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PROSPECTUS DATED JUNE 30, 2000
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MEDALLION VARIABLE UNIVERSAL LIFE II
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a flexible premium variable life insurance policy
issued by
JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY ("JHVLICO")
The policy provides an investment option with fixed rates of return
declared by JHVLICO and the following variable investment options:
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VARIABLE INVESTMENT OPTION MANAGED BY
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<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. and Morgan
Stanley Dean Witter Investment Management, Inc.
Small/Mid Cap CORE........................... Goldman Sachs Asset Management
Small/Mid Cap Growth......................... Wellington Management Company, LLP
Small Cap Value.............................. INVESCO Management & Research, Inc.
Small Cap Growth............................. John Hancock Advisers, Inc.
Global Balanced.............................. Brinson Partners, Inc.
International Equity Index................... Independence International Associates, Inc.
International Opportunities.................. Rowe Price-Fleming International, Inc.
Emerging Markets Equity...................... Morgan Stanley Dean Witter Investment Management, Inc.
Short-Term Bond.............................. Independence Investment Associates, Inc.
Bond Index................................... Mellon Bond Associates, LLP
Active Bond.................................. John Hancock Advisers, Inc.
Global Bond.................................. J.P. Morgan Investment Management, Inc.
High Yield Bond.............................. Wellington Management Company, LLP
Money Market................................. John Hancock Life Insurance Company
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</TABLE>
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The variable investment options shown on page 1 are those available as of
the date of this prospectus. We may add, modify or delete variable investment
options in the future.
When you select one or more of these variable investment options, we invest
your money in the corresponding investment option(s) of 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 Trust is a so-called "series" type mutual fund registered with the
Securities and Exchange Commission ("SEC"). The investment results of each
variable investment option you select will depend on those of the corresponding
fund of the Trust. Each of the funds is separately managed and has its own
investment objective and strategies. Attached at the end of this prospectus is a
prospectus for the Trust. The Trust prospectus contains detailed information
about each available fund. Be sure to read that prospectus before selecting any
of the variable investment options shown on page 1.
* * * * * * * * * * * *
Please note that the SEC has not approved or disapproved these securities,
or determined if this prospectus is truthful or complete. Any representation to
the contrary is a criminal offense.
* * * * * * * * * * * *
JHVLICO LIFE SERVICING OFFICE
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Express Delivery U.S. Mail
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529 Main Street (X-4) P.O. Box 111
Charlestown, MA 02129 Boston, MA 02117
Phone: 1-800-732-5543
Fax: 1-617-886-3048
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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
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simplifies many policy provisions to better communicate the policy's essential
features. Your rights and obligations under the policy will be determined by the
language of the policy itself. When you receive your policy, read it carefully.
This prospectus is arranged in the following way:
. The section which follows is called "Basic Information". It contains
basic information about the policy in a question and answer format.
You should read the Basic Information before reading any other
section of the prospectus.
. Behind the Basic Information section are illustrations of
hypothetical policy benefits that help clarify how the policy works.
These start on page 25.
. Behind the illustrations is a section called "Additional
Information." This section gives more details about the policy. It
generally does not repeat information contained in the Basic
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Information section. A table of contents for the Additional
Information section appears on page 32.
. Behind the Additional Information section are the financial
statements for us and for the Separate Account that we use for this
policy. These start on page 46.
. Finally, there is an Alphabetical Index of Key Words and Phrases at
the back of the prospectus on page 112.
After the Alphabetical Index of Key Words and Phrases, this prospectus ends and
the prospectus for the Trust begins.
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BASIC INFORMATION
This "Basic Information" section provides answers to commonly asked
questions about the policy. Here are the page numbers where the questions and
answers appear:
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Question Beginning on page
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.What is the policy?......................................................... 5
.Who owns the policy?........................................................ 5
.How can you invest money in the policy?..................................... 5
.Is there a minimum amount you must invest?.................................. 6
.How will the value of your investment in the policy change over time?....... 8
.What charges will we deduct from your investment in the policy?............. 9
.What charges will the Trust deduct from your investment in the policy?...... 11
.What other charges can we impose in the future?............................. 13
.How can you change your policy's investment allocations?.................... 14
.How can you access your investment in the policy?........................... 15
.How much will we pay when the insured person dies?.......................... 16
.Can you add additional benefit riders?...................................... 18
.How can you change your policy's insurance coverage?........................ 20
.Can you cancel your policy after it's issued?............................... 21
.Can you choose the form in which we pay out policy proceeds?................ 21
.To what extent can we vary the terms and conditions of the
policies in particular cases?.............................................. 22
.How will your policy be treated for income tax purposes?.................... 22
.How do you communicate with us?............................................. 23
</TABLE>
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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 YOU INVEST MONEY IN THE POLICY?
Premium Payments
We call the investments you make in the policy "premiums" or "premium
payments". The amount we require as your first premium depends upon the
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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.
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Maximum premium payments
Federal tax law limits the amount of premium payments you can make relative
to the amount of your policy's insurance coverage. We will not knowingly accept
any amount by which a premium payment exceeds the maximum. If you exceed certain
other limits, the law may impose a penalty on amounts you take out of your
policy. More discussion of these tax law requirements begins on page 39. Also,
we may refuse to accept any amount of an additional premium if:
. that amount of premium would increase our insurance risk exposure,
and
. the insured person doesn't provide us with adequate evidence that he
or she continues to meet our requirements for issuing insurance.
In no event, however, will we refuse to accept any premium necessary to prevent
the policy or the guaranteed death benefit feature 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 2 of this prospectus.
We will also accept premiums:
. by wire or by exchange from another insurance company,
. via an electronic funds transfer program (any owner interested in
making monthly premium payments must use this method), or
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. if we agree to it, through a salary deduction plan with your
employer.
You can obtain information on these other methods of premium payment by
contacting your JHVLICO representative or by contacting the JHVLICO Life
Servicing Office.
IS THERE A MINIMUM AMOUNT YOU MUST INVEST?
Planned Premiums
The Policy Specifications page of your policy will show the "Planned
Premium" for the policy. You choose this amount in the policy application. You
will also choose how often to pay premiums-- annually, semi-annually, quarterly
or monthly. The premium reminder notice we send you is based on the amount and
period you choose. However, payment of Planned Premiums is not necessarily
required. You need only invest enough to keep the policy in force (see
"Guaranteed death benefit feature" on page 7 and "Lapse and reinstatement" on
page 8).
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Guaranteed death benefit feature
This feature guarantees that your Basic Sum Insured will not terminate
(i.e., "lapse"), regardless of adverse investment performance, if on each "grace
period testing date" the amount of cumulative premiums you have paid (less all
withdrawals from the policy and all outstanding loans) equals or exceeds the sum
of all Guaranteed Death Benefit Premium ("GDB Premium") due to date. If the
Guaranteed Death Benefit test is not satisfied on any grace period testing date,
the guaranteed death benefit feature will not be "in effect" on that date. We
currently test on a quarterly basis, but reserve the right to test on each
monthly deduction date. (The term "monthly deduction date" is defined on page 34
under "Procedures for issuance of a policy".)
Your policy will show two types of GDB Premium (or such other types as
permitted by your state):
. Age 65/10 Year GDB Premium - is used on each testing date until the
policy anniversary nearest the insured person's 65th birthday (or, if
longer, until the 10th policy anniversary). The GDB premium that is
"due" during this period is equal to the Age 65/10 Year GDB Premium
times the number of elapsed policy months on a testing date.
. Age 100 GDB Premium - is used on each testing date that occurs on and
after the policy anniversary nearest the insured person's 65th
birthday (or on and after the 10th policy anniversary) until the
policy anniversary nearest the insured person's 100th birthday. The
GDB premium that is "due" during this period is equal to the number
of elapsed policy months on the testing date, measured from the Date
of Issue, times the Age 100 GDB Premium.
The Age 100 GDB Premium is higher than the Age 65/10 Year GDB Premium, but
neither will ever be greater than the so-called "guideline premium" for the
policy as defined in Section 7702 of the Internal Revenue Code.
The guaranteed death benefit feature applies only to the Basic Sum Insured
in effect when we issue the policy. It does not apply to any amount of
Additional Sum Insured and it will not be in effect if you increase the Basic
Sum Insured (see "How much will we pay when the insured person dies?" on page
16). The amount of the Basic Sum Insured that is guaranteed will be reduced to
the extent that we pay it to you under a living care or life-time care
additional benefit rider while the insured is living (see "Can you add
additional benefit riders?" on page 18). If there are monthly charges that
remain unpaid because of this feature, we will deduct such charges when there is
sufficient surrender value to pay them.
If an insufficient amount of GDB premium has been paid on a grace period
testing date, and your policy would lapse for failure to pay charges then due,
we will provide you with a notification as described in the next section, "Lapse
and Reinstatement".
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Lapse and Reinstatement
Either your entire policy or the Additional Sum Insured portion of your
Total Sum Insured can lapse for failure to pay charges due under the policy. If
the guaranteed death benefit feature is in effect, the Additional Sum Insured
and any additional benefit riders (unless otherwise stated therein) will lapse
if the policy's surrender value is not sufficient to pay the charges on a grace
period testing date. If the guaranteed death benefit feature is not in effect,
the entire policy will lapse if the policy's surrender value is not sufficient
to pay the charges on a grace period testing date. In either case, we will
notify you of how much you will need to pay to keep the Additional Sum Insured
or the policy in force. You will have a 61 day "grace period" to make these
payments. If you pay these amounts during the grace period, you may also
continue the Guaranteed Death Benefit feature by paying the GDB Premium
described in your policy.
If you don't pay at least the required amount by the end of the grace
period, the Additional Sum Insured and any additional benefit riders (unless
otherwise stated therein) or your policy will lapse. If your policy lapses, all
coverage under the policy will cease. Even if the policy or the Additional Sum
Insured terminates in this way, you can still reactivate (i.e., "reinstate") it
within 3 years from the beginning of the grace period. You will have to provide
evidence that the insured person still meets our requirements for issuing
coverage. You will also have to pay a minimum amount of premium and be subject
to the other terms and conditions applicable to reinstatements, as specified in
the policy. If the guaranteed death benefit is not in effect and the insured
person dies during the grace period, we will deduct any unpaid monthly charges
from the death benefit. During a grace period, you cannot make a partial
withdrawal or policy loan.
HOW WILL THE VALUE OF YOUR INVESTMENT IN THE POLICY CHANGE OVER TIME?
From each premium payment you make, we deduct the charges described under
"Deductions from premium payments" below. We invest the rest in the investment
options you've elected. Special investment rules apply to premiums processed
prior to the 20th day after your policy becomes effective. (See "Commencement of
investment performance" beginning on page 35.)
Over time, the amount you've invested in any variable investment option
will increase or decrease the same as if you had invested the same amount
directly in the corresponding fund of the Trust and had reinvested all fund
dividends and distributions in additional fund shares; except that we will
deduct certain additional charges which will reduce your account value. We
describe these charges under "What charges will we deduct from your investment
in the policy?" on page 9.
The amount you've invested in the fixed investment option will earn
interest at a rate we declare from time to time. We guarantee that this rate
will be at least 4%. If you want to know what the current declared rate is, just
call or write to us. The current declared rate will also appear in the annual
statement we will send you. Amounts you invest in the fixed investment option
will not be subject to the asset-based risk charge described on page 10.
Otherwise, the charges
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applicable to the fixed investment option are the same as those applicable to
the variable investment options.
At any time, the "account value" of your policy is equal to:
. the amount you invested,
. plus or minus the investment experience of the investment options
you've chosen,
. minus all charges we deduct, and
. minus all withdrawals you have made.
If you take a loan on the policy, however, your account value will be computed
somewhat differently. This is discussed beginning on page 37.
WHAT CHARGES WILL WE DEDUCT FROM YOUR INVESTMENT IN THE POLICY?
Deductions from premium payments
. Premium tax charge - A charge to cover state premium taxes we currently
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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
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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
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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 Total Sum Insured (excluding any Premium Cost
Recovery Benefit) 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 on May 1,
2000, no termination of this charge has yet occurred.
Deductions from account value
. Issue charge - A monthly charge to help defray our administrative costs. This
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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.
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This is a flat dollar charge of up to $8 (currently $6).
. Insurance charge - A monthly charge for the cost of insurance. To determine
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the charge, we multiply the amount of insurance for which we are at risk by a
cost of insurance rate. The rate is derived from an actuarial table and the
ratio of Basic Sum
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Insured to Additional Sum Insured on the date we issue your policy. The table
in your policy will show the maximum cost of insurance rates. The cost of
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insurance rates that we currently apply are generally less than the maximum
rates. We will review the cost of insurance rates at least every 5 years and
may change them from time to time. However, those rates will never be more
than the maximum rates shown in the policy. The table of rates we use will
depend on the insurance risk characteristics and (usually) gender of the
insured person, the Total Sum Insured and the length of time the policy has
been in effect. Regardless of the table used, cost of insurance rates
generally increase each year that you own your policy, as the insured person's
attained age increases. (The insured person's "attained age" on any date is
his or her age on the birthday nearest that date.) We currently apply three
"bands" of insurance rates, based on a policy's Total Sum Insured (excluding
any Premium Cost Recovery Benefit) on the date of issue, but continuation of
that practice is not guaranteed. The lowest band of rates is for policies of
$1 million or more, next lower for policies between $250,000 to $999,999, and
the highest band is for policies between $100,000 to $249,999. The insurance
charge for death benefit Option B will tend to be higher than the insurance
charge for death benefit Option A (see "How much will we pay when the insured
person dies?" on page 16).
. Extra mortality charge - A monthly charge specified in your policy for
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additional mortality risk if the insured person is subject to certain types of
special insurance risk.
. Asset-based risk charge - A monthly charge for mortality and expense risks we
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assume. The charge is a percentage of that portion of your account value
allocated to variable investment options. The current percentages are .050%
for policy years 1 - 10, .035% for policy year 11, decreasing by .001% each
year thereafter through policy year 28, and .017% for policy year 29 and each
policy year thereafter. These percentages equate to effective annual rates of
.60% for policy years 1 - 10, .40% for policy year 11, grading down to .20%
for policy years 29 and thereafter. The reductions after policy year 10 have
not occurred yet under any policy, since no policy has been outstanding for 10
years. We guarantee that this charge will never exceed .050% of that portion
of your account value allocated to variable investment options. This
percentage equates to an effective annual rate of .60%. This charge does not
apply to the fixed investment option.
. Optional benefits charge - Monthly charges for certain optional insurance
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benefits added to the policy by means of a rider. Some of the riders we
currently offer are described under "Can you add additional benefit riders?"
on page 18.
. ASI reduction charge - A charge we deduct if you decrease the Additional Sum
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Insured during the first 20 policy years. A table in your policy will state
the maximum rate for the charge per $1,000 of Additional Sum Insured
surrendered, based on the insured person's issue age, insurance risk
characteristics and (usually) gender. The rates are shown in the policy and
generally range from less than $1 per $1,000 for issue age 40 or less, and
increase for issue ages thereafter, to over $10 per $1,000 for issue ages
after 70. We do not deduct this charge if the Additional Sum Insured is
reduced because of a withdrawal of surrender value or surrender of the policy.
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. Contingent deferred sales charge ("CDSC") - A charge we deduct if the policy
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lapses or is surrendered within the first 10 policy years. We deduct this
charge to compensate us for sales expenses that we would otherwise not recover
in the event of early lapse or surrender. The charge is a percentage of the
premiums we received in the first policy year that do not exceed the first
year Target Premium, as shown in the following table:
POLICY YEAR(S) PERCENTAGE OF FIRST YEAR TARGET PREMIUM
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1-5 100%
6 80%
7 70%
8 60%
9 40%
10 20%
11 and later 0%
The above table applies only if the insured person is less than attained age 45
at issue. For older issue ages, the maximum is reached earlier and the
percentage may decrease to zero in fewer than 10 policy years. Regardless of
issue age, there is a further limitation on the CDSC that can be charged if
surrender or lapse occurs in the second policy year.
. Partial withdrawal charge - A charge for each partial withdrawal of account
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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 YOUR INVESTMENT IN THE POLICY?
The Trust must pay investment management fees and other operating expenses.
These fees and expenses are different for each fund and reduce the investment
return of each fund. Therefore, they also indirectly reduce the return you will
earn on any variable investment options you select.
The following figures for the funds are based on historical fund expenses, as
a percentage (rounded to two decimal places) of each fund's average daily net
assets for 1999, except as indicated in the Notes appearing at the end of this
table. Expenses of the funds are not fixed or specified under the terms of the
policy, and those expenses may vary from year to year.
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Investment Distribution and Other Operating Total Fund Other Operating
Management Service Expenses With Operating Expenses Absent
Fund Name Fee (12b-1) Fees Reimbursement Expenses Reimbursement
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JOHN HANCOCK VARIABLE SERIES TRUST I
(NOTE 1):
Managed................................. 0.32% N/A 0.03% 0.35% 0.03%
Growth & Income......................... 0.25% N/A 0.03% 0.28% 0.03%
Equity Index............................ 0.14% N/A 0.00% 0.14% 0.08%
Large Cap Value......................... 0.74% N/A 0.10% 0.84% 0.11%
Large Cap Growth........................ 0.36% N/A 0.03% 0.39% 0.03%
Mid Cap Value........................... 0.80% N/A 0.10% 0.90% 0.12%
</TABLE>
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<TABLE>
<CAPTION>
Investment Distribution and Other Operating Total Fund Other Operating
Management Service Expenses With Operating Expenses Absent
Fund Name Fee (12b-1) Fees Reimbursement Expenses Reimbursement
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<S> <C> <C> <C> <C> <C>
JOHN HANCOCK VARIABLE SERIES TRUST I
(NOTE 1) - CONTINUED:
Mid Cap Growth......................... 0.82% N/A 0.10% 0.92% 0.11%
Real Estate Equity..................... 0.60% N/A 0.10% 0.70% 0.10%
Small/Mid Cap CORE..................... 0.80% N/A 0.10% 0.90% 0.66%
Small/Mid Cap Growth................... 0.75% N/A 0.10% 0.85% 0.10%
Small Cap Value........................ 0.80% N/A 0.10% 0.90% 0.16%
Small Cap Growth....................... 0.75% N/A 0.10% 0.85% 0.14%
Global Balanced *...................... 0.85% N/A 0.10% 0.95% 0.46%
International Equity Index............. 0.16% N/A 0.10% 0.26% 0.22%
International Opportunities............ 0.87% N/A 0.10% 0.97% 0.29%
Emerging Markets Equity................ 1.27% N/A 0.10% 1.37% 2.17%
Short-Term Bond........................ 0.30% N/A 0.10% 0.40% 0.13%
Bond Index............................. 0.15% N/A 0.10% 0.25% 0.20%
Active Bond *.......................... 0.25% N/A 0.03% 0.28% 0.03%
Global Bond............................ 0.69% N/A 0.10% 0.79% 0.15%
High Yield Bond........................ 0.65% N/A 0.10% 0.75% 0.39%
Money Market........................... 0.25% N/A 0.06% 0.31% 0.06%
</TABLE>
NOTES TO FUND EXPENSE TABLE
(1) John Hancock Variable Series Trust I funds' percentages reflect management
fees and other fund expenses based on the allocation methodology and
expense reimbursement policy adopted April 23, 1999. Under the policy,
John Hancock Life Insurance Company voluntarily reimburses a fund when the
fund's "other fund expenses" exceed 0.10% of the fund's average daily net
assets (0.00% for Equity Index).
* Global Balanced was formerly "International Balanced" and Active Bond was
formerly "Sovereign Bond".
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WHAT OTHER CHARGES COULD WE IMPOSE IN THE FUTURE?
Except for the premium and DAC tax charges, we currently make no charge for
our Federal income taxes. However, if we incur, or expect to incur, income taxes
attributable to any subaccount of the Account or this class of policies in
future years, we reserve the right to make a charge for such taxes. Any such
charge would reduce what you earn on any affected investment options. However,
we expect that no such charge will be necessary.
We also reserve the right to increase the premium tax charge and the DAC
tax charge in order to correspond, respectively, with changes in the state
premium tax levels or in the Federal income tax treatment of the deferred
acquisition costs for this type of policy.
Under current laws, we may incur state and local taxes (in addition to
premium taxes) in several states. At present, these taxes are not significant.
If there is a material change in applicable state or local tax laws, we may make
charges for such taxes.
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HOW CAN YOU CHANGE YOUR POLICY'S INVESTMENT ALLOCATIONS?
Future premium payments
At any time, you may change the investment options in which future premium
payments will be invested. You make the original allocation in the application
for the policy. The percentages you select must be in whole numbers and must
total 100%.
Transfers of existing account value
You may also transfer your existing account value from one investment option
to another. To do so, you must tell us how much to transfer, either as a whole
number percentage or as a specific dollar amount.
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 in each policy year.
. The most you can transfer at any one time is the greater of $500 or 20%
of the assets in your fixed investment option.
We reserve the right to impose limits on:
. the minimum amount of each transfer out of the fixed investment option;
. the maximum amount of any transfer into the fixed investment option after the
second policy year; and
. the number and frequency of transfers out of the variable investment options.
Dollar cost averaging
This is a program of automatic monthly transfers out of the Money Market
investment option into one or more of the other variable investment options. You
choose the investment options and the dollar amount and timing of the transfers.
The program is designed to reduce the risks that result from market
fluctuations. It does this by spreading out the allocation of your money to
investment options over a longer period of time. This allows you to reduce the
risk of investing most of your money at a time when market prices are high.
Obviously, the success of this strategy depends on market trends and is not
guaranteed.
Asset Rebalancing
This is a program that automatically re-sets the percentage of your account
value allocated to the variable investment options. Over time, the variations in
the investment results for each variable investment option you've elected will
shift the percentage allocations among them. The rebalancing program will
periodically transfer your account value among the variable investment options
to reestablish the preset percentages you have chosen. Rebalancing would
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usually result in transferring amounts from a variable investment option with
relatively higher investment performance since the last rebalancing to one with
relatively lower investment performance. However, rebalancing can also result in
transferring amounts from a variable investment option with relatively lower
current investment performance to one with relatively higher current investment
performance. Rebalancing and dollar cost averaging cannot be in effect at the
same time.
HOW CAN YOU ACCESS YOUR INVESTMENT IN THE POLICY?
Full surrender
You may surrender your policy in full at any time. If you do, we will pay
you the account value, less any policy loans and less any CDSC charge that then
applies. This is called your "surrender value." You must return your policy when
you request a full surrender.
Partial withdrawals
You may make a partial withdrawal of your surrender value at any time after
the first policy year. Each partial withdrawal must be at least $1,000. There is
a charge (usually $20) for each partial withdrawal. We will automatically reduce
the account value of your policy by the amount of the withdrawal and the related
charge. Unless we agree otherwise, each investment option will be reduced in the
same proportion as the account value is then allocated among them. We will not
permit a partial withdrawal if it would cause your surrender value to fall below
3 months' worth of monthly charges (see "Deductions from account value" on page
9). We also reserve the right to refuse any partial withdrawal that would cause
the policy's Total Sum Insured to fall below $100,000, or the policy's Basic Sum
Insured to fall below $100,000. Under the Option A death benefit, the reduction
of your account value occasioned by a partial withdrawal could cause the minimum
insurance amount to become less than your Total Sum Insured (see "How much will
we pay when the insured person dies?" on page 16). If that happens, we will
automatically reduce your Total Sum Insured. The calculation of that reduction
is explained in the policy, and will be implemented by first reducing any
Additional Sum Insured in effect. If the reduction in Total Sum Insured would
cause your policy to fail the Internal Revenue Code's definition of life
insurance, we will not permit the partial withdrawal.
Policy loans
You may borrow from your policy at any time after it has been in effect for
1 year by completing a form satisfactory to us or, if the telephone transaction
authorization form has been completed, by telephone. The maximum amount you can
borrow is determined as follows:
. We first determine the surrender value of your policy.
. We then subtract an amount equal to 12 times the monthly charges then
being deducted from account value.
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<PAGE>
. We then multiply the resulting amount by.75% in policy years 1 through
10, .50% in policy years 11 through 20, and .25% thereafter.
. We then subtract the third item above from the second item above.
The minimum amount of each loan is $300. The interest charged on any loan
is an effective annual rate of 4.75% in the first 10 policy years, 4.50% in
policy years 11 through 20, and 4.25% thereafter. Accrued interest will be added
to the loan daily and will bear interest at the same rate as the original loan
amount. The amount of the loan is deducted from the investment options in the
same proportion as the account value is then allocated among them and is placed
in a special loan account. This special loan account will earn interest at an
effective annual rate of 4.0%. However, if we determine that a loan will be
treated as a taxable distribution because of the differential between the loan
interest rate and the rate being credited on the special loan account, we
reserve the right to decrease the rate credited on the special loan account to a
rate that would, in our reasonable judgement, result in the transaction being
treated as a loan under Federal tax law.
You can repay all or part of a loan at any time. Unless we agree otherwise,
each repayment will be allocated among the investment options as follows:
. The same proportionate part of the loan as was borrowed from the fixed
investment option will be repaid to the fixed investment option.
. The remainder of the repayment will be allocated among the investment
options in the same way a new premium payment would be allocated.
If you want a payment to be used as a loan repayment, you must include
instructions to that effect. Otherwise, all payments will be assumed to be
premium payments.
HOW MUCH WILL WE PAY WHEN THE INSURED PERSON DIES?
In your application for the policy, you will tell us how much life
insurance coverage you want on the life of the insured person. This is called
the "Total Sum Insured" of insurance. Total Sum Insured is composed of the Basic
Sum Insured and any Additional Sum Insured you elect. The maximum amount of
Additional Sum Insured you can have when we issue the policy is generally
limited to 400% of the Basic Sum Insured. There are a number of factors you
should consider in determining whether to elect coverage in the form of Basic
Sum Insured or in the form of Additional Sum Insured. These factors are
discussed under "Basic Sum Insured vs. Additional Sum Insured" on page 35.
When the insured person dies, we will pay the death benefit minus any
outstanding loans. There are two ways of calculating the death benefit. You
choose which one you want in the application. The two death benefit options are:
. Option A - The death benefit will equal the greater of (1) the Total
Sum Insured or (2) the minimum insurance amount under the "guideline
premium and cash
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<PAGE>
value corridor test" or under the "cash value accumulation test" (as
described below).
. Option B - The death benefit will equal the greater of (1) the Total
Sum Insured amount plus your policy's account value on the date of
death, or (2) the minimum insurance amount under the "guideline
premium and cash value corridor test".
For the same premium payments, the death benefit under Option B will tend
to be higher than the death benefit under Option A. On the other hand, the
monthly insurance charge will be higher under Option B to compensate us for the
additional insurance risk. Because of that, the account value will tend to be
higher under Option A than under Option B for the same premium payments.
The minimum insurance amount
In order for a policy to qualify as life insurance under Federal tax law,
there has to be a minimum amount of insurance in relation to account value.
There are two tests that can be applied under Federal tax law -- the "guideline
premium and cash value corridor test" and the "cash value accumulation test."
When you elect the Option A death benefit, you must elect which test you wish to
have applied. If you elect the Option B death benefit, the guideline premium and
cash value corridor test will automatically be applied. Under the guideline
premium and cash value corridor test, we compute the minimum insurance amount
each business day by multiplying the account value on that date by the so-called
"corridor factor" applicable on that date. The corridor factors are derived by
applying the "guideline premium and cash value corridor test." The corridor
factor starts out at 2.50 for ages at or below 40 and decreases as attained age
increases, reaching a low of 1.0 at age 95. A table showing the factor for each
age will appear in the policy. Under the cash value accumulation test, we
compute the minimum insurance amount each business day by multiplying the
account value on that date by the so-called "death benefit factor" applicable on
that date. The death benefit factors are derived by applying the "cash value
accumulation test." The death benefit factor decreases as attained age
increases. A table showing the factor for each age will appear in the policy.
