . . 24,834,482 16,843,903 (11,548,110) (5,287) 1,405 (1,542)
------------ ------------ ------------ ---------- ------------ ------------
Net increase in net assets resulting from
operations. . . . . . . . . . . . . . . 71,162,994 57,822,472 31,877,711 24,930 21,517 7,531
From policyholder transactions:
Net premiums from policyholders . . . . 40,631,684 40,318,523 40,512,423 435,150 278,114 328,192
Net benefits to policyholders . . . . . (55,447,667) (54,498,285) (52,043,620) (274,762) (218,771) (90,988)
Net increase in policy loans . . . . . 5,379,590 4,761,829 4,766,548 -- -- --
------------ ------------ ------------ ---------- ------------ ------------
Net increase (decrease) in net assets
resulting from policyholder transactions (9,436,393) (9,417,933) (6,764,649) 160,388 59,343 237,204
------------ ------------ ------------ ---------- ------------ ------------
Net increase in net assets . . . . . . . 61,726,601 48,404,539 25,113,062 185,318 80,860 244,735
Net assets at beginning of period . . . 410,827,365 362,422,826 337,309,764 409,571 328,711 83,976
------------ ------------ ------------ ---------- ------------ ------------
Net assets at end of period . . . . . . $472,553,966 $410,827,365 $362,422,826 $ 594,889 $ 409,571 $ 328,711
============ ============ ============ ========== ============ ============
</TABLE>
<TABLE>
<CAPTION>
SMALL CAP VALUE INTERNATIONAL OPPORTUNITIES
SUBACCOUNT SUBACCOUNT
------------------------------------- -------------------------------------
1998 1997 1996* 1998 1997 1996*
------------ ------------ ---------- ------------ ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
Increase (decrease) in net assets from
operations:
Net investment income . . . . . . . . . . . . . $ 1,070 $ 245,833 $ 21,315 $ 8,318 $ 23,536 $ 2,927
Net realized gains. . . . . . . . . . . . . . . 61,917 129,604 891 64,757 78,058 304
Net unrealized appreciation (depreciation)
during the period. . . . . . . . . . . . . . . (364,359) (32,439) 49,892 339,709 (141,034) 57,387
----------- ----------- --------- ----------- ---------- ----------
Net increase (decrease) in net assets resulting
from operations . . . . . . . . . . . . . . . . (301,372) 342,998 72,098 412,784 (39,440) 60,618
From policyholder transactions:
Net premiums from policyholders . . . . . . . . 2,644,808 2,466,836 925,601 2,203,753 1,969,364 1,364,628
Net benefits to policyholders . . . . . . . . . (1,288,464) (358,679) (105,966) (1,443,700) (709,490) (118,737)
Net increase in policy loans. . . . . . . . . . -- -- -- -- -- --
----------- ----------- --------- ----------- ---------- ----------
Net increase in net assets resulting from
policyholder transactions . . . . . . . . . . . 1,356,344 2,108,157 819,635 760,053 1,259,874 1,245,891
----------- ----------- --------- ----------- ---------- ----------
Net increase in net assets . . . . . . . . . . . 1,054,972 2,451,155 891,733 1,172,837 1,220,434 1,306,509
Net assets at beginning of period. . . . . . . . 3,342,888 891,733 0 2,526,943 1,306,509 0
----------- ----------- --------- ----------- ---------- ----------
Net assets at end of period. . . . . . . . . . . $ 4,397,860 $ 3,342,888 $ 891,733 $ 3,699,780 $2,526,943 $1,306,509
=========== =========== ========= =========== ========== ==========
</TABLE>
- ---------
* From May 1, 1996 (commencement of operations).
See accompanying notes.
