<PAGE>
As filed with the Securities and Exchange Commission on May 3, 1999
Registration No. 33-76660
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-----------------------
FORM S-6
Post-Effective Amendment No. 6 to
Registration Statement Under
THE SECURITIES ACT OF 1933
----------------------
JOHN HANCOCK VARIABLE LIFE ACCOUNT U
(Exact name of trust)
JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY
(Name of depositor)
JOHN HANCOCK PLACE
BOSTON, MASSACHUSETTS 02117
(Complete address of depositor's principal executive offices)
--------------------
RONALD J. BOCAGE, ESQ.
JOHN HANCOCK MUTUAL LIFE INSURANCE COMPANY
JOHN HANCOCK PLACE, BOSTON, 02117
(Name and complete address of agent for service)
--------------------
Copy to:
GARY O. COHEN, ESQ.
Freedman, Levy, Kroll & Simonds
1050 Connecticut Avenue, N.W.
Washington, D.C. 20036
--------------------
It is proposed that this filing become effective(check appropriate box)
/ /immediately upon filing pursuant to paragraph (b) of Rule 485
--
/X/on May 3, 1999 pursuant to paragraph (b) of Rule 485
--
/ /60 days after filing pursuant to paragraph (a)(1) of Rule 485
--
/ /on (date) pursuant to paragraph (a)(1) of Rule 485
--
If appropriate check the following box
/ /this post-effective amendment designates a new effective date for a
-
previously filed amendment
Pursuant to the provisions of Rule 24f-2, Registrant has registered an
indefinite amount of the securities being offered and filed its Notice for
fiscal year 1998 pursuant to Rule 24f-2 on March 23, 1999.
<PAGE>
CROSS-REFERENCE TABLE
Form N-8B-2 Item Caption in Prospectus
- ---------------- ---------------------
1, 2 Cover, The Account and The Series
Fund or Funds, JHVLICO and John
Hancock
3 Inapplicable
4 Cover, Distribution of Policies
5,6 The Account and The Series Fund or
Funds, State Regulation
7, 8, 9 Inapplicable
10(a),(b),(c),(d),(e) Policy Provisions and Benefits
10(f) Voting Privileges
10(g),(h) Changes that JHVLICO
Can Make
10(i) Appendix--Other Policy
Provisions, The Account and The
Series Fund or Funds
11, 12 Summary, The Account and The Series
Fund or Funds, Distribution of
Policies
13 Charges and expenses,Appendix-
Illustration of Death Benefits,
Account Values, Surrender Values and
Accumulated Premiums
14, 15 Summary, Distribution of
Policies, Premiums
16 The Account and The Series Fund or
Funds
17 Summary, Policy Provisions
and Benefits
18 The Account and The Series Fund or
Funds, Tax Considerations
19 Reports
20 Changes that JHVLICO
Can Make
21, 22 Policy Provisions and Benefits
<PAGE>
23 Distribution of Policies
24 Not Applicable
25 JHVLICO and John Hancock
26 Not Applicable
27,28,29,30 JHVLICO and John Hancock, Board
of Directors and Executive
Officers of JHVLICO
31,32,33,34 Not Applicable
35 JHVLICO and John Hancock
37 Not Applicable
38,39,40,41(a) Distribution of Policies,
JHVLICO and John Hancock,
Charges and Expenses
42, 43 Not Applicable
44 The Account and The Series Fund or
Funds,Policy Provisions,
Appendix--Illustration of Death
Benefits, Account Values,
Surrender Values and
Accumulated Premiums
45 Not Applicable
46 The Account and The Series Fund or
Funds, Policy Provisions,
Appendix--Illustration of Death
Benefits, Account Values,
Surrender Values and
Accumulated Premiums
47 Not Applicable
48,49,50 Not Applicable
51 Policy Provisions and Benefits,
Appendix--Other Policy
Provisions
52 The Account and The Series Fund or
Funds, Changes that JHVLICO Can Make
53,54,55 Not Applicable
56,57,58,59 Not Applicable
<PAGE>
PROSPECTUS DATED MAY 3, 1999
MEDALLION VARIABLE LIFE
a flexible premium variable life insurance policy
issued by
JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY ("JHVLICO")
JHVLICO LIFE SERVICING OFFICE
-----------------------------
EXPRESS DELIVERY
----------------
529 Main Street (X-4)
Charlestown, MA 02129
U.S. MAIL
---------
P.O. Box 111
Boston, MA 02117
PHONE: 1-800-732-5543 / FAX: 1-617-886-3048
The policy provides an investment option with fixed rates of return declared
by JHVLICO and the following 23 variable investment options:
<TABLE>
<CAPTION>
VARIABLE INVESTMENT OPTION MANAGED BY
-------------------------- ----------
- ---------------------------------------------------------------------------------------------------------
<S> <C>
Managed . . . . . . . . . . . . . . . . . . . . . . . . Independence Investment Associates, Inc.
Growth & Income . . . . . . . . . . . . . . . . . . . . Independence Investment Associates, Inc.
Equity Index . . . . . . . . . . . . . . . . . . . . . State Street Global Advisors
Large Cap Value . . . . . . . . . . . . . . . . . . . . T. Rowe Price Associates, Inc.
Large Cap Growth . . . . . . . . . . . . . . . . . . . Independence Investment Associates, Inc.
Mid Cap Value . . . . . . . . . . . . . . . . . . . . . Neuberger Berman, LLC
Mid Cap Growth . . . . . . . . . . . . . . . . . . . . Janus Capital Corporation
Real Estate Equity. . . . . . . . . . . . . . . . . . . Independence Investment Associates, Inc.
Small/Mid Cap Growth. . . . . . . . . . . . . . . . . . Wellington Management Company, LLP
Small/Mid Cap CORE. . . . . . . . . . . . . . . . . . . Goldman Sachs Asset Management
Small Cap Value . . . . . . . . . . . . . . . . . . . . INVESCO Management & Research, Inc.
Small Cap Growth . . . . . . . . . . . . . . . . . . . John Hancock Advisers, Inc.
Global Equity . . . . . . . . . . . . . . . . . . . . . Scudder Kemper Investments, Inc.
International Balanced . . . . . . . . . . . . . . . . Brinson Partners, Inc.
International Equity Index . . . . . . . . . . . . . . Independence International Associates, Inc.
International Opportunities . . . . . . . . . . . . . . Rowe Price-Fleming International, Inc.
Emerging Markets Equity . . . . . . . . . . . . . . . . Montgomery Asset Management, LLC
Short-Term Bond . . . . . . . . . . . . . . . . . . . . Independence Investment Associates, Inc.
Bond Index. . . . . . . . . . . . . . . . . . . . . . . Mellon Bond Associates, LLP
Sovereign Bond. . . . . . . . . . . . . . . . . . . . . John Hancock Advisers, Inc.
Global Bond . . . . . . . . . . . . . . . . . . . . . . J.P. Morgan Investment Management, Inc.
High Yield Bond . . . . . . . . . . . . . . . . . . . . Wellington Management Company, LLP
Money Market . . . . . . . . . . . . . . . . . . . . . John Hancock Mutual Life Insurance Company
- ---------------------------------------------------------------------------------------------------------
</TABLE>
We may add or delete variable investment options in the future.
<PAGE>
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 17.
. Behind the illustrations is a section called "Additional Information"
that gives more details about the policy. It generally does not
---
repeat information that is in the Basic Information section. A table
of contents for the Additional Information section appears on page
22.
. Behind the Additional Information section are the financial
statements for JHVLICO and Separate Account U. These start on page
40.
. Finally, there is an Alphabetical Index of Key Words and Phrases at
the back of the prospectus on page 79.
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.
<PAGE>
BASIC INFORMATION
This part of the prospectus provides answers to commonly asked questions about
the policy.
<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?. . . . . . . . . . . . . 4-5
.Is there a minimum amount I must invest? . . . . . . . . . . . 5-6
.How will the value of my investment in the policy change over
time?. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
.What charges will JHVLICO deduct from my investment in the
policy?. . . . . . . . . . . . . . . . . . . . . . . . . . . . 7-9
.What charges will the Trust deduct from my investment in the
policy?. . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
.What other charges could JHVLICO impose in the future? . . . . 10
.How can I change my policy's investment allocations? . . . . . 10-11
.How can I access my investment in the policy?. . . . . . . . . 11-12
.How much will JHVLICO pay when the insured person dies?. . . . 12-13
.How can I change my policy's insurance coverage? . . . . . . . 13-14
.Can I cancel my policy after it's issued?. . . . . . . . . . . 14
.Can I choose the form in which JHVLICO pays out policy
proceeds?. . . . . . . . . . . . . . . . . . . . . . . . . . . 14
.To what extent can JHVLICO vary the terms and conditions of
its policies in particular cases?. . . . . . . . . . . . . . . 15
.How will my policy be treated for income tax purposes? . . . . 15
.How do I communicate with JHVLICO? . . . . . . . . . . . . . . 15-16
</TABLE>
Here are the page numbers where the questions and answers appear:
<PAGE>
WHAT IS THE POLICY?
The policy's primary purpose is to provide lifetime protection against
economic loss due to the death of the insured person. The value of the amount
you have invested under the policy may increase or decrease daily based upon the
investment results of the variable investment options that you choose. The
amount we pay to the policy's beneficiary if the insured person dies (we call
this the "death benefit") may be similarly affected.
While the insured person is alive, you will have a number of options under the
policy. Here are some major ones:
. Determine when and how much you invest in the various investment
options
. Borrow or withdraw amounts you have in the investment options
. Change the beneficiary who will receive the death benefit
. Change the amount of insurance
. Turn in (i.e., "surrender") the policy for the full amount of its
surrender value
. Choose the form in which we will pay out the death benefit or other
proceeds
Most of these options are subject to limits that are explained later in this
prospectus.
WHO OWNS THE POLICY?
That's up to the person who applies for the policy. The owner of the policy is
the person who can exercise most of the rights under the policy, such as the
right to choose the investment options or the right to surrender the policy. In
many cases, the person buying the policy is also the person who will be the
owner. However, the application for a policy can name another person or entity
(such as a trust) as owner. Whenever we've used the term "you" in this
prospectus, we've assumed that the reader is the person who has whatever right
or privilege is being discussed. There may be tax consequences if the owner and
the insured person are different, so you should discuss this issue with your tax
adviser.
HOW CAN I INVEST MONEY IN THE POLICY?
Premium Payments
We call the investments you make in the policy "premiums" or "premium
payments". The amount we require as your first premium depends upon the
-----
specifics of your policy and the insured person. Except as noted below, you can
make any other premium payments you wish at any time. That's why the policy is
called a "flexible premium" policy.
<PAGE>
Maximum premium payments
Federal tax law limits the amount of premium payments you can make relative to
the amount of your policy's insurance coverage. We will not knowingly accept any
amount by which a premium payment exceeds the maximum. If you exceed certain
other limits, the law may impose a penalty on amounts you take out of your
policy. We'll monitor your premium payments and let you know if you're about to
exceed this limit. More discussion of these tax law requirements begins on page
29. Also, we may refuse to accept any amount of an additional premium if:
. that amount of premium would increase our insurance risk exposure,
and
. the insured person doesn't provide us with adequate evidence that he
or she continues to meet our requirements for issuing insurance.
In no event, however, will we refuse to accept any premium necessary to prevent
the policy from terminating.
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
-------
. if we agree to it, through a salary deduction plan with your
employer.
You can obtain information on these other methods of premium payment by
contacting your JHVLICO representative or by contacting the JHVLICO Life
Servicing Office.
IS THERE A MINIMUM AMOUNT I MUST INVEST?
Planned Premiums
The Policy Specifications page of your policy will show the "Planned Premium"
for the policy. You choose this amount in the policy application. The premium
reminder notice we send you is based on this amount. You will also choose how
often to pay premiums-- annually, semi-annually, quarterly or monthly. The date
on which such a payment is "due" is referred to in the policy as a "modal
processing date." However, payment of Planned Premiums is not necessarily
required. You need only invest enough to keep the policy in force (see "Lapse
and reinstatement" and "Guaranteed death benefit feature" below).
<PAGE>
Lapse and reinstatement
If the policy's surrender value is not sufficient to pay the charges and the
guaranteed death benefit feature is not in effect, we will notify you of how
much you will need to pay to keep the policy in force. You will have a 61 day
"grace period" to make that payment. If you don't pay at least the required
amount by the end of the grace period, 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 1 year from the
beginning of the grace period. You will have to provide evidence that the
insured person still meets our requirements for issuing coverage. You will also
have to pay a minimum amount of premium and be subject to the other terms and
conditions applicable to reinstatements, as specified in the policy. If the
insured person dies during the grace period, we will deduct any unpaid monthly
charges from the death benefit. During the grace period, you cannot make
transfers among investment options or make a partial withdrawal or policy loan.
Guaranteed death benefit feature
This feature is available only if the insured person meets certain
underwriting requirements. The feature guarantees that your policy will not
lapse during the first 5 policy years, regardless of adverse investment
performance, if on each modal processing date during that 5 year period the
amount of cumulative premiums you have paid (less all withdrawals from the
policy) equals or exceeds the sum of all Guaranteed Death Benefit Premiums due
to date. The Guaranteed Death Benefit Premium (or "GDB Premium) is defined in
the policy and is "due" on each modal processing date. (The term "modal
processing date" is defined under "Planned Premiums" on page 5.)
No GDB Premium will ever be greater than the so-called "guideline premium" for
the policy as defined in Section 7702 of the Internal Revenue Code. Also, the
GDB Premiums may change in the event of any change in the face amount of the
policy or any change in the death benefit option (see "How much will JHVLICO pay
when the insured person dies?" on page 12).
If the Guaranteed Death Benefit test is not satisfied on any modal processing
date, we will notify you immediately and tell you how much you will need to pay
to keep the feature in effect. You will have until the second modal processing
date after default to make that payment. If you don't pay at least the required
amount by the end of that period, the feature will permanently lapse. You cannot
restore the feature once it has lapsed.
If there are monthly charges that remain unpaid because of this feature, we
will deduct such charges when there is sufficient surrender value to pay them.
HOW WILL THE VALUE OF MY INVESTMENT IN THE POLICY CHANGE OVER TIME?
From each premium payment you make, we deduct the charges described under
"Deductions from premium payments" below. We invest the rest in the investment
options you've elected.
<PAGE>
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 account value. We describe these
charges under "What charges will JHVLICO deduct from my investment in the
policy?" below.
The amount you've invested in the fixed investment option will earn interest
-----
at a rate we declare from time to time. We guarantee that this rate will be at
least 4%. If you want to know what the current declared rate is, just call or
write to us. The current declared rate will also appear in the annual statement
we will send you. Amounts you invest in the fixed investment option will not be
---
subject to the mortality and expense risk charge described on page 8. Otherwise,
the charges applicable to the fixed investment option are the same as those
applicable to the variable investment options.
At any time, the "account value" of your policy is equal to:
. the amount you invested,
. plus or minus the investment experience of the investment options
you've chosen,
. minus all charges we deduct, and
. minus all withdrawals you have made.
If you take a loan on the policy, however, your account value will be computed
somewhat differently. This is discussed beginning on page 11.
WHAT CHARGES WILL JHVLICO DEDUCT FROM MY INVESTMENT IN THE POLICY?
Deductions from premium payments
. Premium tax charge - A charge to cover state premium taxes we currently
--------------------
expect to pay, on average. This charge is currently 2.35% of each premium.
. DAC tax charge - A charge to cover the increased Federal income tax
----------------
burden that we currently expect will result from receipt of premiums. This
charge is currently 1.25% of each premium.
. Premium sales charge - A charge to help defray our sales costs. The
----------------------
charge is 4% of a certain portion of the premium you pay. The portion of
each year's premium that is subject to the charge is called the "Target
Premium". It's determined at the time the policy is issued and will appear
in the "Policy Specifications" section of the policy. We currently waive
one half of this charge for policies with a face amount of $250,000 or
higher, but continuation of that waiver is not guaranteed. Also, we
currently intend to stop making this charge on premiums received after the
10th policy year, but this is not guaranteed either. Because policies of
this type were first offered for sale in 1994, no termination of this
charge has yet occurred.
<PAGE>
Deductions from account value
. Issue charge - A monthly charge to help defray our administrative costs.
--------------
This is a flat dollar charge of $20 and is deducted only during the first
policy year.
. Maintenance charge - A monthly charge to help defray our administrative
--------------------
costs. This is a flat dollar charge of up to $8 (currently $6).
. Insurance charge - A monthly charge for the cost of insurance. To
------------------
determine the charge, we multiply the amount of insurance for which we are
at risk by a cost of insurance rate. The rate is derived from an actuarial
table. The table in your policy will show the maximum cost of insurance
-------
rates. The cost of insurance rates that we currently apply are generally
less than the maximum rates. We will review the cost of insurance rates at
least every 5 years and may change them from time to time. However, those
rates will never be more than the maximum rates shown in the policy. The
table of rates we use will depend on the insurance risk characteristics
and (usually) gender of the insured person, the face amount of insurance
and the length of time the policy has been in effect. Regardless of the
table used, cost of insurance rates generally increase each year that you
own your policy, as the insured person's attained age increases. (The
insured person's "attained age" on any date is his or her age on the
birthday nearest that date.) We currently apply a lower insurance charge
for policies with a face amount of $250,000 or higher, but continuation of
that practice is not guaranteed. Also, it is our current intention to
reduce the insurance charge in the 10th policy year and thereafter, but
such a reduction is not guaranteed either. Because policies of this type
were first offered for sale in 1994, no reductions have yet been made.
. Extra mortality charge - A monthly charge specified in your policy for
------------------------
additional mortality risk if the insured person is subject to certain
types of special insurance risk.
. M & E charge - A daily charge for mortality and expense risks we assume.
--------------
This charge is deducted from the variable investment options. It does not
apply to the fixed investment option. 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 .90%.
. Optional benefits charge - Monthly charges for any optional insurance
--------------------------
benefits added to the policy by means of a rider. We currently offer a
number of optional riders, such as the accidental death benefit rider.
. Administrative surrender charge - A charge we deduct if the policy lapses
---------------------------------
or is surrendered in the first 9 policy years. We deduct this charge to
compensate us for administrative expenses that we would otherwise not
recover in the event of early lapse or surrender. The amount of the charge
depends upon the policy year in which lapse or surrender occurs and the
policy's face amount at that time. The maximum charge is $5 per $1,000 of
face amount in policy years 1 through 7, $4 per $1,000 in policy year 8
and $3 per $1,000 in policy year 9.