As noted above, you have to elect which test will be applied if you elect
the Option A death benefit. The cash value accumulation test may be preferable
if you want an increasing death benefit in later policy years and/or want to
fund the policy at the "7 pay" limit for the full 7 years (see "Tax
Considerations" beginning on page 39). The guideline premium and cash value
corridor test may be preferable if you want the account value under the policy
to increase without increasing the death benefit as quickly as might otherwise
be required.
When the insured person reaches 100
On the policy anniversary nearest the insured person's 100th birthday, the
death benefit will become equal to the account value on the date of death. Death
benefit Options A and B (as described above) will cease to apply. Also, we will
stop deducting any monthly charges (other than the asset-based risk charge) and
will stop accepting any premium payments.
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<PAGE>
In the next section, we describe an optional Age 100 Waiver of Charges
Rider that provides for continuation of the Total Sum Insured after the insured
person reaches 100.
CAN YOU ADD ADDITIONAL BENEFIT RIDERS?
When you apply for a policy, you can request any of the additional benefit
riders that we then make available. Availability and rider benefits may vary by
state. Charges for the selected rider will generally increase the monthly
deductions from your policy's account value. We may change the rates of these
charges, but not above the maximum amounts that will be stated in the Policy
Specifications page of your policy. Charges for the Long-Term Care Acceleration
Rider, as described below, may be considered a "distribution" for federal income
tax purposes (see "Tax considerations," beginning on page 39). Our rules and
procedures will govern eligibility for the riders, or any changes to these
benefits. Each rider contains specific details that you should review if you
desire to choose the additional benefit. We may add to, delete from, or modify
the following list of additional benefit riders:
. Disability Waiver of Charges Rider - Provides for the waiver of monthly
deductions if the insured person becomes totally and permanently disabled, as
defined in the rider, prior to age 60. If the insured person becomes totally
and permanently disabled after age 60, monthly deductions are only waived
until age 65. Benefits under this rider do not reduce the Guaranteed Death
Benefit Premium payment requirements described on page 7 that are necessary
for the guaranteed death benefit feature to remain in effect.
. Living Care Benefit Rider - Provides for an advance payment to you of a
portion of the death benefit if the insured person becomes terminally ill, as
defined in the rider, with death expected within 24 months. Advances under
the rider are discounted for interest at the rates specified in the rider,
and we may use a portion of any advance to repay loans under your policy. The
maximum advance is $1,000,000.
. Age 100 Waiver of Charges Rider - Provides for the continuation of the Total
Sum Insured in force when the insured person attains age 100, without charge,
if the policy's account value at the time is greater than the sum of 1 plus
the amount of any surrender charges then existing. The monthly charge for
this rider currently begins in the 6th policy year.
. Children's Insurance Benefit Rider - Provides term insurance up through age
21 on each covered child of the insured person. A child must be more than 14
days old and less than 15 years old to begin coverage.
. Accidental Death Benefit Rider - Provides for an additional insurance benefit
if the insured person's death is due to accidental causes between the policy
anniversaries nearest the insured person's 5th and 70th birthdays.
. Long-Term Care Acceleration Rider - intended only for policies where the
death benefit is determined under Option A and the "cash value accumulation
test" described on page 17. This rider provides for periodic advance payments
to you of a portion of the death benefit if the insured person becomes
"chronically ill" so that such person: (1) is unable to perform at least 2
activities of daily living without substantial human
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<PAGE>
assistance or has a severe cognitive impairment; and (2) is receiving certain
qualified services described in the rider.
Benefits under the Long-Term Care Acceleration rider will not begin until we
receive proof that the insured person qualifies and has received 100 days of
"qualified long-term care service" as defined in the rider, while the policy was
in force. You must continue to submit evidence during the insured person's
lifetime of the insured person's eligibility for rider benefits.
We determine a maximum amount of death benefit that we will advance for each
month of qualification. This amount, called the "Maximum Monthly Benefit" is
based on the percentage of the policy's death benefit that you select when you
apply for the policy, and the death benefit amount in effect when the insured
person qualifies for benefits. The actual amount of any advance is based on the
expense incurred by the insured person, up to the Maximum Monthly Benefit, for
each day of qualified long-term care service in a calendar month. The first 100
days of qualified long-term care service, however, are excluded in any
determination of an advance. We will recalculate the Maximum Monthly Benefit if
you make a partial withdrawal of account value, and for other events described
in the rider. Each advance reduces the remaining death benefit under your
policy, and causes a proportionate reduction in your policy's account value. If
you have a policy loan, we will use a portion of each death benefit advance to
repay indebtedness.
We restrict your account value's exposure to market risk when benefits are paid
under the Long-Term Care Acceleration rider. We do this in several ways. First,
before we begin paying any Monthly Benefit or waiving monthly deductions, we
will transfer all account value from the variable investment options to the
fixed investment option. (The amount to be transferred will be determined on the
Business Day immediately following the date we approve a request for benefits
under the rider.) In addition, you will not be permitted to transfer account
value or allocate any additional premium payment to a variable investment option
while rider benefits are paid. Your participation in any of the automatic
investment plans will also be suspended during this period.
If the insured person no longer qualifies for rider benefits and your policy
remains in force, you will be permitted to invest new premium payments or
existing account value in the variable investment options. (The restriction on
transfers from the Fixed Account described on page 14 will continue to apply.)
Benefits under this rider do not reduce the Guaranteed Death Benefit Premium
payment requirements described on page 7 that may be necessary for the
guaranteed death benefit feature to remain in effect after a termination of
rider benefits.
In certain marketing materials, the policy and this rider may be referred to as
"Unison." If you purchase this rider:
. you and your immediate family will also have access to a national
program designed to help the elderly maintain their independent living
by providing advice about an array of elder care services available to
seniors, and
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<PAGE>
. you will have access to a list of long-term care providers in your
area who provide special discounts to persons who belong to the
national program.
HOW CAN YOU CHANGE YOUR POLICY'S INSURANCE COVERAGE?
Increase in coverage
You may request an increase in the Additional Sum Insured. As to when such
an increase would take effect, see "Effective date of other policy transactions"
on page 37). Generally, each such increase must be at least $50,000. However,
you will have to provide us with evidence that the insured person still meets
our requirements for issuing insurance coverage. Unless we consent otherwise,
you may not increase the Additional Sum Insured if the increase would cause the
entire Additional Sum Insured to equal or exceed 800% of the Basic Sum Insured.
Decrease in coverage
After the first policy year, you may request a reduction in the Total Sum
Insured at any time, but only if:
. the remaining Basic Sum Insured will be at least $100,000, and
. the remaining Additional Sum Insured will not exceed 800% of the
Basic Sum Insured, and
. the remaining Total Sum Insured will at least equal the minimum
required by the tax laws to maintain the policy's life insurance
status.
Change of death benefit option
If the "guideline premium and cash value corridor test" applies to your
policy, you may change your coverage from death benefit Option A to Option B or
vice-versa on any policy anniversary, but only if there is no change in the
Federal tax law test used to determine the minimum insurance amount. If you
change from Option A to Option B, we will require evidence that the insured
person still meets our requirements for issuing coverage. This is because such a
change increases our insurance risk exposure.
If the "cash value accumulation test" applies to your policy, you can never
change to either Option A under the "guideline premium and cash value corridor
test" or to Option B.
Please read "The minimum insurance amount" starting on page 17 for more
information about the "guideline premium and cash value corridor test" and the
"cash value accumulation test."
Tax consequences
Please read "Tax considerations" starting on page 39 to learn about
possible tax consequences of changing your insurance coverage under the policy.
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<PAGE>
CAN YOU CANCEL YOUR POLICY AFTER IT'S ISSUED?
You have the right to cancel your policy within 10 days (or longer in some
states) after you receive it. This is often referred to as the "free look"
period. To cancel your policy, simply deliver or mail the policy to:
. JHVLICO at one of the addresses shown on page 2, or
. the JHVLICO representative who delivered the policy to you.
In most states, you will receive a refund of any premiums you've paid. In
some states, the refund will be your account value on the date of cancellation
plus all charges deducted by JHVLICO or the Trust prior to that date. The date
of cancellation will be the date of such mailing or delivery.
CAN YOU CHOOSE THE FORM IN WHICH WE PAY OUT POLICY PROCEEDS?
Choosing a payment option
You may choose to receive proceeds from the policy as a single sum. This
includes proceeds that become payable because of death or full surrender.
Alternatively, you can elect to have proceeds of $1,000 or more applied to any
of a number of other payment options, including the following:
. Option 1 - Proceeds left with us to accumulate with interest
. Option 2A - Equal monthly payments of a specified amount until all
proceeds are paid out
. Option 2B - Equal monthly payments for a specified period of time
. Option 3 - Equal monthly payments for life, but with payments
guaranteed for a specific number of years
. Option 4 - Equal monthly payments for life with no refund
. Option 5 - Equal monthly payments for life with a refund if all of
the proceeds haven't been paid out
You cannot choose an option if the monthly payments under the option would
be less than $50. We will issue a supplementary agreement when the proceeds are
applied to any alternative payment option. That agreement will spell out the
terms of the option in full. We will credit interest on each of the above
options. For options 1 and 2A, the interest will be at least an effective annual
rate of 3 1/2%.
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<PAGE>
Changing a payment option
You can change the payment option at any time before the proceeds are
payable. If you haven't made a choice, the payee of the proceeds has a
prescribed period in which he or she can make that choice.
Tax impact
There may be tax consequences to you or your beneficiary depending upon
which payment option is chosen. You should consult with a qualified tax adviser
before making that choice.
TO WHAT EXTENT CAN WE VARY THE TERMS AND CONDITIONS OF OUR POLICIES IN
PARTICULAR CASES?
Listed below are some variations we can make in the terms of our policies.
Any variation will be made only in accordance with uniform rules that we apply
fairly to all of our customers.
State law insurance requirements
Insurance laws and regulations apply to us in every state in which its
policies are sold. As a result, various terms and conditions of your insurance
coverage may vary from the terms and conditions described in this prospectus,
depending upon where you reside. These variations will be reflected in your
policy or in endorsements attached to your policy.
Variations in expenses or risks
We may vary the charges and other terms of our policies where special
circumstances result in sales or administrative expenses, mortality risks or
other risks that are different from those normally associated with the policies.
These include the type of variations discussed under "Reduced charges for
eligible classes" on page 38. No variation in any charge will exceed any maximum
stated in this prospectus with respect to that charge.
HOW WILL YOUR POLICY BE TREATED FOR INCOME TAX PURPOSES?
Generally, death benefits paid under policies such as yours are not subject
to income tax. Earnings on your account value are not subject to income tax as
long as we don't pay them out to you. If we do pay out any amount of your
account value upon surrender or partial withdrawal, all or part of that
distribution should generally be treated as a return of the premiums you've paid
and should not be subject to income tax. Amounts you borrow are generally not
taxable to you.
However, some of the tax rules change if your policy is found to be a
"modified endowment contract." This can happen if you've paid more than a
certain amount of premiums that is prescribed by the tax laws. Additional taxes
and penalties may be payable for policy distributions of any kind.
For further information about the tax consequences of owning a policy or
adding the Long-Term Care Acceleration Rider, please read "Tax considerations"
beginning of page 39.
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<PAGE>
HOW DO YOU COMMUNICATE WITH US?
General Rules
You should mail or express all checks and money orders for premium payments
and loan repayments to the JHVLICO Life Servicing Office at the appropriate
address shown on page 2.
Certain requests must be made in writing and be signed and dated by you.
They include the following:
. loans, surrenders or partial withdrawals
. transfers of account value among investment options
. change of allocation among investment options for new premium
payments
. change of death benefit option
. increase or decrease in Total Sum Insured
. change of beneficiary
. election of payment option for policy proceeds
. tax withholding elections
. election of telephone transaction privilege.
You should mail or express these requests to our Life Servicing Office at
the appropriate address shown on page 2. You should also send notice of the
insured person's death and related documentation to our Life Servicing Office.
We don't consider that we've "received" any communication until such time as it
has arrived at the proper place and in the proper and complete form.
We have special forms that should be used for a number of the requests
mentioned above. You can obtain these forms from our Life Servicing Office or
your JHVLICO representative. Each communication to us must include your name,
your policy number and the name of the insured person. We cannot process any
request that doesn't include this required information. Any communication that
arrives after the close of our business day, or on a day that is not a business
day, will be considered "received" by us on the next following business day. Our
business day currently closes at 4:00 p.m. Eastern Standard Time, but special
circumstances (such as suspension of trading on a major exchange) may dictate an
earlier closing time.
Telephone Transactions
If you complete a special authorization form, you can request loans,
transfers among investment options and changes of allocation among investment
options simply by telephoning
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<PAGE>
us at 1-800-732-5543 or by faxing us at 1-617-886-3048. Any fax request should
include your name, daytime telephone number, policy number and, in the case of
transfers and changes of allocation, the names of the investment options
involved. We will honor telephone instructions from anyone who provides the
correct identifying information, so there is a risk of loss to you if this
service is used by an unauthorized person. However, you will receive written
confirmation of all telephone transactions. There is also a risk that you will
be unable to place your request due to equipment malfunction or heavy phone line
usage. If this occurs, you should submit your request in writing.
The policies are not designed for professional market timing organizations
or other persons or entities that use programmed or frequent transfers among
investment options. For reasons such as that, we reserve the right to change our
telephone transaction policies or procedures at any time. We also reserve the
right to suspend or terminate the privilege altogether.
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<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
Total Sum Insured. The amounts shown are for the end of each policy year and
assume that all of the account value is invested in funds that achieve
investment returns at constant annual rates of 0%, 6% and 12% (i.e., before any
fees or expenses deducted from Trust assets). After the deduction of average
fees and expenses at the Trust level (as described below) the corresponding net
annual rates of return would be -.77%, 5.18% and 11.14%. Investment return
reflects investment income and all realized and unrealized capital gains and
losses. The tables assume annual Planned Premiums that are paid at the beginning
of each policy year for an insured person who is a 35 year old male standard
non-smoker underwriting risk when the policy is issued.
Tables are provided for each of the two death benefit options. The tables
headed "Current Charges" assume that the current rates for all charges deducted
by JHVLICO will apply in each year illustrated, including the intended waiver of
the premium sales charge after the tenth policy year and the intended reduction
in the insurance charge after the twentieth policy year. The tables headed
"Maximum Charges" are the same, except that the maximum permitted rates for all
years are used for all charges. The tables do not reflect any charge that we
reserve the right to make but are not currently making. The tables assume that
no optional rider benefits and no Additional Sum Insured have been elected.
With respect to fees and expenses deducted from assets of the Trust, the
amounts shown in all tables reflect (1) investment management fees equivalent to
an effective annual rate of 0.66%, and (2) an assumed average asset charge for
all other operating expenses of the Trust equivalent to an effective annual rate
of 0.11%. These rates are the arithmetic average for all funds that are
available as investment options. In other words, they are based on the
hypothetical assumption that policy account values are allocated equally among
the variable investment options. The actual rates associated with any policy
will vary depending upon the actual allocation of policy values among the
investment options. The charge shown above for all other Trust operating
expenses reflects reimbursements to certain funds as described in the footnotes
to the table beginning on page 11. We currently expect those reimbursement
arrangements to continue indefinitely, but that is not guaranteed.
The second column of each table shows the amount you would have at the end
of each Policy year if an amount equal to the assumed Planned Premiums were
invested to earn interest, after taxes, at 5% compounded annually. This is not a
policy value. It is included for comparison purposes only.
Because your circumstances will no doubt differ from those in the
illustrations that follow, values under your policy will differ, in most cases
substantially. Upon request, we will furnish you with a comparable illustration
reflecting your proposed insured person's issue age, sex and underwriting risk
classification, and the Basic Sum Insured, Additional Sum Insured and annual
Planned Premium amount requested.
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<PAGE>
FLEXIBLE PREMIUM VARIABLE LIFE
$100,000 TOTAL SUM INSURED
MALE, ISSUE AGE 35, STANDARD NONSMOKER UNDERWRITING RISK CLASS
OPTION A DEATH BENEFIT
GUIDELINE PREMIUM AND CASH VALUE CORRIDOR TEST
PLANNED PREMIUM: $ 760 *
USING CURRENT CHARGES
<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 $ 274 $ 303 $ 332 $ 0 $ 0 $ 0
2 1,636 100,000 100,000 100,000 767 850 937 7 90 177
3 2,516 100,000 100,000 100,000 1,239 1,407 1,590 479 647 830
4 3,439 100,000 100,000 100,000 1,692 1,977 2,298 932 1,217 1,538
5 4,409 100,000 100,000 100,000 2,124 2,558 3,066 1,364 1,798 2,306
6 5,428 100,000 100,000 100,000 2,536 3,151 3,900 1,928 2,543 3,292
7 6,497 100,000 100,000 100,000 2,930 3,758 4,809 2,398 3,226 4,277
8 7,620 100,000 100,000 100,000 3,304 4,380 5,800 2,848 3,924 5,344
9 8,799 100,000 100,000 100,000 3,660 5,016 6,883 3,356 4,712 6,579
10 10,037 100,000 100,000 100,000 3,997 5,669 8,068 3,845 5,517 7,916
11 11,337 100,000 100,000 100,000 4,355 6,382 9,417 4,355 6,382 9,417
12 12,702 100,000 100,000 100,000 4,695 7,118 10,901 4,695 7,118 10,901
13 14,135 100,000 100,000 100,000 5,019 7,878 12,537 5,019 7,878 12,537
14 15,640 100,000 100,000 100,000 5,330 8,667 14,345 5,330 8,667 14,345
15 17,220 100,000 100,000 100,000 5,632 9,490 16,348 5,632 9,490 16,348
16 18,879 100,000 100,000 100,000 5,929 10,354 18,574 5,929 10,354 18,574
17 20,621 100,000 100,000 100,000 6,174 11,214 21,003 6,174 11,214 21,003
18 22,450 100,000 100,000 100,000 6,385 12,088 23,679 6,385 12,088 23,679
19 24,370 100,000 100,000 100,000 6,558 12,975 26,627 6,558 12,975 26,627
20 26,387 100,000 100,000 100,000 6,700 13,882 29,888 6,700 13,882 29,888
25 38,086 100,000 100,000 100,000 6,842 18,667 52,322 6,842 18,667 52,322
30 53,018 100,000 100,000 109,126 6,244 24,274 90,938 6,244 24,274 90,938
35 72,076 ** 100,000 179,385 4,418 30,640 155,987 4,418 30,640 155,987
40 96,398 ** 100,000 276,855 ** 35,126 263,672 ** 35,126 263,672
45 127,441 ** 100,000 466,188 ** 37,880 443,988 ** 37,880 443,988
</TABLE>
---------
* The illustrations assume that Planned Premiums are equal to the Target
Premium and are paid at the start of each Policy Year. The Death Benefit and
Surrender Value will differ if premiums are paid in different amounts or
frequencies, if policy loans are taken, or if Additional Sum Insured or
optional rider benefits are elected.
** Policy lapses unless additional premium payments are made.
THE HYPOTHETICAL INVESTMENT RESULTS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE
DEEMED A REPRESENTATION OF PAST OR FUTURE INVESTMENT RESULTS. ACTUAL INVESTMENT
RESULTS MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF
FACTORS, INCLUDING INVESTMENT ALLOCATIONS MADE BY THE OWNER. THE DEATH BENEFIT,
ACCOUNT VALUE AND SURRENDER VALUE FOR A POLICY WOULD BE DIFFERENT FROM THOSE
SHOWN IF THE ACTUAL GROSS RATES OF INVESTMENT RETURN 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.
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<PAGE>
FLEXIBLE PREMIUM VARIABLE LIFE
$100,000 TOTAL SUM INSURED
MALE, ISSUE AGE 35, STANDARD NONSMOKER UNDERWRITING RISK CLASS
OPTION A DEATH BENEFIT
GUIDELINE PREMIUM AND CASH VALUE CORRIDOR TEST
PLANNED PREMIUM: $ 760 *
USING MAXIMUM CHARGES
<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 $ 216 $ 242 $ 0 $ 0 $ 0
2 1,636 100,000 100,000 100,000 609 679 753 0 0 0
3 2,516 100,000 100,000 100,000 1,010 1,152 1,307 250 392 547
4 3,439 100,000 100,000 100,000 1,394 1,634 1,905 634 874 1,145
5 4,409 100,000 100,000 100,000 1,758 2,122 2,550 998 1,362 1,790
6 5,428 100,000 100,000 100,000 2,102 2,619 3,248 1,494 2,011 2,640
7 6,497 100,000 100,000 100,000 2,425 3,119 4,000 1,893 2,587 3,468
8 7,620 100,000 100,000 100,000 2,726 3,624 4,812 2,270 3,168 4,356
9 8,799 100,000 100,000 100,000 3,001 4,132 5,688 2,697 3,828 5,384
10 10,037 100,000 100,000 100,000 3,254 4,642 6,635 3,102 4,490 6,483
11 11,337 100,000 100,000 100,000 3,479 5,151 7,657 3,479 5,151 7,657
12 12,702 100,000 100,000 100,000 3,675 5,657 8,759 3,675 5,657 8,759
13 14,135 100,000 100,000 100,000 3,840 6,158 9,951 3,840 6,158 9,951
14 15,640 100,000 100,000 100,000 3,975 6,653 11,239 3,975 6,653 11,239
15 17,220 100,000 100,000 100,000 4,074 7,138 12,631 4,074 7,138 12,631
16 18,879 100,000 100,000 100,000 4,137 7,611 14,138 4,137 7,611 14,138
17 20,621 100,000 100,000 100,000 4,157 8,065 15,767 4,157 8,065 15,767
18 22,450 100,000 100,000 100,000 4,129 8,492 17,524 4,129 8,492 17,524
19 24,370 100,000 100,000 100,000 4,047 8,888 19,424 4,047 8,888 19,424
20 26,387 100,000 100,000 100,000 3,902 9,240 21,473 3,902 9,240 21,473
25 38,086 100,000 100,000 100,000 2,014 10,063 34,542 2,014 10,063 34,542
30 53,018 ** 100,000 100,000 ** 8,003 54,555 ** 8,003 54,555
35 72,076 ** ** 100,633 ** ** 87,507 ** ** 87,507
40 96,398 ** ** 149,767 ** ** 142,635 ** ** 142,635
45 127,441 ** ** 242,572 ** ** 231,021 ** ** 231,021
</TABLE>
---------
* The illustrations assume that Planned Premiums are equal to the Target
Premium and are paid at the start of each Policy Year. The Death Benefit and
Surrender Value will differ if premiums are paid in different amounts or
frequencies, if policy loans are taken, or if Additional Sum Insured or
optional rider benefits are elected.
** Policy lapses unless additional premium payments are made.
THE HYPOTHETICAL INVESTMENT RESULTS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE
DEEMED A REPRESENTATION OF PAST OR FUTURE INVESTMENT RESULTS. ACTUAL INVESTMENT
RESULTS MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF
FACTORS, INCLUDING INVESTMENT ALLOCATIONS MADE BY THE OWNER. THE DEATH BENEFIT,
ACCOUNT VALUE AND SURRENDER VALUE FOR A POLICY WOULD BE DIFFERENT FROM THOSE
SHOWN IF THE ACTUAL GROSS RATES OF INVESTMENT RETURN 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.
27
<PAGE>
FLEXIBLE PREMIUM VARIABLE LIFE
$100,000 TOTAL SUM INSURED
MALE, ISSUE AGE 35, STANDARD NONSMOKER UNDERWRITING RISK CLASS
OPTION B DEATH BENEFIT
GUIDELINE PREMIUM AND CASH VALUE CORRIDOR TEST
PLANNED PREMIUM: $ 760 *
USING CURRENT CHARGES
<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 $100,269 $ 217 $ 243 $ 269 $ 0 $ 0 $ 0
2 1,636 100,660 100,734 100,812 660 734 812 0 0 52
3 2,516 101,087 101,237 101,399 1,087 1,237 1,399 327 477 639
4 3,439 101,496 101,750 102,036 1,496 1,750 2,036 736 990 1,276
5 4,409 101,885 102,272 102,724 1,885 2,272 2,724 1,125 1,512 1,964
6 5,428 102,255 102,802 103,469 2,255 2,802 3,469 1,647 2,194 2,861
7 6,497 102,602 103,339 104,273 2,602 3,339 4,273 2,070 2,807 3,741
8 7,620 102,926 103,882 105,142 2,926 3,882 5,142 2,470 3,426 4,686
9 8,799 103,226 104,428 106,081 3,226 4,428 6,081 2,922 4,124 5,777
10 10,037 103,500 104,977 107,096 3,500 4,977 7,096 3,348 4,825 6,944
11 11,337 103,783 105,568 108,239 3,783 5,568 8,239 3,783 5,568 8,239
12 12,702 104,042 106,165 109,482 4,042 6,165 9,482 4,042 6,165 9,482
13 14,135 104,273 106,766 110,833 4,273 6,766 10,833 4,273 6,766 10,833
14 15,640 104,474 107,368 112,302 4,474 7,368 12,302 4,474 7,368 12,302
15 17,220 104,645 107,970 113,897 4,645 7,970 13,897 4,645 7,970 13,897
16 18,879 104,843 108,632 115,697 4,843 8,632 15,697 4,843 8,632 15,697
17 20,621 104,997 109,282 117,648 4,997 9,282 17,648 4,997 9,282 17,648
18 22,450 105,096 109,909 119,752 5,096 9,909 19,752 5,096 9,909 19,752
19 24,370 105,134 110,506 122,022 5,134 10,506 22,022 5,134 10,506 22,022
20 26,387 105,115 111,072 124,478 5,115 11,072 24,478 5,115 11,072 24,478
25 38,086 104,433 113,704 140,677 4,433 13,704 40,677 4,433 13,704 40,677
30 53,018 102,724 115,876 166,584 2,724 15,876 66,584 2,724 15,876 66,584
35 72,076 0 116,166 207,244 0 16,166 107,244 0 16,166 107,244
40 96,398 0 112,112 270,422 0 12,112 170,422 0 12,112 170,422
45 127,441 0 100,471 369,026 0 471 269,026 0 471 269,026
</TABLE>
---------
* The illustrations assume that Planned Premiums are equal to the Target
Premium and are paid at the start of each Policy Year. The Death Benefit and
Surrender Value will differ if premiums are paid in different amounts or
frequencies, if policy loans are taken, or if Additional Sum Insured or
optional rider benefits are elected.
** Policy lapses unless additional premium payments are made.
THE HYPOTHETICAL INVESTMENT RESULTS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE
DEEMED A REPRESENTATION OF PAST OR FUTURE INVESTMENT RESULTS. ACTUAL INVESTMENT
RESULTS MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF
FACTORS, INCLUDING INVESTMENT ALLOCATIONS MADE BY THE OWNER. THE DEATH BENEFIT,
ACCOUNT VALUE AND SURRENDER VALUE FOR A POLICY WOULD BE DIFFERENT FROM THOSE
SHOWN IF THE ACTUAL GROSS RATES OF INVESTMENT RETURN 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.