67
<PAGE>
JOHN HANCOCK VARIABLE LIFE ACCOUNT U
STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED)
FOR THE YEARS AND PERIODS ENDED DECEMBER 31,
<TABLE>
<CAPTION>
EQUITY INDEX STRATEGIC BOND
SUBACCOUNT SUBACCOUNT
----------------------------------- -----------------------------------
1998 1997 1996* 1998 1997 1996*
------------ ----------- --------- ------------ ----------- --------
<S> <C> <C> <C> <C> <C> <C>
Increase (decrease) in
net assets from
operations:
Net investment income $ 307,010 $ 192,049 $ 7,272 $ 54,728 $ 78,770 $ 27,247
Net realized gains . 132,619 38,987 3,982 32,917 5,891 1,518
Net unrealized
appreciation
(depreciation)
during the period . 2,082,107 1,193,531 13,544 11,342 (3,195) 6,688
----------- ---------- -------- ----------- ---------- --------
Net increase in net
assets resulting from
operations . . . . . 2,521,736 1,424,567 24,798 98,987 81,466 35,453
From policyholder
transactions:
Net premiums from
policyholders . . . 4,632,113 6,068,371 350,310 798,935 807,985 718,958
Net benefits to
policyholders . . . (1,120,852) (260,531) (31,362) (1,158,109) (201,240) (76,965)
Net increase in
policy loans . . . -- -- -- -- -- --
----------- ---------- -------- ----------- ---------- --------
Net increase
(decrease) in net
assets resulting from
policyholder
transactions . . . . 3,511,261 5,807,840 318,948 (359,176) 606,745 641,993
----------- ---------- -------- ----------- ---------- --------
Net increase
(decrease) in net
assets . . . . . . . 6,032,997 7,232,407 343,746 (260,189) 688,211 677,446
Net assets at
beginning of period 7,576,153 343,746 0 1,365,657 677,446 0
----------- ---------- -------- ----------- ---------- --------
Net assets at end of
period . . . . . . . $13,609,150 $7,576,153 $343,746 $ 1,105,468 $1,365,657 $677,446
=========== ========== ======== =========== ========== ========
</TABLE>
<TABLE>
<CAPTION>
TURNER CORE GROWTH BRANDES INTERNATIONAL
SUBACCOUNT EQUITY
------------------------------ ------------------------------
1998 1997 1996* 1998 1997 1996*
--------- --------- --------- --------- --------- --------
<S> <C> <C> <C> <C> <C> <C>
Increase (decrease) in
net assets from
operations:
Net investment income $ 4,513 $ 10,585 $ 384 $ 12,094 $ 1,532 $ 133
Net realized gains
(losses) . . . . . . 14,364 3,166 (238) 1,184 133 (1,091)
Net unrealized
appreciation
(depreciation)
during the period. . 49,605 12,370 456 15,813 2,674 (345)
-------- -------- -------- -------- -------- --------
Net increase
(decrease) in net
assets resulting from
operations. . . . . . 68,482 26,121 602 29,091 4,339 (1,303)
From policyholder
transactions:
Net premiums from
policyholders . . . 203,590 91,440 26,825 55,021 146,796 68,170
Net benefits to
policyholders . . . (77,651) (9,878) (14,937) (10,341) (34,985) (22,411)
Net increase in
policy loans. . . . -- -- -- -- -- --
-------- -------- -------- -------- -------- --------
Net increase in net
assets resulting from
policyholder
transactions. . . . . 125,939 81,562 11,888 44,680 111,811 45,759
-------- -------- -------- -------- -------- --------
Net increase in net
assets. . . . . . . . 194,421 107,683 12,490 73,711 116,150 44,456
Net assets at
beginning of period . 120,173 12,490 0 160,606 44,456 0
-------- -------- -------- -------- -------- --------
Net assets at end of
period. . . . . . . . $314,594 $120,173 $ 12,490 $234,377 $160,606 $ 44,456
======== ======== ======== ======== ======== ========
</TABLE>
- ---------
* From May 1, 1996 (commencement of operations).
See accompanying notes.
68
<PAGE>
JOHN HANCOCK VARIABLE LIFE ACCOUNT U
STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED)
FOR THE YEARS AND PERIODS ENDED DECEMBER 31,
<TABLE>
<CAPTION>
FRONTIER CAPITAL EMERGING GLOBAL SMALL/MID HIGH YIELD
APPRECIATION MARKETS EQUITY EQUITY BOND INDEX CAP CORE BOND
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
------------------------------- --------------- ----------- ---------- ----------- ------------
1998 1997 1996* 1998** 1998** 1998** 1998** 1998**
---------- --------- --------- --------------- ----------- ---------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Increase (decrease) in net
assets from operations:
Net investment income
(loss) . . . . . . . . . $ (208) $ 7,522 $ (112) $ 1 $ 1 $ 146 $ -- $ 18
Net realized gains
(losses) . . . . . . . .