<PAGE>
. Contingent deferred sales charge ("CDSC") - A charge we deduct if the
-------------------------------------------
policy lapses or is surrendered within the first 12 policy years. We
deduct this charge to compensate us for sales expenses that we would
otherwise not recover in the event of early lapse or surrender. The charge
is a percentage of premiums received that do not exceed the Target
Premium. ("Target Premium" is described above under "Deductions from
premium payments.") In policy years 1 through 3, the charge is a
percentage of premiums received prior to the end of the policy year in
question. Thereafter, it's a percentage of only those premiums received in
policy years 1 through 3. The charge reaches its maximum at the end of the
third policy year, stays level through the seventh policy year, and is
reduced by an equal amount at the beginning of each policy year thereafter
until it reaches zero. This is shown in the following table (where the
percentages are rounded to one decimal place):
FOR SURRENDERS OR LAPSES DURING PERCENTAGE
------------------------------------------
Policy years 1-7 26.0%
Policy year 8 21.7%
Policy year 9 17.3%
Policy year 10 13.0%
Policy year 11 8.7%
Policy year 12 4.3%
Policy year 13 and later 0.0%
The above table applies only if the insured person is less than attained
age 55 at issue. For older issue ages, the maximum is reached earlier and
the percentage may decrease to zero in fewer than 12 policy years.
Regardless of issue age, there is a further limitation on the CDSC that
can be charged if surrender or lapse occurs in the second policy year. The
CDSC cannot exceed 32% of one year's Target Premium.
----------
. Partial withdrawal charge - A charge for each partial withdrawal of
---------------------------
account value to compensate us for the administrative expenses of
processing the withdrawal. The charge is equal to the lesser of $20 or 2%
of the withdrawal amount.
WHAT CHARGES WILL THE 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 for1998 and the 1998 other
operating expenses that would have been allocated to the funds under the
allocation rules currently in effect.
<PAGE>
<TABLE>
<CAPTION>
Other Total Fund Other Operating
Investment Operating Operating Expenses
Fund Name Management Fee 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%
Equity Index. . . . . 0.14% 0.08 % 0.22% 0.08%
Large Cap Value . . . 0.74% 0.07 % 0.07%
Large Cap Growth. . . 0.37% 0.05 % 0.42% 0.05%
Mid Cap Value. . . . 0.80% 0.05 % 0.85% 0.05%
Mid Cap Growth. . . . 0.85% 0.08 % % 0.08%
Real Estate Equity. . 0.60% 0.05 % 0.65% 0.05%
Small/Mid Cap Growth**
Small/Mid Cap CORE. .
Small Cap Value . . . 0.80% 0.07 % % 0.07%
Small Cap Growth. . . 0.75% 0.08 % 0.83% 0.08%
Global Equity. . . .
International Balanced 0.85% 0.10 % 0.95% 0.64%
International Equity
Index. . . . . . . . 0.17% 0.10 % 0.27% 0.23%
International
Opportunities. . . . 0.87% 0.10 % 0.97% 0.32%
Emerging Markets
Equity. . . . . . .
Short-Term Bond. . . 0.30% 0.05% 0.35%
Bond Index. . . . . .
Sovereign Bond. . . . 0.25% 0.05 % 0.30% 0.05%
Global Bond** . . . . 0.69% 0.06 % % 0.06%
High Yield Bond. . .
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.
** Small/Mid Cap Growth was formerly "Diversified Mid Cap Growth" and Global
Bond was formerly "Strategic Bond."
WHAT OTHER CHARGES COULD JHVLICO IMPOSE IN THE FUTURE?
We currently make no charge against account value 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.
We also reserve the right to increase the premium tax charge and the DAC tax
charge in order to correspond, respectively, with changes in the state premium
tax levels and with changes in the Federal income tax treatment of the deferred
acquisition costs for this type of policy.
<PAGE>
HOW CAN I CHANGE MY POLICY'S INVESTMENT ALLOCATIONS?
Future premium payments
At any time, you may change the investment options in which future premium
payments will be invested. You make the original allocation in the application
for the policy. The percentages you select must be in whole numbers and must
equal 100% in total.
Transfers of existing account value
You may also transfer your existing account value from one investment option
to another. To do so, you must tell us how much to transfer, either as a whole
number percentage or as a specific dollar amount.
Under our current rules, you can make transfers out of any variable investment
--------
option anytime you wish. However, transfers out of the fixed investment option
-----
are currently subject to the following restrictions:
. You can only make such a transfer once a year and only during the 31 day
period following your policy anniversary.
. We must receive the request for such a transfer during the period
beginning 60 days prior to the policy anniversary and ending 30 days after
it.
. The most you can transfer at any one time is the greater of $500 or 20%
of the assets in your fixed investment option.
We reserve the right to impose a minimum amount limit on transfers out of the
fixed investment option. We also reserve the right to impose limits on the
number and frequency of transfers out of the variable investment options.
Limitation on number of investment options
Whether through the allocation of premium or through the transfer of existing
account value, you can never be invested in more than ten investment options at
any one time.
Dollar cost averaging
This is a program of automatic monthly transfers out of the Money Market
investment option into one or more of the other variable investment options. You
choose the investment options and the dollar amount and timing of the transfers.
The program is designed to reduce the risks that result from market
fluctuations. It does this by spreading out the allocation of your money to
investment options over a longer period of time. This allows you to reduce the
risk of investing most of your money at a time when market prices are high.
Obviously, the success of this strategy depends on market trends and is not
guaranteed.
<PAGE>
HOW CAN I ACCESS MY INVESTMENT IN THE POLICY?
Full surrender
You may surrender your policy in full at any time. If you do, we will pay you
the account value, less any policy loans and less any CDSC and administrative
surrender charge that then applies. This is called your "surrender value." You
must return your policy when you request a full surrender.
Partial withdrawals
You may make a partial withdrawal of your surrender value at any time. Each
partial withdrawal must be at least $1,000. There is a charge (usually $20) for
each partial withdrawal. We will automatically reduce the account value of your
policy by the amount of the withdrawal and the related charge. Each investment
option will be reduced in the same proportion as the account value is then
allocated among them. We will not permit a partial withdrawal if it would cause
your surrender value to fall below 3 months' worth of monthly charges (see
"Deductions from account value" on page 8). We also reserve the right to refuse
any partial withdrawal that would cause the policy's face amount to fall below
$100,000. Under the Option 1 or Option 3 death benefit, the reduction of your
account value occasioned by a partial withdrawal could cause the minimum
insurance amount to become less than your face amount of insurance (see "How
much will JHVLICO pay when the insured person dies?" on page 13). If that
happens, we will automatically reduce your face amount of insurance. The
calculation of that reduction is explained in the policy. If such a face amount
reduction would cause your policy to fail the Code's definition of life
insurance, we will not permit the partial withdrawal.
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 equal to 100% of your account value that is in the fixed investment
option plus one of the following:
. In policy years 2 and 3 - - 75% of your account value that is in the
variable investment options
. In all later policy years - - 90% of your account value that is in
the variable investment options
The minimum amount of each loan is $300. The interest charged on any loan is
an effective annual rate of 5.0% in the first 20 policy years and 4.50%
thereafter. Accrued interest will be added to the loan daily and will bear
interest at the same rate as the original loan amount. The amount of the loan is
deducted from the investment options in the same proportion as the account value
is then allocated among them and is placed in a special loan account. This
special loan account will earn interest at an effective annual rate of 4.0%.
However, if we determine that a loan will be treated as a taxable distribution
because of the differential between the loan interest rate and the rate being
credited on the special loan account, we reserve the right to increase the
<PAGE>
The minimum amount of each loan is $300. The interest charged on any loan is
an effective annual rate of 5.0% in the first 20 policy years and 4.50%
thereafter. Accrued interest will be added to the loan daily and will bear
interest at the same rate as the original loan amount. The amount of the loan is
deducted from the investment options in the same proportion as the account value
is then allocated among them and is placed in a special loan account. This
special loan account will earn interest at an effective annual rate of 4.0%.
However, if we determine that a loan will be treated as a taxable distribution
because of the differential between the loan interest rate and the rate being
credited on the special loan account, we reserve the right to increase the
<PAGE>
In order for a policy to qualify as life insurance under Federal tax law,
there has to be a minimum amount of insurance in relation to account value.
There are two tests that can be
<PAGE>
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.
In most states, you will receive a refund of any premiums you've paid. In some
states, the refund will be your account value on the date of cancellation plus
all charges deducted by JHVLICO or the Trust prior to that date. The date of
cancellation will be the date of such mailing or delivery.
CAN 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
. Option3 - 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
<PAGE>
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
<PAGE>
For further information about the tax consequences of owning a policy, please
read "Tax considerations" beginning of page 29.
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 withdrawals
. transfers of account value among investment options
. change of allocation among investment options for new premium
payments
. change of death benefit option
. increase or decrease in face amount
. change of beneficiary
. election of payment option for policy proceeds
. tax withholding elections
. election of telephone transaction privilege
You should mail or express these requests to 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.
<PAGE>
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.
<PAGE>
ILLUSTRATION OF DEATH BENEFITS, ACCOUNT VALUES, SURRENDER VALUES AND
ACCUMULATED PREMIUMS
The following tables illustrate the changes in death benefit, account value
and surrender value of the policy under certain hypothetical circumstances that
we assume solely for this purpose. Each table separately illustrates the
operation of a policy for a specified issue age, premium payment schedule and
face amount. The amounts shown are for the end of each policy year and assume
that all of the account value is invested in funds that achieve investment
returns at constant annual rates of 0%, 6% and 12% before any fees or expenses.
(Investment return reflects investment income and all realized and unrealized
capital gains and losses.) The tables assume annual Planned Premiums that are
paid at the beginning of each policy year for an insured person who is a 35 year
old male standard non-smoker underwriting risk when the policy is issued.
Tables are provided for each of the two death benefit options. The tables
headed "Current Charges" assume that the current rates for all charges deducted
by JHVLICO will apply in each year illustrated, including the reduction in the
M&E charge after the 15th policy year. The tables headed "Maximum Charges" are
the same, except that the maximum permitted rates for all years are used for all
charges. The tables do not reflect any charge that we reserve the right to make
but are not currently making.
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 account values
are allocated equally among the variable investment options. The actual rates
associated with any policy will vary depending upon the actual allocation of
policy values among the investment options.
The second column of each table shows the amount you would have at the end of
each Policy year if an amount equal to the assumed Planned Premiums were
invested to earn interest, after taxes, at 5% compounded annually. This is not a
policy value. It is included for comparison purposes only.
Because your circumstances will no doubt differ from those in the
illustrations that follow, values under your policy will differ, in most cases
substantially. Upon request, we will furnish you with a comparable illustration
reflecting your proposed insured person's issue age, sex and underwriting risk
classification, and the face amount and annual Planned Premium amount requested.
<PAGE>
DEATH BENEFIT OPTION 1: LEVEL DEATH BENEFIT
ILLUSTRATION ASSUMES CURRENT CHARGES
MALE, ISSUE AGE 35, STANDARD NONSMOKER UNDERWRITING RISK
FACE AMOUNT: $100,000
$760 PLANNED PREMIUM*
<TABLE>
<CAPTION>
Death Benefit Account Value Surrender Value
------------------------------ ------------------------------- -------------------------------
Premiums Assuming Hypothetical Gross Assuming Hypothetical Gross Assuming Hypothetical Gross
End of Accumulated Annual Investment Return of: Annual Investment Return of: Annual Investment Return of:
Policy At 5% Interest ------------------------------ ------------------------------- -------------------------------
Year Per Year 0% Gross 6% Gross 12% Gross 0% Gross 6% Gross 12% Gross 0% Gross 6% Gross 12% Gross
- ------ -------------- -------- --------- --------- --------- --------- ---------- --------- --------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 798 100,000 100,000 100,000 218 244 271 0 0 0
2 1,636 100,000 100,000 100,000 664 738 816 0 0 73
3 2,516 100,000 100,000 100,000 1,094 1,245 1,409 2 152 316
4 3,439 100,000 100,000 100,000 1,508 1,765 2,053 416 672 960
5 4,409 100,000 100,000 100,000 1,904 2,295 2,752 811 1,203 1,659
6 5,428 100,000 100,000 100,000 2,282 2,838 3,512 1,189 1,745 2,420
7 6,497 100,000 100,000 100,000 2,638 3,389 4,337 1,546 2,296 3,244
8 7,620 100,000 100,000 100,000 2,974 3,949 5,233 2,080 3,055 4,339
9 8,799 100,000 100,000 100,000 3,287 4,518 6,206 2,591 3,822 5,511
10 10,037 100,000 100,000 100,000 3,583 5,104 7,279 3,287 4,807 6,983
11 11,337 100,000 100,000 100,000 3,884 5,729 8,483 3,686 5,531 8,285
12 12,702 100,000 100,000 100,000 4,163 6,366 9,801 4,064 6,268 9,702
13 14,135 100,000 100,000 100,000 4,416 7,014 11,244 4,416 7,014 11,244
14 15,640 100,000 100,000 100,000 4,642 7,671 12,826 4,642 7,671 12,826
15 17,220 100,000 100,000 100,000 4,839 8,336 14,561 4,839 8,336 14,561
16 18,879 100,000 100,000 100,000 5,006 9,009 16,467 5,006 9,009 16,467
17 20,621 100,000 100,000 100,000 5,142 9,689 18,564 5,142 9,689 18,564
18 22,450 100,000 100,000 100,000 5,239 10,369 20,867 5,239 10,369 20,867
19 24,370 100,000 100,000 100,000 5,292 11,045 23,399 5,292 11,045 23,399
20 26,387 100,000 100,000 100,000 5,307 11,722 26,194 5,307 11,722 26,194
25 38,086 100,000 100,000 100,000 4,845 15,201 45,480 4,845 15,201 45,480
30 53,018 100,000 100,000 100,000 3,355 18,839 78,808 3,355 18,839 78,808
35 72,076 ** 100,000 156,243 ** 21,721 135,863 ** 21,721 135,863
40 96,398 ** 100,000 242,722 ** 22,123 231,164 ** 22,123 231,164
45 127,441 ** 100,000 410,972 ** 17,231 391,402 ** 17,231 391,402
</TABLE>
- ---------
* The amount shown is equal to the Target Premium for the basic policy. If
premiums are paid more frequently than annually, the above values shown would
be affected.
** Policy lapses unless additional premium payments are made.
THE HYPOTHETICAL INVESTMENT RESULTS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE
DEEMED A REPRESENTATION OF PAST OR FUTURE INVESTMENT RESULTS. ACTUAL INVESTMENT
RESULTS MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF
FACTORS, INCLUDING INVESTMENT ALLOCATIONS MADE BY THE OWNER. THE DEATH BENEFIT,
ACCOUNT VALUE AND SURRENDER VALUE FOR A POLICY WOULD BE DIFFERENT FROM THOSE
SHOWN IF THE ACTUAL GROSS RATES OF INVESTMENT RETURN AVERAGE 0%, 6% OR 12% OVER
A PERIOD OF YEARS, BUT ALSO FLUCTUATED ABOVE OR BELOW THE AVERAGE FOR INDIVIDUAL
POLICY YEARS. WE CAN MAKE NO REPRESENTATION THAT THESE HYPOTHETICAL INVESTMENT
RESULTS CAN BE ACHIEVED FOR ANY ONE YEAR OR CONTINUED OVER ANY PERIOD OF TIME.
<PAGE>
DEATH BENEFIT OPTION 1: LEVEL DEATH BENEFIT
ILLUSTRATION ASSUMES MAXIMUM CHARGES
MALE, ISSUE AGE 35, STANDARD NONSMOKER UNDERWRITING RISK
FACE AMOUNT: $100,000
$760 PLANNED PREMIUM*
<TABLE>
<CAPTION>
Death Benefit Account Value Surrender Value
------------------------------ ------------------------------- -------------------------------
Premiums Assuming Hypothetical Gross Assuming Hypothetical Gross Assuming Hypothetical Gross
End of Accumulated Annual Investment Return of: Annual Investment Return of: Annual Investment Return of:
Policy At 5% Interest ------------------------------ ------------------------------- -------------------------------
Year Per Year 0% Gross 6% Gross 12% Gross 0% Gross 6% Gross 12% Gross 0% Gross 6% Gross 12% Gross
- ------ -------------- -------- --------- --------- --------- --------- ---------- --------- --------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 798 100,000 100,000 100,000 192 217 243 0 0 0
2 1,636 100,000 100,000 100,000 611 681 756 0 0 12
3 2,516 100,000 100,000 100,000 1,013 1,156 1,311 0 63 218
4 3,439 100,000 100,000 100,000 1,399 1,640 1,912 306 547 819
5 4,409 100,000 100,000 100,000 1,765 2,131 2,561 672 1,039 1,468
6 5,428 100,000 100,000 100,000 2,112 2,631 3,264 1,020 1,538 2,171
7 6,497 100,000 100,000 100,000 2,438 3,136 4,022 1,345 2,043 2,929
8 7,620 100,000 100,000 100,000 2,742 3,647 4,842 1,848 2,753 3,948
9 8,799 100,000 100,000 100,000 3,021 4,160 5,727 2,326 3,464 5,032
10 10,037 100,000 100,000 100,000 3,278 4,677 6,686 2,981 4,380 6,390
11 11,337 100,000 100,000 100,000 3,507 5,194 7,722 3,309 4,996 7,525
12 12,702 100,000 100,000 100,000 3,707 5,708 8,842 3,608 5,609 8,743
13 14,135 100,000 100,000 100,000 3,877 6,219 10,053 3,877 6,219 10,053
14 15,640 100,000 100,000 100,000 4,016 6,725 11,364 4,016 6,725 11,364
15 17,220 100,000 100,000 100,000 4,120 7,222 12,785 4,120 7,222 12,785
16 18,879 100,000 100,000 100,000 4,188 7,708 14,324 4,188 7,708 14,324
17 20,621 100,000 100,000 100,000 4,213 8,176 15,990 4,213 8,176 15,990
18 22,450 100,000 100,000 100,000 4,189 8,619 17,791 4,189 8,619 17,791
19 24,370 100,000 100,000 100,000 4,112 9,031 19,741 4,112 9,031 19,741
20 26,387 100,000 100,000 100,000 3,972 9,402 21,849 3,972 9,402 21,849
25 38,086 100,000 100,000 100,000 2,105 10,341 35,381 2,105 10,341 35,381
30 53,018 ** 100,000 100,000 ** 8,442 56,350 ** 8,442 56,350
35 72,076 ** 100,000 105,000 ** 94 91,304 ** 94 91,304
40 96,398 ** ** 156,898 ** ** 149,427 ** ** 149,427
45 127,441 ** ** 255,252 ** ** 243,098 ** ** 243,098
</TABLE>
- ---------
* The amount shown is equal to the Target Premium for the basic policy. If
premiums are paid more frequently than annually, the above values shown would
be affected.