28
<PAGE>
FLEXIBLE PREMIUM VARIABLE LIFE
$100,000 TOTAL SUM INSURED
MALE, ISSUE AGE 35, STANDARD NONSMOKER UNDERWRITING RISK CLASS
OPTION B DEATH BENEFIT
GUIDELINE PREMIUM AND CASH VALUE CORRIDOR TEST
PLANNED PREMIUM: $ 760 *
USING MAXIMUM CHARGES
<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 $100,190 $100,216 $100,241 $ 190 $ 216 $ 241 $ 0 $ 0 $ 0
2 1,636 100,607 100,677 100,751 607 677 751 0 0 0
3 2,516 101,006 101,147 101,301 1,006 1,147 1,301 246 387 541
4 3,439 101,386 101,625 101,895 1,386 1,625 1,895 626 865 1,135
5 4,409 101,747 102,109 102,533 1,747 2,109 2,533 987 1,349 1,773
6 5,428 102,086 102,598 103,221 2,086 2,598 3,221 1,478 1,990 2,613
7 6,497 102,403 103,090 103,961 2,403 3,090 3,961 1,871 2,558 3,429
8 7,620 102,696 103,584 104,756 2,696 3,584 4,756 2,240 3,128 4,300
9 8,799 102,963 104,077 105,609 2,963 4,077 5,609 2,659 3,773 5,305
10 10,037 103,206 104,570 106,527 3,206 4,570 6,527 3,054 4,418 6,375
11 11,337 103,419 105,058 107,511 3,419 5,058 7,511 3,419 5,058 7,511
12 12,702 103,602 105,539 108,567 3,602 5,539 8,567 3,602 5,539 8,567
13 14,135 103,754 106,010 109,699 3,754 6,010 9,699 3,754 6,010 9,699
14 15,640 103,871 106,470 110,914 3,871 6,470 10,914 3,871 6,470 10,914
15 17,220 103,953 106,914 112,215 3,953 6,914 12,215 3,953 6,914 12,215
16 18,879 103,996 107,339 113,609 3,996 7,339 13,609 3,996 7,339 13,609
17 20,621 103,995 107,736 115,098 3,995 7,736 15,098 3,995 7,736 15,098
18 22,450 103,943 108,098 116,683 3,943 8,098 16,683 3,943 8,098 16,683
19 24,370 103,836 108,418 118,370 3,836 8,418 18,370 3,836 8,418 18,370
20 26,387 103,664 108,682 120,157 3,664 8,682 20,157 3,664 8,682 20,157
25 38,086 101,641 108,839 130,719 1,641 8,839 30,719 1,641 8,839 30,719
30 53,018 ** 105,662 143,980 ** 5,662 43,980 ** 5,662 43,980
35 72,076 ** ** 158,754 ** ** 58,754 ** ** 58,754
40 96,398 ** ** 171,485 ** ** 71,485 ** ** 71,485
45 127,441 ** ** 172,946 ** ** 72,946 ** ** 72,946
</TABLE>
---------
* The illustrations assume that Planned Premiums are equal to the Target
Premium and are paid at the start of each Policy Year. The Death Benefit and
Surrender Value will differ if premiums are paid in different amounts or
frequencies, if policy loans are taken, or if Additional Sum Insured or
optional rider benefits are elected.
** Policy lapses unless additional premium payments are made.
THE HYPOTHETICAL INVESTMENT RESULTS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE
DEEMED A REPRESENTATION OF PAST OR FUTURE INVESTMENT RESULTS. ACTUAL INVESTMENT
RESULTS MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF
FACTORS, INCLUDING INVESTMENT ALLOCATIONS MADE BY THE OWNER. THE DEATH BENEFIT,
ACCOUNT VALUE AND SURRENDER VALUE FOR A POLICY WOULD BE DIFFERENT FROM THOSE
SHOWN IF THE ACTUAL GROSS RATES OF INVESTMENT RETURN 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.
29
<PAGE>
FLEXIBLE PREMIUM VARIABLE LIFE
$100,000 TOTAL SUM INSURED
MALE, ISSUE AGE 35, STANDARD NONSMOKER UNDERWRITING RISK CLASS
OPTION A DEATH BENEFIT
CASH VALUE ACCUMULATION TEST
PLANNED PREMIUM: $ 760 *
USING CURRENT CHARGES
<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 $ 217 $ 244 $ 270 $ 0 $ 0 $ 0
2 1,636 100,000 100,000 100,000 662 736 814 0 0 54
3 2,516 100,000 100,000 100,000 1,091 1,241 1,405 331 481 645
4 3,439 100,000 100,000 100,000 1,504 1,759 2,046 744 999 1,286
5 4,409 100,000 100,000 100,000 1,897 2,286 2,742 1,137 1,526 1,982
6 5,428 100,000 100,000 100,000 2,272 2,824 3,497 1,664 2,216 2,889
7 6,497 100,000 100,000 100,000 2,626 3,370 4,315 2,094 2,838 3,783
8 7,620 100,000 100,000 100,000 2,958 3,925 5,203 2,502 3,469 4,747
9 8,799 100,000 100,000 100,000 3,267 4,487 6,166 2,963 4,183 5,862
10 10,037 100,000 100,000 100,000 3,552 5,055 7,212 3,400 4,903 7,060
11 11,337 100,000 100,000 100,000 3,848 5,669 8,396 3,848 5,669 8,396
12 12,702 100,000 100,000 100,000 4,121 6,294 9,691 4,121 6,294 9,691
13 14,135 100,000 100,000 100,000 4,368 6,928 11,107 4,368 6,928 11,107
14 15,640 100,000 100,000 100,000 4,588 7,569 12,657 4,588 7,569 12,657
15 17,220 100,000 100,000 100,000 4,779 8,217 14,354 4,779 8,217 14,354
16 18,879 100,000 100,000 100,000 4,997 8,927 16,270 4,997 8,927 16,270
17 20,621 100,000 100,000 100,000 5,173 9,636 18,365 5,173 9,636 18,365
18 22,450 100,000 100,000 100,000 5,298 10,333 20,651 5,298 10,333 20,651
19 24,370 100,000 100,000 100,000 5,366 11,014 23,150 5,366 11,014 23,150
20 26,387 100,000 100,000 100,000 5,379 11,681 25,891 5,379 11,681 25,891
25 38,086 100,000 100,000 100,000 4,884 15,049 44,699 4,884 15,049 44,699
30 53,018 100,000 100,000 100,000 3,368 18,521 77,023 3,368 18,521 77,023
35 72,076 ** 100,000 151,986 ** 21,140 132,161 ** 21,140 132,161
40 96,398 ** 100,000 234,986 ** 21,132 223,797 ** 21,132 223,797
45 127,441 ** 100,000 395,910 ** 15,576 377,057 ** 15,576 377,057
</TABLE>
---------
* The illustrations assume that Planned Premiums are equal to the Target
Premium and are paid at the start of each Policy Year. The Death Benefit and
Surrender Value will differ if premiums are paid in different amounts or
frequencies, if policy loans are taken, or if Additional Sum Insured or
optional rider benefits are elected.
** Policy lapses unless additional premium payments are made.
THE HYPOTHETICAL INVESTMENT RESULTS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE
DEEMED A REPRESENTATION OF PAST OR FUTURE INVESTMENT RESULTS. ACTUAL INVESTMENT
RESULTS MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF
FACTORS, INCLUDING INVESTMENT ALLOCATIONS MADE BY THE OWNER. THE DEATH BENEFIT,
ACCOUNT VALUE AND SURRENDER VALUE FOR A POLICY WOULD BE DIFFERENT FROM THOSE
SHOWN IF THE ACTUAL GROSS RATES OF INVESTMENT RETURN 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.
30
<PAGE>
FLEXIBLE PREMIUM VARIABLE LIFE
$100,000 TOTAL SUM INSURED
MALE, ISSUE AGE 35, STANDARD NONSMOKER UNDERWRITING RISK CLASS
OPTION A DEATH BENEFIT
CASH VALUE ACCUMULATION TEST
PLANNED PREMIUM: $ 760 *
USING MAXIMUM CHARGES
<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 $ 216 $ 242 $ 0 $ 0 $ 0
2 1,636 100,000 100,000 100,000 609 679 753 0 0 0
3 2,516 100,000 100,000 100,000 1,010 1,152 1,307 250 392 547
4 3,439 100,000 100,000 100,000 1,394 1,634 1,905 634 874 1,145
5 4,409 100,000 100,000 100,000 1,758 2,122 2,550 998 1,362 1,790
6 5,428 100,000 100,000 100,000 2,102 2,619 3,248 1,494 2,011 2,640
7 6,497 100,000 100,000 100,000 2,425 3,119 4,000 1,893 2,587 3,468
8 7,620 100,000 100,000 100,000 2,726 3,624 4,812 2,270 3,168 4,356
9 8,799 100,000 100,000 100,000 3,001 4,132 5,688 2,697 3,828 5,384
10 10,037 100,000 100,000 100,000 3,254 4,642 6,635 3,102 4,490 6,483
11 11,337 100,000 100,000 100,000 3,479 5,151 7,657 3,479 5,151 7,657
12 12,702 100,000 100,000 100,000 3,675 5,657 8,759 3,675 5,657 8,759
13 14,135 100,000 100,000 100,000 3,840 6,158 9,951 3,840 6,158 9,951
14 15,640 100,000 100,000 100,000 3,975 6,653 11,239 3,975 6,653 11,239
15 17,220 100,000 100,000 100,000 4,074 7,138 12,631 4,074 7,138 12,631
16 18,879 100,000 100,000 100,000 4,137 7,611 14,138 4,137 7,611 14,138
17 20,621 100,000 100,000 100,000 4,157 8,065 15,767 4,157 8,065 15,767
18 22,450 100,000 100,000 100,000 4,129 8,492 17,524 4,129 8,492 17,524
19 24,370 100,000 100,000 100,000 4,047 8,888 19,424 4,047 8,888 19,424
20 26,387 100,000 100,000 100,000 3,902 9,240 21,473 3,902 9,240 21,473
25 38,086 100,000 100,000 100,000 2,014 10,063 34,542 2,014 10,063 34,542
30 53,018 ** 100,000 100,000 ** 8,003 54,555 ** 8,003 54,555
35 72,076 ** ** 129,217 ** ** 85,370 ** ** 85,370
40 96,398 ** ** 176,943 ** ** 129,269 ** ** 129,269
45 127,441 ** ** 239,730 ** ** 189,870 ** ** 189,870
</TABLE>
---------
* The illustrations assume that Planned Premiums are equal to the Target
Premium and are paid at the start of each Policy Year. The Death Benefit and
Surrender Value will differ if premiums are paid in different amounts or
frequencies, if policy loans are taken, or if Additional Sum Insured or
optional rider benefits are elected.
** Policy lapses unless additional premium payments are made.
THE HYPOTHETICAL INVESTMENT RESULTS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE
DEEMED A REPRESENTATION OF PAST OR FUTURE INVESTMENT RESULTS. ACTUAL INVESTMENT
RESULTS MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF
FACTORS, INCLUDING INVESTMENT ALLOCATIONS MADE BY THE OWNER. THE DEATH BENEFIT,
ACCOUNT VALUE AND SURRENDER VALUE FOR A POLICY WOULD BE DIFFERENT FROM THOSE
SHOWN IF THE ACTUAL GROSS RATES OF INVESTMENT RETURN 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.
31
<PAGE>
ADDITIONAL INFORMATION
This section of the prospectus provides additional detailed information
that is not contained in the Basic Information section on pages 4 through 24.
<TABLE>
<CAPTION>
CONTENTS OF THIS SECTION BEGINNING ON PAGE
------------------------ ----------------
<S> <C>
Description of us ................................................. 33
How we support the policy and investment options................... 33
Procedures for issuance of a policy................................ 34
Basic Sum Insured vs. Additional Sum Insured....................... 35
Commencement of investment performance............................. 35
How we process certain policy transactions......................... 36
Effects of policy loans............................................ 37
Additional information about how certain policy charges work....... 38
How we market the policies......................................... 39
Tax considerations................................................. 39
Reports that you will receive...................................... 41
Voting privileges that you will have............................... 41
Changes that we can make as to your policy......................... 42
Adjustments we make to death benefits.............................. 42
When we pay policy proceeds........................................ 43
Other details about exercising rights and paying benefits.......... 43
Legal matters...................................................... 44
Registration statement filed with the SEC.......................... 44
Accounting and actuarial experts................................... 44
Financial statements of JHVLICO and the Account.................... 44
List of Directors and Executive Officers of JHVLICO................ 45
</TABLE>
32
<PAGE>
DESCRIPTION OF US
We are JHVLICO, a stock life insurance company chartered in 1979 under
Massachusetts law. We are authorized to transact a life insurance and annuity
business in all states other than New York and in the District of Columbia. We
began selling variable life insurance policies in 1980.
We are regulated and supervised by the Massachusetts Commissioner of
Insurance, who periodically examines our affairs. We also are subject to the
applicable insurance laws and regulations of all jurisdictions in which we are
authorized to do business. We are required to submit annual statements of our
operations, including financial statements, to the insurance departments of the
various jurisdictions in which we do business for purposes of determining
solvency and compliance with local insurance laws and regulations. The
regulation to which we are subject, however, does not provide a guarantee as to
such matters.
We are a wholly-owned subsidiary of John Hancock Life Insurance Company
("John Hancock"), a Massachusetts stock life insurance company. On February 1,
2000, John Hancock Mutual Life Insurance Company (which was chartered in
Massachusetts in 1862) converted to a stock company by "demutualizing" and
changed its name to John Hancock Life Insurance Company. As part of the
demutualization process, John Hancock became a subsidiary of John Hancock
Financial Services, Inc., a newly formed publicly-traded corporation. John
Hancock's home office is at John Hancock Place, Boston, Massachusetts 02117. As
of December 31, 1999, John Hancock's assets were approximately $71 billion and
it had invested approximately $575 million in JHVLICO in connection with
JHVLICO's organization and operation. It is anticipated that John Hancock will
from time to time make additional capital contributions to JHVLICO to enable us
to meet our reserve requirements and expenses in connection with our business.
John Hancock is committed to make additional capital contributions if necessary
to ensure that we maintain a positive net worth.
HOW WE SUPPORT THE POLICY AND INVESTMENT OPTIONS
Separate Account U
The variable investment options shown on page 1 are in fact subaccounts of
Separate Account U (the "Account"), a separate account established by us under
Massachusetts law. The Account meets the definition of "separate account" under
the Federal securities laws and is registered as a unit investment trust under
the Investment Company Act of 1940 ("1940 Act"). Such registration does not
involve supervision by the SEC of the management of the Account or of us.
The Account's assets are our property. Each policy provides that amounts we
hold in the Account pursuant to the policies cannot be reached by any other
persons who may have claims against us.
The assets in each subaccount are invested in the corresponding fund of the
Trust. 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 a Trust represent an
interest in one of the funds of the Trust which corresponds to a subaccount of
the Account. Any dividend or capital gains distributions received by the Account
will be reinvested in shares of that same fund at their net asset value as of
the dates paid.
On each business day, shares of each fund are purchased or redeemed by us
for each subaccount based on, among other things, the amount of net premiums
allocated to the subaccount, distributions reinvested, and transfers to, from
and among subaccounts, all to be effected as of that date. Such purchases and
redemptions are effected at each
33
<PAGE>
fund's net asset value per share determined for that same date. A "business day"
is any date on which the New York Stock Exchange is open for trading. We compute
policy values for each business day as of the close of that day (usually 4:00
p.m. Eastern Standard Time).
Our general account
Our obligations under the policy's fixed investment option are backed by
our general account assets. Our general account consists of assets owned by us
other than those in the Account and in other separate accounts that we may
establish. Subject to applicable law, we have sole discretion over the
investment of assets of the general account and policy owners do not share in
the investment experience of, or have any preferential claim on, those assets.
Instead, we guarantee that the account value allocated to the fixed investment
option will accrue interest daily at an effective annual rate of at least 4%
without regard to the actual investment experience of the general account.
Because of exemptive and exclusionary provisions, interests in our fixed
investment option have not been registered under the Securities Act of 1933 and
our general account has not been registered as an investment company under the
1940 Act. Accordingly, neither the general account nor any interests therein are
subject to the provisions of these acts, and we have been advised that the staff
of the SEC has not reviewed the disclosure in this prospectus relating to the
fixed investment option. Disclosure regarding the fixed investment option may,
however, be subject to certain generally-applicable provisions of the Federal
securities laws relating to accuracy and completeness of statements made in
prospectuses.
PROCEDURES FOR ISSUANCE OF A POLICY
Generally, the policy is available with a minimum Basic Sum Insured at
issue of $100,000. At the time of issue, the insured person must have an
attained age of no more than 80. All insured persons must meet certain health
and other insurance risk criteria called "underwriting standards".
Policies issued in Montana or in connection with certain employee plans
will not directly reflect the sex of the insured person in either the premium
rates or the charges or values under the policy. The illustrations set forth in
this prospectus are sex-distinct and, therefore, may not reflect the rates,
charges, or values that would apply to such policies.
Minimum Initial Premium
The Minimum Initial Premium must be received by us at our Life Servicing
Office in order for the policy to be in full force and effect. There is no grace
period for the payment of the Minimum Initial Premium. The Minimum Initial
Premium is determined by us based on the characteristics of the insured person,
the Basic Sum Insured and the Additional Sum Insured at issue, and the policy
options you have selected.
Commencement of insurance coverage
After you apply for a policy, it can sometimes take up to several weeks for
us to gather and evaluate all the information we need to decide whether to issue
a policy to you and, if so, what the insured person's rate class should be.
After we approve an application for a policy and assign an appropriate insurance
rate class, we will prepare the policy for delivery. We will not pay a death
benefit under a policy unless the policy is in effect when the insured person
dies (except for the circumstances described under "Temporary insurance coverage
prior to policy delivery" on page 35).
The policy will take effect only if all of the following conditions are
satisfied:
. The policy is delivered to and received by the applicant.
. The Minimum Initial Premium is received by us.
. Each insured person is living and still meets our health criteria for
issuing insurance.
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If all of the above conditions are satisfied, the policy will take effect on the
date shown in the policy as the "date of issue." That is the date on which we
begin to deduct monthly charges. Policy months, policy years and policy
anniversaries are all measured from the date of issue.
Backdating
In order to preserve a younger age at issue for the insured person, we can
designate a date of issue that is up to 60 days earlier than the date that would
otherwise apply. This is referred to as "backdating" and is allowed under state
insurance laws. Backdating can also be used in certain corporate-owned life
insurance cases involving multiple policies to retain a common monthly deduction
date.
The conditions for coverage described above under "Commencement of
insurance coverage" must still be satisfied, but in a backdating situation the
policy always takes effect retroactively. Backdating results in a lower
insurance charge (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.
BASIC SUM INSURED VS. ADDITIONAL SUM INSURED
As noted earlier in this prospectus, you should consider a number of
factors in determining whether to elect coverage in the form of Basic Sum
Insured or in the form of Additional Sum Insured.
The amount of sales charge deducted from premiums and the amount of
compensation paid to the selling insurance agent will be less if coverage is
included as Additional Sum Insured, rather than as Basic Sum Insured. On the
other hand, the amount of any Additional Sum Insured is not included in the
guaranteed death benefit feature. Therefore, if the policy's surrender value is
insufficient to pay the monthly charges as they fall due (including the charges
for the Additional Sum Insured), the Additional Sum Insured coverage will lapse,
even if the Basic Sum Insured stays in effect pursuant to the guaranteed death
benefit feature.
Generally, you will incur lower sales charges and have more flexible
coverage with respect to the Additional Sum Insured than with respect to the
Basic Sum Insured. If this is your priority, you may wish to maximize the
proportion of the Additional Sum Insured. However, if your priority is to take
advantage of the guaranteed death benefit feature, the proportion of the
Policy's Total Sum Insured that is guaranteed can be increased by taking out
more coverage as Basic Sum Insured at the time of policy issuance.
Any decision you make to modify the amount of Additional Sum Insured
coverage after issue can have significant tax consequences (see "Tax
Considerations" beginning on page 39).
COMMENCEMENT OF INVESTMENT PERFORMANCE
Any premium payment processed prior to the twentieth day after the policy's
date of issue will automatically be allocated to the Money Market investment
option. On the later of the date such payment is received or the twentieth day
following the date of issue, the portion of the Money Market investment option
attributable to such payment will
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be reallocated automatically among the investment options you have chosen.
All other premium payments will be allocated among the investment options you
have chosen as soon as they are processed.
HOW WE PROCESS CERTAIN POLICY TRANSACTIONS
Premium payments
We will process any premium payment as of the day we receive it, unless one
of the following exceptions applies:
(1) We will process a payment received prior to a policy's date of issue as
if received on the date of issue.
(2) If the Minimum Initial Premium is not received prior to the date of
issue, we will process each premium payment received thereafter as if received
on the business day immediately preceding the date of issue until all of the
Minimum Initial Premium is received.
(3) We will process the portion of any premium payment for which we require
evidence of the insured person's continued insurability only after we have
received such evidence and found it satisfactory to us.
(4) If we receive any premium payment that we think will cause a policy to
become a modified endowment or will cause a policy to lose its status as life
insurance under the tax laws, we will not accept the excess portion of that
premium payment and will immediately notify the owner. We will refund the excess
premium when the premium payment check has had time to clear the banking system
(but in no case more than two weeks after receipt), except in the following
circumstances:
. The tax problem resolves itself prior to the date the refund is to be made;
or
. The tax problem relates to modified endowment status and we receive a
signed acknowledgment from the owner prior to the refund date instructing
us to process the premium notwithstanding the tax issues involved.
In the above cases, we will treat the excess premium as having been
received on the date the tax problem resolves itself or the date we receive the
signed acknowledgment. We will then process it accordingly.
(4) If a premium payment is received or is otherwise scheduled to be
processed (as specified above) on a date that is not a business day, the premium
payment will be processed on the business day next following that date.
Transfers among investment options
Any reallocation among investment options must be such that the total in
all investment options after reallocation equals 100% of account value.
Transfers out of any investment option will be effective at the end of the
business day in which we receive at our Life Servicing Office notice
satisfactory to us.
We have the right to defer transfers of amounts out of the fixed investment
option for up to six months.
Dollar cost averaging
Scheduled transfers under this option may be made from the Money Market
investment option to not more than nine other variable investment options.
However, the amount transferred to any one investment option must be at least
$100.
Once we receive the election in form satisfactory to us at our Life
Servicing Office, transfers will begin on the second monthly deduction date
following its receipt. If you have any questions with respect to this provision,
call 1-800-732-5543.
Once elected, the scheduled monthly transfer option will remain in effect
for so long as you have at least $2,500 of your account value in the Money
Market investment option, or until we receive written notice from you of
cancellation of the option or notice
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of the death of the insured person. The dollar cost averaging and rebalancing
options cannot be in effect at the same time. We reserve the right to modify,
terminate or suspend the dollar cost averaging program at any time.
Asset Rebalancing
This option can be elected in the application or by sending the appropriate
form to our Life Servicing Office. You must specify the frequency for
rebalancing (quarterly, semi-annually or annually), the preset percentage for
each variable investment option and a future beginning date. The first
rebalancing will occur on the monthly deduction date that occurs on or next
follows the beginning date you select.
Once elected, rebalancing will continue until we receive notice of
cancellation of the option or notice of the death of the last surviving insured
person. If you cancel rebalancing, you will have to wait 30 days before you can
start it again.
The fixed investment option does not participate in and is not affected by
rebalancing.The rebalancing and dollar cost averaging options cannot be in
effect at the same time. We reserve the right to modify, terminate or suspend
the rebalancing program at any time.
Telephone transfers and policy loans
Once you have completed a written authorization, you may request a transfer
or policy loan by telephone or by fax. If the fax request option becomes
unavailable, another means of telecommunication will be substituted.
If you authorize telephone transactions, you will be liable for any loss,
expense or cost arising out of any unauthorized or fraudulent telephone
instructions which we reasonably believe to be genuine, unless such loss,
expense or cost is the result of our mistake or negligence. We employ procedures
which provide safeguards against the execution of unauthorized transactions, and
which are reasonably designed to confirm that instructions received by telephone
are genuine. These procedures include requiring personal identification, tape
recording calls, and providing written confirmation to the owner. If we do not
employ reasonable procedures to confirm that instructions communicated by
telephone are genuine, we may be liable for any loss due to unauthorized or
fraudulent instructions.
Effective date of other policy transactions
The following transactions take effect on the policy anniversary on or next
following the date we approve your request:
. Additional Sum Insured increases.
. Change of death benefit Option from A to B.
A change from Option B to Option A is effective on the policy anniversary
on or next following the date we receive the request.
The following transactions take effect on the monthly deduction date on or
next following the date we approve your request:
. Total Sum Insured decreases
. Reinstatements of lapsed policies
We process loans, surrenders, partial withdrawals and loan repayments as of
the day we receive such request or repayment.
EFFECTS OF POLICY LOANS
The account value, the surrender value, and any death benefit above the
Total Sum Insured are permanently affected by any loan, whether or not it is
repaid in whole or in part. This is because the amount of the loan is deducted
from the investment options and placed in a special loan account. The investment
options and the special loan account will generally have different rates of
investment return.
The amount of the outstanding loan (which includes accrued and unpaid
interest) is subtracted
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from the amount otherwise payable when the policy proceeds become payable.
Whenever the outstanding loan equals or exceeds the surrender value, the
policy will terminate 31 days after we have mailed notice of termination to you
(and to any assignee of record at such assignee's last known address) specifying
the minimum amount that must be paid to avoid termination, unless a repayment of
at least the amount specified is made within that period.
ADDITIONAL INFORMATION ABOUT HOW CERTAIN POLICY CHARGES WORK
Sales expenses and related charges
The sales charges (i.e., the premium sales charge and the CDSC) help to
compensate us for the cost of selling our policies. (See "What charges will we
deduct from your investment in the policy?" in the Basic Information section of
this prospectus.) The amount of the charges in any policy year does not
specifically correspond to sales expenses for that year. We expect to recover
our total sales expenses over the life of the policies. To the extent that the
sales charges do not cover total sales expenses, the sales expenses may be
recovered from other sources, including gains from the charge for mortality and
expense risks and other gains with respect to the policies, or from our general
assets. (See "How we market the policies" on page 39.)
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 any 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 for ten years, you
would pay total premium sales charges of $400 and be subject to a maximum CDSC
of $1,000. If you paid $2,000 every other policy year for ten policy years, you
would pay total premium sales charges of only $200 and be subject to a maximum
CDSC of $1,000. However, delaying the payment of Target Premiums to later policy
years could increase the risk that the guaranteed death benefit feature will
lapse and the account value will be insufficient to pay policy charges. As a
result, the policy or any Additional Sum Insured may lapse and eventually
terminate. Conversely, accelerating the payment of Target Premiums to earlier
policy years could cause aggregate premiums paid to exceed the policy's 7-pay
premium limit and, as a result, cause the policy to become a modified endowment,
with adverse tax consequences to you upon receipt of policy distributions. (See
"Tax considerations" beginning on page 39.)
Monthly charges
Unless we agree otherwise, we will deduct the monthly charges described in
the Basic Information section from your policy's investment options in
proportion to the amount of account value you have in each. For each month that
we cannot deduct any charge because of insufficient account value, the
uncollected charges will accumulate and be deducted when and if sufficient
account value becomes available.
The insurance under the policy continues in full force during any grace
period but, if the insured person dies during the policy grace period, the
amount of unpaid monthly charges is deducted from the death benefit otherwise
payable.
Reduced charges for eligible classes
The charges otherwise applicable may be reduced with respect to policies
issued to a class of associated individuals or to a trustee, employer or similar
entity where we anticipate that the sales to the members of the class will
result in lower than normal sales or administrative expenses, lower taxes or
lower risks to us. We will make these reductions in accordance with our rules in
effect at the time of the application for a policy. The factors we consider in
determining the eligibility of a particular group for reduced charges, and the
level of the reduction, are as
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follows: the nature of the association and its organizational framework; the
method by which sales will be made to the members of the class; the facility
with which premiums will be collected from the associated individuals and the
association's capabilities with respect to administrative tasks; the anticipated
lapse and surrender rates of the policies; the size of the class of associated
individuals and the number of years it has been in existence; the aggregate
amount of premiums paid; and any other such circumstances which result in a
reduction in sales or administrative expenses, lower taxes or lower risks. Any
reduction in charges will be reasonable and will apply uniformly to all
prospective policy purchasers in the class and will not unfairly discriminate
against any owner.