12,123 9,048 (1,199) -- 1 (1) -- --
Net unrealized
appreciation
(depreciation) during the
period . . . . . . . . . (17,930) 40,541 2,105 10 45 (196) 6 (26)
--------- -------- -------- ------ ---- ------- ---- ------
Net increase (decrease) in
net assets resulting from
operations. . . . . . . . (6,015) 57,111 794 12 46 (52) 6 (8)
From policyholder
transactions:
Net premiums from
policyholders. . . . . . 128,779 327,804 58,477 2,017 916 10,255 104 2,887
Net benefits to
policyholders. . . . . . (146,083) (47,276) (16,094) -- (13) (69) (2) --
Net increase in policy
loans. . . . . . . . . . -- -- -- -- -- -- -- --
--------- -------- -------- ------ ---- ------- ---- ------
Net increase (decrease) in
net assets resulting from
policyholder transactions (17,304) 280,528 42,383 2,017 903 10,186 102 2,887
--------- -------- -------- ------ ---- ------- ---- ------
Net increase (decrease) in
net assets . . . . . . . (23,319) 337,639 43,177 2,029 949 10,134 108 2,879
Net assets at beginning of
period. . . . . . . . . . 380,816 43,177 0 0 0 0 0 0
--------- -------- -------- ------ ---- ------- ---- ------
Net assets at end of period $ 357,497 $380,816 $ 43,177 $2,029 $949 $10,134 $108 $2,879
========= ======== ======== ====== ==== ======= ==== ======
</TABLE>
- ---------
* From May 1, 1996 (commencement of operations).
** From May 1, 1998 (commencement of operations).
See accompanying notes.
69
<PAGE>
JOHN HANCOCK VARIABLE LIFE ACCOUNT U
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998
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-six 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-six Portfolios of the Fund and M Fund which are currently available are
the Large Cap Growth, Sovereign Bond, Emerging Markets Equity, International
Equity Index (formerly, International Equities), Global Equity, Small Cap
Growth, International Balanced, Mid Cap Growth, Large Cap Value, Money Market,
Mid Cap Value, Diversified Mid Cap Growth (formerly, Special Opportunities),
Bond Index, Small/Mid Cap CORE, Real Estate Equity, Growth & Income, Managed,
Short-Term Bond (formerly, Short-Term U.S. Government), Small Cap Value,
International Opportunities, Equity Index, Strategic Bond, Turner Core Growth,
Brandes International Equity (formerly, 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 underlying portfolio shares are determined
on the basis of identified cost.
Federal Income Taxes
The operations of the Account are included in the federal income tax return of
JHVLICO, which is taxed as a life insurance company under the Internal Revenue
Code. JHVLICO has the right to charge the Account any federal income taxes, or
provision for federal income taxes, attributable to the operations of the
Account or to the policies funded in the Account. Currently, JHVLICO does not
make a charge for income or other taxes. Charges for state and local taxes, if
any, attributable to the Account may also be made.
70
<PAGE>
JOHN HANCOCK VARIABLE LIFE ACCOUNT U
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Expenses
JHVLICO assumes mortality and expense risks of the variable life insurance
policies for which asset charges are deducted at an annual rate of .50% of net
assets (excluding policy loans) of the Account. Additionally, a monthly charge
at varying levels for the cost of extra insurance is deducted from the net
assets of the Account.
JHVLICO makes certain deductions for administrative expenses and state premium
taxes from premium payments before amounts are transferred to the Account. With
respect to the single premium policy, during the first nine years after policy
issue, JHVLICO assesses a contingent deferred sales charge at varying levels in
the event of early surrender of the variable life insurance policy.
Policy Loans
Policy loans represent outstanding loans plus accrued interest. Interest is
accrued (net of a charge for policy loan administration determined at an annual
rate of .75% of the aggregate amount of policyowner indebtedness) and compounded
daily.