** Policy lapses unless additional premium payments are made.
THE HYPOTHETICAL INVESTMENT RESULTS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE
DEEMED A REPRESENTATION OF PAST OR FUTURE INVESTMENT RESULTS. ACTUAL INVESTMENT
RESULTS MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF
FACTORS, INCLUDING INVESTMENT ALLOCATIONS MADE BY THE OWNER. THE DEATH BENEFIT,
ACCOUNT VALUE AND SURRENDER VALUE FOR A POLICY WOULD BE DIFFERENT FROM THOSE
SHOWN IF THE ACTUAL GROSS RATES OF INVESTMENT RETURN AVERAGE 0%, 6% OR 12% OVER
A PERIOD OF YEARS, BUT ALSO FLUCTUATED ABOVE OR BELOW THE AVERAGE FOR INDIVIDUAL
POLICY YEARS. WE CAN MAKE NO REPRESENTATION THAT THESE HYPOTHETICAL INVESTMENT
RESULTS CAN BE ACHIEVED FOR ANY ONE YEAR OR CONTINUED OVER ANY PERIOD OF TIME.
<PAGE>
DEATH BENEFIT OPTION 2: VARIABLE DEATH BENEFIT
ILLUSTRATION ASSUMES CURRENT CHARGES
MALE, ISSUE AGE 35, STANDARD NONSMOKER UNDERWRITING RISK
FACE AMOUNT: $100,000
$760 PLANNED PREMIUM*
<TABLE>
<CAPTION>
Death Benefit Account Value Surrender Value
------------------------------ ------------------------------- -------------------------------
Premiums Assuming Hypothetical Gross Assuming Hypothetical Gross Assuming Hypothetical Gross
End of Accumulated Annual Investment Return of: Annual Investment Return of: Annual Investment Return of:
Policy At 5% Interest ------------------------------ ------------------------------- -------------------------------
Year Per Year 0% Gross 6% Gross 12% Gross 0% Gross 6% Gross 12% Gross 0% Gross 6% Gross 12% Gross
- ------ -------------- -------- --------- --------- --------- --------- ---------- --------- --------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 798 100,217 100,244 100,270 217 244 270 0 0 0
2 1,636 100,662 100,736 100,814 662 736 814 0 0 70
3 2,516 101,090 101,240 101,403 1,090 1,240 1,403 0 147 310
4 3,439 101,501 101,756 102,042 1,501 1,756 2,042 408 663 950
5 4,409 101,893 102,281 102,734 1,893 2,281 2,734 800 1,188 1,642
6 5,428 102,265 102,816 103,484 2,265 2,816 3,484 1,172 1,723 2,392
7 6,497 102,615 103,357 104,295 2,615 3,357 4,295 1,522 2,264 3,202
8 7,620 102,942 103,905 105,172 2,942 3,905 5,172 2,048 3,011 4,278
9 8,799 103,246 104,458 106,121 3,246 4,458 6,121 2,550 3,763 5,426
10 10,037 103,531 105,025 107,162 3,531 5,025 7,162 3,235 4,729 6,866
11 11,337 103,819 105,627 108,324 3,819 5,627 8,324 3,621 5,429 8,126
12 12,702 104,083 106,237 109,590 4,083 6,237 9,590 3,984 6,138 9,491
13 14,135 104,320 106,851 110,967 4,320 6,851 10,967 4,320 6,851 10,967
14 15,640 104,527 107,468 112,466 4,527 7,468 12,466 4,527 7,468 12,466
15 17,220 104,703 108,085 114,098 4,703 8,085 14,098 4,703 8,085 14,098
16 18,879 104,847 108,702 115,875 4,847 8,702 15,875 4,847 8,702 15,875
17 20,621 104,958 109,318 117,814 4,958 9,318 17,814 4,958 9,318 17,814
18 22,450 105,027 109,922 119,921 5,027 9,922 19,921 5,027 9,922 19,921
19 24,370 105,049 110,509 122,211 5,049 10,509 22,211 5,049 10,509 22,211
20 26,387 105,031 111,084 124,710 5,031 11,084 24,710 5,031 11,084 24,710
25 38,086 104,382 113,807 141,297 4,382 13,807 41,297 4,382 13,807 41,297
30 53,018 102,699 116,107 167,978 2,699 16,107 67,978 2,699 16,107 67,978
35 72,076 ** 116,576 210,191 ** 16,576 110,191 ** 16,576 110,191
40 96,398 ** 112,743 276,347 ** 12,743 176,347 ** 12,743 176,347
45 127,441 ** 101,340 380,527 ** 1,340 280,527 ** 1,340 280,527
</TABLE>
- ---------
* The amount shown is equal to the Target Premium for the basic policy. If
premiums are paid more frequently than annually, the above values shown would
be affected.
** Policy lapses unless additional premium payments are made.
THE HYPOTHETICAL INVESTMENT RESULTS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE
DEEMED A REPRESENTATION OF PAST OR FUTURE INVESTMENT RESULTS. ACTUAL INVESTMENT
RESULTS MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF
FACTORS, INCLUDING INVESTMENT ALLOCATIONS MADE BY THE OWNER. THE DEATH BENEFIT,
ACCOUNT VALUE AND SURRENDER VALUE FOR A POLICY WOULD BE DIFFERENT FROM THOSE
SHOWN IF THE ACTUAL GROSS RATES OF INVESTMENT RETURN AVERAGE 0%, 6% OR 12% OVER
A PERIOD OF YEARS, BUT ALSO FLUCTUATED ABOVE OR BELOW THE AVERAGE FOR INDIVIDUAL
POLICY YEARS. WE CAN MAKE NO REPRESENTATION THAT THESE HYPOTHETICAL INVESTMENT
RESULTS CAN BE ACHIEVED FOR ANY ONE YEAR OR CONTINUED OVER ANY PERIOD OF TIME.
<PAGE>
DEATH BENEFIT OPTION 2: VARIABLE DEATH BENEFIT
ILLUSTRATION ASSUMES MAXIMUM CHARGES
MALE, ISSUE AGE 35, STANDARD NONSMOKER UNDERWRITING RISK
FACE AMOUNT: $100,000
$760 PLANNED PREMIUM*
<TABLE>
<CAPTION>
Death Benefit Account Value Surrender Value
----------------------------- ----------------------------- -----------------------------
Premiums Assuming Hypothetical Gross Assuming Hypothetical Gross Assuming Hypothetical Gross
End of Accumulated Annual Investment Return of: Annual Investment Return of: Annual Investment Return of:
Policy At 5% Interest ----------------------------- ----------------------------- -----------------------------
Year Per Year 0% Gross 6% Gross 12% Gross 0% Gross 6% Gross 12% Gross 0% Gross 6% Gross 12% Gross
- ------ -------------- -------- -------- --------- -------- -------- --------- -------- -------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 798 100,191 100,216 100,242 191 216 242 0 0 0
2 1,636 100,609 100,679 100,753 609 679 753 0 0 10
3 2,516 101,009 101,151 101,306 1,009 1,151 1,306 0 58 213
4 3,439 101,392 101,631 101,902 1,392 1,631 1,902 299 538 809
5 4,409 101,754 102,118 102,544 1,754 2,118 2,544 661 1,025 1,451
6 5,428 102,096 102,610 103,237 2,096 2,610 3,237 1,004 1,518 2,144
7 6,497 102,416 103,106 103,982 2,416 3,106 3,982 1,323 2,014 2,890
8 7,620 102,712 103,605 104,785 2,712 3,605 4,785 1,818 2,711 3,891
9 8,799 102,983 104,104 105,648 2,983 4,104 5,648 2,288 3,409 4,953
10 10,037 103,229 104,604 106,577 3,229 4,604 6,577 2,933 4,308 6,281
11 11,337 103,447 105,100 107,576 3,447 5,100 7,576 3,249 4,902 7,378
12 12,702 103,634 105,589 108,648 3,634 5,589 8,648 3,535 5,490 8,549
13 14,135 103,789 106,070 109,799 3,789 6,070 9,799 3,789 6,070 9,799
14 15,640 103,912 106,540 111,036 3,912 6,540 11,036 3,912 6,540 11,036
15 17,220 103,998 106,995 112,363 3,998 6,995 12,363 3,998 6,995 12,363
16 18,879 104,046 107,432 113,787 4,046 7,432 13,787 4,046 7,432 13,787
17 20,621 104,049 107,843 115,311 4,049 7,843 15,311 4,049 7,843 15,311
18 22,450 104,001 108,219 116,937 4,001 8,219 16,937 4,001 8,219 16,937
19 24,370 103,899 108,554 118,670 3,899 8,554 18,670 3,899 8,554 18,670
20 26,387 103,731 108,834 120,511 3,731 8,834 20,511 3,731 8,834 20,511
25 38,086 101,723 109,088 131,470 1,723 9,088 31,470 1,723 9,088 31,470
30 53,018 ** 106,025 145,463 ** 6,025 45,463 ** 6,025 45,463
35 72,076 ** ** 161,530 ** ** 61,530 ** ** 61,530
40 96,398 ** ** 176,473 ** ** 76,473 ** ** 76,473
45 127,441 ** ** 181,611 ** ** 81,611 ** ** 81,611
</TABLE>
- ---------
* The amount shown is equal to the Target Premium for the basic policy. If
premiums are paid more frequently than annually, the above values shown would
be affected.
** Policy lapses unless additional premium payments are made.
THE HYPOTHETICAL INVESTMENT RESULTS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE
DEEMED A REPRESENTATION OF PAST OR FUTURE INVESTMENT RESULTS. ACTUAL INVESTMENT
RESULTS MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF
FACTORS, INCLUDING INVESTMENT ALLOCATIONS MADE BY THE OWNER. THE DEATH BENEFIT,
ACCOUNT VALUE AND SURRENDER VALUE FOR A POLICY WOULD BE DIFFERENT FROM THOSE
SHOWN IF THE ACTUAL GROSS RATES OF INVESTMENT RETURN AVERAGE 0%, 6% OR 12% OVER
A PERIOD OF YEARS, BUT ALSO FLUCTUATED ABOVE OR BELOW THE AVERAGE FOR INDIVIDUAL
POLICY YEARS. WE CAN MAKE NO REPRESENTATION THAT THESE HYPOTHETICAL INVESTMENT
RESULTS CAN BE ACHIEVED FOR ANY ONE YEAR OR CONTINUED OVER ANY PERIOD OF TIME.
<PAGE>
DEATH BENEFIT OPTION 3: LEVEL DEATH BENEFIT WITH GREATER FUNDING
ILLUSTRATION ASSUMES CURRENT CHARGES
MALE, ISSUE AGE 35, STANDARD NONSMOKER UNDERWRITING RISK
FACE AMOUNT: $100,000
$760 PLANNED PREMIUM*
<TABLE>
<CAPTION>
Death Benefit Account Value Surrender Value
----------------------------- ----------------------------- -----------------------------
Premiums Assuming Hypothetical Gross Assuming Hypothetical Gross Assuming Hypothetical Gross
End of Accumulated Annual Investment Return of: Annual Investment Return of: Annual Investment Return of:
Policy At 5% Interest ----------------------------- ----------------------------- -----------------------------
Year Per Year 0% Gross 6% Gross 12% Gross 0% Gross 6% Gross 12% Gross 0% Gross 6% Gross 12% Gross
- ------ -------------- -------- -------- --------- -------- -------- --------- -------- -------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 798 100,000 100,000 100,000 218 244 271 0 0 0
2 1,636 100,000 100,000 100,000 664 738 816 0 0 73
3 2,516 100,000 100,000 100,000 1,094 1,245 1,409 2 152 316
4 3,439 100,000 100,000 100,000 1,508 1,765 2,053 416 672 960
5 4,409 100,000 100,000 100,000 1,904 2,295 2,752 811 1,203 1,659
6 5,428 100,000 100,000 100,000 2,282 2,838 3,512 1,189 1,745 2,420
7 6,497 100,000 100,000 100,000 2,638 3,389 4,337 1,546 2,296 3,244
8 7,620 100,000 100,000 100,000 2,974 3,949 5,233 2,080 3,055 4,339
9 8,799 100,000 100,000 100,000 3,287 4,518 6,206 2,591 3,822 5,511
10 10,037 100,000 100,000 100,000 3,583 5,104 7,279 3,287 4,807 6,983
11 11,337 100,000 100,000 100,000 3,884 5,729 8,483 3,686 5,531 8,285
12 12,702 100,000 100,000 100,000 4,163 6,366 9,801 4,064 6,268 9,702
13 14,135 100,000 100,000 100,000 4,416 7,014 11,244 4,416 7,014 11,244
14 15,640 100,000 100,000 100,000 4,642 7,671 12,826 4,642 7,671 12,826
15 17,220 100,000 100,000 100,000 4,839 8,336 14,561 4,839 8,336 14,561
16 18,879 100,000 100,000 100,000 5,006 9,009 16,467 5,006 9,009 16,467
17 20,621 100,000 100,000 100,000 5,142 9,689 18,564 5,142 9,689 18,564
18 22,450 100,000 100,000 100,000 5,239 10,369 20,867 5,239 10,369 20,867
19 24,370 100,000 100,000 100,000 5,292 11,045 23,399 5,292 11,045 23,399
20 26,387 100,000 100,000 100,000 5,307 11,722 26,194 5,307 11,722 26,194
25 38,086 100,000 100,000 100,000 4,845 15,201 45,480 4,845 15,201 45,480
30 53,018 100,000 100,000 132,824 3,355 18,839 78,040 3,355 18,839 78,040
35 72,076 ** 100,000 197,617 ** 21,721 130,561 ** 21,721 130,561
40 96,398 ** 100,000 293,207 ** 22,123 214,207 ** 22,123 214,207
45 127,441 ** 100,000 438,159 ** 17,231 347,029 ** 17,231 347,029
</TABLE>
- ---------
* The amount shown is equal to the Target Premium for the basic policy. If
premiums are paid more frequently than annually, the above values shown would
be affected.
** Policy lapses unless additional premium payments are made.
THE HYPOTHETICAL INVESTMENT RESULTS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE
DEEMED A REPRESENTATION OF PAST OR FUTURE INVESTMENT RESULTS. ACTUAL INVESTMENT
RESULTS MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF
FACTORS, INCLUDING INVESTMENT ALLOCATIONS MADE BY THE OWNER. THE DEATH BENEFIT,
ACCOUNT VALUE AND SURRENDER VALUE FOR A POLICY WOULD BE DIFFERENT FROM THOSE
SHOWN IF THE ACTUAL GROSS RATES OF INVESTMENT RETURN AVERAGE 0%, 6% OR 12% OVER
A PERIOD OF YEARS, BUT ALSO FLUCTUATED ABOVE OR BELOW THE AVERAGE FOR INDIVIDUAL
POLICY YEARS. WE CAN MAKE NO REPRESENTATION THAT THESE HYPOTHETICAL INVESTMENT
RESULTS CAN BE ACHIEVED FOR ANY ONE YEAR OR CONTINUED OVER ANY PERIOD OF TIME.
<PAGE>
DEATH BENEFIT OPTION 3: LEVEL DEATH BENEFIT WITH GREATER FUNDING
ILLUSTRATION ASSUMES MAXIMUM CHARGES
MALE, ISSUE AGE 35, STANDARD NONSMOKER UNDERWRITING RISK
FACE AMOUNT: $100,000
$760 PLANNED PREMIUM*
<TABLE>
<CAPTION>
Death Benefit Account Value Surrender Value
----------------------------- ----------------------------- -----------------------------
Premiums Assuming Hypothetical Gross Assuming Hypothetical Gross Assuming Hypothetical Gross
End of Accumulated Annual Investment Return of: Annual Investment Return of: Annual Investment Return of:
Policy At 5% Interest ----------------------------- ----------------------------- -----------------------------
Year Per Year 0% Gross 6% Gross 12% Gross 0% Gross 6% Gross 12% Gross 0% Gross 6% Gross 12% Gross
- ------ -------------- -------- -------- --------- -------- -------- --------- -------- -------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 798 100,000 100,000 100,000 192 217 243 0 0 0
2 1,636 100,000 100,000 100,000 611 681 756 0 0 12
3 2,516 100,000 100,000 100,000 1,013 1,156 1,311 0 63 218
4 3,439 100,000 100,000 100,000 1,399 1,640 1,912 306 547 819
5 4,409 100,000 100,000 100,000 1,765 2,131 2,561 672 1,039 1,468
6 5,428 100,000 100,000 100,000 2,112 2,631 3,264 1,020 1,538 2,171
7 6,497 100,000 100,000 100,000 2,438 3,136 4,022 1,345 2,043 2,929
8 7,620 100,000 100,000 100,000 2,742 3,647 4,842 1,848 2,753 3,948
9 8,799 100,000 100,000 100,000 3,021 4,160 5,727 2,326 3,464 5,032
10 10,037 100,000 100,000 100,000 3,278 4,677 6,686 2,981 4,380 6,390
11 11,337 100,000 100,000 100,000 3,507 5,194 7,722 3,309 4,996 7,525
12 12,702 100,000 100,000 100,000 3,707 5,708 8,842 3,608 5,609 8,743
13 14,135 100,000 100,000 100,000 3,877 6,219 10,053 3,877 6,219 10,053
14 15,640 100,000 100,000 100,000 4,016 6,725 11,364 4,016 6,725 11,364
15 17,220 100,000 100,000 100,000 4,120 7,222 12,785 4,120 7,222 12,785
16 18,879 100,000 100,000 100,000 4,188 7,708 14,324 4,188 7,708 14,324
17 20,621 100,000 100,000 100,000 4,213 8,176 15,990 4,213 8,176 15,990
18 22,450 100,000 100,000 100,000 4,189 8,619 17,791 4,189 8,619 17,791
19 24,370 100,000 100,000 100,000 4,112 9,031 19,741 4,112 9,031 19,741
20 26,387 100,000 100,000 100,000 3,972 9,402 21,849 3,972 9,402 21,849
25 38,086 100,000 100,000 100,000 2,105 10,341 35,381 2,105 10,341 35,381
30 53,018 ** 100,000 100,000 ** 8,442 56,350 ** 8,442 56,350
35 72,076 ** 100,000 134,063 ** 94 88,572 ** 94 88,572
40 96,398 ** ** 184,342 ** ** 134,674 ** ** 134,674
45 127,441 ** ** 250,863 ** ** 198,687 ** ** 198,687
</TABLE>
- ---------
* The amount shown is equal to the Target Premium for the basic policy. If
premiums are paid more frequently than annually, the above values shown would
be affected.