HOW WE MARKET THE POLICIES
John Hancock Funds, Inc. ("JHFI"), an indirect wholly-owned subsidiary of
John Hancock located at 101 Huntington Avenue, Boston, MA 02199, is registered
as a broker-dealer under the Securities Exchange Act of 1934 and is a member of
the National Association of Securities Dealers, Inc. JHFI acts as principal
underwriter and principal distributor of the policies sold through the use of
this prospectus. JHFI also serves as principal underwriter for John Hancock
Variable Annuity Accounts H and JF, John Hancock Mutual Variable Life Insurance
Account UV, John Hancock Variable Life Account S, and Investors Partner Life
Account L, all of which are registered under the 1940 Act.
The policies may be purchased through broker-dealers and certain financial
institutions who have entered into selling agreements with JHFI and JHVLICO, and
whose representatives are authorized by applicable law to sell variable life
insurance policies.Gross first year commissions plus any expense allowance
payments paid to such broker-dealers and financial institutions is not expected
to exceed 80% of premiums paid up to the Target Premium plus 3% of any excess
premium payments. Gross renewal commissions (i.e., after the first year) are not
expected to exceed 3% of total premiums paid in policy years 2 through 5 plus
0.15% of account value less loans in policy years 2 and thereafter. In some
situations where the broker dealer provides some or all of the marketing
services required, we may pay an additional gross first year commission of up to
20% of premiums paid up to the Target Premium. In such instances, we may also
pay an additional gross renewal commission. The additional gross renewal
commission would not be expected to exceed 0.10% of account value less loans in
policy years 2 and thereafter.
We reimburse JHFI for direct and indirect expenses actually incurred in
connection with the marketing and sale of the policies.
The offering of the policies is intended to be continuous, but neither
JHVLICO nor JHFI is obligated to sell any particular amount of policies.
TAX CONSIDERATIONS
This description of federal income tax consequences is only a brief summary
and is not intended as tax advice. Tax consequences will vary based on your own
particular circumstances, and for further information you should consult a
qualified tax advisor. Federal, state and local tax laws, regulations and
interpretations can change from time to time. As a result, the tax consequences
to you and the beneficiary may be altered, in some cases retroactively.
Policy proceeds
We believe the policy will receive the same federal income and estate tax
treatment as fixed benefit life insurance policies. Section 7702 of the Internal
Revenue Code (the "Code") defines life insurance for federal tax purposes. If
certain standards are met at issue and over the life of the policy, the policy
will satisfy that definition. We will monitor compliance with these standards.
If the policy complies with the definition of life insurance, we believe the
death benefit proceeds under the policy will be excludable from the
beneficiary's gross income under the Code. In
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addition, if you have elected the Long-Term Care Acceleration rider, the rider's
benefits generally will be excludable from gross income under the Code. The
tax-free nature of these accelerated benefits is contingent on the rider meeting
specific requirements under Sections 101 and/or Section 7702B of the Code. We
have designed the rider to meet these standards.
Other policy distributions
Increases in account value as a result of interest or investment experience
will not be subject to federal income tax unless and until values are actually
received through distributions. In general, the owner will be taxed on the
amount of distributions that exceed the premiums paid under the policy. But
under certain circumstances within the first 15 policy years, the owner may be
taxed on a distribution even if total withdrawals do not exceed total premiums
paid. Any taxable distribution will be ordinary income to the owner (rather than
capital gains).
Distributions for tax purposes can include amounts received upon surrender
or partial withdrawals. You may also be deemed to have received a distribution
for tax purposes if you assign all or part of your policy rights or change your
policy's ownership. If you have elected the Long-Term Care Acceleration Rider,
as described beginning on page 18, you may be deemed to have received a
distribution for tax purposes each time a deduction is made from your policy's
account value to pay the rider charge.
We also believe that, except as noted below, loans received under the policy
will be treated as indebtedness of an owner and that no part of any loan will
constitute income to the owner. However, the amount of any outstanding loan that
was not previously considered income (as discussed below) will be treated as if
it had been distributed to the owner if the policy terminates for any reason.
It is possible that, despite our monitoring, a policy might fail to qualify
as life insurance under Section 7702 of the Code. This could happen, for
example, if we inadvertently failed to return to you any premium payments that
were in excess of permitted amounts, or if the Trust failed to meet certain
investment diversification or other requirements of the Code. If this were to
occur, you would be subject to income tax on the income and gains under the
policy for the period of the disqualification and for subsequent periods.
In the past, the United States Treasury Department has stated that it
anticipated issuing guidelines prescribing circumstances in which the ability of
a policy owner to direct his or her investment to particular funds may cause the
policy owner, rather than the insurance company, to be treated as the owner of
the shares of those funds. In that case, any income and gains attributable to
those shares would be included in your current gross income for federal income
tax purposes. Under current law, however, we believe that we, and not the owner
of a policy, would be considered the owner of the fund's shares for tax
purposes.
Tax consequences of ownership or receipt of policy proceeds under federal,
state and local estate, inheritance, gift and other tax laws depend on the
circumstances of each owner or beneficiary.
Because there may be unfavorable tax consequences (including recognition of
taxable income and the loss of income tax-free treatment for any death benefit
payable to the beneficiary), you should consult a qualified tax adviser prior to
changing the policy's ownership or making any assignment of ownership interests.
7-pay premium limit
At the time of policy issuance, we will determine whether the Planned
Premium schedule will exceed the 7-pay limit discussed below. If so, our
standard procedures prohibit issuance of the policy unless you sign a form
acknowledging that fact.
The 7-pay limit is the total of net level premiums that would have been
payable at any time for a comparable fixed policy to be fully "paid-up" after
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the payment of 7 equal annual premiums. "Paid-up" means that no further premiums
would be required to continue the coverage in force until maturity, based on
certain prescribed assumptions. If the total premiums paid at any time during
the first 7 policy years exceed the 7-pay limit, the policy will be treated as a
"modified endowment", which can have adverse tax consequences.
The owner will be taxed on distributions and loans from a "modified
endowment" to the extent of any income (gain) to the owner (on an income-first
basis). The distributions and loans affected will be those made on or after, and
within the two year period prior to, the time the policy becomes a modified
endowment. Additionally, a 10% penalty tax may be imposed on taxable portions of
such distributions or loans that are made before the owner attains age 59 1/2.
Furthermore, any time there is a "material change" in an increase in the
Additional Sum Insured, the addition of certain other policy benefits after
issue, a change in death benefit option, or reinstatement of a lapsed policy),
the policy will have a new 7-pay limit as if it were a newly-issued policy. If a
prescribed portion of the policy's then account value, plus all other premiums
paid within 7 years after the material change, at any time exceed the new 7-pay
limit, the policy will become a modified endowment.
Moreover, if benefits under a policy are reduced (such as a reduction in the
Total Sum Insured or death benefit or the reduction or cancellation of certain
rider benefits) during the 7 years in which a 7-pay test is being applied, the
7-pay limit will be recalculated based on the reduced benefits. If the premiums
paid to date are greater than the recalculated 7-pay limit, the policy will
become a modified endowment.
All modified endowments issued by the same insurer (or its affiliates) to
the owner during any calendar year generally will be treated as one contract for
the purpose of applying the modified endowment rules. A policy received in
exchange for a modified endowment will itself also be a modified endowment. You
should consult your tax advisor if you have questions regarding the possible
impact of the 7-pay limit on your policy.
Corporate and H.R. 10 plans
The policy may be acquired in connection with the funding of retirement
plans satisfying the qualification requirements of Section 401 of the Code. If
so, the Code provisions relating to such plans and life insurance benefits
thereunder should be carefully scrutinized. We are not responsible for
compliance with the terms of any such plan or with the requirements of
applicable provisions of the Code.
REPORTS THAT YOU WILL RECEIVE
At least annually, we will send you a statement setting forth the following
information as of the end of the most recent reporting period: the amount of the
death benefit, the Basic Sum Insured and the Additional Sum Insured, the account
value, the portion of the account value in each investment option, the surrender
value, premiums received and charges deducted from premiums since the last
report, and any outstanding policy loan (and interest charged for the preceding
policy year). Moreover, you also will receive confirmations of premium payments,
transfers among investment options, policy loans, partial withdrawals and
certain other policy transactions.
Semiannually we will send you a report containing the financial statements
of the Trust, including a list of securities held in each fund.
VOTING PRIVILEGES THAT YOU WILL HAVE
All of the assets in the subaccounts of the Account are invested in shares
of the corresponding funds of the Trust. We will vote the shares of each of the
funds of the Trust which are deemed attributable to variable life insurance
policies at regular and special meetings of the Trust's shareholders in
accordance with instructions received from owners of such policies. Shares of
the Trust held in the Account which are not attributable to such policies, as
well as
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shares for which instructions from owners are not received, will be represented
by us at the meeting. We will vote such shares for and against each matter in
the same proportions as the votes based upon the instructions received from the
owners of such policies.
We determine the number of a fund's shares held in a subaccount attributable
to each owner by dividing the amount of a policy's account value held in the
subaccount by the net asset value of one share in the fund. Fractional votes
will be counted. We determine the number of shares as to which the owner may
give instructions as of the record date for the Trust's meeting. Owners of
policies may give instructions regarding the election of the Board of Trustees
or Board of Directors of the Trust, ratification of the selection of independent
auditors, approval of Trust investment advisory agreements and other matters
requiring a shareholder vote. We will furnish owners with information and forms
to enable owners to give voting instructions.
However, we may, in certain limited circumstances permitted by the SEC's
rules, disregard voting instructions. If we do disregard voting instructions,
you will receive a summary of that action and the reasons for it in the next
semi-annual report to owners.
CHANGES THAT WE CAN MAKE AS TO YOUR POLICY
Changes relating to a Trust or the Account
The voting privileges described in this prospectus reflect our understanding
of applicable Federal securities law requirements. To the extent that applicable
law, regulations or interpretations change to eliminate or restrict the need for
such voting privileges, we reserve the right to proceed in accordance with any
such revised requirements. We also reserve the right, subject to compliance with
applicable law, including approval of owners if so required, (1) to transfer
assets determined by JHVLICO to be associated with the class of policies to
which your policy belongs from the Account to another separate account or
subaccount, (2) to operate the Account as a "management-type investment company"
under the 1940 Act, or in any other form permitted by law, the investment
adviser of which would be JHVLICO, John Hancock, or an affiliate of either, (3)
to deregister the Account under the 1940 Act, (4) to substitute for the fund
shares held by a subaccount any other investment permitted by law, and (5) to
take any action necessary to comply with or obtain any exemptions from the 1940
Act. We would notify owners of any of the foregoing changes and, to the extent
legally required, obtain approval of owners and any regulatory body prior
thereto. Such notice and approval, however, may not be legally required in all
cases.
Other permissible changes
We reserve the right to make any changes in the policy necessary to ensure
the policy is within the definition of life insurance under the Federal tax laws
and is in compliance with any changes in Federal or state tax laws.
In our policies, we reserve the right to make certain changes if they would
serve the best interests of policy owners or would be appropriate in carrying
out the purposes of the policies. Such changes include the following:
. Changes necessary to comply with or obtain or continue exemptions under the
federal securities laws
. Combining or removing investment options
. Changes in the form of organization of any separate account
Any such changes will be made only to the extent permitted by applicable
laws and only in the manner permitted by such laws. When required by law, we
will obtain your approval of the changes and the approval of any appropriate
regulatory authority.
ADJUSTMENTS WE MAKE TO DEATH BENEFITS
If the insured person commits suicide within certain time periods, the
amount of death benefit we pay will be limited as described in the policy. Also,
if
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an application misstated the age or gender of the insured person, we will adjust
the amount of any death benefit as described in the policy.
WHEN WE PAY POLICY PROCEEDS
General
We will pay any death benefit, withdrawal, surrender value or loan within 7
days after we receive the last required form or request (and, with respect to
the death benefit, any other documentation that may be required). If we don't
have information about the desired manner of payment within 7 days after the
date we receive notification of the insured person's death, we will pay the
proceeds as a single sum, normally within 7 days thereafter.
Delay to challenge coverage
We may challenge the validity of your insurance policy based on any material
misstatements made to us in the application for the policy. We cannot make such
a challenge, however, beyond certain time limits that are specified in the
policy.
Delay for check clearance
We reserve the right to defer payment of that portion of your account value
that is attributable to a premium payment made by check for a reasonable period
of time (not to exceed 15 days) to allow the check to clear the banking system.
Delay of separate account proceeds
We reserve the right to defer payment of any death benefit, loan or other
distribution that is derived from a variable investment option if (1) the New
York Stock Exchange is closed (other than customary weekend and holiday
closings) or trading on the New York Stock Exchange is restricted; (2) an
emergency exists, as a result of which disposal of securities is not reasonably
practicable or it is not reasonably practicable to fairly determine the account
value; or (3) the SEC by order permits the delay for the protection of owners.
Transfers and allocations of account value among the investment options may also
be postponed under these circumstances. If we need to defer calculation of
separate account values for any of the foregoing reasons, all delayed
transactions will be processed at the next values that we do compute.
OTHER DETAILS ABOUT EXERCISING RIGHTS AND PAYING BENEFITS
Joint ownership
If more than one person owns a policy, all owners must join in most requests
to exercise rights under the policy.
Assigning your policy
You may assign your rights in the policy to someone else as collateral for a
loan or for some other reason. Assignments do not require the consent of any
revocable beneficiary. A copy of the assignment must be forwarded to us. We are
not responsible for any payment we make or any action we take before we receive
notice of the assignment in good order. Nor are we responsible for the validity
of the assignment. An absolute assignment is a change of ownership. All
collateral assignees of record must consent to any full surrender, partial
withdrawal or loan from the policy.
Your beneficiary
You name your beneficiary when you apply for the policy. The beneficiary is
entitled to the proceeds we pay following the insured person's death. You may
change the beneficiary during the insured person's lifetime. Such a change
requires the consent of any irrevocable named beneficiary. A new beneficiary
designation is effective as of the date you sign it, but will not affect any
payments we make before we receive it. If no beneficiary is living when the
insured person dies, we will pay the insurance proceeds to the owner or the
owner's estate.
43
<PAGE>
LEGAL MATTERS
The legal validity of the policies described in this prospectus has been
passed on by Ronald J. Bocage, Vice President and Counsel for JHVLICO. Messrs.
Freedman, Levy, Kroll & Simonds, Washington, D.C., have advised us on certain
Federal securities law matters in connection with the policies.
REGISTRATION STATEMENT FILED WITH THE SEC
This prospectus omits certain information contained in the Registration
Statement which has been filed with the SEC. More details may be obtained from
the SEC upon payment of the prescribed fee.
ACCOUNTING AND ACTUARIAL EXPERTS
Certain of the financial statements of JHVLICO and the Account included in
this prospectus have been audited by Ernst & Young LLP, independent auditors,
for the periods indicated in their reports thereon which appear elsewhere herein
and has been included in reliance on their reports given on their authority as
experts in accounting and auditing. Actuarial matters included in this
prospectus have been examined by Todd G. Engelsen, F.S.A., F.S.A.,an Actuary of
JHVLICO and Second Vice President of John Hancock.
FINANCIAL STATEMENTS OF JHVLICO AND THE ACCOUNT
The financial statements of JHVLICO included herein should be distinguished
from the financial statements of the Account and should be considered only as
bearing upon the ability of JHVLICO to meet its obligations under the policies.
In addition to those financial statements of JHVLICO and the Account
included herein that have been audited by Ernst & Young LLP, this prospectus
also contains unaudited financial statements of both JHVLICO and the Account for
a period subsequent to the audited financial statements.
44
<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 and Executive Officers Principal Occupations
-------------------------------- ---------------------
<S> <C>
David F. D'Alessandro............ Chairman of the Board and Chief Executive
Officer of JHVLICO; President, Chief
Operations Officer, and Chief Executive
Officer-Elect, John Hancock Life Insurance
Company.
Michele G. Van Leer.............. Vice Chairman of the Board and President of
JHVLICO; Senior Vice President, John Hancock
Life Insurance Company.
Ronald J. Bocage................. Director, Vice President and Counsel of
JHVLICO; Vice President and Counsel, John
Hancock Life Insurance Company.
Bruce M. Jones................... Director and Vice President of JHVLICO; Vice
President, John Hancock Life Insurance
Company.
Thomas J. Lee................... Director and Vice President of JHVLICO; Vice
President, John Hancock Life Insurance
Company.
Barbara L. Luddy................ Director, Vice President and Actuary of
JHVLICO; Senior Vice President, John Hancock
Life Insurance Company.
Robert S. Paster................ Director and Vice President of JHVLICO; Vice
President, John Hancock Life Insurance
Company.
Robert R. Reitano............... Director and Vice President of JHVLICO; Vice
President, John Hancock Life Insurance
Company.
Paul Strong..................... Director and Vice President of JHVLICO; Vice
President, John Hancock Life Insurance
Company.
Daniel L. Ouellette............. Vice President, Marketing, of JHVLICO; Senior
Vice President, John Hancock Life Insurance
Company.
Edward P. Dowd.................. Vice President, Investments, of JHVLICO;
Senior Vice President, John Hancock Life
Insurance Company
Roger G. Nastou................. Vice President, Investments, of JHVLICO; Vice
President, John Hancock Life Insurance
Company
Todd G. Engelsen................ Vice President and Illustration Actuary of
JHVLICO; Second Vice President, John Hancock
Life Insurance Company
Julie H. Indge.................. Treasurer of JHVLICO; Financial Officer, John
Hancock Life Insurance Company
Patrick F. Smith................ Controller of JHVLICO; Senior Associate
Controller, John Hancock Life Insurance
Company.
Peter H. Scavongelli............ Secretary of JHVLICO; State Compliance
Officer, John Hancock Life Insurance Company
</TABLE>
The business address of all Directors and officers of JHVLICO is John
Hancock Place, Boston, Massachusetts 02117.
45
<PAGE>
UNAUDITED FINANCIAL STATEMENTS
FOR
JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY
FIRST QUARTER 2000
46
<PAGE>
JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY
STATEMENTS OF FINANCIAL POSITION
<TABLE>
<CAPTION>
(Unaudited)
March 31 December 31
2000 1999
--------- -----------
(In millions)
<S> <C> <C>
ASSETS
Bonds.............................................. $ 1,276.6 $ 1,216.3
Preferred stocks................................. 35.6 35.9
Common stocks.................................... 1.7 3.2
Investment in affiliates......................... 81.3 80.7
Mortgage loans on real estate...................... 429.0 433.1
Real estate........................................ 24.8 25.0
Policy loans....................................... 181.8 172.1
Cash Items:
Cash in banks.................................... (3.3) 27.2
Temporary cash investments....................... 309.4 222.9
--------- ---------
306.1 250.1
Premiums due and deferred.......................... 23.1 29.9
Investment income due and accrued.................. 35.7 33.2
Other general account assets....................... 52.3 65.3
Assets held in separate accounts................... 8,597.7 8,268.2
--------- ---------
TOTAL ASSETS....................................... $11,045.7 $10,613.0
========= =========
OBLIGATIONS AND STOCKHOLDER'S EQUITY
OBLIGATIONS
Policy reserves.................................. $ 1,945.6 $ 1,866.6
Federal income and other taxes payable........... 73.6 67.3
Other general account obligations................ 232.1 219.0
Transfers from separate account, net............. (225.7) (221.6)
Asset valuation reserve.......................... 18.8 23.1
Obligations related to separate accounts......... 8,590.9 8,261.6
--------- ---------
TOTAL OBLIGATIONS.................................. 10,635.3 10,216.0
STOCKHOLDER'S EQUITY
Common Stock, $50 par value; authorized 50,000
shares; issued and outstanding 50,000 shares... 2.5 2.5
Paid-in capital.................................. 572.4 572.4
Unassigned deficit............................... (164.5) (177.9)
--------- ---------
TOTAL STOCKHOLDER'S EQUITY......................... 410.4 397.0
--------- ---------
TOTAL OBLIGATIONS AND STOCKHOLDER'S EQUITY......... $11,045.7 $10,613.0
========= =========
</TABLE>
See condensed notes to the financial statements (unaudited).
47
<PAGE>
JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY
STATEMENTS OF OPERATIONS AND UNASSIGNED DEFICIT
<TABLE>
<CAPTION>
(Unaudited)
Three months ended
March 31
-------------------
2000 1999
-------- --------
(In millions)
<S> <C> <C>
INCOME
Premiums............................................. $ 231.3 $223.6
Net investment income................................ 39.6 32.5
Other, net........................................... 132.4 145.3
------- ------
403.3 401.4
BENEFITS AND EXPENSES
Payments to policyholders and beneficiaries.......... 89.2 80.3
Additions to reserves to provide for future payments
to policyholders and beneficiaries................. 216.3 238.2
Expenses of providing service to policyholders and
obtaining new insurance............................ 73.5 75.7
State and miscellaneous taxes........................ 7.6 2.8
------- ------
386.6 397.0
------- ------
GAIN FROM OPERATIONS BEFORE FEDERAL INCOME TAXES
AND NET REALIZED CAPITAL GAINS (LOSSES).......... 16.7 4.4
Federal income taxes................................... 4.7 1.0
------- ------
GAIN FROM OPERATIONS BEFORE NET REALIZED CAPITAL
GAINS (LOSSES)................................... 12.0 3.4
Net realized capital gains (losses).................... 0.4 (1.5)
------- ------
NET INCOME........................................ 12.4 1.9
Unassigned deficit at beginning of period.............. (177.9) (49.2)
Net unrealized capital gains (losses) and other
adjustments........................................... 1.1 0.3
Other reserves and adjustments......................... (0.1) (4.2)
------- ------
UNASSIGNED DEFICIT AT END OF PERIOD.................... $(164.5) $(51.2)
======= ======
</TABLE>
See condensed notes to the financial statements (unaudited).
48
<PAGE>
JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
(Unaudited)
Three months ended
March 31
-------------------
2000 1999
-------- --------
(In millions)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Insurance premiums.................................. $ 241.4 $ 225.3
Net investment income............................... 37.2 29.9
Benefits to policyholders and beneficiaries......... (79.6) (70.8)
Dividends paid to policyholders..................... (6.4) (6.1)
Insurance expenses and taxes........................ (91.9) (107.8)
Net transfers to separate accounts.................. (141.4) (182.0)
Other, net.......................................... 134.4 175.7
------- -------
NET CASH PROVIDED FROM OPERATIONS................ 93.7 64.2
------- -------
CASH FLOWS USED IN INVESTING ACTIVITIES:
Bond purchases...................................... (157.5) (71.3)
Bond sales.......................................... 73.5 8.7
Bond maturities and scheduled redemptions........... 18.9 18.8
Bond prepayments.................................... 2.6 3.2
Stock purchases..................................... (0.4) (0.2)
Proceeds from stock sales........................... 1.2 1.5
Real estate purchases............................... (0.1) (0.9)
Real estate sales................................... 0.0 10.4
Other invested assets purchases..................... (0.1) 0.0
Proceeds from the sale of other invested assets..... 0.0 0.0
Mortgage loans issued............................... (4.3) (23.4)
Mortgage loan repayments............................ 8.4 5.2
Other, net.......................................... 20.1 (2.8)
------- -------
NET CASH USED IN INVESTING ACTIVITIES............ (37.7) (50.8)
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase (decrease) in short-term note payable.. (0.0) (32.3)
------- -------
NET CASH PROVIDED FROM FINANCING ACTIVITIES...... (0.0) (32.3)
------- -------
INCREASE (DECREASE) IN CASH AND TEMPORARY CASH
INVESTMENTS.......................................... 56.0 (18.9)
Cash and temporary cash investments at beginning of
year................................................. 250.1 19.9
------- -------
CASH AND TEMPORARY CASH INVESTMENTS AT THE END OF
PERIOD............................................... $ 306.1 $ 1.0
======= =======
</TABLE>
See condensed notes to the financial statements (unaudited).
49
<PAGE>
JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY
STATEMENTS OF STOCKHOLDER'S EQUITY
<TABLE>
<CAPTION>
Common Paid-in Unassigned
Stock Capital Deficit Total
------ ------- ---------- -------
(In millions)
<S> <C> <C> <C> <C>
For the three months ended March 31,
1999 (unaudited)
Balance at January 1, 1999............ $2.5 $377.5 $ (49.2) $330.8
1999 Transactions:
Capital contribution................
Net gain............................ 1.9 1.9
Net unrealized capital gains and
other adjustments................. 0.3 0.3
Other reserves and adjustments...... (4.2) (4.2)
---- ------ ------- ------
Balance at March 31, 1999............. $2.5 $377.5 $ (51.2) $328.8
==== ====== ======= ======
For the three months ended March 31,
2000 (unaudited)
Balance at January 1, 2000............ $2.5 $572.4 $(177.9) $397.0
2000 Transactions:
Capital contribution................
Net gain............................ 12.4 12.4
Net unrealized capital gains and
other adjustments................. 1.1 1.1
Provision for Litigation Reserve....
Other reserves and adjustments...... (0.1) (0.1)
---- ------ ------- ------
Balance at March 31, 2000............. $2.5 $572.4 $(164.5) $410.4
==== ====== ======= ======
</TABLE>
See condensed notes to the financial statements (unaudited).
50
<PAGE>
JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY
CONDENSED NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
NOTE 1--BASIS OF PRESENTATION
The accompanying unaudited interim financial statements have been prepared on
the basis of accounting practices prescribed or permitted by the Commonwealth of
Massachusetts Division of Insurance and in conformity with the practices of the
National Association of Insurance Commissioners, which practices differ from
generally accepted accounting principles (GAAP). Pursuant to Financial
Accounting Standard Board Interpretation 40, "Applicability of General Accepted
Accounting Principles to Mutual Life Insurance and Other Enterprises" (FIN 40),
as amended which was effective for 1996 financial statements, financial
statements based on statutory accounting practices can no longer be described as
prepared in conformity with GAAP.
In the opinion of management, all adjustments (consisting of normal recurring
accruals) considered necessary for a fair presentation have been included.
Operating results for the three months period ended March 31, 2000 are not
necessarily indicative of the results that may be expected for the year ended
December 31, 2000.
51
<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, 1999
and 1998, and the related statutory-basis statements of operations and
unassigned deficit and cash flows for the years then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
As described in Note 1 to the financial statements, the Company presents
its financial statements in conformity with accounting practices prescribed or
permitted by the Commonwealth of Massachusetts Division of Insurance, which
practices differ from accounting principles generally accepted in the United
States. The variances between such practices and accounting principles generally
accepted in the United States also are described in Note 1. The effects on the
financial statements of these variances are not reasonably determinable but are
presumed to be material.
In our opinion, because of the effects of the matter described in the
preceding paragraph, the financial statements referred to above do not present
fairly, in conformity with accounting principles generally accepted in the
United States, the financial position of John Hancock Variable Life Insurance
Company at December 31, 1999 and 1998, or the results of its operations or its
cash flows for the years then ended.
However, in our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of John Hancock
Variable Life Insurance Company at December 31, 1999 and 1998, and the results
of its operations and its cash flows for the years then ended in conformity with
accounting practices prescribed or permitted by the Commonwealth of
Massachusetts Division of Insurance.