3. TRANSACTIONS WITH AFFILIATES
John Hancock acts as the distributor, principal underwriter and investment
advisor for the Fund.
Certain officers of the Account are officers and directors of JHVLICO, the
Fund or John Hancock.
71
<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, 1998 are as follows:
<TABLE>
<CAPTION>
SUBACCOUNT SHARES OWNED COST VALUE
---------- ------------ ------------ -------------
<S> <C> <C> <C>
Large Cap Growth . . . . . . 4,545,570 $ 84,573,121 $119,067,616
Sovereign Bond . . . . . . . 24,879,367 241,005,026 246,843,261
International Equity Index . 1,422,311 22,966,825 22,131,950
Small Cap Growth . . . . . . 359,715 3,591,029 4,671,821
International Balanced . . . 78,392 831,987 872,075
Mid Cap Growth . . . . . . . 345,044 4,372,829 5,215,506
Large Cap Value . . . . . . . 577,691 7,848,124 8,099,391
Money Market . . . . . . . . 5,637,951 56,379,509 56,379,509
Mid Cap Value . . . . . . . . 399,298 5,188,954 4,865,793
Diversified Mid Cap Growth . 719,866 11,472,860 11,474,379
Real Estate Equity . . . . . 1,008,631 13,967,388 12,567,328
Growth & Income . . . . . . . 50,231,610 692,239,887 979,131,341
Managed . . . . . . . . . . . 25,570,773 331,045,015 399,830,146
Short-Term Bond . . . . . . . 59,202 599,175 594,889
Small Cap Value . . . . . . . 379,491 4,744,767 4,397,861
International Opportunities . 302,898 3,443,718 3,699,780
Equity Index . . . . . . . . 768,760 10,319,970 13,609,150
Strategic Bond . . . . . . . 104,295 1,090,632 1,105,468
Turner Core Growth . . . . . 17,364 252,164 314,594
Brandes International Equity 286 215,546 234,377
Frontier Capital Appreciation 23,691 332,781 357,497
Emerging Markets Equity . . . 286 2,018 2,029
Global Equity . . . . . . . . 96 905 949
Bond Index . . . . . . . . . 995 10,330 10,134
Small/Mid Cap CORE . . . . . 12 102 108
High Yield Bond . . . . . . . 312 2,904 2,879
</TABLE>
72
<PAGE>
JOHN HANCOCK VARIABLE LIFE ACCOUNT U
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Purchases, including reinvestment of dividend distributions, and proceeds from
the sales of shares in the Portfolios of the Fund and of M Fund during 1998,
were as follows:
<TABLE>
<CAPTION>
SUBACCOUNT PURCHASES SALES
---------- ------------ ------------
<S> <C> <C>
Large Cap Growth . . . . . . . . . . $ 19,367,847 $ 7,501,137
Sovereign Bond . . . . . . . . . . . 33,402,071 17,988,887
International Equity Index . . . . . 7,033,127 2,252,047
Small Cap Growth . . . . . . . . . . 1,972,456 608,967
International Balanced . . . . . . . 438,208 354,600
Mid Cap Growth . . . . . . . . . . . 3,336,975 340,721
Large Cap Value . . . . . . . . . . 4,160,158 2,769,256
Money Market . . . . . . . . . . . . 15,639,875 11,585,569
Mid Cap Value . . . . . . . . . . . 5,498,434 2,396,199
Diversified Mid Cap Growth . . . . . 2,725,823 1,929,990
Real Estate Equity . . . . . . . . . 4,375,013 2,710,599
Growth & Income . . . . . . . . . . 111,682,662 51,376,337
Managed . . . . . . . . . . . . . . 45,721,961 20,140,134
Short-Term Bond . . . . . . . . . . 482,833 294,235
Small Cap Value . . . . . . . . . . 2,396,355 1,038,940
International Opportunities . . . . 1,920,034 1,151,664
Equity Index . . . . . . . . . . . . 4,341,321 523,049
Strategic Bond . . . . . . . . . . . 776,899 1,081,347
Turner Core Growth . . . . . . . . . 188,513 58,060
Brandes International Equity . . . . 69,781 13,006
Frontier Capital Appreciation . . . 132,905 150,417
Emerging Markets Equity . . . . . . 2,018 0
Global Equity . . . . . . . . . . . 917 13
Bond Index . . . . . . . . . . . . . 10,403 72
Small/Mid Cap CORE . . . . . . . . . 104 2
High Yield Bond . . . . . . . . . . 2,905 1
</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), is executing
its plan to address the impact of the Year 2000 issues that result from computer
programs being written using two digits to reflect the year rather than four to
define the applicable year and century. Historically, the first two digits were
hardcoded to save memory. Many of the John Hancock's computer programs that have
date-sensitive software may recognize a date using "00" as the year 1900 rather
than the year 2000. This could result in an information technology (IT) system
failure or miscalculations causing disruptions of operations, including, among
other things, a temporary inability to process transactions, send invoices or
engage in similar normal business activities. In addition, non-IT systems
including, but not limited to, security alarms, elevators and telephones are
subject to malfunction due to their dependence on embedded technology such as