** Policy lapses unless additional premium payments are made.
THE HYPOTHETICAL INVESTMENT RESULTS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE
DEEMED A REPRESENTATION OF PAST OR FUTURE INVESTMENT RESULTS. ACTUAL INVESTMENT
RESULTS MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF
FACTORS, INCLUDING INVESTMENT ALLOCATIONS MADE BY THE OWNER. THE DEATH BENEFIT,
ACCOUNT VALUE AND SURRENDER VALUE FOR A POLICY WOULD BE DIFFERENT FROM THOSE
SHOWN IF THE ACTUAL GROSS RATES OF INVESTMENT RETURN AVERAGE 0%, 6% OR 12% OVER
A PERIOD OF YEARS, BUT ALSO FLUCTUATED ABOVE OR BELOW THE AVERAGE FOR INDIVIDUAL
POLICY YEARS. WE CAN MAKE NO REPRESENTATION THAT THESE HYPOTHETICAL INVESTMENT
RESULTS CAN BE ACHIEVED FOR ANY ONE YEAR OR CONTINUED OVER ANY PERIOD OF TIME.
<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 16.
<TABLE>
<CAPTION>
CONTENTS OF THIS SECTION PAGES TO SEE
- ------------------------ ------------
<S> <C>
Description of JHVLICO ...................................... 23
How we support the policy and investment options............. 23-24
Procedures for issuance of a policy.......................... 24-25
Commencement of investment performance....................... 25
How we process certain policy transactions................... 25-27
Effects of policy loans...................................... 27
Additional information about how certain policy charges work. 27-28
How we market the policies................................... 28-29
Tax considerations........................................... 29-30
Reports that you will receive................................ 31
Voting privileges that you will have......................... 31
Changes that JHVLICO can make as to your policy.............. 31-32
Adjustments we make to death benefits........................ 32
When we pay policy proceeds.................................. 32-33
Other details about exercising rights and paying benefits
Year 2000 Issues............................................. 33
Legal matters................................................ 33
Registration statement filed with the SEC.................... 33
Accounting and actuarial experts............................. 33
Financial statements of JHVLICO and the Account.............. 33
List of Directors and Executive Officers of JHVLICO.......... 34
</TABLE>
<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).
<PAGE>
Our general account
Our obligations under the policy's fixed investment option are backed by our
general account assets. Our general account consists of assets owned by us other
than those in the Account and in other separate accounts that we may establish.
Subject to applicable law, we have sole discretion over the investment of assets
of the general account and policy owners do not share in the investment
experience of, or have any preferential claim on, those assets. Instead, we
guarantee that the account value allocated to the fixed investment option will
accrue interest daily at an effective annual rate of at least 4% without regard
to the actual investment experience of the general account.
Because of exemptive and exclusionary provisions, interests in our fixed
investment option have not been registered under the Securities Act of 1933 and
our general account has not been registered as an investment company under the
1940 Act. Accordingly, neither the general account nor any interests therein are
subject to the provisions of these acts, and we have been advised that the staff
of the SEC has not reviewed the disclosure in this prospectus relating to the
fixed investment option. Disclosure regarding the fixed investment option may,
however, be subject to certain generally-applicable provisions of the Federal
securities laws relating to accuracy and completeness of statements made in
prospectuses.
PROCEDURES FOR ISSUANCE OF A POLICY
Generally, the policy is available with a minimum face amount at issue of
$100,000. At the time of issue, the insured person must have an attained age of
at least 20 and no more than 75. All insured persons must meet certain health
and other insurance risk criteria called "underwriting standards".
Policies issued in Montana or in connection with certain employee plans will
not directly reflect the sex of the insured person in either the premium rates
or the charges or values under the policy. The illustrations set forth in this
prospectus are sex-distinct and, therefore, may not reflect the rates, charges,
or values that would apply to such policies.
Minimum Initial Premium
The Minimum Initial Premium must be received by us at our Life Servicing
Office in order for the policy to be in full force and effect. There is no grace
period for the payment of the Minimum Initial Premium. The minimum amount of
premium required at the time of policy issue is equal to three monthly
Guaranteed Death Benefit Premiums (see "Guaranteed death benefit feature" in the
Basic Information section of this prospectus). However, if an owner has chosen
to pay premiums on a monthly basis, the minimum amount required is only equal to
one monthly Guaranteed Death Benefit Premium.
Commencement of insurance coverage
After you apply for a policy, it can sometimes take up to several weeks for us
to gather and evaluate all the information we need to decide whether to issue a
policy to you and, if so, what the insured person's rate class should be. After
we approve an application for a policy and assign an appropriate insurance rate
class, we will prepare the policy for delivery. We will not pay a death benefit
under a policy unless the policy is in effect when the insured person dies
(except for the circumstances described under "Temporary insurance coverage
prior to policy delivery" on page 25).
The policy will take effect only if all of the following conditions are
satisfied:
. The policy is delivered to and received by the applicant.
. The Minimum Initial Premium is received by us.
. Each insured person is living and still meets our health criteria for
issuing insurance.
<PAGE>
If all of the above conditions are satisfied, the policy will take effect on
the date shown in the policy as the "date of issue." That is the date on which
we begin to deduct monthly charges. Policy months, policy years and policy
anniversaries are all measured from the date of issue.
Backdating
In order to preserve a younger age at issue for the insured person, we can
designate a date of issue that is up to 60 days earlier than the date that would
otherwise apply. This is referred to as "backdating" and is allowed under state
insurance laws. Backdating can also be used in certain corporate-owned life
insurance cases involving multiple policies to retain a common monthly deduction
date.
The conditions for coverage described above under "Commencement of insurance
coverage" must still be satisfied, but in a backdating situation the policy
takes effect retroactively. Backdating results in a lower insurance charge
(because of the insured person's younger age at issue), but monthly charges
begin earlier than would otherwise be the case. Those monthly charges will be
deducted as soon as we receive premiums sufficient to pay them.
Temporary coverage prior to policy delivery
If a specified amount of premium is paid with the application for a policy and
other conditions are met, we will provide temporary term life insurance coverage
on the insured person for a period prior to the time coverage under the policy
takes effect. Such temporary term coverage will be subject to the terms and
conditions described in the application for the policy, including limits on
amount and duration of coverage.
Monthly deduction dates
Each charge that we deduct monthly is assessed against your account value or
the subaccounts at the close of business on the date of issue and at the close
of the first business day in each subsequent policy month.
COMMENCEMENT OF INVESTMENT PERFORMANCE
All premium payments will be allocated among the investment options you have
chosen as soon as they are processed.
HOW WE PROCESS CERTAIN POLICY TRANSACTIONS
Premium payments
We will process any premium payment as of the day we receive it, unless one of
the following exceptions applies:
(1) We will process a payment received prior to a policy's date of issue as if
received on the date of issue.
(2) If the Minimum Initial Premium is not received prior to the date of issue,
we will process each premium payment received thereafter as if received on the
business day immediately preceding the date of issue until all of the Minimum
Initial Premium is received.
(3) We will process the portion of any premium payment for which we require
evidence of the insured person's continued insurability only after we have
received such evidence and found it satisfactory to us.
(4) If we receive any premium payment that will cause a policy to become a
modified endowment or will cause a policy to lose its status as life insurance
under the tax laws, we will not accept the excess portion of that premium
payment and will immediately notify the owner. We will refund the excess premium
when the premium payment check has had time to clear the banking system (but in
no case more than two weeks after receipt), except in the following
circumstances:
. The tax problem resolves itself prior to the date the refund is to be
made; or
. The tax problem relates to modified endowment status and we receive a
signed acknowledgment from the owner prior to the refund date instructing
us to process the
<PAGE>
. The tax problem relates to modified endowment status and we receive a
signed acknowledgment from the owner prior to the refund date instructing
us to process the
<PAGE>
Effective date of other policy transactions
The following transactions take effect on the monthly deduction date on or
next following the date we approve your request:
. Face amount increases or decreases
. Reinstatements of lapsed policies
. Change of death benefit Option from 1 to 2
A change from Option 2 to Option 1 is effective on the monthly deduction date
on or next following the date we receive the request.
We process loans, surrenders, partial withdrawals and loan repayments as of
the day we receive such request or repayment.
EFFECTS OF POLICY LOANS
The account value, the surrender value, and any death benefit above the 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 the outstanding loan (which includes accrued and unpaid
interest) is subtracted from the amount otherwise payable when the policy
proceeds become payable.
Whenever the outstanding loan exceeds the maximum amount you can borrow, 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), unless a
repayment of such excess is made within that period.
ADDITIONAL INFORMATION ABOUT HOW CERTAIN POLICY CHARGES WORK
Sales expenses and related charges
The sales charges (i.e., the premium sales charge and the CDSC) help to
compensate us for the cost of selling our policies. (See "What charges will
JHVLICO deduct from my investment in the policy?" in the Basic Information
section of this prospectus.) The amount of the charges in any policy year does
not specifically correspond to sales expenses for that year. We expect to
recover our total sales expenses over the life of the policies. To the extent
that the sales charges do not cover total sales expenses, the sales expenses may
be recovered from other sources, including gains from the charge for mortality
and expense risks and other gains with respect to the policies, or from our
general assets. (See "How we market the policies" on page 28.)
Effect of premium payment pattern
You may structure the timing and amount of premium payments to minimize the
sales charges, although doing so involves certain risks. Paying less than one
Target Premium in the first policy year or paying more than one Target Premium
in any policy year could reduce your total sales charges over time. For example,
if the Target Premium was $1,000 and you paid a premium of $1,000 in each of the
first ten policy years, you would pay total premium sales charges of $400 and be
subject to a maximum CDSC of $780. If you paid $2,000 (i.e., two times the
Target Premium amount) in every other policy year up to the tenth policy year,
you would pay total premium sales charges of only $200 and be subject to a
maximum CDSC of only $520. However, delaying the payment of Target Premiums to
later policy years could increase the risk that the account value will be
insufficient to pay monthly policy charges as they come due and that, as a
result, the policy will lapse and eventually terminate. Conversely, accelerating
the payment of Target Premiums to earlier policy years could cause aggregate
premiums paid to exceed the policy's 7-pay premium limit and, as a result, cause
the policy to become a modified endowment,
<PAGE>
You may structure the timing and amount of premium payments to minimize the
sales charges, although doing so involves certain risks. Paying less than one
Target Premium in the first policy year or paying more than one Target Premium
in any policy year could reduce your total sales charges over time. For example,
if the Target Premium was $1,000 and you paid a premium of $1,000 in each of the
first ten policy years, you would pay total premium sales charges of $400 and be
subject to a maximum CDSC of $780. If you paid $2,000 (i.e., two times the
Target Premium amount) in every other policy year up to the tenth policy year,
you would pay total premium sales charges of only $200 and be subject to a
maximum CDSC of only $520. However, delaying the payment of Target Premiums to
later policy years could increase the risk that the account value will be
insufficient to pay monthly policy charges as they come due and that, as a
result, the policy will lapse and eventually terminate. Conversely, accelerating
the payment of Target Premiums to earlier policy years could cause aggregate
premiums paid to exceed the policy's 7-pay premium limit and, as a result, cause
the policy to become a modified endowment,
<PAGE>
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
<PAGE>
In general, the owner will be taxed on the amount of distributions that exceed
the premiums paid under
<PAGE>
Furthermore, any time there is a "material change" in a policy (such as a face
amount increase, the addition of certain other policy benefits after issue, a
change in death benefit option, or reinstatement of a lapsed policy), the policy
will have a new 7-pay limit as if it were a newly-issued policy. If a prescribed
portion of the policy's then account value, plus all other premiums paid within
7 years
<PAGE>
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
<PAGE>
Delay for check clearance
We reserve the right to defer payment of that portion of your account value
that is attributable to a premium payment made by check for a reasonable period
of time (not to exceed 15 days) to allow the check to clear the banking system.
Delay of separate account proceeds
We reserve the right to defer payment of any death benefit, loan or other
distribution that is derived from a variable investment option if (a) the New
York Stock Exchange is closed (other than customary weekend and holiday
closings) or trading on the New York Stock Exchange is restricted; (b) an
emergency exists, as a result of which disposal of securities is not reasonably
practicable or it is not reasonably practicable to fairly determine the account
value; or (c) the SEC by order permits the delay for the protection of owners.
Transfers and allocations of account value among the investment options may also
be postponed under these circumstances. If we need to defer calculation of
separate account values for any of the foregoing reasons, all delayed
transactions will be processed at the next values that we do compute.
OTHER DETAILS ABOUT EXERCISING RIGHTS AND PAYING BENEFITS
Joint ownership
If more than one person owns a policy, all owners must join in most requests
to exercise rights under the policy.
Assigning your policy
You may assign your rights in the policy to someone else as collateral for a
loan or for some other reason. Assignments do not require the consent of any
revocable beneficiary. A copy of the assignment must be forwarded to us. We are
not responsible for any payment we make or any action we take before we receive
notice of the assignment in good order. Nor are we responsible for the validity
of the assignment. An absolute assignment is a change of ownership. All
collateral assignees of record must consent to any full surrender, partial
withdrawal or loan from the policy.
Your beneficiary
You name your beneficiary when you apply for the policy. The beneficiary is
entitled to the proceeds we pay following the insured person's death. You may
change the beneficiary during the insured person's lifetime. Such a change
requires the consent of any irrevocable named beneficiary. A new beneficiary
designation is effective as of the date you sign it, but will not affect any
payments we make before we receive it. If no beneficiary is living when the
insured person dies, we will pay the insurance proceeds to the owner or the
owner's estate.
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
<PAGE>
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
<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.
<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
<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.
<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.
<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.
<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.
<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.
<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.
<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 and4 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 and5
1/2% interest for policies issued from 1988 through 1992; 5% interest for
policies issued in 1993 and 1994; and4 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.
<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>
<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.
<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
<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.
<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.
<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.
<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.
<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.
<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.
<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
<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.
<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.
<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.
<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.
<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.
<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.
<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.
<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.
<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.
<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.
<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.
<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.
<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.
<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.
<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.
<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.
<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.
<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>
<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.
<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.
<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.
<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> <C>
Account. . . . . . . . 23 30
account value. . . . . 7 25
attained age . . . . . 8 8
beneficiary. . . . . . 23 12
business day . . . . . 23 8
changing Option 1 or 2 27 4
changing the face
amount. . . . . . . . 13 11
charges. . . . . . . . 7 9
Code . . . . . . . . . 29 14
cost of insurance rates 8 5
date of issue. . . . . 25 25
death benefit. . . . . 3 25
deductions . . . . . . 7 4
dollar cost averaging. 10 2
expenses of the Trust. 9 16
face amount. . . . . . 12 6
fixed investment option 24 7
full surrender . . . . 11 2
fund . . . . . . . . . 2 23
grace period . . . . . 6 1
guaranteed death
benefit feature . . . 6 12
Guaranteed Death
Benefit Premium . . . 6 23
insurance charge . . . 8 11
insured person . . . . 4 8
investment options . . 1 11
JHVLICO. . . . . . . . 23 8
John Hancock Variable
Series Trust . . . . 2 29
lapse. . . . . . . . . 6 16
loan . . . . . . . . . 11 10
loan interest. . . . . 12 1
maximum premiums . . . 5 23
Minimum Initial Premium 24 11
minimum insurance
amount. . . . . . . . 13 9
minimum premiums . . . 5 4
</TABLE>
<PAGE>
PROSPECTUS DATED MAY 3, 1999
MEDALLION VARIABLE LIFE
a flexible premium variable life insurance policy
issued by
JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY ("JHVLICO")
JHVLICO LIFE SERVICING OFFICE
-----------------------------
EXPRESS DELIVERY
----------------
529 Main Street (X-4)
Charlestown, MA 02129
U.S. MAIL
---------
P.O. Box 111
Boston, MA 02117
PHONE: 1-800-732-5543 / FAX: 1-617-886-3048
The policy provides an investment option with fixed rates of return declared
by JHVLICO and the following 27 variable investment options:
<TABLE>
<CAPTION>
VARIABLE INVESTMENT OPTION MANAGED BY
-------------------------- ----------
- ---------------------------------------------------------------------------------------------------------
<S> <C>
Managed . . . . . . . . . . . . . . . . . . . . . . . . Independence Investment Associates, Inc.
Growth & Income . . . . . . . . . . . . . . . . . . . . Independence Investment Associates, Inc.
Equity Index . . . . . . . . . . . . . . . . . . . . . State Street Global Advisors
Large Cap Value . . . . . . . . . . . . . . . . . . . . T. Rowe Price Associates, Inc.
Large Cap Growth . . . . . . . . . . . . . . . . . . . Independence Investment Associates, Inc.
Mid Cap Value . . . . Neuberger Berman, LLC
Mid Cap Growth . . . . Janus Capital Corporation
Real Estate Equity . . Independence Investment Associates, Inc.
Small/Mid Cap Growth. Wellington Management Company, LLP
Small/Mid Cap CORE . . Goldman Sachs Asset Management
Small Cap Value . . . INVESCO Management & Research, Inc.
Small Cap Growth . . . . . . . . . . . . . . . . . . . . John Hancock Advisers, Inc.
Global Equity . . . . . . . . . . . . . . . . . . . . . Scudder Kemper Investments, Inc.
International Balanced . . . . . . . . . . . . . . . . . Brinson Partners, Inc.
International Equity Index . . . . . . . . . . . . . . . Independence International Associates, Inc.
International Opportunities . . . . . . . . . . . . . . Rowe Price-Fleming International, Inc.
Emerging Markets Equity . . . . . . . . . . . . . . . . Montgomery Asset Management, LLC
Short-Term Bond . . . Independence Investment Associates, Inc.
Bond Index . . . . . . Mellon Bond Associates, LLP
Sovereign Bond . . . . . . . . . . . . . . . . . . . . . John Hancock Advisers, Inc.
Global Bond . . . . . . . . . . . . . . . . . . . . . . J.P. Morgan Investment Management, Inc.
High Yield Bond . . . Wellington Management Company, LLP
Money Market. . . . . John Hancock Mutual Life Insurance Company
Brandes International Equity. . . . . . . . . . . . . . Brandes Investment Partners, L.P.
Turner Core Growth. . Turner Investment Partners, Inc.
Frontier Capital Appreciation. . . . . . . . . . . . . Frontier Capital management Company, Inc.
Enhanced U.S. Equity. Franklin Portfolio Associates, LLC
- ---------------------------------------------------------------------------------------------------------
</TABLE>
We may add or delete variable investment options in the future.