ERNST & YOUNG LLP
Boston, Massachusetts
March 10, 2000
52
<PAGE>
JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY
STATUTORY-BASIS STATEMENTS OF FINANCIAL POSITION
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1999 1998
--------- ---------
(IN MILLIONS)
<S> <C> <C>
ASSETS
Bonds--Note 6........................................ $ 1,216.3 $1,185.8
Preferred stocks..................................... 35.9 36.5
Common stocks . ..................................... 3.2 3.1
Investment in affiliates............................. 80.7 81.7
Mortgage loans on real estate--Note 6................ 433.1 388.1
Real estate.......................................... 25.0 41.0
Policy loans......................................... 172.1 137.7
Cash items:
Cash in banks..................................... 27.2 11.4
Temporary cash investments........................ 222.9 8.5
--------- --------
250.1 19.9
Premiums due and deferred............................ 29.9 32.7
Investment income due and accrued.................... 33.2 29.8
Other general account assets......................... 65.3 47.5
Assets held in separate accounts..................... 8,268.2 6,595.2
--------- --------
Total Assets.................................. $10,613.0 $8,599.0
========= ========
OBLIGATIONS AND STOCKHOLDER'S EQUITY
Obligations
Policy reserves................................... $ 1,866.6 $1,652.0
Federal income and other taxes payable--Note 1.... 67.3 44.3
Other general account obligations................. 219.0 150.9
Transfers from separate accounts, net............. (221.6) (190.3)
Asset valuation reserve--Note 1................... 23.1 21.9
Obligations related to separate accounts.......... 8,261.6 6,589.4
--------- --------
Total Obligations.............................
10,216.0 8,268.2
Stockholder's Equity
Common Stock, $50 par value; authorized 50,000
shares; issued and outstanding 50,000 shares..... 2.5 2.5
Paid-in capital................................... 572.4 377.5
Unassigned deficit--Note 10....................... (177.9) (49.2)
--------- --------
Total Stockholder's Equity........................ 397.0 330.8
--------- --------
Total obligations and stockholder's equity.... $10,613.0 $8,599.0
========= ========
</TABLE>
The accompanying notes are an integral part of the statutory-basis financial
statements.
53
<PAGE>
JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY
STATUTORY-BASIS STATEMENTS OF OPERATIONS AND UNASSIGNED DEFICIT
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1999 1998
-------- --------
(IN MILLIONS)
<S> <C> <C>
INCOME
Premiums.................................................... $ 950.8 $1,272.3
Net investment income--Note 3............................... 136.0 122.8
Other, net.................................................. 605.4 618.1
-------- --------
1,692.2 2,013.2
BENEFITS AND EXPENSES
Payments to policyholders and beneficiaries................. 349.9 301.4
Additions to reserves to provide for future payments to
policyholders and beneficiaries.......................... 888.8 1,360.2
Expenses of providing service to policyholders and
obtaining new insurance--Note 5.......................... 314.4 274.2
State and miscellaneous taxes............................... 20.5 28.1
-------- --------
1,573.6 1,963.9
-------- --------
Gain from operations before federal income
taxes and net realized capital losses.................. 118.6 49.3
Federal income taxes--Note 1................................ 42.9 33.1
-------- --------
Gain from operations before net realized capital losses.. 75.7 16.2
Net realized capital losses--Note 4......................... (1.7) (0.6)
-------- --------
Net income........................................... 74.0 15.6
Unassigned deficit at beginning of year..................... (49.2) (58.3)
Net unrealized capital losses and other adjustments--Note 4 (3.8) (6.0)
Other reserves and adjustments--Note 10..................... (198.9) (0.5)
-------- --------
Unassigned deficit at end of year..................... $ (177.9) $ (49.2)
======== ========
</TABLE>
The accompanying notes are an integral part of the statutory-basis financial
statements.
54
<PAGE>
JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY
STATUTORY-BASIS STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------
1999 1998
-------- --------
(IN MILLIONS)
<S> <C> <C>
Cash flows from operating activities:
Insurance premiums............................................... $ 958.5 $1,275.3
Net investment income............................................ 134.2 118.2
Benefits to policyholders and beneficiaries...................... (321.6) (275.5)
Dividends paid to policyholders..................................... (25.6) (22.3)
Insurance expenses and taxes........................................ (344.8) (296.9)
Net transfers to separate accounts.................................. (705.3) (874.4)
Other, net....................................................... 540.6 551.3
-------- --------
Net cash provided from operations............................ 236.0 475.7
-------- --------
Cash flows used in investing activities:
Bond purchases................................................... (240.7) (618.8)
Bond sales....................................................... 108.3 340.7
Bond maturities and scheduled redemptions........................ 78.4 111.8
Bond prepayments................................................. 18.7 76.5
Stock purchases.................................................. (3.9) (23.4)
Proceeds from stock sales........................................ 3.6 1.9
Real estate purchases............................................ (2.2) (4.2)
Real estate sales................................................ 17.8 2.1
Other invested assets purchases.................................. (4.5) 0.0
Mortgage loans issued............................................ (70.7) (145.5)
Mortgage loan repayments......................................... 25.3 33.2
Other, net....................................................... (68.9) (435.2)
-------- --------
Net cash used in investing activities........................ (138.8) (660.9)
-------- --------
Cash flows from financing activities:
Capital contribution............................................. 194.9
Net (decrease) increase in short-term note payable............... (61.9) 61.9
-------- --------
Net cash provided from financing activities.................. 133.0 61.9
-------- --------
Increase (decrease) in cash and temporary cash investments... 230.2 (123.3)
Cash and temporary cash investments at beginning of year............ 19.9 143.2
-------- --------
Cash and temporary cash investments at end of year........... $ 250.1 $ 19.9
======== ========
</TABLE>
The accompanying notes are an integral part of the statutory-basis financial
statements.
55
<PAGE>
JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS
1. NATURE OF OPERATIONS AND SIGNIFICANT ACCOUNTING PRACTICES
John Hancock Variable Life Insurance Company (the Company) is a wholly-
owned subsidiary of John Hancock Life Insurance Company (formerly John Hancock
Mutual Life Insurance Company) (John Hancock). The Company, domiciled in the
Commonwealth of Massachusetts, principally writes variable and universal life
insurance policies. Those policies primarily are marketed through John Hancock's
sales organization, Signator Insurance Agency, which includes a career agency
system composed of Company-supported independent general agencies and a direct
brokerage system that markets directly to external independent brokers. Policies
also are sold through various unaffiliated securities broker-dealers and certain
other financial institutions. Currently, the Company writes business in all
states except New York.
The preparation of financial statements requires management to make
estimates and assumptions that affect amounts reported in the financial
statements and accompanying notes. Such estimates and assumptions could change
in the future as more information becomes known, which could impact the amounts
reported and disclosed herein.
Basis of Presentation
The financial statements have been prepared using accounting practices
prescribed or permitted by the Commonwealth of Massachusetts Division of
Insurance and in conformity with the practices of the National Association of
Insurance Commissioners (NAIC), which practices differ from generally accepted
accounting principles (GAAP).
The significant differences from GAAP include: (1) policy acquisition costs
are charged to expense as incurred rather than deferred and amortized in
relation to future estimated gross profits; (2) policy reserves are based on
statutory mortality, morbidity, and interest requirements without consideration
of withdrawals and Company experience; (3) certain assets designated as
"nonadmitted assets" are excluded from the balance sheet by direct charges to
surplus; (4) reinsurance recoverables are netted against reserves and claim
liabilities rather than reflected as an asset; (5) bonds held as available for
sale are recorded at amortized cost or market value as determined by the NAIC
rather than at fair value; (6) an Asset Valuation Reserve and Interest
Maintenance Reserve as prescribed by the NAIC are not calculated under GAAP.
Under GAAP, realized capital gains and losses are reported in the income
statement on a pretax basis as incurred and investment valuation allowances are
provided when there has been a decline in value deemed other than temporary; (7)
investments in affiliates are carried at their net equity value with changes in
value being recorded directly to unassigned deficit rather than consolidated in
the financial statements; (8) no provision is made for the deferred income tax
effects of temporary differences between book and tax basis reporting; and (9)
certain items, including modifications to required policy reserves resulting
from changes in actuarial assumptions, are recorded directly to unassigned
deficit rather than being reflected in income. The effects of the foregoing
variances from GAAP have not been determined but are presumed to be material.
The significant accounting practices of the Company are as follows:
Pending Statutory Standards
During March 1998, the NAIC adopted codified statutory accounting
principles ("Codification") effective January 1, 2001. Codification will likely
change, to some extent, prescribed statutory accounting practices and may result
in changes to the accounting practices that the Company uses to prepare its
statutory-basis financial statements. Codification will require adoption by the
various states before it becomes the prescribed statutory basis of accounting
for insurance companies domesticated within those states. Accordingly, before
Codification becomes effective for the Company, the Commonwealth of
Massachusetts must adopt Codification as the prescribed basis of accounting on
which domestic insurers must report their statutory-basis results to the
Division
56
<PAGE>
JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS--(CONTINUED)
of Insurance. At this time, it is anticipated that the Commonwealth of
Massachusetts will adopt Codification effective January 1, 2001. The impact of
any such changes on the Company's unassigned deficit is not expected to be
material.
Revenues and Expenses
Premium revenues are recognized over the premium-paying period of the
policies whereas expenses, including the acquisition costs of new business, are
charged to operations as incurred and policyholder dividends are provided as
paid or accrued.
Cash and Temporary Cash Investments
Cash includes currency on hand and demand deposits with financial
institutions. Temporary cash investments are short-term, highly-liquid
investments both readily convertible to known amounts of cash and so near
maturity that there is insignificant risk of changes in value because of changes
in interest rates.
Valuation of Assets
General account investments are carried at amounts determined on the
following bases:
Bond and stock values are carried as prescribed by the NAIC; bonds
generally at amortized amounts or cost, preferred stocks generally at cost and
common stocks at fair value. The discount or premium on bonds is amortized using
the interest method.
Investments in affiliates are included on the statutory equity method.
Loan-backed bonds and structured securities are valued at amortized cost
using the interest method including anticipated prepayments. Prepayment
assumptions are obtained from broker dealer surveys or internal estimates and
are based on the current interest rate and economic environment. The
retrospective adjustment method is used to value all such securities except for
interest-only securities, which are valued using the prospective method.
The net interest effect of interest rate and currency rate swap
transactions is recorded as an adjustment of interest income as incurred. The
initial cost of interest rate cap agreements is amortized to net investment
income over the life of the related agreement. Gains and losses on financial
futures contracts used as hedges against interest rate fluctuations are deferred
and recognized in income over the period being hedged.
Mortgage loans are carried at outstanding principal balance or amortized
cost.
Investment real estate is carried at depreciated cost, less encumbrances.
Depreciation on investment real estate is recorded on a straight-line basis.
Accumulated depreciation amounted to $1.9 million in 1999 and $3.0 million in
1998.
Real estate acquired in satisfaction of debt and real estate held for sale
are carried at the lower of cost or fair value.
Policy loans are carried at outstanding principal balance, not in excess of
policy cash surrender value.
57
<PAGE>
JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS--(CONTINUED)
Asset Valuation and Interest Maintenance Reserves
The Asset Valuation Reserve (AVR) is computed in accordance with the
prescribed NAIC formula and represents a provision for possible fluctuations in
the value of bonds, equity securities, mortgage loans, real estate and other
invested assets. Changes to the AVR are charged or credited directly to the
unassigned deficit.
The Company also records the NAIC prescribed Interest Maintenance Reserve
(IMR) that represents that portion of the after tax net accumulated unamortized
realized capital gains and losses on sales of fixed income securities,
principally bonds and mortgage loans, attributable to changes in the general
level of interest rates. Such gains and losses are deferred and amortized into
income over the remaining expected lives of the investments sold. At December
31, 1999, the IMR, net of 1999 amortization of $2.3 million, amounted to $7.4
million, which is included in policy reserves. The corresponding 1998 amounts
were $2.4 million and $10.7 million, respectively.
Goodwill
The excess of cost over the statutory book value of the net assets of life
insurance business acquired was $8.9 million and $11.4 million at December 31,
1999 and 1998, respectively, and generally is amortized over a ten-year period
using a straight-line method.
Separate Accounts
Separate account assets and liabilities reported in the accompanying
statements of financial position represent funds that are separately
administered, principally for variable life insurance policies, and for which
the contractholder, rather than the Company, generally bears the investment
risk. Separate account obligations are intended to be satisfied from separate
account assets and not from assets of the general account. Separate accounts
generally are reported at fair value. The operations of the separate accounts
are not included in the statement of operations; however, income earned on
amounts initially invested by the Company in the formation of new separate
accounts is included in other income.
Fair Value Disclosure of Financial Instruments
Statement of Financial Accounting Standards (SFAS) No. 107, "Disclosure
about Fair Value of Financial Instruments," requires disclosure of fair value
information about certain financial instruments, whether or not recognized in
the statement of financial position, for which it is practicable to estimate the
value. In situations where quoted market prices are not available, fair values
are based on estimates using present value or other valuation techniques. SFAS
No. 107 excludes certain financial instruments and all nonfinancial instruments
from its disclosure requirements. Therefore, the aggregate fair value amounts
presented do not represent the underlying value of the Company. See Note 11.
The methods and assumptions utilized by the Company in estimating its fair
value disclosures for financial instruments are as follows:
The carrying amounts reported in the statement of financial position for
cash and temporary cash investments approximate their fair values.
Fair values for public bonds are obtained from an independent pricing
service. Fair values for private placement securities and publicly traded bonds
not provided by the independent pricing service are estimated by the
58
<PAGE>
JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS--(CONTINUED)
Company by discounting expected future cash flows using current market rates
applicable to the yield, credit quality and maturity of the investments.
The fair values for common and preferred stocks, other than its subsidiary
investments, which are carried at equity values, are based on quoted market
prices.
Fair values for futures contracts are based on quoted market prices. Fair
values for interest rate swap, cap agreements, and currency swap agreements are
based on current settlement values. The current settlement values are based on
brokerage quotes that utilize pricing models or formulas using current
assumptions.
The fair value for mortgage loan is estimated using discounted cash flow
analyses using interest rates adjusted to reflect the credit characteristics of
the underlying loans. Mortgage loans with similar characteristics and credit
risks are engaged into qualitative categories for purposes of the fair value
calculations.
The carrying amount in the statement of financial position for policy loans
approximates their fair value.
The fair value for outstanding commitments to purchase long-term bonds and
issue real estate mortgages is estimated using a discounted cash flow method
incorporating adjustments for the difference in the level of interest rates
between the dates the commitments were made and December 31, 1999.
Capital Gains and Losses
Realized capital gains and losses are determined using the specific
identification method. Realized capital gains and losses, net of taxes and
amounts transferred to the IMR, are included in net gain or loss. Unrealized
gains and losses, which consist of market value and book value adjustments, are
shown as adjustments to the unassigned deficit.
Policy Reserves
Life reserves are developed by actuarial methods and are determined based
on published tables using statutorily specified interest rates and valuation
methods that will provide, in the aggregate, reserves that are greater than or
equal to the minimum or guaranteed policy cash values or the amounts required by
the Commonwealth of Massachusetts Division of Insurance. Reserves for variable
life insurance policies are maintained principally on the modified preliminary
term method using the 1958 and 1980 Commissioner's Standard Ordinary (CSO)
mortality tables, with an assumed interest rate of 4% for policies issued prior
to May 1, 1983 and 4 1/2% for policies issued on or thereafter. Reserves for
single premium policies are determined by the net single premium method using
the 1958 CSO mortality table, with an assumed interest rate of 4%. Reserves for
universal life policies issued prior to 1985 are equal to the gross account
value which at all times exceeds minimum statutory requirements. Reserves for
universal life policies issued from 1985 through 1988 are maintained at the
greater of the Commissioner's Reserve Valuation Method (CRVM) using the 1958 CSO
mortality table, with 4 1/2% interest or the cash surrender value. Reserves for
universal life policies issued after 1988 and for flexible variable policies are
maintained using the greater of the cash surrender value or the CRVM method with
the 1980 CSO mortality table and 5 1/2% interest for policies issued from 1988
through 1992; 5% interest for policies issued in 1993 and 1994; and 4 1/2%
interest for policies issued in 1995 through 1999.
Federal Income Taxes
Federal income taxes are reported in the financial statements based on
amounts determined to be payable as a result of operations within the current
accounting period. The operations of the Company are consolidated with John
Hancock in filing a consolidated federal income tax return basis for the
affiliated group. The federal income
59
<PAGE>
JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS--(CONTINUED)
taxes of the Company are allocated on a separate return basis with certain
adjustments. The Company made federal income tax payments of $10.6 million in
1999 and $38.2 million in 1998.
Income before taxes differs from taxable income principally due to tax-
exempt investment income, the limitation placed on the tax deductibility of
policyholder dividends, accelerated depreciation, differences in policy reserves
for tax return and financial statement purposes, capitalization of policy
acquisition expenses for tax purposes and other adjustments prescribed by the
Internal Revenue Code.
Amounts for disputed tax issues relating to the prior years are charged or
credited directly to policyholders' contingency reserve.
Adjustments to Policy Reserves
From time to time, the Company finds it appropriate to modify certain
required policy reserves because of changes in actuarial assumptions. Reserve
modifications resulting from such determinations are recorded directly to
stockholder's equity. No such refinements were made during 1999 or 1998.
Reinsurance
Premiums, commissions, expense reimbursements, benefits and reserves
related to reinsured business are accounted for on bases consistent with those
used in accounting for the original policies issued and the terms of the
reinsurance contracts. Premiums ceded to other companies have been reported as a
reduction of premium income. Amounts applicable to reinsurance ceded for future
policy benefits, unearned premium reserves and claim liabilities have been
reported as reductions of these items.
2. ACQUISITION
On June 23, 1993, the Company acquired all of the outstanding shares of
stock of Colonial Penn Annuity and Life Insurance Company (CPAL) from Colonial
Penn Life Insurance Company for an aggregate purchase price of approximately
$42.5 million. At the date of acquisition, assets of CPAL were approximately
$648.5 million, consisting principally of cash and temporary cash investments
and liabilities were approximately $635.2 million, consisting principally of
reserves related to a block of interest sensitive single-premium whole life
insurance business assumed by CPAL from Charter National Life Insurance Company
(Charter). The purchase price includes contingent payments of up to
approximately $7.3 million payable between 1994 and 1998 based on the actual
lapse experience of the business in force on June 23, 1993. The Company made the
final contingent payment to CPAL of $1.5 million during 1998.
60
<PAGE>
JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS--(CONTINUED)
On June 24, 1993, the Company contributed $24.6 million in additional
capital to CPAL. CPAL was renamed John Hancock Life Insurance Company of America
(JHLICOA) on July 7, 1993. JHLICOA was subsequently renamed Investors Partner
Life Insurance Company (IPL) on March 5, 1998. IPL manages the business assumed
from Charter and began marketing term life and variable universal life products
through brokers in 1999. Summarized financial information for IPL for 1999 and
1998 is as follows:
<TABLE>
<CAPTION>
1999 1998
------ ------
(IN MILLIONS)
<S> <C> <C>
Total assets.......................................... $570.7 $587.8
Total liabilities..................................... 498.9 517.5
Total revenue......................................... 35.6 38.8
Net income............................................ 3.5 3.8
</TABLE>
3. NET INVESTMENT INCOME
Investment income has been reduced by the following amounts:
<TABLE>
<CAPTION>
1999 1998
------ ------
(IN MILLIONS)
<S> <C> <C>
Investment expenses................................... $ 9.5 $ 8.3
Interest expense...................................... 1.7 2.4
Depreciation expense.................................. 0.6 0.8
Investment taxes...................................... 0.3 0.7
------ ------
$ 12.1 $ 12.2
====== ======
</TABLE>
61
<PAGE>
JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS--(CONTINUED)
4. NET CAPITAL GAINS (LOSSES) AND OTHER ADJUSTMENTS
Net realized capital gains (losses) consist of the following items:
<TABLE>
<CAPTION>
1999 1998
------ ------
(IN MILLIONS)
<S> <C> <C>
Net gains from asset sales............................ $ (2.8) $ 7.6
Capital gains tax..................................... 0.2 (2.9)
Net capital gains transferred to IMR.................. 0.9 (5.3)
------ ------
Net realized capital losses........................... $ (1.7) $ (0.6)
====== ======
</TABLE>
Net unrealized capital gains (losses) and other adjustments consist of the
following items:
<TABLE>
<CAPTION>
1999 1998
------ ------
(IN MILLIONS)
<S> <C> <C>
Net losses from changes in security values and book
value adjustments................................ $ (2.6) $ (2.7)
Increase in asset valuation reserve................... (1.2) (3.3)
------ ------
Net unrealized capital losses and other adjustments... $ (3.8) $ (6.0)
====== ======
</TABLE>
62
<PAGE>
JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS--(continued)
5. Transactions with Parent
The Company's Parent provides the Company with personnel, property and
facilities in carrying out certain of its corporate functions. The Parent
annually determines a fee for these services and facilities based on a number of
criteria which were revised in 1999 and 1998 to reflect continuing changes in
the Company's operations. The amount of the service fee charged to the Company
was $188.3 million and $157.5 million in 1999 and 1998, respectively, which has
been included in insurance and investment expenses. The Parent has guaranteed
that, if necessary, it will make additional capital contributions to prevent the
Company's stockholder's equity from declining below $1.0 million.
The service fee charged to the Company by the Parent includes $0.2 million
and $0.7 million in 1999 and 1998, respectively, representing the portion of the
provision for retiree benefit plans determined under the accrual method,
including a provision for the 1993 transition liability which is being amortized
over twenty years, that was allocated to the Company.
The Company has a modified coinsurance agreement with John Hancock to
reinsure 50% of 1994 through 1999 issues of flexible premium variable life
insurance and scheduled premium variable life insurance policies. In connection
with this agreement, John Hancock transferred $44.5 million and $4.9 million of
cash for tax, commission, and expense allowances to the Company, which increased
the Company's net gain from operations by $20.6 million and $22.2 million in
1999 and 1998, respectively.
Effective January 1, 1996, the Company entered into a modified coinsurance
agreement with John Hancock to reinsure 50% of the 1995 inforce block and 50% of
1996 and all future issue years of certain variable annuity contracts
(Independence Preferred, Declaration, Independence 2000, MarketPlace, and
Revolution). In connection with this agreement, the Company received a net cash
payment of $40.0 million and $12.7 million in 1999 and 1998, respectively, for
surrender benefits, tax, reserve increase, commission, expense allowances and
premium, This agreement increased the Company's net gain from operations by
$26.9 million and $8.4 million in 1999 and 1998, respectively.
Effective January 1, 1997, the Company entered into a stop-loss agreement
with John Hancock to reinsure mortality claims in excess of 110% of expected
mortality claims in 1999 and 1998 for all policies that are not reinsured under
any other indemnity agreement. In connection with the agreement, John Hancock
received $0.8 million and 1.0 million in 1999 and 1998, respectively, for
mortality claims to the Company. This agreement decreased the Company's net gain
from operations in both 1999 and 1998 by $0.5 million.
At December 31, 1998 the Company had outstanding a short-term note of $61.9
million payable to an affiliate at a variable rate of interest. The note was
part of a revolving line of credit and was repaid in 1999. Interest paid in 1999
and 1998 was $1.7 million and $2.9 million, respectively. The note is included
in other general account obligations at December 31, 1998.
63
<PAGE>
JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS--(continued)
6. Investments
The statement value and fair value of bonds are shown below:
<TABLE>
<CAPTION>
Gross Unrealized Gross Unrealized
Statement Value Gains Losses Fair Value
--------------- ---------------- ---------------- ----------
(In millions)
<S> <C> <C> <C> <C>
December 31, 1999
U.S. Treasury securities and obligations of U.S.
government corporations and agencies.................. $ 5.9 $ 0.0 $ 0.1 $ 5.8
Obligations of states and political subdivisions......... 2.2 0.1 0.1 2.2
Debit securities issued by foreign governments........... 13.9 0.8 0.1 14.6
Corporate securities..................................... 964.9 13.0 59.4 918.5
Mortgage-backed securities............................... 229.4 0.5 7.8 222.1
---------- ----------- ---------- --------
Total bonds.............................................. $ 1,216.3 $ 14.4 $ 67.5 $1,163.2
========== =========== ========== =======
December 31, 1998
U.S. Treasury securities and obligations of U.S.
government corporations and agencies.................. $ 5.1 $ 0.1 $ 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>
64
<PAGE>
JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS--(continued)
The statement value and fair value of bonds at December 31, 1999, by
contractual maturity, are shown below. Maturities will differ from contractual
maturities because eligible borrowers may exercise their right to call or prepay
obligations with or without call or prepayment penalties.
<TABLE>
<CAPTION>
Statement Fair
Value Value
--------- --------
(In millions)
<S> <C> <C>
Due in one year or less............................................................ $ 58.5 $ 58.2
Due after one year through five years.............................................. 286.8 282.0
Due after five years through ten years............................................. 425.4 405.6
Due after ten years................................................................ 216.2 195.3
--------- --------
986.9 941.1
Mortgage-backed securities......................................................... 229.4 222.1
--------- --------
$ 1,216.3 $1,163.2
========= ========
</TABLE>
Gross gains of $0.3 million in 1999 and $3.4 million in 1998 and gross
losses of $4.0 million in 1999 and $0.7 million in 1998 were realized from the
sale of bonds.
At December 31, 1999, bonds with an admitted asset value of $9.1 million
were on deposit with state insurance departments to satisfy regulatory
requirements.
The cost of common stocks was $3.1 million and $2.1 million at December 31,
1999 and 1998, respectively. At December 31, 1999, gross unrealized appreciation
on common stocks totaled $1.2 million, and gross unrealized depreciation totaled
$1.1 million. The fair value of preferred stock totaled $35.9 million at
December 31, 1999 and $36.5 million at December 31, 1998.
Bonds with amortized cost of $0.4 million were non-income producing for the
twelve months ended December 31, 1999.
At December 31, 1999, the mortgage loan portfolio was diversified by
geographic region and specific collateral property type as displayed below. The
Company controls credit risk through credit approvals, limits and monitoring
procedures.
65
<PAGE>
JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS--(continued)
<TABLE>
<CAPTION>
Statement Geographic Statement
Property Type Value Concentration Value
(In millions) (In millions)
<S> <C> <C> <C>
Apartments...................................... $ 112.1 East North Central $ 71.3
Hotels.......................................... 11.3 East South Central 7.4
Industrial...................................... 66.0 Middle Atlantic 28.5
Office buildings................................ 86.4 Mountain 21.0
Retail.......................................... 25.5 New England 37.5
Agricultural.................................... 99.6 Pacific 111.1
Other........................................... 32.2 South Atlantic 87.6
West North Central 16.6
West South Central 48.6
Other 3.5
-------- -------
$ 433.1 $ 433.1
======== =======
</TABLE>
At December 31, 1999, the fair values of the commercial and agricultural
mortgage loans portfolios were $323.5 million and $98.2 million, respectively.
The corresponding amounts as of December 31, 1998 were approximately $331.3
million and $70.0 million, respectively.
The maximum and minimum lending rates for mortgage loans during 1999 were
14.24% and 6.84% for agricultural loans, 7.45% and 7.00% for other properties.
Generally, the maximum percentage of any loan to the value of security at the
time of the loan, exclusive of insured, guaranteed or purchase money mortgages,
is 75%. For city mortgages, fire insurance is carried on all commercial and
residential properties at least equal to the excess of the loan over the maximum
loan which would be permitted by law on the land without the building, except as
permitted by regulations of the Federal Housing Commission on loans fully
insured under the provisions of the National Housing Act. For agricultural
mortgage loans, fire insurance is not normally required on land based loans
except in those instances where a building is critical to the farming operation.
Fire insurance is required on all agri-business facilities in an aggregate
amount equal to the loan balance.
66
<PAGE>
JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS--(continued)
7. Reinsurance
The Company cedes business to reinsurers to share risks under variable
life, universal life and flexible variable life insurance policies for the
purpose of reducing exposure to large losses. Premiums, benefits and reserves
ceded to reinsurers in 1999 were $594.9 million, $132.8 million, and $13.6
million, respectively. The corresponding amounts in 1998 were $590.2 million,
$63.2 million, and $8.2 million, respectively.