microcontrollers for proper operation. As described, the Year 2000 project
presents a number of challenges for financial institutions since the correction
of Year 2000 issues in IT and non-IT systems will be complex and costly for the
entire industry.
73
<PAGE>
JOHN HANCOCK VARIABLE LIFE ACCOUNT U
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
John Hancock began to address the Year 2000 project as early as 1994. John
Hancock's plan to address the Year 2000 Project includes an awareness campaign,
an assessment period, a renovation stage, validation work and an implementation
of Company solutions.
The continuous awareness campaign serves several purposes: defining the
problem, gaining executive level support and sponsorship, establishing a team
and overall strategy, and assessing existing information system management
resources. Additionally, the awareness campaign establishes an education process
to ensure that all employees are aware of the Year 2000 issue and knowledgeable
of their role in securing solutions.
The assessment phase, which was completed for both IT and non-IT systems as of
April 1998, included the identification, inventory, analysis, and prioritization
of IT and non-IT systems and processes to determine their conversion or
replacement.
The renovation stage reflects the conversion, validation, replacement, or
elimination of selected platforms, applications, databases and utilities,
including the modification of applicable interfaces. Additionally, the
renovation stage includes performance, functionality, and regression testing and
implementation. As of December 31, 1998, the renovation phase was substantially
complete for computer applications, systems and desktops. For all remaining
components the renovation phase is underway and will be complete before the end
of the second quarter of 1999.
The validation phase consists of the compliance testing of renovated systems.
The validation phase is expected to be complete by mid 1999, after renovation is
accomplished. John Hancock will use its testing facilities through the remainder
of 1999 to perform special functional testing. Special functional testing
includes testing, as required, with material third parties and industry groups
and to perform reviews of "dry run" of year-end activities. Scheduled testing of
John Hancock's material relationships with third parties is underway. It is
anticipated that testing with material business partners will continue through
much of 1999.
Finally, the implementation phase involves the actual implementation of
converted or replaced platforms, applications, databases, utilities, interfaces,
and contingency planning. John Hancock is concurrently performing implementation
during the renovation phase and plans to complete this phase before the end of
the second quarter of 1999.
The costs of the Year 2000 project consist of internal IT personnel, and
external costs such as consultants, programmers, replacement software, and
hardware. The costs of the Year 2000 project are expensed as incurred. The
project is funded partially through a reallocation of resources from
discretionary projects. Through December 31, 1998, John Hancock has incurred and
expensed approximately $9.8 million in related payroll costs for its internal IT
personnel on the project. The estimated range of remaining internal IT personnel
costs of the project is approximately $8 to $9 million. Through December 31,
1998, John Hancock has incurred and expensed approximately $36.4 million in
external costs for the project. The estimated range of remaining external costs
of the project is approximately $35 to $36 million. The total costs of the Year
2000 project, based on management's best estimates, include approximately $18
million in internal IT personnel, $7.4 million in the external modification of
software, $34.2 million for external solution providers, $19.4 million in
replacement costs of non-compliant IT systems and $12.6 million in oversight,
test facilities and other expenses. Accordingly, the estimated range of total
costs of the Year 2000 project, internal and external, is approximately $90 to
$95 million. However, there can be no guarantee that these estimates will be
achieved and actual results could materially differ from those plans. Specific
factors that might cause such material differences include, but are not limited
to, the availability and cost of personnel trained in this area, the ability to
locate and correct all relevant computer codes, and similar uncertainties.