<PAGE>
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") or of M Fund, Inc. (together, the Trust
and M Fund, Inc. are referred to as the "Series Funds"). The Series Funds are
mutual funds that offer 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 one of the Series
Funds. Attached to this prospectus are prospectuses for the Series Funds that
contain detailed information about each fund offered under the policy. Be sure
to read the prospectuses for the Series Funds 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 17.
. Behind the illustrations is a section called "Additional Information"
that gives more details about the policy. It generally does not
---
repeat information that is in the Basic Information section. A table
of contents for the Additional Information section appears on page
22.
. Behind the Additional Information section are the financial
statements for JHVLICO and Separate Account U. These start on page
40.
. Finally, there is an Alphabetical Index of Key Words and Phrases at
the back of the prospectus on page 79.
After the Alphabetical Index of Key Words and Phrases, this prospectus ends and
the prospectuses for the Series Funds begin.
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.
<PAGE>
BASIC INFORMATION
This part of the prospectus provides answers to commonly asked questions about
the policy.
<TABLE>
<CAPTION>
<S> <C>
Question Pages to See
- --------
.What is the policy?. . . . . . . . . . . . . . . 4
.Who owns the policy?. . . . . . . . . . . . . . 4
.How can I invest money in the policy?. . . . . . 4-5
.Is there a minimum amount I must invest?. . . . 5-6
.How will the value of my investment in the policy change over 7
time?. . . . . . . . . . . . . . . . . . . . . .
.What charges will JHVLICO deduct from my investment in the 7-9
policy?. . . . . . . . . . . . . . . . . . . . .
.What charges will the Series Funds deduct from my investment
in the policy?. . . . . . . . . . . . . . . . .
9
.What other charges could JHVLICO impose in the future? 10
.How can I change my policy's investment allocations? 10-11
.How can I access my investment in the policy?. . 11-12
.How much will JHVLICO pay when the insured person dies? 12-13
.How can I change my policy's insurance coverage? 13-14
.Can I cancel my policy after it's issued?. . . . 14
.Can I choose the form in which JHVLICO pays out policy 14
proceeds?. . . . . . . . . . . . . . . . . . . .
.To what extent can JHVLICO vary the terms and conditions of
its policies in particular cases?. . . . . . . .
15
.How will my policy be treated for income tax purposes? 15
.How do I communicate with JHVLICO?. . . . . . . 15-16
</TABLE>
Here are the page numbers where the questions and answers appear:
<PAGE>
WHAT IS THE POLICY?
The policy's primary purpose is to provide lifetime protection against
economic loss due to the death of the insured person. The value of the amount
you have invested under the policy may increase or decrease daily based upon the
investment results of the variable investment options that you choose. The
amount we pay to the policy's beneficiary if the insured person dies (we call
this the "death benefit") may be similarly affected.
While the insured person is alive, you will have a number of options under the
policy. Here are some major ones:
. Determine when and how much you invest in the various investment
options
. Borrow or withdraw amounts you have in the investment options
. Change the beneficiary who will receive the death benefit
. Change the amount of insurance
. Turn in (i.e., "surrender") the policy for the full amount of its
surrender value
. Choose the form in which we will pay out the death benefit or other
proceeds
Most of these options are subject to limits that are explained later in this
prospectus.
WHO OWNS THE POLICY?
That's up to the person who applies for the policy. The owner of the policy is
the person who can exercise most of the rights under the policy, such as the
right to choose the investment options or the right to surrender the policy. In
many cases, the person buying the policy is also the person who will be the
owner. However, the application for a policy can name another person or entity
(such as a trust) as owner. Whenever we've used the term "you" in this
prospectus, we've assumed that the reader is the person who has whatever right
or privilege is being discussed. There may be tax consequences if the owner and
the insured person are different, so you should discuss this issue with your tax
adviser.
HOW CAN I INVEST MONEY IN THE POLICY?
Premium Payments
We call the investments you make in the policy "premiums" or "premium
payments". The amount we require as your first premium depends upon the
-----
specifics of your policy and the insured person. Except as noted below, you can
make any other premium payments you wish at any time. That's why the policy is
called a "flexible premium" policy.
<PAGE>
Maximum premium payments
Federal tax law limits the amount of premium payments you can make relative to
the amount of your policy's insurance coverage. We will not knowingly accept any
amount by which a premium payment exceeds the maximum. If you exceed certain
other limits, the law may impose a penalty on amounts you take out of your
policy. We'll monitor your premium payments and let you know if you're about to
exceed this limit. More discussion of these tax law requirements begins on page
29. Also, we may refuse to accept any amount of an additional premium if:
. that amount of premium would increase our insurance risk exposure,
and
. the insured person doesn't provide us with adequate evidence that he
or she continues to meet our requirements for issuing insurance.
In no event, however, will we refuse to accept any premium necessary to prevent
the policy from terminating.
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
-------
. if we agree to it, through a salary deduction plan with your
employer.
You can obtain information on these other methods of premium payment by
contacting your JHVLICO representative or by contacting the JHVLICO Life
Servicing Office.
IS THERE A MINIMUM AMOUNT I MUST INVEST?
Planned Premiums
The Policy Specifications page of your policy will show the "Planned Premium"
for the policy. You choose this amount in the policy application. The premium
reminder notice we send you is based on this amount. You will also choose how
often to pay premiums-- annually, semi-annually, quarterly or monthly. The date
on which such a payment is "due" is referred to in the policy as a "modal
processing date." However, payment of Planned Premiums is not necessarily
required. You need only invest enough to keep the policy in force (see "Lapse
and reinstatement" and "Guaranteed death benefit feature" below).
<PAGE>
Lapse and reinstatement
If the policy's surrender value is not sufficient to pay the charges and the
guaranteed death benefit feature is not in effect, we will notify you of how
much you will need to pay to keep the policy in force. You will have a 61 day
"grace period" to make that payment. If you don't pay at least the required
amount by the end of the grace period, 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 1 year from the
beginning of the grace period. You will have to provide evidence that the
insured person still meets our requirements for issuing coverage. You will also
have to pay a minimum amount of premium and be subject to the other terms and
conditions applicable to reinstatements, as specified in the policy. If the
insured person dies during the grace period, we will deduct any unpaid monthly
charges from the death benefit. During the grace period, you cannot make
transfers among investment options or make a partial withdrawal or policy loan.
Guaranteed death benefit feature
This feature is available only if the insured person meets certain
underwriting requirements. The feature guarantees that your policy will not
lapse during the first 5 policy years, regardless of adverse investment
performance, if on each modal processing date during that 5 year period the
amount of cumulative premiums you have paid (less all withdrawals taken from the
policy) equals or exceeds the sum of all Guaranteed Death Benefit Premiums due
to date. The Guaranteed Death Benefit Premium (or "GDB Premium) is defined in
the policy and is "due" on each modal processing date. (The term "modal
processing date" is defined under "Planned Premiums" on page 5.)
No GDB Premium will ever be greater than the so-called "guideline premium" for
the policy as defined in Section 7702 of the Internal Revenue Code. Also, the
GDB Premiums may change in the event of any change in the face amount of the
policy or any change in the death benefit option (see "How much will JHVLICO pay
when the insured person dies?" on page 12).
If the Guaranteed Death Benefit test is not satisfied on any modal processing
date, we will notify you immediately and tell you how much you will need to pay
to keep the feature in effect. You will have until the second modal processing
date after default to make that payment. If you don't pay at least the required
amount by the end of that period, the feature will permanently lapse. You cannot
restore the feature once it has lapsed.
If there are monthly charges that remain unpaid because of this feature, we
will deduct such charges when there is sufficient surrender value to pay them.
HOW WILL THE VALUE OF MY INVESTMENT IN THE POLICY CHANGE OVER TIME?
From each premium payment you make, we deduct the charges described under
"Deductions from premium payments" below. We invest the rest in the investment
options you've elected.
<PAGE>
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 one of the Series Funds and had reinvested all fund
dividends and distributions in additional fund shares; except that we will
deduct certain additional charges which will reduce your account value. We
describe these charges under "What charges will JHVLICO deduct from my
investment in the policy?" below.
The amount you've invested in the fixed investment option will earn interest
-----
at a rate we declare from time to time. We guarantee that this rate will be at
least 4%. If you want to know what the current declared rate is, just call or
write to us. The current declared rate will also appear in the annual statement
we will send you. Amounts you invest in the fixed investment option will not be
---
subject to the mortality and expense risk charge described on page 8. Otherwise,
the charges applicable to the fixed investment option are the same as those
applicable to the variable investment options.
At any time, the "account value" of your policy is equal to:
. the amount you invested,
. plus or minus the investment experience of the investment options
you've chosen,
. minus all charges we deduct, and
. minus all withdrawals you have made.
If you take a loan on the policy, however, your account value will be computed
somewhat differently. This is discussed beginning on page 11.
WHAT CHARGES WILL JHVLICO DEDUCT FROM MY INVESTMENT IN THE POLICY?
Deductions from premium payments
. Premium tax charge - A charge to cover state premium taxes we currently
--------------------
expect to pay, on average. This charge is currently 2.35% of each premium.
. DAC tax charge - A charge to cover the increased Federal income tax
----------------
burden that we currently expect will result from receipt of premiums. This
charge is currently 1.25% of each premium.
. Premium sales charge - A charge to help defray our sales costs. The
----------------------
charge is 4% of a certain portion of the premium you pay. The portion of
each year's premium that is subject to the charge is called the "Target
Premium". It's determined at the time the policy is issued and will appear
in the "Policy Specifications" section of the policy. We currently waive
one half of this charge for policies with a face amount of $250,000 or
higher, but continuation of that waiver is not guaranteed. Also, we
currently intend to stop making this charge on premiums received after the
10th policy year, but this is not guaranteed either. Because policies of
this type were first offered for sale in 1994, no termination of this
charge has yet occurred.
<PAGE>
Deductions from account value
. Issue charge - A monthly charge to help defray our administrative costs.
--------------
This is a flat dollar charge of $20 and is deducted only during the first
policy year.
. Maintenance charge - A monthly charge to help defray our administrative
--------------------
costs. This is a flat dollar charge of up to $8 (currently $6).
. Insurance charge - A monthly charge for the cost of insurance. To
------------------
determine the charge, we multiply the amount of insurance for which we are
at risk by a cost of insurance rate. The rate is derived from an actuarial
table. The table in your policy will show the maximum cost of insurance
-------
rates. The cost of insurance rates that we currently apply are generally
less than the maximum rates. We will review the cost of insurance rates at
least every 5 years and may change them from time to time. However, those
rates will never be more than the maximum rates shown in the policy. The
table of rates we use will depend on the insurance risk characteristics
and (usually) gender of the insured person, the face amount of insurance
and the length of time the policy has been in effect. Regardless of the
table used, cost of insurance rates generally increase each year that you
own your policy, as the insured person's attained age increases. (The
insured person's "attained age" on any date is his or her age on the
birthday nearest that date.) We currently apply a lower insurance charge
for policies with a face amount of $250,000 or higher, but continuation of
that practice is not guaranteed. Also, it is our current intention to
reduce the insurance charge in the 10th policy year and thereafter, but
such a reduction is not guaranteed either. Because policies of this type
were first offered for sale in 1994, no reductions have yet been made.
. Extra mortality charge - A monthly charge specified in your policy for
------------------------
additional mortality risk if the insured person is subject to certain
types of special insurance risk.
. M &E charge - A daily charge for mortality and expense risks we assume.
-------------
This charge is deducted from the variable investment options. It does not
apply to the fixed investment option. 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 .90%.
. Optional benefits charge - Monthly charges for any optional insurance
--------------------------
benefits added to the policy by means of a rider.
. Administrative surrender charge - A charge we deduct if the policy lapses
---------------------------------
or is surrendered in the first 9 policy years. We deduct this charge to
compensate us for administrative expenses that we would otherwise not
recover in the event of early lapse or surrender. The amount of the charge
depends upon the policy year in which lapse or surrender occurs and the
policy's face amount at that time. The maximum charge is $5 per $1,000 of
face amount in policy years 1 through 7, $4 per $1,000 in policy year 8
and $3 per $1,000 in policy year 9.
<PAGE>
. Contingent deferred sales charge ("CDSC") - A charge we deduct if the
-------------------------------------------
policy lapses or is surrendered within the first 12 policy years. We
deduct this charge to compensate us for sales expenses that we would
otherwise not recover in the event of early lapse or surrender. The charge
is a percentage of premiums received that do not exceed the Target
Premium. ("Target Premium" is described above under "Deductions from
premium payments.") In policy years 1 through 3, the charge is a
percentage of premiums received prior to the end of the policy year in
question. Thereafter, it's a percentage of only those premiums received in
policy years 1 through 3. The charge reaches its maximum at the end of the
third policy year, stays level through the seventh policy year, and is
reduced by an equal amount at the beginning of each policy year thereafter
until it reaches zero. This is shown in the following table (where the
percentages are rounded to one decimal place):
FOR SURRENDERS OR LAPSES DURING PERCENTAGE
------------------------------------------
Policy years 1-7 26.0%
Policy year 8 21.7%
Policy year 9 17.3%
Policy year 10 13.0%
Policy year 11 8.7%
Policy year 12 4.3%
Policy year 13 and later 0.0%
The above table applies only if the insured person is less than attained
age 55 at issue. For older issue ages, the maximum is reached earlier and
the percentage may decrease to zero in fewer than 12 policy years.
Regardless of issue age, there is a further limitation on the CDSC that
can be charged if surrender or lapse occurs in the second policy year. The
CDSC cannot exceed 32% of one year's Target Premium.
----------
. Partial withdrawal charge - A charge for each partial withdrawal of
---------------------------
account value to compensate us for the administrative expenses of
processing the withdrawal. The charge is equal to the lesser of $20 or 2%
of the withdrawal amount.
WHAT CHARGES WILL THE SERIES FUNDS DEDUCT FROM MY INVESTMENT IN THE POLICY?
The Series Funds must pay investment management fees and other operating
expenses. These fees and expenses are different for each fund of the Series
Funds 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 for the funds of the Trust 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.
<PAGE>
<TABLE>
<CAPTION>
Other Total Fund Other Operating
Investment Operating Operating Expenses
Fund Name Management Fee 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%
Equity Index. . . . . 0.14% 0.08 % 0.22% 0.08%
Large Cap Value . . . 0.74% 0.07 % 0.07%
Large Cap Growth. . . 0.37% 0.05 % 0.42% 0.05%
Mid Cap Value. . . . 0.80% 0.05 % 0.85% 0.05%
Mid Cap Growth. . . . 0.85% 0.08 % % 0.08%
Real Estate Equity. . 0.60% 0.05 % 0.65% 0.05%
Small/Mid Cap Growth**
Small/Mid Cap CORE. .
Small Cap Value . . . 0.80% 0.07 % % 0.07%
Small Cap Growth. . . 0.75% 0.08 % 0.83% 0.08%
Global Equity. . . .
International Balanced 0.85% 0.10 % 0.95% 0.64%
International Equity
Index. . . . . . . . 0.17% 0.10 % 0.27% 0.23%
International
Opportunities. . . . 0.87% 0.10 % 0.97% 0.32%
Emerging Markets
Equity. . . . . . .
Short-Term Bond. . . 0.30% 0.05% 0.35%
Bond Index. . . . . .
Sovereign Bond. . . . 0.25% 0.05 % 0.30% 0.05%
Global Bond** . . . . 0.69% 0.06 % % 0.06%
High Yield Bond. . .
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.
**Small/Mid Cap Growth was formerly "Diversified Mid Cap Growth" and Global Bond
was formerly "Strategic Bond."
The figures in the following chart for the funds of M Fund, Inc. 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
currently payable and the 1998 other operating expenses allocated to M Fund,
Inc.
<TABLE>
<CAPTION>
Other Total Fund Other Operating
Investment Operating Operating Expenses
Fund Name Management Fee Expenses Expenses Absent
- --------- -------------- ---------- ---------- Reimbursement*
----------------
<S> <C> <C> <C> <C>
Brandes International Equity** . . . . . . . . . . . . . . . . . . . . . 1.02% 0.25% 1.27% %
Turner Core Growth . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.45% 0.25% 0.70% 2.97%
Frontier Capital Appreciation . . . . . . . . . . . . . . . . . . . . . . 0.90% 0.25% 1.15% %
Enhanced U.S. Equity. . . . . . . . . . . . . . . . . . . . . . . . . . . 0.55% 0.25% 0.80%
</TABLE>
* M Financial Investment Advisers, Inc. reimburses a fund when the fund's other
operating expenses exceed 0.25% of the fund's average daily net assets.
** Brandes International Equity was formerly "Edinburgh Overseas Equity."
WHAT OTHER CHARGES COULD JHVLICO IMPOSE IN THE FUTURE?
We currently make no charge against account value 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.
<PAGE>
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.
We also reserve the right to increase the premium tax charge and the DAC tax
charge in order to correspond, respectively, with changes in the state premium
tax levels and with changes in the Federal income tax treatment of the deferred
acquisition costs for this type of policy.
HOW CAN I CHANGE MY POLICY'S INVESTMENT ALLOCATIONS?
Future premium payments
At any time, you may change the investment options in which future premium
payments will be invested. You make the original allocation in the application
for the policy. The percentages you select must be in whole numbers and must
equal 100% in total.
Transfers of existing account value
You may also transfer your existing account value from one investment option
to another. To do so, you must tell us how much to transfer, either as a whole
number percentage or as a specific dollar amount.
Under our current rules, you can make transfers out of any variable investment
--------
option anytime you wish. However, transfers out of the fixed investment option
-----
are currently subject to the following restrictions:
. You can only make such a transfer once a year and only during the 31 day
period following your policy anniversary.
. We must receive the request for such a transfer during the period
beginning 60 days prior to the policy anniversary and ending 30 days after
it.
. The most you can transfer at any one time is the greater of $500 or 20%
of the assets in your fixed investment option.
We reserve the right to impose a minimum amount limit on transfers out of the
fixed investment option. We also reserve the right to impose limits on the
number and frequency of transfers out of the variable investment options.
Limitation on number of investment options
Whether through the allocation of premium or through the transfer of existing
account value, you can never be invested in more than ten investment options at
any one time.
HOW CAN I ACCESS MY INVESTMENT IN THE POLICY?
Full surrender
You may surrender your policy in full at any time. If you do, we will pay you
the account value, less any policy loans and less any CDSC and administrative
surrender charge that then
<PAGE>
You may surrender your policy in full at any time. If you do, we will pay you
the account value, less any policy loans and less any CDSC and administrative
surrender charge that then
<PAGE>
. The same proportionate part of the loan as was borrowed from the
fixed investment option will be repaid to the fixed investment
option.