Reinsurance ceded contracts do not relieve the Company from its obligations
to policyholders. The Company remains liable to its policyholders for the
portion reinsured to the extent that any reinsurer does not meet its obligations
for reinsurance ceded to it under the reinsurance agreements. Failure of the
reinsurers to honor their obligations could result in losses to the Company;
consequently, estimates are established for amounts deemed or estimated to be
uncollectible. To minimize its exposure to significant losses from reinsurance
insolvencies, the Company evaluates the financial condition of its reinsurers
and monitors concentration of credit risk arising from similar characteristics
of the reinsurer.
Neither the Company, nor any of its related parties, control, either
directly or indirectly, any external reinsurers with which the Company conducts
business. No policies issued by the Company have been reinsured with a foreign
company which is controlled, either directly or indirectly, by a party not
primarily engaged in the business of insurance.
The Company has not entered into any reinsurance agreement in which the
reinsurer may unilaterally cancel any reinsurance for reasons other than
nonpayment of premiums or other similar credits. The Company does not have any
reinsurance agreements in effect in which the amount of losses paid or accrued
through December 31, 1999 would result in a payment to the reinsurer of amounts
which, in the aggregate and allowing for offset of mutual credits from other
reinsurance agreements with the same reinsurer, exceed the total direct premiums
collected under the reinsured policies.
8. Financial Instruments with Off-Balance-Sheet Risk
The notional amounts, carrying values and estimated fail values of the
Company's derivative instruments were as follows at December 31:
<TABLE>
<CAPTION>
Number of Contracts/ Assets (Liabilities)
-------------------------------------------------
Notional Amounts 1999 1998
Carrying Carrying
1999 1998 Value Fair Value Value Fair Value
--------- -------- ---------- ------------- ---------- ----------
(In millions)
<S> <C> <C> <C> <C> <C> <C>
Futures contracts to sell securities 362.0 947.0 $0.6 $ 0.6 $ (0.5) $ (0.5)
Interest rate swap agreements $965.0 $365.0 -- 11.5 -- (17.7)
Interest rate cap agreements 239.4 89.4 5.6 5.6 3.1 3.1
Currency rate swap agreements 15.8 15.8 -- (1.6) -- (3.3)
</TABLE>
67
<PAGE>
JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS--(continued)
The Company uses futures contracts, interest rate swap, cap agreements, and
currency rate swap agreements for other than trading purposes to hedge and
manage its exposure to changes in interest rate levels, foreign exchange rate
fluctuations and to manage duration mismatch of assets and liabilities.
The futures contracts expire in 2000. The interest rate swap agreements
expire in 2000 to 2011. The interest rate cap agreements expire in 2006 to 2008.
The currency rate swap agreements expire in 2006 to 2009.
The Company's exposure to credit risk is the risk of loss from a
counterparty failing to perform to the terms of the contract. The Company
continually monitors its position and the credit ratings of the counterparties
to these derivative instruments. To limit exposure associated with counterparty
nonperformance on interest rate and currency swap agreements, the Company enters
into master netting agreements with its counterparties. The Company believes the
risk of incurring losses due to nonperformance by its counterparties is remote
and that such losses, if any, would be immaterial. Futures contracts trade on
organized exchanges and, therefore, have minimal credit risk.
9. Policy Reserves Policyholders' and Benificiaries' Funds and Obligations
Related to Separate Accounts
The Company' annuity reserves and deposit fund liabilities that are subject
to discretionary withdrawal, with and without adjustment, are summarized as
follows.
<TABLE>
<CAPTION>
December 31, 1999 Percent
----------------- -------
(In millions)
<S> <C> <C>
Subject to discretionary withdrawal (with adjustment)
With market value adjustment............................................ $ 3.8 0.1%
At book value less surrender charge 40.5 1.5
At market value......................................................... 2,326.6 87.1
Total with adjustment................................................... 2,370.9 88.7
Subject to discretionary withdrawal
at book value (without adjustment)...................................... 287.1 10.7
Not subject to discretionary withdrawal--general account................ 15.4 0.6
--------- ------
Total annuity reserves and deposit liabilities.......................... $ 2,673.4 100.0%
========= ======
</TABLE>
68
<PAGE>
JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS--(continued)
10. Commitments and Contingencies
The Company has extended commitments to purchase long-term bonds and issue
real estate mortgages totaling $15.4 million and $3.5 million, respectively at
December 31, 1999. The Company monitors the creditworthiness of borrowers under
long-term bonds commitments and requires collateral as deemed necessary. If
funded, loans related to real estate mortgages would be fully collateralized by
the related properties. The estimated fair value of the commitments described
above is $19.4 million at December 31, 1999. The majority of these commitments
expire in 2000.
In the normal course of its business operations, the Company is involved
with litigation from time to time with claimants, beneficiaries and others, and
a number of litigation matters were pending as of December 31, 1999. It is the
opinion of management, after consultation with counsel, that the ultimate
liability with respect to these claims, if any, will not materially affect the
financial position or results of operations of the Company.
During 1997, John Hancock entered into a court-approved settlement relating
to a class action lawsuit involving certain individual life insurance policies
sold from 1979 through 1996. In entering into the settlement, John Hancock
specifically denied any wrongdoing. During 1999, the Company recorded a $194.9
million reserve, through a direct charge to its unassigned deficit, representing
the Company's share of the settlement and John Hancock contributed $194.9
million of capital to the Company. The reserve held at December 31, 1999
amounted to $136.5 million and is based on a number of factors, including the
estimated number of claims, the expected type of relief to be sought by class
members (general relief or alternative dispute resolution), the estimated cost
per claim and the estimated costs to administer the claims.
Given the uncertainties associated with estimating the reserve, it is
reasonably possible that the final cost of the settlement could differ
materially from the amounts presently provided for by the Company. John Hancock
and the Company will continue to update their estimate of the final cost of the
settlement as claims are processed and more specific information is developed,
particularly as the actual cost of the claims subject to alternative dispute
resolution becomes available. However, based on information available at this
time, and the uncertainties associated with the final claim processing and
alternative dispute resolution, the range of any additional costs related to the
settlement cannot be reasonably estimated. If the Company's share of the
settlement increases, John Hancock will contribute additional capital to the
Company so that the Company's total stockholder's equity would not be impacted.
69
<PAGE>
JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS--(continued)
11. Fair Value of Financial Instruments
The following table presents the carrying amounts and fair values of the
Company's financial instruments:
<TABLE>
<CAPTION>
December 31,
1999 1998
------------------------ -----------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
-------- ------- -------- --------
(In millions)
<S> <C> <C> <C> <C>
Assets
Bonds--Note 6 $1,216.3 $1,163.2 $1,185.8 $1,231.5
Preferred stocks--Note 6 35.9 35.9 36.5 36.5
Common stocks--Note 6 3.2 3.2 3.1 3.1
Mortgage loans on real estate--Note 6 433.1 421.7 388.1 401.3
Policy loans--Note 1 172.1 172.1 137.7 137.7
Cash items--Note 1 250.1 250.1 19.9 19.9
Derivatives assets (liabilities) relating
to:-- Note 8
Futures contracts 0.6 0.6 (0.5) (0.5)
Interest rate swaps -- 11.5 -- (17.7)
Currency rate swaps -- (1.6) -- (3.3)
Interest rate caps 5.6 5.6 3.1 3.1
Liabilities
Commitments--Note 10 -- 19.4 -- 32.1
</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.
12. Subsequent Events
Reorganization and Initial Public Offering
Pursuant to a Plan of Reorganization approved by the policyholders of John
Hancock and the Commonwealth of Massachusetts Division of Insurance, effective
February 1, 2000, John Hancock converted from a mutual life insurance company to
a stock life insurance company (i.e., demutualized) and became a wholly owned
subsidiary of John Hancock Financial Services, Inc., which is a holding company.
In connection with the reorganization, John Hancock changed its name to John
Hancock Life Insurance Company. In addition, on February 1, 2000, John Hancock
Financial Services, Inc. completed its initial public offering and 102 million
shares of common stock were issued at an initial public offering price of $17
per share.
70
<PAGE>
JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENT--(continued)
13. Impact of Year 2000 (Unaudited)
The Company participated in the Year 2000 remediation project of its
parent, John Hancock. By late 1999, John Hancock and the Company completed their
Year 2000 readiness plan to address issues that could result from computer
programs written using two digits to define the applicable year rather than four
to define the applicable year and century. As a result, John Hancock and the
Company were prepared for the transition to the Year 2000 and did not experience
any significant Year 2000 problems with respect to mission critical information
technology ("IT") or non-IT systems, applications or infrastructure. During
the date rollover to the year 2000, John Hancock and the Company implemented and
monitored their millennium rollover plan and conducted business as usual on
Monday, January 3, 2000.
Since January 3, 2000, the information systems, including mission critical
systems, which in the event of a Year 2000 failure would have the greatest
impact on operations, have functioned properly. In addition, neither John
Hancock nor the Company have experienced any significant Year 2000 issues
related to interactions with material business partners. No disruptions have
occurred which impact John Hancock or the Company's ability to process claims,
update customer accounts, process financial transactions, or report accurate
data to management and no business interruptions due to Year 2000 issues have
been experienced. While John Hancock and the Company continue to monitor their
systems, and those of material business partners, closely to ensure that no
unexpected Year 2000 issues develop, neither John Hancock nor the Company have
reason to expect any such issues.
The costs of the Year 2000 project consist of internal IT personnel and
external costs such as consultants, programmers, replacement software, and
hardware. The costs of the Year 2000 project are expensed as incurred. The
project is funded partially through a reallocation of resources from
discretionary projects. Through December 31, 1999, John Hancock has incurred and
expensed approximately $20.8 million in related payroll costs for internal IT
personnel on the project. The estimated remaining IT personnel costs of the
project are approximately $1.0 million. Through December 31, 1999, John Hancock
has incurred and expensed approximately $47.0 million in external costs for the
project. John Hancock's estimated remaining external cost of the project is
approximately $2.0 million. The total costs of the Year 2000 project to John
Hancock, based on management's best estimates, include approximately $21.7
million in internal IT personnel, $14.6 million in the external modification of
software, $18.3 million for external solution providers, $9.1 million in
replacement costs of non-compliant IT systems and $6.9 million in oversight,
test facilities and other expenses. Accordingly, the estimated range of total
costs of the Year 2000 project to John Hancock, internal and external, is
approximately $70 to $72.5 million. John Hancock's total Year 2000 project costs
include the estimated impact of external solution providers based on presently
available information.
71
<PAGE>
UNAUDITED FINANCIAL STATEMENTS
FOR
JOHN HANCOCK VARIABLE LIFE ACCOUNT U
FIRST QUARTER 2000
72
<PAGE>
JOHN HANCOCK VARIABLE LIFE ACCOUNT U
STATEMENT OF ASSETS AND LIABILITIES (Unaudited)
March 31, 2000
<TABLE>
<CAPTION>
Large Cap International Small Cap
Growth Active Bond Equity Growth
------------ ------------ ----------- -----------
<S> <C> <C> <C> <C>
ASSETS
Cash............................................................... -- -- -- --
Investments in shares of portfolios of John Hancock Variable
Series Trust I, at value.......................................... $174,861,561 $234,884,827 $31,570,772 $14,833,170
Investments in shares of portfolios of M Fund Inc., at value....... -- -- -- --
Policy loans and accrued interest receivable....................... 21,919,288 57,095,808 3,002,489 --
Receivable from:
John Hancock Variable Series Trust I............................. 56,699 1,396,298 52,536 --
M Fund Inc....................................................... -- -- -- --
------------ ------------ ----------- -----------
Total Assets....................................................... 196,837,548 293,376,933 34,625,797 14,833,170
LIABILITIES
Payable to JHVLICO................................................. -- -- -- --
Asset Charges payable.............................................. 2,899 4,438 525 235
------------ ------------ ----------- -----------
Total Liabilities.................................................. 2,899 4,438 525 235
------------ ------------ ----------- -----------
Net Assets......................................................... $196,834,649 $293,372,495 $34,625,272 $14,832,935
============ ============ =========== ===========
International Mid Cap Large Cap Money
Balanced Growth Value Market
------------ ------------ ----------- -----------
ASSETS
Cash............................................................... -- -- -- --
Investments in shares of portfolios of John Hancock Variable
Series Trust I, at value.......................................... $ 943,471 $ 26,128,545 $ 9,984,441 $60,394,274
Investments in shares of portfolios of M Fund Inc., at value....... -- -- -- --
Policy loans and accrued interest receivable....................... -- -- -- 14,008,282
Receivable from:
John Hancock Variable Series Trust I............................. 2,342 -- 19,580 28,181
M Fund Inc....................................................... -- -- -- --
------------ ------------ ----------- -----------
Total Assets....................................................... 945,813 26,128,545 10,004,021 74,430,737
LIABILITIES
Payable to JHVLICO................................................. -- -- -- --
Asset Charges payable.............................................. 15 416 163 3,415
------------ ------------ ----------- -----------
Total Liabilities.................................................. 15 416 163 3,415
------------ ------------ ----------- -----------
Net Assets......................................................... $ 945,798 $ 26,128,129 $10,003,858 $74,427,322
============ ============ =========== ===========
</TABLE>
73
<PAGE>
JOHN HANCOCK VARIABLE LIFE ACCOUNT U
STATEMENT OF ASSETS AND LIABILITIES (Unaudited) (continued)
March 31, 2000
<TABLE>
<CAPTION>
Mid Cap Small/Mid Cap Real Estate Growth &
Value Growth Equity Income
------------ ------------ ----------- --------------
<S> <C> <C> <C> <C>
ASSETS
Cash............................................................. -- -- -- --
Investments in shares of portfolios of John Hancock Variable
Series Trust I, at value........................................ $ 5,742,590 $ 12,638,999 $11,473,072 $1,091,691,749
Investments in shares of portfolios of M Fund Inc., at value..... -- -- -- --
Policy loans and accrued interest................................ -- -- 1,914,987 190,402,302
Receivable from:
John Hancock Variable Series Trust I........................... -- -- 106,392 1,026,167
M Fund Inc..................................................... -- -- -- --
------------ ------------ ----------- --------------
Total Assets..................................................... 5,742,590 12,638,999 13,494,451 1,283,120,218
LIABILITIES
Payable to JHVLICO............................................... -- -- -- --
Asset Charges payable............................................ 92 201 208 18,924
------------ ------------ ----------- --------------
Total Liabilities................................................ 92 201 208 18,924
------------ ------------ ----------- --------------
Net Assets....................................................... $ 5,742,498 $ 12,638,798 $13,494,243 $1,283,101,294
============ ============ =========== ==============
Short-Term
U.S. Small Cap International
Managed Government Value Opportunities
------------ ------------ ----------- --------------
ASSETS
Cash............................................................. -- -- -- --
Investments in shares of portfolios of John Hancock Variable
Series Trust I, at value........................................ $421,340,461 $ 964,359 $ 4,195,612 $ 5,766,520
Investments in shares of portfolios of M Fund Inc., at value..... -- -- -- --
Policy loans and accrued interest receivable..................... 78,745,818 -- -- --
Receivable from:
John Hancock Variable Series Trust I........................... 1,039,317 5,043 5,046 --
M Fund Inc..................................................... -- -- -- --
------------ ------------ ----------- --------------
Total Assets..................................................... 501,125,596 969,402 4,200,658 5,766,520
LIABILITIES
Payable to JHVLICO............................................... -- -- -- --
Asset Charges payable............................................ 7,457 16 68 94
------------ ------------ ----------- --------------
Total Liabilities................................................ 7,457 16 68 94
------------ ------------ ----------- --------------
Net Assets....................................................... $501,118,139 $ 969,386 $ 4,200,590 $ 5,766,426
============ ============ =========== ==============
</TABLE>
74
<PAGE>
JOHN HANCOCK VARIABLE LIFE ACCOUNT U
STATEMENT OF ASSETS AND LIABILITIES (Unaudited) (continued)
March 31, 2000
<TABLE>
<CAPTION>
Turner Brandes
Equity Global Core International
Index Bond Growth Equity
------------ ------------ ----------- --------------
<S> <C> <C> <C> <C>
ASSETS
Cash............................................................. -- -- -- --
Investments in shares of portfolios of John Hancock Variable
Series Trust I, at value........................................ $ 24,855,784 $ 1,503,338 $ 645,943 $ 589,962
Investments in shares of portfolios of M Fund Inc., at value..... -- -- -- --
Policy loans and accrued interest receivable..................... -- -- -- --
Receivable from:
John Hancock Variable Series Trust I........................... 22,123 5,625 -- --
M Fund Inc..................................................... -- -- -- --
------------ ------------ ----------- --------------
Total Assets..................................................... 24,877,907 1,508,963 645,943 589,962
LIABILITIES
Payable to JHVLICO............................................... -- -- -- --
Asset Charges payable............................................ 404 25 10 10
------------ ------------ ----------- --------------
Total Liabilities................................................ 404 25 10 10
------------ ------------ ----------- --------------
Net Assets....................................................... $ 24,877,503 $ 1,508,938 $ 645,933 $ 589,952
============ ============ =========== ==============
</TABLE>
<TABLE>
<CAPTION>
Frontier Emerging
Capital Markets International
Appreciation Equity Opportunities II Bond Index
------------ ------------ ---------------- ----------
<S> <C> <C> <C> <C>
ASSETS
Cash............................................................... -- -- -- --
Investments in shares of portfolios of John Hancock Variable
Series Trust I, at value.......................................... $ 1,036,922 $1,021,858 $212,136 $711,214
Investments in shares of portfolios of M Fund Inc., at value....... -- -- -- --
Policy loans and accrued interest receivable....................... -- -- -- --
Receivable from:
John Hancock Variable Series Trust I............................. -- -- -- 3,874
M Fund Inc....................................................... -- -- -- --
------------ ------------ ---------------- ----------
Total Assets....................................................... 1,036,922 1,021,858 212,136 715,088
LIABILITIES
Payable to JHVLICO................................................. -- -- -- --
Asset Charges payable.............................................. 17 17 3 12
------------ ------------ ---------------- ----------
Total Liabilities.................................................. 17 17 3 12
------------ ------------ ---------------- ----------
Net Assets......................................................... $ 1,036,905 $1,021,841 $212,133 $715,076
============ ============ ================ ==========
</TABLE>
75
<PAGE>
JOHN HANCOCK VARIABLE LIFE ACCOUNT U
STATEMENT OF ASSETS AND LIABILITIES (Unaudited) (continued)
March 31, 2000
<TABLE>
<CAPTION>
Small/Mid High Yield Enhanced US
Cap CORE Bond Equity Fund
--------- ---------- -----------
<S> <C> <C> <C>
ASSETS
Cash........................................................................ -- -- --
Investments in shares of portfolios of John Hancock Variable
Series Trust I, at value................................................... $147,223 $223,317 $18,840
Investments in shares of portfolios of M Fund Inc., at value................ -- -- --
Policy loans and accrued interest receivable................................ -- -- --
Receivable from:
John Hancock Variable Series Trust I...................................... -- 1,539 --
M Fund Inc................................................................ -- -- --
--------- ---------- -----------
Total Assets................................................................ 147,223 224,856 18,840
LIABILITIES
Payable to JHVLICO.......................................................... -- -- --
Asset Charges payable....................................................... 2 4 --
--------- ---------- -----------
Total Liabilities........................................................... 2 4 --
--------- ---------- -----------
Net Assets.................................................................. $147,221 $224,852 $18,840
========= ========== ===========
</TABLE>
76
<PAGE>
JOHN HANCOCK VARIABLE LIFE ACCOUNT U
STATEMENTS OF OPERATIONS (Unaudited)
Years and periods ended March 31, 2000
<TABLE>
<CAPTION>
Large Cap Growth Active Bond International Equities
Subaccount Subaccount Index Subaccount
-------------------------- -------------------------- -----------------------
3/31/00 12/31/99 3/31/00 12/31/99 3/31/00 12/31/99
------------ ------------ ------------ ------------ ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
Investment income:
Distributions received from:
John Hancock Variable Series Trust I......... $ 127,900 $ 24,007,195 $ 3,129,650 $ 17,792,726 $ 73,625 $ 917,904
M Fund Inc................................... -- -- -- -- -- --
Interest income on pol. loans.................. 351,907 1,211,333 1,041,962 4,084,783 51,638 179,345
----------- ------------ ----------- ------------ --------- ----------
Total investment income........................ 479,807 25,218,528 4,171,612 21,877,509 125,263 1,097,249
Expenses:
Mortality and expense risks.................. 243,212 828,714 403,187 1,643,861 45,694 147,126
----------- ------------ ----------- ------------ --------- ----------
Net investment income.......................... 236,595 24,389,814 3,768,425 20,233,648 79,569 950,123
Net real/unreal gain (loss):
Net realized gains (loss).................... 833,861 4,239,424 (35,588) 192,098 75,508 168,248
Net unrealized appreciation/(depreciation)
during year................................ 11,027,522 1,727,703 911,538 (20,304,536) (103,509) 5,712,567
----------- ------------ ----------- ------------ --------- ----------
Net real and unreal gain/loss on investments... 11,861,383 5,967,127 875,950 (20,112,438) (28,001) 5,880,815
----------- ------------ ----------- ------------ --------- ----------
Net increase in net assets resulting from
operations................................... $12,097,978 $ 30,356,941 $ 4,644,375 $ 121,210 $ 51,568 $6,830,938
=========== ============ =========== ============= ========= ==========
</TABLE>
<TABLE>
<CAPTION>
Small Cap Growth International Balanced Mid Cap Growth
Subaccount Subaccount Subaccount
------------------------- --------------------------- ------------------------
3/31/00 12/31/99 3/31/00 12/31/99 3/31/00 12/31/99
----------- ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Investment income:
Distributions received from:
John Hancock Variable Series Trust I.......... $ -- $ 1,272,230 $ 6,368 $ 99,184 $ -- $ 2,117,559
M Fund Inc.................................... -- -- -- -- -- --
Interest income on pol. loans................... -- -- -- -- -- --
----------- ----------- ---------- --------- ----------- -----------
Total investment income......................... -- 1,272,230 6,368 99,184 -- 2,117,559
Expenses:
Mortality and expense risks................... 20,232 37,386 1,521 6,368 38,680 58,898
----------- ----------- ---------- --------- ----------- -----------
Net investment income (loss).................... (20,232) 1,234,844 4,847 92,816 (38,680) 2,058,661
Net realized/unrealized gain (loss):
Net realized gain (loss)...................... 284,315 491,241 (6,325) 4,711 208,009 773,222
Net unrealized appreciation/(depreciation)
during year.................................. 1,372,558 2,317,857 (33,662) (38,997) (141,158) (6,801,000)
----------- ----------- ---------- --------- ----------- -----------
Net realized and unrealized gain/loss on
investments................................... 1,656,873 2,809,098 (39,987) (34,286) 66,851 7,574,222
----------- ----------- ---------- --------- ----------- -----------
Net increase (decrease) in net assets resulting
from operations............................... $ 1,636,641 $ 4,043,942 $ (35,140) $ 58,530 $ 28,171 $ 9,632,883
=========== =========== ========== ========= =========== ===========
</TABLE>
77
<PAGE>
JOHN HANCOCK VARIABLE LIFE ACCOUNT U
STATEMENTS OF OPERATIONS (Unaudited) (continued)
Years and periods ended March 31, 2000
<TABLE>
<CAPTION>
Large Cap Value Money Market Mid Cap Value
Subaccount Subaccount Subaccount
------------------------ ------------------------ -----------------------
3/31/00 12/31/99 3/31/00 12/31/99 3/31/00 12/31/99
----------- ----------- ----------- ------------ ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
Investment income:
Distributions received from:
John Hancock Variable Series Trust I.......... $ 56,350 $ 648,532 $ 862,509 $ 2,943,852 $ -- $ 31,306
M Fund Inc.................................... -- -- -- -- -- --
Interest income on pol. loans................... -- -- 247,488 985,509 -- --
--------- ---------- ---------- ------------ --------- ----------
Total investment income......................... 56,350 648,532 1,109,997 3,929,361 -- 31,306
Expenses:
Mortality and expense risks................... 13,988 54,610 105,458 411,487 8,049 29,798
--------- ---------- ---------- ------------ --------- ----------
Net investment income (loss).................... 42,362 593,922 1,004,539 3,517,874 (8,049) 1,508
Net realized and unrealized gain (loss):
Net realized gains (loss)..................... (14,489) 165,556 -- -- (29,925) (241,740)
Net unrealized appreciation/(depreciation)
during year................................. (300,198) (569,216) -- -- 476,989 469,537
--------- ---------- ---------- ------------ --------- ----------
Net realized and unrealized gain/loss
on investments................................ (314,687) (403,660) -- -- 447,064 227,797
--------- ---------- ---------- ------------ --------- ----------
Net increase (decrease) in net assets resulting
from operations............................... $(272,325) $ 190,262 $1,004,539 $ 3,517,874 $ 439,015 $ 229,305
========= ========== ========== ============ ========= ==========
</TABLE>
<TABLE>
<CAPTION>
Small/Mid Cap Growth Real Estate Equity Growth & Income
Subaccount Subaccount Subaccount
------------------------ ------------------------- --------------------------
3/31/00 12/31/99 3/31/00 12/31/99 3/31/00 12/31/99
----------- ----------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Investment income:
Distributions received from:
John Hancock Variable Series Trust I.......... $ -- $ 1,903,687 $ 244,053 $ 771,050 $ 2,643,561 $124,750,392
M Fund Inc.................................... -- -- -- -- -- --
Interest income on pol. loans................... -- -- 32,615 131,461 3,405,219 12,877,539
---------- ----------- --------- ------------ ----------- ------------
Total investment income......................... -- 1,903,687 276,668 902,511 6,048,780 137,627,931
Expenses:
Mortality and expense risks................... 18,267 69,847 18,989 78,893 1,660,489 6,531,512
---------- ----------- --------- ------------ ----------- ------------