74
<PAGE>
JOHN HANCOCK VARIABLE LIFE ACCOUNT U
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
John Hancock's total Year 2000 project costs include the estimated impact of
external solution providers and are based on presently available information.
However, there is no guarantee that the systems of other companies that John
Hancock's systems rely on will be timely converted, or that a failure to convert
by another company, or a conversion that is incompatible with John Hancock's
systems, would not have material adverse effect on John Hancock. It is
documented in trade publications that companies in foreign countries are not
acting as intensively as domestic companies to remediate Year 2000 issues.
Accordingly, it is expected that Company facilities based outside the United
States face higher degrees of risks from data exchanges with material business
partners. In addition, John Hancock has thousands of individual and business
customers that hold insurance policies, annuities and other financial products
of John Hancock. Nearly all products sold by John Hancock contain date sensitive
data, examples of which are policy expiration dates, birth dates, premium
payment dates. Finally, the regulated nature of John Hancock's industry exposes
it to potential supervisory or enforcement actions relating to Year 2000 issues.
John Hancock's contingency planning initiative related to the Year 2000
project is underway. The plan is addressing John Hancock's readiness as well as
that of material business partners on whom John Hancock depends. John Hancock's
contingency plans are being designed to keep each business unit's operations
functioning in the event of a failure or delay due to the Year 2000 record
format and date calculation changes. Contingency plans are being constructed
based on the foundation of extensive business resumption plans that John Hancock
has maintained and updated periodically, which outline responses to situations
that may affect critical business functions. These plans also provide emergency
operations guidance, which defines a documented order of actions to respond to
problems. These extensive business resumption plans are being enhanced to cover
Year 2000 situations.
75
<PAGE>
ALPHABETICAL INDEX OF KEY WORDS AND PHRASES
This index should help you locate more information about many of the important
concepts in this prospectus.
<TABLE>
<CAPTION>
KEY WORD OR PHRASE PAGE KEY WORD OR PHRASE PAGE
<S> <C> <C> <C>
Account ............................. 28 mortality and expense risk charge .. 9
attained age ........................ 9 optional benefits .................. 8
beneficiary ......................... 34 owner .............................. 4
business day ........................ 28 Paid-Up Whole Life ................. 6
cash value .......................... 7 partial surrender .................. 11
charges ............................. 8 payment options .................... 13
Code ................................ 31 policy anniversary ................. 29
cost of insurance rates.............. 9 policy year ........................ 29
date of issue ....................... 29 premium; premium payment ........... 5
death benefit ....................... 4 prospectus ......................... 2
deductions .......................... 8 receive; receipt ................... 15
dividends ........................... 7 reinstate; reinstatement ........... 5
expenses of the Trust ............... 9 SEC ................................ 2
Fixed Extended Term ................. 6 Separate Account U ................. 28
full surrender ...................... 11 Servicing Office ................... 1
fund ................................ 2 special loan account ............... 11
grace period ........................ 5 subaccount ......................... 28
guaranteed minimum death benefit .... 12 surrender .......................... 11
insurance charge .................... 9 surrender value .................... 11
insured person ...................... 4 tax considerations ................. 31
investment options .................. 1 telephone transfers ................ 15
JHVLICO ............................. 28 transfers of cash value ............ 10
John Hancock Variable Series Trust .. 2 variable investment options ........ 1
lapse ............................... 5 Variable Sum Insured ............... 12
loan ................................ 11 we; us ............................. 28
loan interest ....................... 11 you; your .......................... 4
monthly deduction date .............. 29
</TABLE>
76
<PAGE>
[LOGO] JOHN HANCOCK
POLICIES ISSUED BY JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY
JOHN HANCOCK PLACE, BOSTON, MASSACHUSETTS 02117
H6001 5/99