. The remainder of the repayment will be allocated among the investment
options in the same way a new premium payment would be allocated.
If you want a payment to be used as a loan repayment, you must include
instructions to that effect. Otherwise, all payments will be assumed to be
premium payments.
HOW MUCH WILL JHVLICO PAY WHEN THE INSURED PERSON DIES?
In your application for the policy, you will tell us how much life insurance
coverage you want on the life of the insured person. This is called the "face
amount" of insurance. In the policy, this may also be referred to as the "Sum
Insured."
When the insured person dies, we will pay the death benefit minus any
outstanding loans. There are 3 ways of calculating the death benefit. You choose
which one you want in the application. The three death benefit options are:
. Option 1 - The death benefit will equal the greater of (1) the face
amount or (2) the minimum insurance amount under the "guideline
premium and cash value corridor test" (as described below).
. Option 2 - The death benefit will equal the greater of (1) the face
amount plus your policy's account value on the date of death, or (2)
the minimum insurance amount under the "guideline premium and cash
value corridor test".
. Option 3 - The death benefit will equal the greater of (1) the face
amount or (2) the minimum insurance amount under the "cash value
accumulation test" (as described below)
For the same premium payments, the death benefit under Option 2 will tend to
be higher than the death benefit under Options 1 or 3. On the other hand, the
monthly insurance charge will be higher under Option 2 to compensate us for the
additional insurance risk. Because of that, the account value will tend to be
higher under Options 1 or 3 than under Option 2 for the same premium payments.
The minimum insurance amount
In order for a policy to qualify as life insurance under Federal tax law,
there has to be a minimum amount of insurance in relation to account value.
There are two tests that can be applied under Federal tax law. Death benefit
Options 1 and 2 use the "guideline premium and cash value corridor test" while
Option 3 uses the "cash value accumulation test." For Options 1 and 2, we
compute the minimum insurance amount each business day by multiplying the
account value on that date by the so-called "corridor factor" applicable on that
date. The corridor factors are derived by applying the "guideline premium and
cash value corridor test." The corridor factor starts out at 2.50 for ages at or
below 40 and decreases as attained age increases,
<PAGE>
In order for a policy to qualify as life insurance under Federal tax law,
there has to be a minimum amount of insurance in relation to account value.
There are two tests that can be applied under Federal tax law. Death benefit
Options 1 and 2 use the "guideline premium and cash value corridor test" while
Option 3 uses the "cash value accumulation test." For Options 1 and 2, we
compute the minimum insurance amount each business day by multiplying the
account value on that date by the so-called "corridor factor" applicable on that
date. The corridor factors are derived by applying the "guideline premium and
cash value corridor test." The corridor factor starts out at 2.50 for ages at or
below 40 and decreases as attained age increases,
<PAGE>
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.
In most states, you will receive a refund of any premiums you've paid. In some
states, the refund will be your account value on the date of cancellation plus
all charges deducted by JHVLICO or the Series Funds prior to that date. The date
of cancellation will be the date of such mailing or delivery.
CAN I CHOOSE THE FORM IN WHICH JHVLICO PAYS OUT POLICY PROCEEDS?
Choosing a payment option
You may choose to receive proceeds from the policy as a single sum. This
includes proceeds that become payable because of death or full surrender.
Alternatively, you can elect to have proceeds of $1,000 or more applied to any
of a number of other payment options, including the following:
. Option 1 - Proceeds left with us to accumulate with interest
. Option 2A - Equal monthly payments of a specified amount until all
proceeds are paid out
. Option 2B - Equal monthly payments for a specified period of time
. Option3 - Equal monthly payments for life, but with payments
guaranteed for a specific number of years
. Option 4 - Equal monthly payments for life with no refund
. Option 5 - Equal monthly payments for life with a refund if all of
the proceeds haven't been paid out
You cannot choose an option if the monthly payments under the option would be
less than $50. We will issue a supplementary agreement when the proceeds are
applied to any alternative payment option. That agreement will spell out the
terms of the option in full. We will credit interest on each of the above
options. For Options 1 and 2A, the interest will be at least an effective annual
rate of 3 1/2%.
Changing a payment option
You can change the payment option at any time before the proceeds are payable.
If you haven't made a choice, the payee of the proceeds has a prescribed period
in which he or she can make that choice.
<PAGE>
Tax impact
There may be tax consequences to you or your beneficiary depending upon which
payment option is chosen. You should consult with a qualified tax adviser before
making that choice.
TO WHAT EXTENT CAN JHVLICO VARY THE TERMS AND CONDITIONS OF ITS POLICIES IN
PARTICULAR CASES?
Listed below are some variations we can make in the terms of our policies. Any
variation will be made only in accordance with uniform rules that we apply
fairly to all of our customers.
State law insurance requirements
Insurance laws and regulations apply to JHVLICO in every state in which its
policies are sold. As a result, various terms and conditions 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.
Variations in expenses or risks
We may vary the charges and other terms of our policies where special
circumstances result in sales or administrative expenses, mortality risks or
other risks that are different from those normally associated with the policies.
These include the type of variations discussed under "Reduced charges for
eligible classes" on page 28. No variation in any charge will exceed any maximum
stated in this prospectus with respect to that charge.
HOW WILL MY POLICY BE TREATED FOR INCOME TAX PURPOSES?
Generally, death benefits paid under policies such as yours are not subject to
income tax. Earnings on your account value are not subject to income tax as long
as we don't pay them out to you. If we do pay out any amount of your account
value upon surrender or partial withdrawal, all or part of that distribution
should generally be treated as a return of the premiums you've paid and should
not be subject to income tax. Amounts you borrow are generally not taxable to
you.
However, some of the tax rules change if your policy is found to be a
"modified endowment contract." This can happen if you've paid more than a
certain amount of premiums that is prescribed by the tax laws. Additional taxes
and penalties may be payable for policy distributions of any kind.
For further information about the tax consequences of owning a policy, please
read "Tax considerations" beginning of page 29.
<PAGE>
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 withdrawals
. transfers of account value among investment options
. change of allocation among investment options for new premium
payments
. change of death benefit option
. increase or decrease in face amount
. change of beneficiary
. election of payment option for policy proceeds
. tax withholding elections
. election of telephone transaction privilege
You should mail or express these requests to 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.
<PAGE>
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.
<PAGE>
ILLUSTRATION OF DEATH BENEFITS, ACCOUNT VALUES, SURRENDER VALUES AND
ACCUMULATED PREMIUMS
The following tables illustrate the changes in death benefit, account value
and surrender value of the policy under certain hypothetical circumstances that
we assume solely for this purpose. Each table separately illustrates the
operation of a policy for a specified issue age, premium payment schedule and
face amount. The amounts shown are for the end of each policy year and assume
that all of the account value is invested in funds that achieve investment
returns at constant annual rates of 0%, 6% and 12% before any fees or expenses.
(Investment return reflects investment income and all realized and unrealized
capital gains and losses.) The tables assume annual Planned Premiums that are
paid at the beginning of each policy year for an insured person who is a 35 year
old male standard non-smoker underwriting risk when the policy is issued.
Tables are provided for each of the two death benefit options. The tables
headed "Current Charges" assume that the current rates for all charges deducted
by JHVLICO will apply in each year illustrated, including the reduction in the
M&E charge after the 15th policy year. The tables headed "Maximum Charges" are
the same, except that the maximum permitted rates for all years are used for all
charges. The tables do not reflect any charge that we reserve the right to make
but are not currently making.
With respect to fees and expenses deducted from Series Fund assets, the
amounts shown in all tables reflect (1) investment management fees equivalent to
an effective annual rate of .61%, and (2) an assumed average asset charge for
all other operating expenses equivalent to an effective annual rate of .10%.
These rates are the arithmetic average for all funds of the Series Funds. In
other words, they are based on the hypothetical assumption that policy account
values are allocated equally among the variable investment options. The actual
rates associated with any policy will vary depending upon the actual allocation
of policy values among the investment options.
The second column of each table shows the amount you would have at the end of
each Policy year if an amount equal to the assumed Planned Premiums were
invested to earn interest, after taxes, at 5% compounded annually. This is not a
policy value. It is included for comparison purposes only.
Because your circumstances will no doubt differ from those in the
illustrations that follow, values under your policy will differ, in most cases
substantially. Upon request, we will furnish you with a comparable illustration
reflecting your proposed insured person's issue age, sex and underwriting risk
classification, and the face amount and annual Planned Premium amount requested.
<PAGE>
DEATH BENEFIT OPTION 1: LEVEL DEATH BENEFIT
ILLUSTRATION ASSUMES CURRENT CHARGES
MALE, ISSUE AGE 35, STANDARD NONSMOKER UNDERWRITING RISK
FACE AMOUNT: $100,000
$760 PLANNED PREMIUM*
<TABLE>
<CAPTION>
Death Benefit Account Value Surrender Value
------------------------------ ------------------------------- -------------------------------
Premiums Assuming Hypothetical Gross Assuming Hypothetical Gross Assuming Hypothetical Gross
End of Accumulated Annual Investment Return of: Annual Investment Return of: Annual Investment Return of:
Policy At 5% Interest ------------------------------ ------------------------------- -------------------------------
Year Per Year 0% Gross 6% Gross 12% Gross 0% Gross 6% Gross 12% Gross 0% Gross 6% Gross 12% Gross
- ------ -------------- -------- --------- --------- --------- --------- ---------- --------- --------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 798 100,000 100,000 100,000 218 244 271 0 0 0
2 1,636 100,000 100,000 100,000 663 738 815 0 0 72
3 2,516 100,000 100,000 100,000 1,093 1,244 1,407 1 151 314
4 3,439 100,000 100,000 100,000 1,507 1,763 2,050 414 670 958
5 4,409 100,000 100,000 100,000 1,902 2,292 2,748 809 1,199 1,655
6 5,428 100,000 100,000 100,000 2,279 2,832 3,506 1,186 1,740 2,413
7 6,497 100,000 100,000 100,000 2,634 3,382 4,328 1,541 2,289 3,235
8 7,620 100,000 100,000 100,000 2,968 3,940 5,220 2,074 3,046 4,326
9 8,799 100,000 100,000 100,000 3,280 4,506 6,190 2,584 3,810 5,494
10 10,037 100,000 100,000 100,000 3,575 5,089 7,258 3,278 4,792 6,961
11 11,337 100,000 100,000 100,000 3,874 5,710 8,454 3,676 5,512 8,257
12 12,702 100,000 100,000 100,000 4,151 6,343 9,765 4,052 6,245 9,666
13 14,135 100,000 100,000 100,000 4,403 6,987 11,199 4,403 6,987 11,199
14 15,640 100,000 100,000 100,000 4,627 7,639 12,770 4,627 7,639 12,770
15 17,220 100,000 100,000 100,000 4,822 8,298 14,492 4,822 8,298 14,492
16 18,879 100,000 100,000 100,000 4,987 8,964 16,382 4,987 8,964 16,382
17 20,621 100,000 100,000 100,000 5,121 9,636 18,461 5,121 9,636 18,461
18 22,450 100,000 100,000 100,000 5,215 10,308 20,743 5,215 10,308 20,743
19 24,370 100,000 100,000 100,000 5,266 10,975 23,250 5,266 10,975 23,250
20 26,387 100,000 100,000 100,000 5,279 11,643 26,016 5,279 11,643 26,016
25 38,086 100,000 100,000 100,000 4,806 15,059 45,066 4,806 15,059 45,066
30 53,018 100,000 100,000 100,000 3,307 18,600 77,894 3,307 18,600 77,894
35 72,076 ** 100,000 154,134 ** 21,335 134,029 ** 21,335 134,029
40 96,398 ** 100,000 238,973 ** 21,508 227,593 ** 21,508 227,593
45 127,441 ** 100,000 403,789 ** 16,239 384,561 ** 16,239 384,561
</TABLE>
- ---------
* The amount shown is equal to the Target Premium for the basic policy. If
premiums are paid more frequently than annually, the above values shown would
be affected.
** Policy lapses unless additional premium payments are made.
THE HYPOTHETICAL INVESTMENT RESULTS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE
DEEMED A REPRESENTATION OF PAST OR FUTURE INVESTMENT RESULTS. ACTUAL INVESTMENT
RESULTS MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF
FACTORS, INCLUDING INVESTMENT ALLOCATIONS MADE BY THE OWNER. THE DEATH BENEFIT,
ACCOUNT VALUE AND SURRENDER VALUE FOR A POLICY WOULD BE DIFFERENT FROM THOSE
SHOWN IF THE ACTUAL GROSS RATES OF INVESTMENT RETURN AVERAGE 0%, 6% OR 12% OVER
A PERIOD OF YEARS, BUT ALSO FLUCTUATED ABOVE OR BELOW THE AVERAGE FOR INDIVIDUAL
POLICY YEARS. WE CAN MAKE NO REPRESENTATION THAT THESE HYPOTHETICAL INVESTMENT
RESULTS CAN BE ACHIEVED FOR ANY ONE YEAR OR CONTINUED OVER ANY PERIOD OF TIME.
<PAGE>
DEATH BENEFIT OPTION 1: LEVEL DEATH BENEFIT
ILLUSTRATION ASSUMES MAXIMUM CHARGES
MALE, ISSUE AGE 35, STANDARD NONSMOKER UNDERWRITING RISK
FACE AMOUNT: $100,000
$760 PLANNED PREMIUM*
<TABLE>
<CAPTION>
Death Benefit Account Value Surrender Value
------------------------------ ------------------------------- -------------------------------
Premiums Assuming Hypothetical Gross Assuming Hypothetical Gross Assuming Hypothetical Gross
End of Accumulated Annual Investment Return of: Annual Investment Return of: Annual Investment Return of:
Policy At 5% Interest ------------------------------ ------------------------------- -------------------------------
Year Per Year 0% Gross 6% Gross 12% Gross 0% Gross 6% Gross 12% Gross 0% Gross 6% Gross 12% Gross
- ------ -------------- -------- --------- --------- --------- --------- ---------- --------- --------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 798 100,000 100,000 100,000 191 217 243 0 0 0
2 1,636 100,000 100,000 100,000 610 681 755 0 0 12
3 2,516 100,000 100,000 100,000 1,012 1,155 1,309 0 62 216
4 3,439 100,000 100,000 100,000 1,397 1,638 1,909 304 545 816
5 4,409 100,000 100,000 100,000 1,762 2,128 2,556 669 1,035 1,463
6 5,428 100,000 100,000 100,000 2,108 2,626 3,257 1,016 1,534 2,164
7 6,497 100,000 100,000 100,000 2,433 3,130 4,012 1,340 2,037 2,919
8 7,620 100,000 100,000 100,000 2,735 3,638 4,828 1,841 2,744 3,934
9 8,799 100,000 100,000 100,000 3,013 4,148 5,709 2,318 3,453 5,014
10 10,037 100,000 100,000 100,000 3,268 4,663 6,662 2,971 4,366 6,366
11 11,337 100,000 100,000 100,000 3,495 5,176 7,691 3,298 4,979 7,493
12 12,702 100,000 100,000 100,000 3,693 5,687 8,802 3,595 5,588 8,703
13 14,135 100,000 100,000 100,000 3,862 6,194 10,004 3,862 6,194 10,004
14 15,640 100,000 100,000 100,000 3,999 6,696 11,304 3,999 6,696 11,304
15 17,220 100,000 100,000 100,000 4,101 7,188 12,710 4,101 7,188 12,710
16 18,879 100,000 100,000 100,000 4,167 7,668 14,233 4,167 7,668 14,233
17 20,621 100,000 100,000 100,000 4,190 8,130 15,881 4,190 8,130 15,881
18 22,450 100,000 100,000 100,000 4,164 8,567 17,661 4,164 8,567 17,661
19 24,370 100,000 100,000 100,000 4,085 8,972 19,586 4,085 8,972 19,586
20 26,387 100,000 100,000 100,000 3,943 9,335 21,664 3,943 9,335 21,664
25 38,086 100,000 100,000 100,000 2,068 10,225 34,965 2,068 10,225 34,965
30 53,018 ** 100,000 100,000 ** 8,260 55,456 ** 8,260 55,456
35 72,076 ** ** 102,826 ** ** 89,414 ** ** 89,414
40 96,398 ** ** 153,325 ** ** 146,023 ** ** 146,023
45 127,441 ** ** 248,862 ** ** 237,012 ** ** 237,012
</TABLE>
- ---------
* The amount shown is equal to the Target Premium for the basic policy. If
premiums are paid more frequently than annually, the above values shown would
be affected.
** Policy lapses unless additional premium payments are made.
THE HYPOTHETICAL INVESTMENT RESULTS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE
DEEMED A REPRESENTATION OF PAST OR FUTURE INVESTMENT RESULTS. ACTUAL INVESTMENT
RESULTS MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF
FACTORS, INCLUDING INVESTMENT ALLOCATIONS MADE BY THE OWNER. THE DEATH BENEFIT,
ACCOUNT VALUE AND SURRENDER VALUE FOR A POLICY WOULD BE DIFFERENT FROM THOSE
SHOWN IF THE ACTUAL GROSS RATES OF INVESTMENT RETURN AVERAGE 0%, 6% OR 12% OVER
A PERIOD OF YEARS, BUT ALSO FLUCTUATED ABOVE OR BELOW THE AVERAGE FOR INDIVIDUAL
POLICY YEARS. WE CAN MAKE NO REPRESENTATION THAT THESE HYPOTHETICAL INVESTMENT
RESULTS CAN BE ACHIEVED FOR ANY ONE YEAR OR CONTINUED OVER ANY PERIOD OF TIME.