Net investment income (loss).................... (18,267) 1,833,840 257,679 823,618 4,388,291 131,096,419
Net realized and unrealized gain (loss):
Net realized gains (loss)..................... (182,463) (13,020) (43,024) 123,591 8,209,775 22,802,197
Net unrealized appreciation/(depreciation)
during year................................. 1,024,783 (1,274,161) 151,455 (1,106,755) 7,713,859 7,687,109
---------- ----------- --------- ------------ ----------- ------------
Net realized and unrealized gain (loss) on
investments................................... 842,320 (1,287,181) 108,431 (983,164) 15,923,634 30,489,306
---------- ----------- --------- ------------ ----------- ------------
Net increase (decrease) in net assets resulting
from operations................................. $ 824,053 $ 546,659 $ 366,110 $ (159,546) $20,311,925 $161,585,725
========== =========== ========= ============ =========== ============
</TABLE>
78
<PAGE>
JOHN HANCOCK VARIABLE LIFE ACCOUNT U
STATEMENTS OF OPERATIONS (Unaudited) (continued)
Years and periods ended March 31, 2000
<TABLE>
<CAPTION>
Managed Short-Term Bond Small Cap Value
Subaccount Subaccount Subaccount
--------------------------- --------------------- ---------------------
3/31/00 12/31/99 3/31/00 12/31/99 3/31/00 12/31/99
----------- ------------- ---------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
Investment income:
Distributions received from:
John Hancock Variable Series Trust I................ $3,259,037 $ 39,951,885 $ 15,547 $ 53,689 $ 19,612 $ 97,290
M Fund Inc.......................................... -- -- -- -- -- --
Interest income on pol. loans......................... 1,368,321 5,217,121 -- -- -- --
---------- ------------ -------- -------- -------- ----------
Total investment income............................... 4,627,358 45,169,006 15,547 53,689 19,612 97,290
Expenses:
Mortality and expense risks......................... 663,688 2,636,085 1,503 5,065 6,137 24,661
---------- ------------ -------- -------- -------- ----------
Net investment income................................. 3,963,670 42,532,921 14,044 48,624 13,475 72,629
Net realized /unrealized gain (loss):
Net realized gains (loss)........................... 1,779,374 5,060,826 (11,242) (3,107) (89,286) (217,582)
Net unrealized appreciation/(depreciation) during
year.............................................. 2,190,074 (9,288,287) 7,393 (23,648) 64,023 (40,472)
---------- ------------ -------- -------- -------- ----------
Net realized and unrealized gain/loss on investments 3,969,448 (4,227,461) (3,849) (26,755) (25,263) (258,054)
---------- ------------ -------- -------- -------- ----------
Net increase (decrease) in net assets resulting from
operations.......................................... $7,933,118 $ 38,305,460 $ 10,195 $ 21,869 $(11,788) $ (185,425)
========== ============ ======== ======== ======== ==========
</TABLE>
<TABLE>
<CAPTION>
International
Opportunities Equity Index Global Bond
Subaccount Subaccount Subaccount
--------------------------- ------------------------ --------------------
3/31/00 12/31/99 3/31/00 12/31/99 3/31/00 12/31/99
------------ ------------- ----------- ------------ ---------- ---------
<S> <C> <C> <C> <C> <C> <C>
Investment income:
Distributions received from:
John Hancock Variable Series Trust I................. $ -- $ 354,646 $ 68,127 $ 921,698 $ 6,003 $ 91,316
M Fund Inc........................................... -- -- -- -- -- --
Interest income on pol. loans.......................... -- -- -- -- -- --
--------- ---------- --------- ---------- ---------- ---------
Total investment income................................ -- 354,646 68,127 921,698 6,003 91,316
Expenses:
Mortality and expense risks.......................... 8,298 24,257 33,425 103,983 2,419 9,736
--------- ---------- --------- ---------- ---------- ---------
Net investment income (loss)........................... (8,298) 330,389 34,702 817,715 3,584 81,580
Net realized and unrealized gain (loss):
Net realized gains (loss)............................ 273,099 123,861 211,295 471,802 (34,492) (1,996)
Net unrealized appreciation/(depreciation) during
year............................................... (264,847) 839,140 357,753 2,019,913 56,600 (126,001)
--------- ---------- --------- ---------- ---------- ---------
Net realized and unrealized gain/loss on investments... 8,252 963,001 569,048 2,491,715 22,108 (127,997)
--------- ---------- --------- ---------- ---------- ---------
Net increase (decrease) in net assets resulting from
operations.......................................... $ (46) $1,293,390 $ 603,750 $3,309,430 $ 25,692 $ (46,417)
========= ========== ========= ========== ========== =========
</TABLE>
79
<PAGE>
JOHN HANCOCK VARIABLE LIFE ACCOUNT U
STATEMENTS OF OPERATIONS (Unaudited) (continued)
Years and periods ended March 31, 2000
<TABLE>
<CAPTION>
Frontier Capital
Turner Core Growth Brandes International Appreciation
Subaccount Equity Subaccount Subaccount
----------------------- ----------------------- ---------------------
3/31/00 12/31/99 3/31/00 12/31/99 3/31/00 12/31/99
---------- ---------- ---------- ------------ ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Investment income:
Distributions received from:
John Hancock Variable Series Trust I.................... $ -- $ 38,038 $ -- $ 18,453 $ -- $ 20,787
M Fund Inc.............................................. -- -- -- -- -- --
Interest income on pol. loans............................. -- -- -- -- -- --
------- ---------- -------- -------- -------- --------
Total investment income................................... -- 38,038 -- 18,453 -- 20,787
Expenses:
Mortality and expense risks............................. 896 2,102 839 1,904 1,272 3,019
------- ---------- -------- -------- -------- --------
Net investment income (loss).............................. (896) 35,936 (839) 16,549 (1,272) 17,768
Net realized and unrealized gain (loss):
Net realized gains...................................... 30,452 44,245 4,371 7,704 4,012 22,678
Net unrealized appreciation/(depreciation) during year.. 33,249 37,727 (23,065) 119,400 133,921 164,599
------- ---------- -------- -------- -------- --------
Net realized and unrealized gain/loss on investments...... 63,701 81,972 (18,694) 127,104 137,933 187,277
------- ---------- -------- -------- -------- --------
Net increase (decrease) in net assets resulting from
operations.............................................. $62,805 $ 117,908 $(19,533) $143,653 $136,661 $205,045
======= ========== ======== ======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
Emerging International
Markets Equity Opportunities II Bond Index
Subaccount Subaccount Subaccount
---------------------- ------------------------- ---------------------
3/31/00 12/31/99 3/31/00 12/31/99 3/31/00 12/31/99
---------- ----------- ------------ ----------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
Investment income:
Distributions received from:
John Hancock Variable Series Trust I................... $ -- $ 13,510 $ -- $ -- $ 12,540 $ 17,417
M Fund Inc............................................. -- -- -- -- -- --
Interest income on pol. loans............................ -- -- -- -- -- --
--------- -------- -------- ------- --------- --------
Total investment income.................................. -- 13,510 -- -- 12,540 17,417
Expenses:
Mortality and expense risks............................ 1,021 720 243 -- 967 1,565
--------- -------- -------- ------- --------- --------
Net investment income (loss)............................. (1,021) 12,790 (243) -- 11,573 15,852
Net realized and unrealized gain (loss):
Net realized gains (loss).............................. 32,912 5,339 12,897 -- (1,322) (1,422)
Net unrealized appreciation/(depreciation) during year. 987 86,570 (4,172) -- 8,814 (22,820)
--------- -------- -------- ------- --------- --------
Net realized and unrealized gain/loss on investments..... 33,899 91,909 8,725 -- 7,492 (24,242)
--------- -------- -------- ------- --------- --------
Net increase (decrease) in net assets resulting from
operations............................................. $ 32,878 $104,699 $ 8,482 $ -- $ 19,065 $ (8,390)
========= ======== ======== ======= ========= ========
</TABLE>
80
<PAGE>
JOHN HANCOCK VARIABLE LIFE ACCOUNT U
STATEMENTS OF OPERATIONS (Unaudited) (continued)
Years and periods ended March 31, 2000
<TABLE>
<CAPTION>
Small/Mid High Yield Enhanced US
Cap Core Bond Equity Fund
Subaccount Subaccount Subaccount
-------------------- -------------------- -------------------
3/31/00 12/31/99 3/31/00 12/31/99 3/31/00 12/31/99
--------- --------- ---------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Investment income:
Distributions received from:
John Hancock Variable Series Trust I........................... $ 14 $6,810 $ 3,675 $2,748 $ -- $1,117
M Fund Inc..................................................... -- -- -- -- -- --
Interest income on pol. loans.................................... -- -- -- -- -- --
-------- ------ -------- ------ ---- ------
Total investment income.......................................... 14 6,810 3,675 2,748 -- 1,117
Expenses:
Mortality and expense risks.................................... 200 178 218 206 23 4
-------- ------ -------- ------ ---- ------
Net investment income (loss)..................................... (186) 6,632 3,457 2,542 (23) 1,113
Net realized and unrealized gain (loss):
Net realized gains (loss)...................................... 9,798 252 (260) (186) (16) 91
Net unrealized appreciation/(depreciation) during year......... (1,113) 3,005 (10,047) (511) 473 (879)
-------- ------ -------- ------ ---- ------
Net realized and unrealized gain/loss on investments............. 8,685 3,257 (10,307) (697) 457 (788)
-------- ------ -------- ------ ---- ------
Net increase (decrease) in net assets resulting from operations.. $ 8,499 $9,889 $ (6,850) $1,845 $434 $ 325
======== ====== ======== ====== ==== ======
</TABLE>
81
<PAGE>
JOHN HANCOCK VARIABLE LIFE ACCOUNT U
STATEMENTS OF CHANGES IN NET ASSETS (Unaudited)
Years and periods ended March 31, 2000
<TABLE>
<CAPTION>
Large Cap Growth Active Bond International Equity
Subaccount Subaccount Index Subaccount
---------------------------- ------------------------- --------------------------
3/31/00 12/31/99 3/31/00 12/31/99 3/31/00 12/31/99
------------ ------------- ----------- ------------- ----------- --------------
<S> <C> <C> <C> <C> <C> <C>
Increase (decrease) in net assets from
operations:
Net investment income (loss)............ $ 236,595 $ 24,389,814 $ 3,768,425 $ 20,233,648 $ 79,569 $ 950,123
Net realized gain (loss)................ 833,861 4,239,424 (35,588) 192,098 75,508 168,248
Net unrealized appreciation
(depreciation) during year............ 11,027,522 1,727,703 911,538 (20,304,536) (103,509) 5,712,567
------------ ------------ ------------ ------------ ----------- -----------
Net increase (decrease) in net assets
from operations....................... 12,097,978 30,356,941 4,644,375 121,210 51,568 6,830,938
From policyholder transactions:
Net premiums from
policyholders....................... 17,535,837 37,307,814 6,448,058 26,114,799 5,057,274 7,373,967
Net benefits to policyholders........... 11,509,631 (25,817,420) 10,977,903 (35,577,616) 2,533,065 (6,834,914)
Net increase in policy loans............ 1,648,133 -- 137,166 -- 150,456 --
------------ ------------ ------------ ------------ ----------- -----------
Net increase (decrease) in net assets
from policyholder transactions...... 7,674,339 11,490,394 (4,392,679) (9,462,817) 2,674,665 539,053
------------ ------------ ------------ ------------ ----------- -----------
Net increase (decrease) in net
assets................................ 19,772,317 41,847,335 251,696 (9,341,607) 2,726,233 7,369,991
Net assets at beginning of year......... 177,062,332 135,214,997 293,120,799 302,462,406 31,899,039 24,529,048
------------ ------------ ------------ ------------ ----------- -----------
Net assets at end of year............... $196,834,649 $177,062,332 $293,372,495 $ 293,20,799 $34,625,272 $31,899,039
============ ============ ============ ============ =========== ===========
</TABLE>
<TABLE>
<CAPTION>
Small Cap Growth International Balanced Mid Cap Growth
Subaccount Subaccount Subaccount
----------------------------- ---------------------------- -------------------------
3/31/00 12/31/99 3/31/00 12/31/99 3/31/00 12/31/99
--------------- ------------- ------------- -------------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
Increase (decrease) in net assets from
operations:
Net investment income (loss)............ $ (20,232) $ 1,234,844 $ 4,847 $ 92,816 $ (38,680) $ 2,058,661
Net realized gain (loss)................ 284,315 491,241 (6,325) 4,711 208,009 773,222
Net unrealized appreciation
(depreciation) during year.............. 1,372,558 2,317,857 (33,662) (38,997) (141,158) 6,801,000
------------- ------------ ---------- ----------- ----------- ------------
Net increase (decrease) in net assets
from operations....................... 1,636,641 4,043,942 (35,140) 58,530 28,171 9,632,883
From policyholder transactions:
Net premiums from
policyholders........................... 3,906,647 4,316,218 53,815 7,140,951 7,140,951 8,941,124
Net benefits to policyholders........... 1,535,931 (2,206,402) 250,109 1,893,248 1,893,248 (2,937,257)
Net increase in policy loans............ -- -- -- -- -- --
------------- ------------ ---------- ----------- ----------- ------------
Net increase (decrease) in net assets
from policyholder transactions.......... 2,370,716 2,109,816 (196,294) 246,627 5,247,703 6,003,867
Net increase (decrease) in net
assets................................ 4,007,357 6,153,758 (231,434) 305,157 5,275,874 15,636,750
Net assets at beginning of year......... 10,825,578 4,671,820 1,177,232 872,075 20,852,255 5,215,505
------------- ------------ ---------- ----------- ----------- ------------
Net assets at end of year............... $ 14,832,935 $ 10,825,578 $ 945,798 $ 1,177,232 $26,128,129 $ 20,852,255
============= ============ ========== =========== =========== ============
</TABLE>
82
<PAGE>
JOHN HANCOCK VARIABLE LIFE ACCOUNT U
STATEMENTS OF CHANGES IN NET ASSETS (Unaudited) (continued)
Years and periods ended March 31, 2000
<TABLE>
<CAPTION>
Large Cap Value Money Market Mid Cap Value
Subaccount Subaccount Subaccount
--------------------------- -------------------------- --------------------------------
3/31/00 12/31/99 3/31/00 12/31/99 3/31/00 12/31/99
------------ ------------ ------------ ------------- --------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Increase (decrease) in net assets
from operations:
Net investment income (loss)........... $ 42,362 $ 593,922 $ 1,004,539 $ 3,517,874 $ (8,049) $ 1,508
Net realized gain (loss)............... (14,489) 165,556 -- -- (29,925) (241,740)
Net unrealized appreciation
(depreciation) during year.......... (300,198) (569,216) -- -- 476,989 469,537
------------ ------------ ------------ ------------- --------------- ---------------
Net increase (decrease) in net assets
from operations........................ (272,325) 190,262 1,004,539 3,517,874 439,015 229,305
From policyholder transactions:
Net premiums from policyholders........ 1,393,271 3,166,658 7,811,240 33,694,123 769,913 1,886,594
Net benefits to policyholders.......... 670,381 (1,903,017) 10,874,536 (30,672,090) 703,010 (1,754,112)
Net increase in policy loans........... -- -- (152,562) -- -- --
------------ ------------ ------------ ------------- --------------- ---------------
Net increase (decrease) in net assets
from policyholder transactions......... 722,890 1,263,641 (3,215,858) 3,022,033 66,903 141,482
------------ ------------ ------------ ------------- --------------- ---------------
Net increase (decrease) in net assets.... 450,565 1,453,903 (2,211,319) 6,539,907 505,918 370,787
Net assets at beginning of year.......... 9,553,293 8,099,390 76,638,641 70,098,734 5,236,580 4,865,793
------------ ------------ ------------ ------------- --------------- ---------------
Net assets at end of year................ $10,003,858 $ 9,553,293 $74,427,322 $ 76,638,641 $ 5,742,498 $ 5,236,580
============ ============ ============ ============= =============== ===============
</TABLE>
<TABLE>
<CAPTION>
Small/Mid Cap Growth Real Estate Equity Growth & Income
Subaccount Subaccount Subaccount
--------------------------- -------------------------- --------------------------------
3/31/00 12/31/99 3/31/00 12/31/99 3/31/00 12/31/99
------------ ------------ ------------ ------------- --------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Increase (decrease) in net assets
from operations:
Net investment income (loss)........ $ (18,267) $ 1,833,840 $ 257,679 $ 823,618 $ 4,388,291 $ 131,096,419
Net realized gain (loss)............ (182,463) (13,020) (43,024) 123,591 8,209,775 22,802,197
Net unrealized appreciation
(depreciation) during year....... 1,024,783 (1,274,161) 151,455 (1,106,755) 7,713,859 7,687,109
------------ ------------ ------------ ------------- --------------- ---------------
Net increase (decrease) in net assets
from operations..................... 824,053 546,659 366,110 (159,546) 20,311,925 161,585,725
From policyholder transactions:
Net premiums from policyholders..... 646,259 3,493,643 783,270 2,304,591 25,986,761 101,973,160
Net benefits to policyholders....... 1,241,087 (3,105,108) 1,054,195 (3,311,591) 44,381,986 (133,701,210)
Net increase in policy loans........ -- -- 20,586 -- 2,445,040 --
------------ ------------ ------------ ------------- --------------- ---------------
Net increase (decrease) in net assets
from policyholder transactions...... (594,828) 388,535 (250,339) (1,007,000) (15,950,185) (31,728,050)
------------ ------------ ------------ ------------- --------------- ---------------
Net increase (decrease) in net assets. 229,225 935,194 115,771 (1,166,546) 4,361,740 129,857,675
Net assets at beginning of year....... 12,409,573 11,474,379 13,378,472 14,545,0181 1,278,739,554 1,148,881,879
------------ ------------ ------------ ------------- --------------- ---------------
Net assets at end of year............. $12,638,798 $12,409,573 $13,494,243 $ 13,378,472 $1,283,101,294 $1,278,739,554
============ ============ ============ ============= =============== ===============
</TABLE>
83
<PAGE>
JOHN HANCOCK VARIABLE LIFE ACCOUNT U
STATEMENTS OF CHANGES IN NET ASSETS (Unaudited) (continued)
Years and periods ended March 31, 2000
<TABLE>
<CAPTION>
Short-Term
US Government Small Cap Value
Managed Subaccount Subaccount Subaccount
-------------------------- ---------------------- ----------------------
3/31/00 12/31/99 3/31/00 12/31/99 3/31/00 12/31/99
----------- ----------- --------- ---------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
Increase (decrease) in net assets from
operations:
Net investment income ...................... $ 3,963,670 $ 42,532,921 $ 14,044 $ 48,624 $ 13,475 $ 72,629
Net realized gain (loss) ................... 1,779,374 5,060,826 (11,242) (3,107) (89,286) (217,582)
Net unrealized appreciation (depreciation)
during year .............................. 2,190,074 (9,288,287) 7,393 (23,648) 64,023 (40,472)
----------- ----------- --------- ---------- --------- ----------
Net increase (decrease) in net assets from
operations ................................. 7,933,118 38,305,460 10,195 21,869 (11,788) (185,425)
From policyholder transactions:
Net premiums from policyholders ............ 11,055,778 44,546,082 128,741 690,849 778,782 1,446,109
Net benefits to policyholders .............. 18,933,923 (55,332,758) 299,033 (178,124) 677,820 (1,547,128)
Net increase in policy loans ............... 990,416 -- -- -- -- --
----------- ----------- --------- ---------- --------- ----------
Net increase (decrease) in net assets from
policyholder transactions .................. (6,887,729) (10,786,676) (170,292) 512,725 100,962 (101,019)
----------- ----------- --------- ---------- --------- ----------
Net increase (decrease) in net assets ........... 1,045,389 27,518,784 (160,097) 534,594 89,174 (286,444)
Net assets at beginning of year ................. 500,072,750 472,553,966 1,129,483 594,889 4,111,416 4,397,860
----------- ----------- --------- ---------- --------- ----------
Net assets at end of year ....................... $ 501,118,139 $ 500,072,750 $ 969,386 $ 1,129,483 $4,200,590 $ 4,111,416
=========== =========== ========= ========== ========= ==========
</TABLE>
<TABLE>
<CAPTION>
International Opportunities Equity Index Global Bond
Subaccount Subaccount Subaccount
-------------------------- ---------------------- ----------------------
3/31/00 12/31/99 3/31/00 12/31/99 3/31/00 12/31/99
----------- ----------- --------- ---------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
Increase (decrease) in net assets from
operations:
Net investment income (loss) ............... $ (8,298) $ 330,389 $ 34,702 $ 817,715 $ 3,584 $ 81,580
Net realized gain (loss) ................... 273,099 123,861 211,295 471,802 (34,492) (1,996)
Net unrealized appreciation (depreciation)
during year .............................. (264,847) 839,140 357,753 2,019,913 56,600 (126,001)
----------- ----------- ---------- ---------- --------- ---------
Net increase (decrease) in net assets from
operations ................................. (46) 1,293,390 603,750 3,309,430 25,692 (46,417)
From policyholder transactions:
Net premiums from policyholders ............ 1,588,931 1,632,955 3,319,881 7,762,529 158,914 1,115,699
Net benefits to policyholders .............. 1,133,045 (1,315,539) 1,163,753 (2,563,485) 558,343 (292,075)
Net increase in policy loans ............... -- -- -- -- -- --
----------- ----------- ---------- ---------- --------- ---------
Net increase (decrease) in net assets from
policyholder transactions .................. 455,886 317,416 2,156,129 5,199,044 (399,429) 823,624
----------- ----------- ---------- ---------- --------- ---------
Net increase (decrease) in net assets ........... 455,840 1,610,806 2,759,879 8,508,474 (373,737) 777,207
Net assets at beginning of year ................. 5,310,586 3,699,780 22,117,624 13,609,150 1,882,675 1,105,468
----------- ----------- ---------- ---------- --------- ---------
Net assets at end of year ....................... $ 5,766,426 $ 5,310,586 $24,877,503 $22,117,624 $1,508,938 $ 1,882,675
=========== =========== ========== ========== ========= ==========
</TABLE>
84
<PAGE>
JOHN HANCOCK VARIABLE LIFE ACCOUNT U
STATEMENTS OF CHANGES IN NET ASSETS (Unaudited) (continued)
Years and periods ended March 31, 2000
<TABLE>
<CAPTION>
Turner Core Growth Brandes International Frontier Capital
Subaccount Equity Subaccount Appreciation Subaccount
-------------------------- ---------------------- -----------------------
3/31/00 12/31/99 3/31/00 12/31/99 3/31/00 12/31/99
----------- ----------- --------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Increase (decrease) in net assets from
operations:
Net investment income (loss) ............... $ (896) $ 35,936 $ (839) $ 16,549 $ (1,272) $ 17,768
Net realized gain .......................... 30,452 44,245 4,371 7,704 4,012 22,678
Net unrealized appreciation (depreciation)
during year .............................. 33,249 37,727 (23,065) 119,400 133,921 164,599
---------- ----------- --------- ---------- ---------- ----------
Net increase (decrease) in net assets from
operations ................................. 62,805 117,908 (19,533) 143,653 136,661 205,045
From policyholder transactions:
Net premiums from policyholders ............ 124,348 240,351 34,073 239,618 181,792 255,268
Net benefits to policyholders .............. 77,412 (136,661) 12,716 (29,520) 10,222 (89,136)
Net increase in policy loans ............... -- -- -- -- -- --
---------- ----------- --------- ---------- ---------- ----------
Net increase in net assets from policyholder
transactions ............................... 46,936 103,690 21,357 210,098 171,570 166,132
---------- ----------- --------- ---------- ---------- ----------
Net increase in net assets ...................... 109,741 221,598 1,824 353,751 308,231 371,177
Net assets at beginning of year ................. 536,192 314,594 588,128 234,377 728,674 357,497
---------- ----------- --------- ---------- ---------- ----------
Net assets at end of year ....................... $ 645,933 $ 536,192 $ 589,952 $ 588,128 $1,036,905 $ 728,674
========== =========== ========= ========== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
Emerging Markets International
Equity Opportunities II Bond Index
Subaccount Subaccount Subaccount
-------------------------- ---------------------- -----------------------
3/31/00 12/31/99 3/31/00 12/31/99 3/31/00 12/31/99
----------- ----------- --------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Increase (decrease) in net assets from
operations:
Net investment income (loss) ............... $ (1,021) $ 12,790 $ (243) $ 241 $ 11,573 $ 15,852
Net realized gain (loss) ................... 32,912 5,339 12,897 602 (1,322) (1,422)
Net unrealized appreciation (depreciation)
during year .............................. 886 86,570 (4,172) 13,424 8,814 (22,820)
----------- ----------- --------- ---------- ---------- ----------
Net increase (decrease) in net assets from 32,777 104,699 8,482 14,267 19,065 (8,390)
operations .................................
From policyholder transactions:
Net premiums from policyholders ............ 716,194 433,406 144,487 108,420 323,644 412,326
Net benefits to policyholders .............. 122,864 (144,400) 53,408 (11,064) 15,396 (26,307)
Net increase in policy loans ............... -- -- -- -- -- --
----------- ----------- --------- ---------- ---------- ----------
Net increase in net assets from policyholder
transactions ............................... 593,330 289,006 91,079 97,356 308,248 386,019
----------- ----------- --------- ---------- ---------- ----------
Net increase in net assets ...................... 626,107 393,705 99,561 111,623 327,313 377,629
Net assets at beginning of year ................. 395,734 2,029 112,572 949 387,763 10,134
----------- ----------- --------- ---------- ---------- ----------
Net assets at end of year ....................... $ 1,021,841 $ 395,734 $ 212,133 $ 112,572 $ 715,076 $ 387,763
=========== =========== ========= ========== ========== ==========
</TABLE>
85
<PAGE>
JOHN HANCOCK VARIABLE LIFE ACCOUNT U
STATEMENTS OF CHANGES IN NET ASSETS (Unaudited) (continued)
Years and periods ended March 31, 2000
<TABLE>
<CAPTION>
Small/Mid Cap CORE High Yield Bond Enhanced US Equity Fund
Subaccount Subaccount Subaccount
-------------------------- ---------------------- -----------------------
3/31/00 12/31/99 3/31/00 12/31/99 3/31/00 12/31/99
---------- ----------- --------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Increase (decrease) in net assets from
operations:
Net investment income (loss) ............... $ (186) $ 6,632 $ 3,457 $ 2,542 $ (23) $ 1,113
Net realized gain (loss) ................... 9,798 252 (260) (186) (16) 91
Net unrealized appreciation (depreciation)
during year .............................. (1,113) 3,005 (10,047) (511) 473 (879)
---------- ----------- --------- ---------- ---------- ----------
Net increase (decrease) in net assets from 8,499 9,889 (6,850) 1,845 434 325
operations .................................
From policyholder transactions:
Net premiums from policyholders ............ 125,879 97,285 117,055 98,955 4,402 13,814
Net benefits to policyholders .............. 86,638 (7,901) (24,046) (13,078) 135 --
Net increase in policy loans ............... -- -- -- -- -- --
---------- ----------- --------- ---------- ---------- ----------
Net increase in net assets resulting from
policyholder transactions .................. 39,241 89,484 141,101 85,877 4,267 13,814
---------- ----------- --------- ---------- ---------- ----------
Net increase in net assets ...................... 47,740 99,373 134,251 87,722 4,701 14,139
Net assets at beginning of year ................. 99,481 108 90,601 2,879 14,139 --
---------- ----------- --------- ---------- ---------- ----------
Net assets at end of year ....................... $ 147,221 $ 99,481 $ 224,852 $ 90,601 $ 18,840 $ 14,139
========== =========== ========= ========== ========== ==========
</TABLE>
86
<PAGE>
JOHN HANCOCK VARIABLE LIFE ACCOUNT U
NOTES TO FINANCIAL STATEMENTS (Unaudited)
March 31, 2000
1. Organization
John Hancock Variable Life Account U (the Account) is a separate investment
account of John Hancock Variable Life Insurance Company (JHVLICO), a
wholly-owned subsidiary of John Hancock Life Insurance Company (John Hancock).
The Account was formed to fund variable life insurance policies (Policies)
issued by JHVLICO. The Account is operated as a unit investment trust registered
under the Investment Company Act of 1940, as amended, and currently consists of
twenty-seven subaccounts. The assets of each subaccount are invested exclusively
in shares of a corresponding Portfolio of John Hancock Variable Series Trust I
(the Fund) or of M Fund Inc. (M Fund). New subaccounts may be added as new
Portfolios are added to the Fund or to M Fund, or as other investment options
are developed and made available to policyholders. The twenty-seven Portfolios
of the Fund and M Fund which are currently available are the Large Cap Growth,
Sovereign Bond, International Equity Index, Small Cap Growth, International
Balanced, Mid Cap Growth, Large Cap Value, Money Market, Mid Cap Value,
Small/Mid Cap Growth (formerly, Diversified Mid Cap Growth), Real Estate Equity,
Growth & Income, Managed, Short-Term Bond, Small Cap Value, International
Opportunities, Equity Index, Global Bond (formerly, Strategic Bond), Turner Core
Growth, Brandes International Equity, Frontier Capital Appreciation, Emerging
Markets Equity, Global Equity, Bond Index, Small/Mid Cap CORE, High Yield Bond,
and Enhanced U.S. Equity Portfolios. Each Portfolio has a different investment
objective.