<PAGE>
DEATH BENEFIT OPTION 2: VARIABLE DEATH BENEFIT
ILLUSTRATION ASSUMES CURRENT CHARGES
MALE, ISSUE AGE 35, STANDARD NONSMOKER UNDERWRITING RISK
FACE AMOUNT: $100,000
$760 PLANNED PREMIUM*
<TABLE>
<CAPTION>
Death Benefit Account Value Surrender Value
------------------------------ ------------------------------- -------------------------------
Premiums Assuming Hypothetical Gross Assuming Hypothetical Gross Assuming Hypothetical Gross
End of Accumulated Annual Investment Return of: Annual Investment Return of: Annual Investment Return of:
Policy At 5% Interest ------------------------------ ------------------------------- -------------------------------
Year Per Year 0% Gross 6% Gross 12% Gross 0% Gross 6% Gross 12% Gross 0% Gross 6% Gross 12% Gross
- ------ -------------- -------- --------- --------- --------- --------- ---------- --------- --------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 798 100,217 100,243 100,270 217 243 270 0 0 0
2 1,636 100,661 100,735 100,813 661 735 813 0 0 70
3 2,516 101,089 101,239 101,402 1,089 1,239 1,402 0 146 309
4 3,439 101,499 101,754 102,040 1,499 1,754 2,040 407 661 947
5 4,409 101,890 102,277 102,730 1,890 2,277 2,730 797 1,185 1,637
6 5,428 102,261 102,811 103,478 2,261 2,811 3,478 1,169 1,718 2,385
7 6,497 102,610 103,350 104,286 2,610 3,350 4,286 1,517 2,257 3,193
8 7,620 102,937 103,896 105,160 2,937 3,896 5,160 2,043 3,002 4,266
9 8,799 103,239 104,446 106,105 3,239 4,446 6,105 2,543 3,751 5,410
10 10,037 103,523 105,010 107,141 3,523 5,010 7,141 3,226 4,714 6,844
11 11,337 103,809 105,609 108,297 3,809 5,609 8,297 3,612 5,411 8,099
12 12,702 104,072 106,214 109,555 4,072 6,214 9,555 3,973 6,115 9,456
13 14,135 104,307 106,824 110,923 4,307 6,824 10,923 4,307 6,824 10,923
14 15,640 104,512 107,436 112,412 4,512 7,436 12,412 4,512 7,436 12,412
15 17,220 104,686 108,048 114,031 4,686 8,048 14,031 4,686 8,048 14,031
16 18,879 104,828 108,659 115,794 4,828 8,659 15,794 4,828 8,659 15,794
17 20,621 104,937 109,268 117,716 4,937 9,268 17,716 4,937 9,268 17,716
18 22,450 105,004 109,864 119,803 5,004 9,864 19,803 5,004 9,864 19,803
19 24,370 105,024 110,443 122,070 5,024 10,443 22,070 5,024 10,443 22,070
20 26,387 105,004 111,010 124,543 5,004 11,010 24,543 5,004 11,010 24,543
25 38,086 104,347 113,678 140,921 4,347 13,678 40,921 4,347 13,678 40,921
30 53,018 102,657 115,901 167,189 2,657 15,901 67,189 2,657 15,901 67,189
35 72,076 ** 116,267 208,609 ** 16,267 108,609 ** 16,267 108,609
40 96,398 ** 112,306 273,273 ** 12,306 173,273 ** 12,306 173,273
45 127,441 ** 100,757 374,698 ** 757 274,698 ** 757 274,698
</TABLE>
- ---------
* The amount shown is equal to the Target Premium for the basic policy. If
premiums are paid more frequently than annually, the above values shown would
be affected.
** Policy lapses unless additional premium payments are made.
THE HYPOTHETICAL INVESTMENT RESULTS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE
DEEMED A REPRESENTATION OF PAST OR FUTURE INVESTMENT RESULTS. ACTUAL INVESTMENT
RESULTS MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF
FACTORS, INCLUDING INVESTMENT ALLOCATIONS MADE BY THE OWNER. THE DEATH BENEFIT,
ACCOUNT VALUE AND SURRENDER VALUE FOR A POLICY WOULD BE DIFFERENT FROM THOSE
SHOWN IF THE ACTUAL GROSS RATES OF INVESTMENT RETURN AVERAGE 0%, 6% OR 12% OVER
A PERIOD OF YEARS, BUT ALSO FLUCTUATED ABOVE OR BELOW THE AVERAGE FOR INDIVIDUAL
POLICY YEARS. WE CAN MAKE NO REPRESENTATION THAT THESE HYPOTHETICAL INVESTMENT
RESULTS CAN BE ACHIEVED FOR ANY ONE YEAR OR CONTINUED OVER ANY PERIOD OF TIME.
<PAGE>
DEATH BENEFIT OPTION 2: VARIABLE DEATH BENEFIT
ILLUSTRATION ASSUMES MAXIMUM CHARGES
MALE, ISSUE AGE 35, STANDARD NONSMOKER UNDERWRITING RISK
FACE AMOUNT: $100,000
$760 PLANNED PREMIUM*
<TABLE>
<CAPTION>
Death Benefit Account Value Surrender Value
----------------------------- ----------------------------- -----------------------------
Premiums Assuming Hypothetical Gross Assuming Hypothetical Gross Assuming Hypothetical Gross
End of Accumulated Annual Investment Return of: Annual Investment Return of: Annual Investment Return of:
Policy At 5% Interest ----------------------------- ----------------------------- -----------------------------
Year Per Year 0% Gross 6% Gross 12% Gross 0% Gross 6% Gross 12% Gross 0% Gross 6% Gross 12% Gross
- ------ -------------- -------- -------- --------- -------- -------- --------- -------- -------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 798 100,191 100,216 100,242 191 216 242 0 0 0
2 1,636 100,608 100,679 100,752 608 679 752 0 0 9
3 2,516 101,008 101,150 101,304 1,008 1,150 1,304 0 57 211
4 3,439 101,390 101,629 101,899 1,390 1,629 1,899 297 536 806
5 4,409 101,751 102,114 102,539 1,751 2,114 2,539 658 1,022 1,447
6 5,428 102,092 102,606 103,230 2,092 2,606 3,230 1,000 1,513 2,137
7 6,497 102,411 103,100 103,972 2,411 3,100 3,972 1,318 2,007 2,880
8 7,620 102,706 103,597 104,772 2,706 3,597 4,772 1,812 2,703 3,878
9 8,799 102,975 104,093 105,630 2,975 4,093 5,630 2,280 3,398 4,934
10 10,037 103,220 104,590 106,553 3,220 4,590 6,553 2,923 4,294 6,257
11 11,337 103,435 105,083 107,545 3,435 5,083 7,545 3,238 4,885 7,348
12 12,702 103,621 105,569 108,609 3,621 5,569 8,609 3,522 5,470 8,510
13 14,135 103,774 106,046 109,751 3,774 6,046 9,751 3,774 6,046 9,751
14 15,640 103,895 106,512 110,977 3,895 6,512 10,977 3,895 6,512 10,977
15 17,220 103,979 106,962 112,291 3,979 6,962 12,291 3,979 6,962 12,291
16 18,879 104,025 107,394 113,701 4,025 7,394 13,701 4,025 7,394 13,701
17 20,621 104,026 107,799 115,207 4,026 7,799 15,207 4,026 7,799 15,207
18 22,450 103,977 108,169 116,813 3,977 8,169 16,813 3,977 8,169 16,813
19 24,370 103,872 108,497 118,523 3,872 8,497 18,523 3,872 8,497 18,523
20 26,387 103,703 108,771 120,337 3,703 8,771 20,337 3,703 8,771 20,337
25 38,086 101,689 108,985 131,099 1,689 8,985 31,099 1,689 8,985 31,099
30 53,018 ** 105,875 144,726 ** 5,875 44,726 ** 5,875 44,726
35 72,076 ** ** 160,146 ** ** 60,146 ** ** 60,146
40 96,398 ** ** 173,984 ** ** 73,984 ** ** 73,984
45 127,441 ** ** 177,285 ** ** 77,285 ** ** 77,285
</TABLE>
- ---------
* The amount shown is equal to the Target Premium for the basic policy. If
premiums are paid more frequently than annually, the above values shown would
be affected.
** Policy lapses unless additional premium payments are made.
THE HYPOTHETICAL INVESTMENT RESULTS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE
DEEMED A REPRESENTATION OF PAST OR FUTURE INVESTMENT RESULTS. ACTUAL INVESTMENT
RESULTS MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF
FACTORS, INCLUDING INVESTMENT ALLOCATIONS MADE BY THE OWNER. THE DEATH BENEFIT,
ACCOUNT VALUE AND SURRENDER VALUE FOR A POLICY WOULD BE DIFFERENT FROM THOSE
SHOWN IF THE ACTUAL GROSS RATES OF INVESTMENT RETURN AVERAGE 0%, 6% OR 12% OVER
A PERIOD OF YEARS, BUT ALSO FLUCTUATED ABOVE OR BELOW THE AVERAGE FOR INDIVIDUAL
POLICY YEARS. WE CAN MAKE NO REPRESENTATION THAT THESE HYPOTHETICAL INVESTMENT
RESULTS CAN BE ACHIEVED FOR ANY ONE YEAR OR CONTINUED OVER ANY PERIOD OF TIME.
<PAGE>
DEATH BENEFIT OPTION 3: LEVEL DEATH BENEFIT WITH GREATER FUNDING
ILLUSTRATION ASSUMES CURRENT CHARGES
MALE, ISSUE AGE 35, STANDARD NONSMOKER UNDERWRITING RISK
FACE AMOUNT: $100,000
$760 PLANNED PREMIUM*
<TABLE>
<CAPTION>
Death Benefit Account Value Surrender Value
----------------------------- ----------------------------- -----------------------------
Premiums Assuming Hypothetical Gross Assuming Hypothetical Gross Assuming Hypothetical Gross
End of Accumulated Annual Investment Return of: Annual Investment Return of: Annual Investment Return of:
Policy At 5% Interest ----------------------------- ----------------------------- -----------------------------
Year Per Year 0% Gross 6% Gross 12% Gross 0% Gross 6% Gross 12% Gross 0% Gross 6% Gross 12% Gross
- ------ -------------- -------- -------- --------- -------- -------- --------- -------- -------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 798 100,000 100,000 100,000 218 244 271 0 0 0
2 1,636 100,000 100,000 100,000 663 738 815 0 0 72
3 2,516 100,000 100,000 100,000 1,093 1,244 1,407 1 151 314
4 3,439 100,000 100,000 100,000 1,507 1,763 2,050 414 670 958
5 4,409 100,000 100,000 100,000 1,902 2,292 2,748 809 1,199 1,655
6 5,428 100,000 100,000 100,000 2,279 2,832 3,506 1,186 1,740 2,413
7 6,497 100,000 100,000 100,000 2,634 3,382 4,328 1,541 2,289 3,235
8 7,620 100,000 100,000 100,000 2,968 3,940 5,220 2,074 3,046 4,326
9 8,799 100,000 100,000 100,000 3,280 4,506 6,190 2,584 3,810 5,494
10 10,037 100,000 100,000 100,000 3,575 5,089 7,258 3,278 4,792 6,961
11 11,337 100,000 100,000 100,000 3,874 5,710 8,454 3,676 5,512 8,257
12 12,702 100,000 100,000 100,000 4,151 6,343 9,765 4,052 6,245 9,666
13 14,135 100,000 100,000 100,000 4,403 6,987 11,199 4,403 6,987 11,199
14 15,640 100,000 100,000 100,000 4,627 7,639 12,770 4,627 7,639 12,770
15 17,220 100,000 100,000 100,000 4,822 8,298 14,492 4,822 8,298 14,492
16 18,879 100,000 100,000 100,000 4,987 8,964 16,382 4,987 8,964 16,382
17 20,621 100,000 100,000 100,000 5,121 9,636 18,461 5,121 9,636 18,461
18 22,450 100,000 100,000 100,000 5,215 10,308 20,743 5,215 10,308 20,743
19 24,370 100,000 100,000 100,000 5,266 10,975 23,250 5,266 10,975 23,250
20 26,387 100,000 100,000 100,000 5,279 11,643 26,016 5,279 11,643 26,016
25 38,086 100,000 100,000 100,000 4,806 15,059 45,066 4,806 15,059 45,066
30 53,018 100,000 100,000 131,364 3,307 18,600 77,182 3,307 18,600 77,182
35 72,076 ** 100,000 195,082 ** 21,335 128,886 ** 21,335 128,886
40 96,398 ** 100,000 288,875 ** 21,508 211,042 ** 21,508 211,042
45 127,441 ** 100,000 430,797 ** 16,239 341,199 ** 16,239 341,199
</TABLE>
- ---------
* The amount shown is equal to the Target Premium for the basic policy. If
premiums are paid more frequently than annually, the above values shown would
be affected.
** Policy lapses unless additional premium payments are made.
THE HYPOTHETICAL INVESTMENT RESULTS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE
DEEMED A REPRESENTATION OF PAST OR FUTURE INVESTMENT RESULTS. ACTUAL INVESTMENT
RESULTS MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF
FACTORS, INCLUDING INVESTMENT ALLOCATIONS MADE BY THE OWNER. THE DEATH BENEFIT,
ACCOUNT VALUE AND SURRENDER VALUE FOR A POLICY WOULD BE DIFFERENT FROM THOSE
SHOWN IF THE ACTUAL GROSS RATES OF INVESTMENT RETURN AVERAGE 0%, 6% OR 12% OVER
A PERIOD OF YEARS, BUT ALSO FLUCTUATED ABOVE OR BELOW THE AVERAGE FOR INDIVIDUAL
POLICY YEARS. WE CAN MAKE NO REPRESENTATION THAT THESE HYPOTHETICAL INVESTMENT
RESULTS CAN BE ACHIEVED FOR ANY ONE YEAR OR CONTINUED OVER ANY PERIOD OF TIME.
<PAGE>
DEATH BENEFIT OPTION 3: LEVEL DEATH BENEFIT WITH GREATER FUNDING
ILLUSTRATION ASSUMES MAXIMUM CHARGES
MALE, ISSUE AGE 35, STANDARD NONSMOKER UNDERWRITING RISK
FACE AMOUNT: $100,000
$760 PLANNED PREMIUM*
<TABLE>
<CAPTION>
Death Benefit Account Value Surrender Value
----------------------------- ----------------------------- -----------------------------
Premiums Assuming Hypothetical Gross Assuming Hypothetical Gross Assuming Hypothetical Gross
End of Accumulated Annual Investment Return of: Annual Investment Return of: Annual Investment Return of:
Policy At 5% Interest ----------------------------- ----------------------------- -----------------------------
Year Per Year 0% Gross 6% Gross 12% Gross 0% Gross 6% Gross 12% Gross 0% Gross 6% Gross 12% Gross
- ------ -------------- -------- -------- --------- -------- -------- --------- -------- -------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 798 100,000 100,000 100,000 191 217 243 0 0 0
2 1,636 100,000 100,000 100,000 610 681 755 0 0 12
3 2,516 100,000 100,000 100,000 1,012 1,155 1,309 0 62 216
4 3,439 100,000 100,000 100,000 1,397 1,638 1,909 304 545 816
5 4,409 100,000 100,000 100,000 1,762 2,128 2,556 669 1,035 1,463
6 5,428 100,000 100,000 100,000 2,108 2,626 3,257 1,016 1,534 2,164
7 6,497 100,000 100,000 100,000 2,433 3,130 4,012 1,340 2,037 2,919
8 7,620 100,000 100,000 100,000 2,735 3,638 4,828 1,841 2,744 3,934
9 8,799 100,000 100,000 100,000 3,013 4,148 5,709 2,318 3,453 5,014
10 10,037 100,000 100,000 100,000 3,268 4,663 6,662 2,971 4,366 6,366
11 11,337 100,000 100,000 100,000 3,495 5,176 7,691 3,298 4,979 7,493
12 12,702 100,000 100,000 100,000 3,693 5,687 8,802 3,595 5,588 8,703
13 14,135 100,000 100,000 100,000 3,862 6,194 10,004 3,862 6,194 10,004
14 15,640 100,000 100,000 100,000 3,999 6,696 11,304 3,999 6,696 11,304
15 17,220 100,000 100,000 100,000 4,101 7,188 12,710 4,101 7,188 12,710
16 18,879 100,000 100,000 100,000 4,167 7,668 14,233 4,167 7,668 14,233
17 20,621 100,000 100,000 100,000 4,190 8,130 15,881 4,190 8,130 15,881
18 22,450 100,000 100,000 100,000 4,164 8,567 17,661 4,164 8,567 17,661
19 24,370 100,000 100,000 100,000 4,085 8,972 19,586 4,085 8,972 19,586
20 26,387 100,000 100,000 100,000 3,943 9,335 21,664 3,943 9,335 21,664
25 38,086 100,000 100,000 100,000 2,068 10,225 34,965 2,068 10,225 34,965
30 53,018 ** 100,000 100,000 ** 8,260 55,456 ** 8,260 55,456
35 72,076 ** ** 131,640 ** ** 86,972 ** ** 86,972
40 96,398 ** ** 180,619 ** ** 131,954 ** ** 131,954
45 127,441 ** ** 245,230 ** ** 194,226 ** ** 194,226
</TABLE>
- ---------
* The amount shown is equal to the Target Premium for the basic policy. If
premiums are paid more frequently than annually, the above values shown would
be affected.
** Policy lapses unless additional premium payments are made.
THE HYPOTHETICAL INVESTMENT RESULTS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE
DEEMED A REPRESENTATION OF PAST OR FUTURE INVESTMENT RESULTS. ACTUAL INVESTMENT
RESULTS MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF
FACTORS, INCLUDING INVESTMENT ALLOCATIONS MADE BY THE OWNER. THE DEATH BENEFIT,
ACCOUNT VALUE AND SURRENDER VALUE FOR A POLICY WOULD BE DIFFERENT FROM THOSE
SHOWN IF THE ACTUAL GROSS RATES OF INVESTMENT RETURN AVERAGE 0%, 6% OR 12% OVER
A PERIOD OF YEARS, BUT ALSO FLUCTUATED ABOVE OR BELOW THE AVERAGE FOR INDIVIDUAL
POLICY YEARS. WE CAN MAKE NO REPRESENTATION THAT THESE HYPOTHETICAL INVESTMENT
RESULTS CAN BE ACHIEVED FOR ANY ONE YEAR OR CONTINUED OVER ANY PERIOD OF TIME.
<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 16.
<TABLE>
<CAPTION>
CONTENTS OF THIS SECTION PAGES TO SEE
- ------------------------ ------------
<S> <C>
Description of JHVLICO .................... . . 23
How we support the policy and investment options. 23-24
Procedures for issuance of a policy....... 24-25
Commencement of investment performance.... 25
How we process certain policy transactions 25-27
Effects of policy loans................... 27
Additional information about how certain policy charges work 27-28
How we market the policies................ 28-29
Tax considerations........................ 29-30
Reports that you will receive............. 31
Voting privileges that you will have...... 31
Changes that JHVLICO can make as to your policy. 31-32
Adjustments we make to death benefits..... 32
When we pay policy proceeds............... 32-33
Other details about exercising rights and paying benefits 33
Year 2000 Issues..........................
Legal matters............................. 33
Registration statement filed with the SEC. 33
Accounting and actuarial experts.......... 33
Financial statements of JHVLICO and the Account. 33
List of Directors and Executive Officers of JHVLICO 34
</TABLE>
<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 one of
the Series Funds, 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 Series Funds and made available to
policy owners. Existing subaccounts may be deleted if existing funds are deleted
from the Series Funds.
We will purchase and redeem Series Fund shares for the Account at their net
asset value without any sales or redemption charges. Shares of a Series Fund
represent an interest in one of the funds of the Series Fund which corresponds
to a subaccount of the Account. Any dividend or capital gains distributions
received by the Account will be reinvested in shares of that same fund at their
net asset value as of the dates paid.
On each business day, shares of each fund are purchased or redeemed by us for
each subaccount based on, among other things, the amount of net premiums
allocated to the subaccount, distributions reinvested, and transfers to, from
and among 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).
<PAGE>
Our general account
Our obligations under the policy's fixed investment option are backed by our
general account assets. Our general account consists of assets owned by us other
than those in the Account and in other separate accounts that we may establish.
Subject to applicable law, we have sole discretion over the investment of assets
of the general account and policy owners do not share in the investment
experience of, or have any preferential claim on, those assets. Instead, we
guarantee that the account value allocated to the fixed investment option will
accrue interest daily at an effective annual rate of at least 4% without regard
to the actual investment experience of the general account.
Because of exemptive and exclusionary provisions, interests in our fixed
investment option have not been registered under the Securities Act of 1933 and
our general account has not been registered as an investment company under the
1940 Act. Accordingly, neither the general account nor any interests therein are
subject to the provisions of these acts, and we have been advised that the staff
of the SEC has not reviewed the disclosure in this prospectus relating to the
fixed investment option. Disclosure regarding the fixed investment option may,
however, be subject to certain generally-applicable provisions of the Federal
securities laws relating to accuracy and completeness of statements made in
prospectuses.
PROCEDURES FOR ISSUANCE OF A POLICY
Generally, the policy is available with a minimum face amount at issue of
$100,000. At the time of issue, the insured person must have an attained age of
at least 20 and no more than 75. All insured persons must meet certain health
and other insurance risk criteria called "underwriting standards".
Policies issued in Montana or in connection with certain employee plans will
not directly reflect the sex of the insured person in either the premium rates
or the charges or values under the policy. The illustrations set forth in this
prospectus are sex-distinct and, therefore, may not reflect the rates, charges,
or values that would apply to such policies.
Minimum Initial Premium
The Minimum Initial Premium must be received by us at our Life Servicing
Office in order for the policy to be in full force and effect. There is no grace
period for the payment of the Minimum Initial Premium. The minimum amount of
premium required at the time of policy issue is equal to three monthly
Guaranteed Death Benefit Premiums (see "Guaranteed death benefit feature" in the
Basic Information section of this prospectus). However, if an owner has chosen
to pay premiums on a monthly basis, the minimum amount required is only equal to
one monthly Guaranteed Death Benefit Premium.
Commencement of insurance coverage
After you apply for a policy, it can sometimes take up to several weeks for us
to gather and evaluate all the information we need to decide whether to issue a
policy to you and, if so, what the insured person's rate class should be. After
we approve an application for a policy and assign an appropriate insurance rate
class, we will prepare the policy for delivery. We will not pay a death benefit
under a policy unless the policy is in effect when the insured person dies
(except for the circumstances described under "Temporary insurance coverage
prior to policy delivery" on page 25).
The policy will take effect only if all of the following conditions are
satisfied:
. The policy is delivered to and received by the applicant.
. The Minimum Initial Premium is received by us.
. Each insured person is living and still meets our health criteria for
issuing insurance.
<PAGE>
If all of the above conditions are satisfied, the policy will take effect on
the date shown in the policy as the "date of issue." That is the date on which
we begin to deduct monthly charges. Policy months, policy years and policy
anniversaries are all measured from the date of issue.
Backdating
In order to preserve a younger age at issue for the insured person, we can
designate a date of issue that is up to 60 days earlier than the date that would
otherwise apply. This is referred to as "backdating" and is allowed under state
insurance laws. Backdating can also be used in certain corporate-owned life
insurance cases involving multiple policies to retain a common monthly deduction
date.
The conditions for coverage described above under "Commencement of insurance
coverage" must still be satisfied, but in a backdating situation the policy
takes effect retroactively. Backdating results in a lower insurance charge
(because of the insured person's younger age at issue), but monthly charges
begin earlier than would otherwise be the case. Those monthly charges will be
deducted as soon as we receive premiums sufficient to pay them.
Temporary coverage prior to policy delivery
If a specified amount of premium is paid with the application for a policy and
other conditions are met, we will provide temporary term life insurance coverage
on the insured person for a period prior to the time coverage under the policy
takes effect. Such temporary term coverage will be subject to the terms and
conditions described in the application for the policy, including limits on
amount and duration of coverage.
Monthly deduction dates
Each charge that we deduct monthly is assessed against your account value or
the subaccounts at the close of business on the date of issue and at the close
of the first business day in each subsequent policy month.
COMMENCEMENT OF INVESTMENT PERFORMANCE
All premium payments will be allocated among the investment options you have
chosen as soon as they are processed.
HOW WE PROCESS CERTAIN POLICY TRANSACTIONS
Premium payments
We will process any premium payment as of the day we receive it, unless one of
the following exceptions applies:
(1) We will process a payment received prior to a policy's date of issue as if
received on the date of issue.
(2) If the Minimum Initial Premium is not received prior to the date of issue,
we will process each premium payment received thereafter as if received on the
business day immediately preceding the date of issue until all of the Minimum
Initial Premium is received.
(3) We will process the portion of any premium payment for which we require
evidence of the insured person's continued insurability only after we have
received such evidence and found it satisfactory to us.
(4) If we receive any premium payment that will cause a policy to become a
modified endowment or will cause a policy to lose its status as life insurance
under the tax laws, we will not accept the excess portion of that premium
payment and will immediately notify the owner. We will refund the excess premium
when the premium payment check has had time to clear the banking system (but in
no case more than two weeks after receipt), except in the following
circumstances:
. The tax problem resolves itself prior to the date the refund is to be
made; or
. The tax problem relates to modified endowment status and we receive a
signed acknowledgment from the owner prior to the refund date instructing
us to process the
<PAGE>
. The tax problem relates to modified endowment status and we receive a
signed acknowledgment from the owner prior to the refund date instructing
us to process the
<PAGE>
The account 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
<PAGE>
The charges otherwise applicable may be reduced with respect to policies
issued to a class of associated individuals or to a trustee, employer or similar
entity where we anticipate that the sales to the members of the class will
result in lower than normal sales or administrative expenses, lower taxes or
lower risks to us. We will make these reductions in accordance with our rules in
effect at the time of the
<PAGE>
The policies are also sold through other registered broker-dealers that have
entered into selling agreements with Signator and whose representatives are
authorized by applicable law to sell variable life insurance policies. The
commissions which will be paid by such broker-dealers to their
<PAGE>
In the past, the United States Treasury Department has stated that it
anticipated issuing guidelines prescribing circumstances in which the
<PAGE>
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
<PAGE>
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
<PAGE>
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
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
<PAGE>
This prospectus omits certain information contained in the Registration
Statement which has been filed with the SEC. More details may be
<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.
<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
<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.
<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.
<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.
<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.
<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.
<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.
<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 and4 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 and5
1/2% interest for policies issued from 1988 through 1992; 5% interest for
policies issued in 1993 and 1994; and4 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.
<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>
<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.
<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
<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> <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.
<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.
<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.
<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.
<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.
<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.
<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
<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.
<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.
<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.
<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.
<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.
<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.
<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.
<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.
<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.
<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.
<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.
<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.
<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.
<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.
<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.
<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.
<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.
<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>
<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.
<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.
<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.
<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> <C>
Account. . . . . . . . 23 25
account value. . . . . 7 8
attained age . . . . . 8 12
beneficiary. . . . . . 23 8
business day . . . . . 23 4
changing Option 1or 2 27 11
changing the face
amount. . . . . . . . 13 9
charges. . . . . . . . 7 14
Code . . . . . . . . . 29 5
cost of insurance rates 8 25
date of issue. . . . . 25 25
death benefit. . . . . 3 4
deductions . . . . . . 7 2
dollar cost averaging. 10 16
expenses of the Series
Funds . . . . . . . . 9 6
face amount. . . . . . 12 7
fixed investment option 24 2
full surrender . . . . 11 23
fund . . . . . . . . . 2 2
grace period . . . . . 6 1
guaranteed death
benefit feature . . . 6 12
Guaranteed Death
Benefit Premium . . . 6 23
insurance charge . . . 8 11
insured person . . . . 4 8
investment options . . 1 11
JHVLICO. . . . . . . . 23 8
John Hancock Variable
Series Trust . . . . 2 29
lapse. . . . . . . . . 6 16
loan . . . . . . . . . 11 10
loan interest. . . . . 12 1
maximum premiums . . . 5 23
Minimum Initial Premium 24 11
minimum insurance
amount. . . . . . . . 13 9
minimum premiums . . . 5 4
modified endowment
contract. . . . . . . 30
</TABLE>
<PAGE>
PART II
UNDERTAKING TO FILE REPORTS
Subject to the terms and conditions of Section 15(d) of the Securities
Exchange Act of 1934, the undersigned registrant hereby undertakes to file with
the Securities and Exchange Commission such supplementary and periodic
information, documents, and reports as may be prescribed by any rule or
regulation of the Commission heretofore or hereafter duly adopted pursuant to
authority conferred in that Section.
REPRESENTATION OF REASONABLENESS
John Hancock Variable Life Insurance Company represents that the fees and
charges deducted under the Policies, in the aggregate, are reasonable in
relation to the services rendered, the expenses expected to be incurred, and the
risks assumed by the insurance company.
UNDERTAKING REGARDING INDEMNIFICATION
Pursuant to Section X of JHVLICO's Bylaws and Section 67 of the
Massachusetts Business Corporation Law, JHVLICO indemnifies each director,
former director, officer, and former officer, and his heirs and legal
representatives from liability incurred or imposed in connection with any legal
action in which he may be involved by reason of any alleged act or omission as
an officer or a director of JHVLICO.
Insofar as indemnification for liability arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrant of expenses incurred
or paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
CONTENTS OF REGISTRATION STATEMENT
This Registration Statement comprises the following Papers and Documents:
The facing sheet.
Cross-Reference Table.
The prospectus including twenty-three sub-accounts consists of __ pages
and the prospectus including twenty-six subaccounts consists of __ pages.
The undertaking regarding indemnification.
The undertaking to file reports.
The signatures.
<PAGE>
The following exhibits:
1.A. (1) JHVLICO Board Resolution establishing the separate account included in
Post-Effective Amendment No. 2 to this Form S-6 Registration
Statement, filed March 5, 1996.
(2) Not Applicable.
(3) (a) Form of Distribution Agreement by and among John Hancock
Distributors, Inc., John Hancock Mutual Life Insurance Company,
and John Hancock Variable Life Insurance Company, incorporated by
reference from Pre-Effective Amendment No. 2 to Form S-6
Registration Statement of John Hancock Variable Life Account S
(File No. 333-15075) filed April 18, 1997.
(b) Specimen Variable Contracts Selling Agreement between John Hancock
Distributors, Inc., and selling broker-dealers, incorporated by
reference from Pre-Effective Amendment No. 2 to Form S-6
Registration Statement of John Hancock Variable Life Account S
(File No. 333-15075) filed April 18, 1997.
(c) Schedule of Sales Commissions included in I. A. (3)(a) above.
(4) Not Applicable.
(5) Form of flexible premium variable insurance policy included in the
initial registration statement on Form S-6 of this account for
flexible premium policies, filed March 18, 1994 (File No. 33-76660).
(6) Certificate of Incorporation and By-Laws of John Hancock Variable Life
Insurance Company included in Post-Effective Amendment No. 2 to this
Form S-6 Registration Statement, filed March 5, 1996.
(7) Not Applicable.
(8) Not Applicable.
(9) Not Applicable.
(10) Form of application for Policy included in Post-Effective Amendment
No. 2 to this Form S-6 Registration Statement, filed March 5, 1996.
<PAGE>
2. Included as exhibit 1.A (5) above.
3. Opinion and consent of counsel as to securities being registered, included in
Pre-Effective Amendment No. 1 to this Form S-6 Registration Statement filed
August 30, 1994.
4. Not Applicable.
5. Not Applicable.
6. Opinion and consent of actuary (Filed herewith).
7. Consent of independent auditors (Filed herewith).
8. Memorandum describing John Hancock's issuance, transfer and redemption
procedures for flexible premium policies pursuant to Rule
6e-3(T)(b)(12)(iii), included in Post-Effective Amendment No. 2 to this
Form S-6 Registration Statement, filed March 5, 1996.
9. Power of Attorney for Ronald J. Bocage, incorporated by reference from Form
10-K annual report of John Hancock Variable Life Insurance Company (File No.
33-62895) filed March 28, 1997. Powers of attorney for Tomlinson,
D'Alessandro, Shaw, Luddy, Lee, Reitano, Van Leer and Paster included in
Post-Effective Amendment No. 2 to this Form S-6 Registration Statement, filed
March 5, 1996.
10. Representations, Description and Undertaking pursuant to Rule
6e-3(T)(b)(13)(iii)(F) under the Investment Company Act of 1940 included in
Post-Effective Amendment No. 2 to this Form S-6 Registration Statement,
filed March 5, 1996.
11. Representation of Counsel pursuant to Rule 485(b) (Filed herewith).
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the John
Hancock Variable Life Insurance Company has duly caused this amendment to the
Registration Statement to be signed on its behalf by the undersigned, thereunder
duly authorized, and its seal to be hereunto fixed and attested, all in the City
of Boston and Commonwealth of Massachusetts on the 29th day of April, 1999.
JOHN HANCOCK VARIABLE LIFE
INSURANCE COMPANY
(SEAL)
By /s/ MICHELE G. VAN LEER
-----------------------
Michele G. Van Leer
President
Attest: /s/ SANDRA M. DADALT
----------------------
Sandra M. DaDalt
Assistant Secretary
<PAGE>
Pursuant to the requirements of the Securities Act of 1933, this Post-
Effective Amendment to the Registration Statement has been signed below by the
following persons in the capacities with John Hancock Variable Life Insurance
Company and on the dates indicated.
Signatures Title Date
- ---------- ----- ----
/s/ PATRICK F. SMITH
- --------------------
Patrick F. Smith Controller (Principal Accounting April 29, 1999
Officer and Acting Principal
Financial Officer)
/s/ MICHELE G. VAN LEER
- -----------------------
Michele G. Van Leer Vice Chairman of the Board
for herself and as and President(Acting Principal
Attorney-in-Fact Executive Officer) April 29, 1999
For: David F. D'Alessandro Chairman of the Board
Robert S. Paster Director
Thomas J. Lee Director
Malcolm Cheung Director
Joseph A. Tomlinson Director
Barbara L. Luddy Director
Ronald J. Bocage Director
Robert R. Reitano Director
<PAGE>
Pursuant to the requirements of the Securities Act of 1933, the
Registrant, certifies that it meets all of the requirements for effectiveness of
this Registration Statement pursuant to Rule 485(b) under the Securities Act of
1933 and has duly caused this Post-Effective Amendment to the Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, and its seal to be hereunto fixed and attested, all in the City of
Boston and Commonwealth of Massachusetts on the 29th day of April, 1999.
On behalf of the Registrant
By John Hancock Variable Life Insurance Company
(Depositor)
(SEAL)
By /s/ Michele G. Van Leer
-----------------------
Michele G. Van Leer
President
Attest /s/ SANDRA M. DADALT
----------------------
Sandra M. DaDalt
Assistant Secretary
<PAGE>
EXHIBIT 6
[John Hancock Mutual Life Insurance Company Letterhead]
April 30, 1999
Board of Directors of the John Hancock Variable Life Insurance Company
Re: Actuarial Opinion:
Members of the Board:
This opinion is furnished in connection with the filing the Amendment
to the Registration Statement on Form S-6 in which this opinion is being filed
as an exhibit, pursuant to the Securities Act of 1933, as amended, with respect
to variable life insurance policies under which amounts will be allocated to one
or more of the subaccounts of one or more variable life insurance separate
accounts. The policies described in the prospectus(es) in said Amendment.
The policy form was reviewed under my direction, and I am familiar with
the amended Registration Statement and exhibits. In my opinion, the
illustrations of policy benefits, values, and accumulated premiums shown in the
prospectus(es) (or appendix thereto) included in the Amendment, based on the
assumptions stated with the illustrations, are consistent with the provisions of
the policies Such assumptions, including, to the extent applicable, the current
cost of insurance rates, current scheduled rates of other charges, current
dividend scales, and any other currently scheduled credits, are reasonable. The
policies have not been designed so as to make the relationship between premiums
and benefits, as shown in the illustrations, appear disproportionately more
favorable to a prospective purchaser of a policy for an insured person(s) with
the characteristics illustrated than to a prospective purchaser of a policy for
an insured person(s) with other characteristics; nor have the particular
examples set forth in the illustrations been selected for the purpose of making
this relationship appear more favorable.
I hereby consent to the filing of this opinion as an exhibit to the
amended Registration Statement and to the use of my name under the heading
"Experts" or "Accounting and Actuarial Experts" in the propectus(es).
Deborah A. Poppel, FSA
Senior Associate Actuary
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EXHIBIT 7
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Accounting and
Actuarial Experts" in the Prospectus and to the inclusion of our reports dated
February 10, 1999, with respect to the financial statements included in the
Annual Report of John Hancock Variable Life Account U and dated February 19,
1999, with respect to the financial statements included in the Annual Report of
John Hancock Variable Life Insurance Company, included in this Post-Effective
Amendment No. 6 to the Registration Statement (Form S-6, No. 33-76660).
/s/ Ernst & Young LLP
ERNST & YOUNG LLP
Boston, Massachusetts
April 28, 1999
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EXHIBIT 11
[LETTERHEAD OF JOHN HANCOCK MUTUAL LIFE INSURANCE COMPANY]
April 26, 1999
United States Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
John Hancock Variable Life Account U
File Nos. 33-76660 and 811-3068
Commissioners:
This opinion is being furnished with respect to the filing of
Post-Effective Amendment No. 6 under the Securities Act of 1933 on the Form S-6
Registration Statement of John Hancock Variable Life Account U as required by
Rule 485 under the 1933 Act.
We have acted as counsel to Registrant for the purpose of preparing this
Post-Effective Amendment which is being filed pursuant to paragraph (b) of Rule
485 and hereby represent to the Commission that in our opinion this
Post-Effective Amendment does not contain disclosures which would render it
ineligible to become effective pursuant to paragraph (b).
We hereby consent to the filing of this opinion with and as a part of
this Post-Effective Amendment to Registrant's Registration Statement with the
Commission.
Very truly yours,
/s/ Sandra M. DaDalt
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Sandra M. DaDalt
Counsel