The net assets of the Account may not be less than the amount required
under state insurance law to provide for death benefits (without regard to the
minimum death benefit guarantee) and other policy benefits. Additional assets
are held in JHVLICO's general account to cover the contingency that the
guaranteed minimum death benefit might exceed the death benefit which would have
been payable in the absence of such guarantee.
The assets of the Account are the property of JHVLICO. The portion of the
Account's assets applicable to the policies may not be charged with liabilities
arising out of any other business JHVLICO may conduct.
2. Significant Accounting Policies
Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities, and
disclosure of contingent assets and liabilities, at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Valuation of Investments
Investment in shares of the Fund and of M Fund are valued at the reported
net asset values of the respective Portfolios. Investment transactions are
recorded on the trade date. Dividend income is recognized on the ex-dividend
date. Realized gains and losses on sales of underlying portfolio shares are
determined on the basis of identified cost.
Federal Income Taxes
The operations of the Account are included in the federal income tax return
of JHVLICO, which is taxed as a life insurance company under the Internal
Revenue Code. JHVLICO has the right to charge the Account any federal income
taxes, or provision for federal income taxes, attributable to the operations of
the Account or to the policies funded in the Account. Currently, JHVLICO does
not make a charge for income or other taxes. Charges for state and local taxes,
if any, attributable to the Account may also be made.
87
<PAGE>
JOHN HANCOCK VARIABLE LIFE ACCOUNT U
NOTES TO FINANCIAL STATEMENTS (Unaudited) (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.
88
<PAGE>
JOHN HANCOCK VARIABLE LIFE ACCOUNT U
NOTES TO FINANCIAL STATEMENTS (Unaudited) (continued)
Note 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 March 31, 2000 were as follows:
<TABLE>
<CAPTION>
Subaccount Shares Owned Cost Value
---------- ------------ ------------ -------------
<S> <C> <C> <C>
Large Cap Growth................................................ 5,741,593 $127,611,841 $ 174,861,561
Active Bond..................................................... 25,890,030 248,439,590 234,884,827
International Equities.......................................... 1,479,056 26,796,589 31,570,772
Small Cap Growth................................................ 566,326 10,421,963 14,833,170
International Balanced.......................................... 109,967 976,041 943,471
Mid Cap Growth.................................................. 713,403 18,626,024 26,128,545
Large Cap Value................................................. 708,140 10,602,588 9,984,441
Money Market.................................................... 6,251,999 60,394,274 60,394,274
Mid Cap Value................................................... 409,851 5,119,226 5,742,590
Small/Mid Cap Growth............................................ 884,190 12,886,858 12,638,999
Real Estate Equity.............................................. 1,000,760 13,828,433 11,473,072
Growth & Income................................................. 54,521,668 789,399,326 1,091,691,749
Managed......................................................... 27,360,590 359,653,541 421,340,461
Short-Term Bond................................................. 116,179 984,899 964,359
Small Cap Value................................................. 376,603 4,518,967 4,195,612
International Opportunities..................................... 350,017 4,936,164 5,766,520
Equity Index.................................................... 1,081,124 19,188,937 24,855,784
Global Bond..................................................... 191,740 1,557,904 1,503,338
Turner Core Growth.............................................. 23,384 512,537 645,943
Brandes International Equity.................................... 37,895 474,795 589,962
Frontier Capital Appreciation................................... 34,502 713,685 1,036,922
Emerging Markets Equity......................................... 32,273 934,391 1,021,858
International Opportunities II.................................. 9,277 202,840 212,136
Bond Index...................................................... 41,614 725,415 711,214
Small/Mid Cap CORE.............................................. 10,135 145,325 147,223
High Yield Bond................................................. 10,083 233,901 233,317
Enhanced US Equity Fund......................................... 674 19,248 18,840
</TABLE>
89
<PAGE>
JOHN HANCOCK VARIABLE LIFE ACCOUNT U
NOTES TO FINANCIAL STATEMENTS (Unaudited) (continued)
Note 4 Details of Investments (continued)
Purchases, including reinvestment of dividend distributions, and proceeds
from the sales of shares in the Portfolios of the Fund and of M Fund through
March 31, 2000, were as follows:
<TABLE>
<CAPTION>
Subaccount Purchases Sales
---------- ----------- -----------
<S> <C> <C>
Large Cap Growth . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 7,703,632 $ 1,634,696
Active Bond . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,631,457 6,822,636
International Equities Index . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,952,172 409,335
Small Cap Growth . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,927,333 576,614
International Balanced . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47,905 241,680
Mid Cap Growth . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,525,701 316,264
Large Cap Value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,068,502 322,668
Money Market . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,921,376 6,047,088
Mid Cap Value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 519,074 460,127
Small/Mid Cap Growth . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 333,038 945,931
Real Estate Equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 561,232 679,296
Growth & Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,312,140 18,594,430
Managed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,380,888 8,682,348
Short-Term U.S. Government . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 109,566 270,842
Small Cap Value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 431,639 322,180
International Opportunities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,486,284 1,038,602
Equity Index . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,672,849 503,739
Global Bond . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 161,296 562,740
Turner Core Growth . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 121,407 75,357
Brandes International Equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33,343 12,815
Frontier Capital Appreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . 180,928 10,614
Emerging Markets Equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 685,355 93,029
International Opportunities II . . . . . . . . . . . . . . . . . . . . . . . . . . . . 193,288 102,449
Bond Index . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 335,583 19,625
Small/Mid Cap CORE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 123,200 84,142
High Yield Bond . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 147,370 4,355
Enhanced US Equity Fund . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,387 143
</TABLE>
90
<PAGE>
REPORT ERNST & YOUNG LLP, INDEPENDENT AUDITORS
To the Policyholders of
John Hancock Variable Life Account U
of John Hancock Variable Life Insurance Company
We have audited the accompanying statement of assets and liabilities of
John Hancock Variable Life Account U (the Account) (comprising, respectively,
the Large Cap Growth, Sovereign Bond, International Equity Index, Small Cap
Growth, International Balanced, Mid Cap Growth, Large Cap Value, Money Market,
Mid Cap Value, Small/Mid Cap Growth (formerly, Diversified Mid Cap Growth), Real
Estate Equity, Growth & Income, Managed, Short-Term Bond, Small Cap Value,
International Opportunities, Equity Index, Global Bond (formerly, Strategic
Bond), Turner Core Growth, Brandes International Equity, Frontier Capital
Appreciation, Emerging Markets Equity, Global Equity, Bond Index, Small/Mid Cap
CORE, High Yield Bond and Enhanced U.S. Equity Subaccounts) as of December 31,
1999, and the related statements of operations and changes in net assets for
each of the periods indicated therein. These financial statements are the
responsibility of the Account's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of each of the respective
subaccounts constituting John Hancock Variable Life Account U at December 31,
1999, the results of their operations and the changes in their net assets for
each of the periods indicated, in conformity with accounting principles
generally accepted in the United States.
ERNST & YOUNG LLP
Boston, Massachusetts
February 11, 2000
91
<PAGE>
JOHN HANCOCK VARIABLE LIFE ACCOUNT U
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1999
<TABLE>
<CAPTION>
International
Large Cap Sovereign Equity Small Cap
Growth Bond Index Growth
Subaccount Subaccount Subaccount Subaccount
------------ ------------- ------------- ------------
<S> <C> <C> <C> <C>
Assets
Cash...................................................... $ 18,374 $ 31,159 $ 3,363 $ 1,196
Investments in shares of portfolios of John Hancock
Variable Series Trust I, at value....................... 156,931,243 236,200,057 29,055,936 10,825,578
Policy loans and accrued interest receivable.............. 20,131,090 56,920,743 2,843,104 --
Receivable from:
John Hancock Variable Series Trust I................... 166,807 45,107 32,276 20,662
M Fund Inc............................................. -- -- -- --
------------ ------------- ------------- ------------
Total assets.............................................. 177,247,514 293,197,066 31,934,679 10,847,436
Liabilities
Payable to John Hancock Variable Life Insurance Company... 164,174 40,650 31,788 20,488
Asset charges payable..................................... 21,008 35,617 3,852 1,370
------------ ------------- ------------- ------------
185,182 76,267 35,640 21,858
------------ ------------- ------------- ------------
Net assets................................................ $177,062,332 $ 293,120,799 $ 31,899,039 $ 10,825,578
============ ============= ============= ============
</TABLE>
<TABLE>
<CAPTION>
International Mid Cap Large Cap Money
Balanced Growth Value Market
Subaccount Subaccount Subaccount Subaccount
------------ ------------- ------------- ------------
<S> <C> <C> <C> <C>
Assets
Cash...................................................... $ 133 $ 2,329 $ 1,091 $ 4,680
Investments in shares of portfolios of John Hancock
Variable Series Trust I, at value....................... 1,177,232 20,852,255 9,553,293 62,519,986
Policy loans and accrued interest receivable.............. -- -- -- 14,118,655
Receivable from:
John Hancock Variable Series Trust I.................... 970 103,804 6,237 159,443
M Fund Inc.............................................. -- -- -- --
------------ ------------- ------------- ------------
Total assets.............................................. 1,178,335 20,958,388 9,560,621 76,802,764
Liabilities
Payable to John Hancock Variable Life Insurance Company... 950 103,466 6,081 158,266
Asset charges payable..................................... 153 2,667 1,247 5,857
------------ ------------- ------------- ------------
1,103 106,133 7,328 164,123
------------ ------------- ------------- ------------
Net assets................................................ $ 1,177,232 $ 20,852,255 $ 9,553,293 $ 76,638,641
============ ============= ============= ============
</TABLE>
See accompanying notes.
92
<PAGE>
JOHN HANCOCK VARIABLE LIFE ACCOUNT U
STATEMENT OF ASSETS AND LIABILITIES (continued)
December 31, 1999
<TABLE>
<CAPTION>
Small/Mid
Mid Cap Cap Real Estate Growth &
Value Growth Equity Income
Subaccount Subaccount Subaccount Subaccount
---------- ----------- ----------- ---------------
<S> <C> <C> <C> <C>
Assets
Cash...................................................... $ 589 $ 1,386 $ 1,428 $ 132,575
Investments in shares of portfolios of John Hancock
Variable Series Trust I, at value....................... 5,236,581 12,409,573 11,482,706 1,091,050,404
Policy loans and accrued interest receivable.............. -- -- 1,895,766 187,689,150
Receivable from:
John Hancock Variable Series Trust I.................... 27,820 34,285 1,966 333,111
M Fund Inc.............................................. -- -- -- --
---------- ----------- ----------- ---------------
Total assets.............................................. 5,264,990 12,445,244 13,381,866 1,279,205,240
Liabilities
Payable to John Hancock Variable Life Insurance Company... 27,735 34,083 1,758 314,139
Asset charges payable..................................... 675 1,588 1,636 151,547
---------- ----------- ----------- ---------------
Total liabilities......................................... 28,410 35,671 3,394 465,686
---------- ----------- ----------- ---------------
Net assets................................................ $5,236,580 $12,409,573 $13,378,472 $ 1,278,739,554
========== =========== =========== ===============
</TABLE>
<TABLE>
<CAPTION>
Short-Term Small Cap International
Managed Bond Value Opportunities
Subaccount Subaccount Subaccount Subaccount
------------ ----------- ----------- --------------
<S> <C> <C> <C> <C>
Assets
Cash...................................................... $ 52,222 $ 129 $ 460 $ 593
Investments in shares of portfolios of John Hancock
Variable Series Trust I, at value...................... 422,672,470 1,129,483 4,111,416 5,310,586
Policy loans and accrued interest receivable.............. 77,400,280 -- -- --
Receivable from:
John Hancock Variable Series Trust I................... 123,268 218 2,954 5,072
M Fund Inc............................................. -- -- -- --
------------ ----------- ----------- --------------
Total assets.............................................. 500,248,240 1,129,830 4,114,830 5,316,251
Liabilities
Payable to John Hancock Variable Life Insurance Company... 115,790 199 2,887 4,985
Asset charges payable..................................... 59,700 148 527 680
------------ ----------- ----------- --------------
Total liabilities......................................... 175,490 347 3,414 5,665
------------ ----------- ----------- --------------
Net assets................................................ $500,072,750 $ 1,129,483 $ 4,111,416 $ 5,310,586
============ =========== =========== ==============
</TABLE>
See accompanying notes.
93
<PAGE>
JOHN HANCOCK VARIABLE LIFE ACCOUNT U
STATEMENT OF ASSETS AND LIABILITIES (continued)
December 31, 1999
<TABLE>
<CAPTION>
Turner Brandes
Equity Global Core International
Index Bond Growth Equity
Subaccount Subaccount Subaccount Subaccount
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Assets
Cash................................................................ $ 2,517 $ 216 $ 60 $ 65
Investments in shares of portfolios of John Hancock Variable Series
Trust I, at value................................................. 22,117,624 1,882,675 -- --
Investments in shares of portfolios of M Fund Inc., at value........ -- -- 536,192 588,128
Policy loans and accrued interest receivable........................ -- -- -- --
Receivable from:
John Hancock Variable Series Trust I.............................. 19,259 31 -- --
M Fund Inc........................................................ -- -- 9 10
------------ ----------- --------- ---------
Total assets........................................................ 22,139,400 1,882,922 536,261 588,203
Liabilities
Payable to John Hancock Variable Life Insurance Company............. 18,897 -- -- --
Asset charges payable............................................... 2,879 247 69 75
------------ ----------- --------- ---------
Total liabilities................................................... 21,776 247 69 75
------------ ----------- --------- ---------
Net assets.......................................................... $ 22,117,624 $ 1,882,675 $ 536,192 $ 588,128
============ =========== ========= =========
Frontier Emerging
Capital Markets Global
Appreciation Equity Equity Bond Index
Subaccount Subaccount Subaccount Subaccount
---------- ---------- ---------- ----------
Assets
Cash................................................................ $ 80 $ 43 $ 12 $ 45
Investments in shares of portfolios of John Hancock Variable Series
Trust I, at value................................................. -- 395,733 112,572 387,762
Investments in shares of portfolios of M Fund Inc., at value........ 728,674 -- -- --
Policy loans and accrued interest receivable........................ -- -- -- --
Receivable from:
John Hancock Variable Series Trust I.............................. -- 2,536 2 1,123
M Fund Inc........................................................ 12 -- -- --
------------ ----------- --------- ---------
Total assets........................................................ 728,766 398,312 112,586 388,930
Liabilities
Payable to John Hancock Variable Life Insurance Company............. -- 2,529 -- 1,116
Asset charges payable............................................... 92 49 14 51
------------ ----------- --------- ---------
Total liabilities................................................... 92 2,578 14 1,167
------------ ----------- --------- ---------
Net assets.......................................................... $ 728,674 $ 395,734 $ 112,572 $ 387,763
============ =========== ========= =========
</TABLE>
See accompanying notes.
94
<PAGE>
JOHN HANCOCK VARIABLE LIFE ACCOUNT U
STATEMENT OF ASSETS AND LIABILITIES (continued)
December 31, 1999
<TABLE>
<CAPTION>
Small/Mid High Yield Enhanced
Cap CORE Bond U.S. Equity
Subaccount Subaccount Subaccount
---------- ---------- ----------
<S> <C> <C> <C>
Assets
Cash.................................................................................... $ 9 $ -- $ 1
Investments in shares of portfolios of John Hancock Variable Series Trust I, at value... 99,481 90,611 --
Investments in shares of portfolios of M Fund Inc., at value............................ -- -- 14,140
Policy loans and accrued interest receivable............................................ -- -- --
Receivable from:
John Hancock Variable Series Trust I.................................................. 16,714 1,478 --
M Fund Inc............................................................................ -- -- --
-------- -------- --------
Total assets............................................................................ 116,204 92,089 14,141
Liabilities
Payable to John Hancock Variable Life Insurance Company................................. 16,712 1,477 --
Asset charges payable................................................................... 11 11 2
-------- -------- --------
Total liabilities....................................................................... 16,723 1,488 2
-------- -------- --------
Net assets.............................................................................. $ 99,481 $ 90,601 $ 14,139
======== ======== ========
</TABLE>
See accompanying notes.
95
<PAGE>
JOHN HANCOCK VARIABLE LIFE ACCOUNT U
STATEMENT OF OPERATIONS
Years and periods ended December 31,
<TABLE>
<CAPTION>
Large Cap Growth Subaccount Sovereign Bond Subaccount
----------------------------------------- ------------------------------------------
1999 1998 1997 1999 1998 1997
------------ ------------ ----------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Investment income:
Distributions received from:
John Hancock Variable Series
Trust I.............................. $ 24,007,195 $ 11,641,271 $ 7,675,850 $ 17,792,726 $ 19,685,096 $ 17,409,990
M Fund Inc............................. -- -- -- -- -- --
Interest income on policy loans.......... 1,211,333 1,008,607 875,892 4,084,783 4,027,376 3,926,698
------------ ------------ ----------- ------------ ------------ ------------
Total investment income.................. 25,218,528 12,649,878 8,551,742 21,877,509 23,712,472 21,336,688
Expenses:
Mortality and expense risks............ 828,714 624,665 480,057 1,643,861 1,624,615 1,514,127
------------ ------------ ----------- ------------ ------------ ------------
Net investment income.................... 24,389,814 12,025,213 8,071,685 20,233,648 22,087,857 19,822,561
Net realized and unrealized gain (loss) on
investments:
Net realized gain...................... 4,239,424 3,520,199 4,216,904 192,098 1,600,539 1,088,488
Net unrealized appreciation
(depreciation) during the period..... 1,727,703 18,509,310 7,920,403 (20,304,536) (2,317,324) 2,987,952
------------ ------------ ----------- ------------ ------------ ------------
Net realized and unrealized gain (loss) on
investments............................ 5,967,127 22,029,509 12,137,307 (20,112,438) (716,785) 4,076,440
------------ ------------ ----------- ------------ ------------ ------------
Net increase in net assets resulting from
operations............................. $ 30,356,941 $ 34,054,722 $ 20,208,992 $ 121,210 $ 21,371,072 $ 23,899,001
============ ============ =========== ============ ============ ============
International Equity Index Subaccount Small Cap Growth Subaccount
----------------------------------------- ------------------------------------------
1999 1998 1997 1999 1998 1997
------------ ------------ ----------- ------------ ------------ ------------
Investment income:
Distributions received from:
John Hancock Variable Series
Trust I.............................. $ 917,904 $ 3,394,842 $ 840,616 $ 1,272,230 $ -- $ 976
M Fund Inc............................. -- -- -- -- -- --
Interest income on policy loans.......... 179,345 170,285 170,905 -- -- --
------------ ------------ ------------ ------------ ------------ ------------
Total investment income.................. 1,097,249 3,565,127 1,011,521 1,272,230 -- 976
Expenses:
Mortality and expense risks............ 147,126 124,891 107,415 37,386 20,335 11,175
------------ ------------ ------------ ------------ ------------ ------------
Net investment income (loss)............. 950,123 3,440,236 904,106 1,234,844 (20,335) (10,199)
Net realized and unrealized gain (loss) on
investments:
Net realized gain...................... 168,248 148,419 209,781 491,241 55,393 34,153
Net unrealized appreciation
(depreciation) during the period..... 5,712,567 105,161 (2,036,425) 2,317,857 518,731 226,085
------------ ------------ ------------ ------------ ------------ ------------
Net realized and unrealized gain (loss) on
investments............................ 5,880,815 253,580 (1,826,644) 2,809,098 574,124 260,238
------------ ------------ ------------ ------------ ------------ ------------
Net increase (decrease) in net assets
resulting from operations.............. $ 6,830,938 $ 3,693,816 $ (922,538) $ 4,043,942 $ 553,789 $ 250,039
============ ============ ============ ============ ============ ============
</TABLE>
See accompanying notes.
96
<PAGE>
JOHN HANCOCK VARIABLE LIFE ACCOUNT U
STATEMENT OF OPERATIONS (continued)
Years and periods ended December 31,
<TABLE>
<CAPTION>
International Balanced Subaccount Mid Cap Growth Subaccount
----------------------------------- -----------------------------------------
1999 1998 1997 1999 1998 1997
--------- --------- --------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Investment income:
Distributions received from:
John Hancock Variable Series
Trust I............................... $ 99,184 $ 57,587 $ 30,867 $ 2,117,559 $ 461,919 $ --
M Fund Inc.............................. -- -- -- -- -- --
Interest income on policy loans........... -- -- -- -- -- --
--------- --------- --------- ----------- ----------- -----------
Total investment income................... 99,184 57,587 30,867 2,117,559 461,919 --
Expenses
Mortality and expense risks............. 6,368 4,696 2,758 58,898 16,758 5,801
--------- --------- --------- ----------- ----------- -----------
Net investment income (loss).............. 92,816 52,891 28,109 2,058,661 445,161 (5,801)
Net realized and unrealized gain (loss) on
investments:
Net realized gain (loss)................ 4,711 (4,506) 12,000 773,222 73,958 394
Net unrealized appreciation
(depreciation) during the period...... (38,997) 78,455 (41,999) 6,801,000 647,137 199,441
--------- --------- --------- ----------- ----------- -----------
Net realized and unrealized gain (loss) on
investments............................. (34,286) 73,949 (29,999) 7,574,222 721,095 199,835
--------- --------- --------- ----------- ----------- -----------
Net increase in net assets resulting from
operations.............................. $ 58,530 $ 126,840 $ (1,890) $ 9,632,883 $ 1,166,256 $ 194,034
========= ========= ========= =========== =========== ===========
Large Cap Value Subaccount Money Market Subaccount
----------------------------------- -----------------------------------------
1999 1998 1997 1999 1998 1997
--------- --------- --------- ----------- ----------- -----------
Investment income:
Distributions received from:
John Hancock Variable Series
Trust I............................... $ 648,532 $ 433,626 $ 266,440 $ 2,943,852 $ 2,888,490 $ 2,746,662
M Fund Inc.............................. -- -- -- -- -- --
Interest income on policy loans........... -- -- -- 985,509 973,241 957,390
--------- --------- --------- ----------- ----------- -----------
Total investment income................... 648,532 433,626 266,440 3,929,361 3,861,731 3,704,052
Expenses:
Mortality and expense risks............. 54,610 44,753 25,295 411,487 380,002 361,409
--------- --------- --------- ----------- ----------- -----------
Net investment income..................... 593,922 388,873 241,145 3,517,874 3,481,729 3,342,643
Net realized and unrealized gain (loss) on
investments:
Net realized gain....................... 165,556 673,582 217,073 -- -- --
Net unrealized appreciation
(depreciation) during the period...... (569,216) (479,093) 532,936 -- -- --
--------- --------- --------- ----------- ----------- -----------
Net realized and unrealized gain (loss) on
investments............................. (403,660) 194,489 750,009 -- -- --
--------- --------- --------- ----------- ----------- -----------
Net increase in net assets resulting from
operations.............................. $ 190,262 $ 583,362 $ 991,154 $ 3,517,874 $ 3,481,729 $ 3,342,643
========= ========= ========= =========== =========== ===========
</TABLE>
See accompanying notes.
97
<PAGE>
JOHN HANCOCK VARIABLE LIFE ACCOUNT U
STATEMENT OF OPERATIONS (continued)
Years and periods ended December 31,
<TABLE>
<CAPTION>
Mid Cap Value Subaccount Small/Mid Cap Growth Subaccount
-------------------------------- ----------------------------------
1999 1998 1997 1999 1998 1997
-------- --------- -------- -------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Investment income:
Distributions received from:
John Hancock Variable Series
Trust I.................................... $ 31,306 $ 40,338 $ 178,590 $ 1,903,687 $ 217,686 $ 1,022,881
M Fund Inc................................... -- -- -- -- -- --
Interest income on policy loans................ -- -- -- -- -- --
Total investment income........................ 31,306 40,338 178,590 1,903,687 217,686 1,022,881
--------- --------- --------- ------------ ---------- ------------
Expenses:
Mortality and expense risks.................. 29,798 23,760 6,329 69,847 63,334 54,469
Net investment income.......................... 1,508 16,578 172,261 1,833,840 154,352 968,412
--------- --------- --------- ------------ ---------- ------------
Net realized and unrealized gain (loss) on
investments:
Net realized gain (loss)..................... (241,740) (422,902) 121,152 (13,020) 56,968 533,297
Net unrealized appreciation
(depreciation) during the period........... 469,537 (260,362) (86,033) (1,274,161) 334,213 (1,073,252)
--------- --------- --------- ------------ ---------- ------------
Net realized and unrealized gain (loss) on
investments.................................. 227,797 (683,264) 35,119 (1,287,181) 391,181 (539,955)
--------- --------- --------- ------------ ---------- ------------
Net increase (decrease) in net assets
resulting from operations.................... $ 229,305 $(666,686) $ 207,380 $ 546,659 $ 545,533 $ 428,457
========= ========= ========= ============ ========== ============
</TABLE>
<TABLE>
<CAPTION>
Real Estate Equity Subaccount Growth & Income Subaccount
----------------------------------- ----------------------------------
1999 1998 1997 1999 1998 1997
-------- --------- ------------ -------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
Investment income:
Distributions received from:
John Hancock Variable Series
Trust I.................................... $ 771,050 $ 817,633 $ 957,079 $124,750,392 $ 96,326,313 $ 99,799,718
M Fund Inc................................... -- -- -- -- -- --
Interest income on policy loans................ 131,461 145,212 140,517 12,877,539 11,727,553 10,448,315
Total investment income........................ 902,511 962,845 1,097,596 137,627,931 108,053,866 110,248,033
---------- ---------- ---------- ------------ ------------ ------------
Expenses:
Mortality and expense risks.................. 78,893 86,610 76,454 6,531,512 5,589,689 4,658,703
Net investment income.......................... ---------- ---------- ---------- ------------ ------------ ------------
823,618 876,235 1,021,142 131,096,419 102,464,177 105,589,330
Net realized and unrealized gain (loss) on
investments:
Net realized gain (loss)..................... 123,591 442,876 551,925 22,802,197 22,835,488 16,543,458
Net unrealized appreciation
(depreciation) during the period........... (1,106,755) (3,720,942) 447,661 7,687,109 112,457,395 67,250,127
---------- ---------- ---------- ------------ ------------ ------------
Net realized and unrealized gain (loss) on
investments.................................. (983,164) (3,278,066) 999,586 30,489,306 135,292,883 83,793,585
---------- ---------- ---------- ------------ ------------ ------------
Net increase (decrease) in net assets
resulting from operations.................... $ (159,546) $(2,401,831) $2,020,728 $161,585,725 $237,757,060 $189,382,915
=========== =========== ========== ============ ============ ============
</TABLE>
See accompanying notes.
98
<PAGE>
JOHN HANCOCK VARIABLE LIFE ACCOUNT U
STATEMENT OF OPERATIONS (continued)
Years and periods ended December 31,
<TABLE>
<CAPTION>
Managed Subaccount Short-Term Bond Subaccount
-------------------------------- ------------------------------
1999 1998 1997 1999 1998 1997
------- ------- ------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Investment income:
Distributions received from:
John Hancock Variable Series
Trust I.................................... $39,951,88 $37,907,821 $32,757,460 $ 53,689 $ 31,261 $ 22,079
M Fund Inc................................... -- -- -- -- -- --
Interest income on policy loans................ 5,217,121 4,949,021 4,669,363 -- -- --
Total investment income........................ 45,169,006 42,856,842 37,426,823 53,689 31,261 22,079
----------- ----------- ----------- --------- --------- --------
Expenses:
Mortality and expense risks.................. 2,636,085 2,381,406 2,111,314 5,065 3,052 2,202
Net investment income.......................... ----------- ----------- ----------- --------- --------- --------
42,532,921 40,475,436 35,315,509 48,624 28,209 19,877
Net realized and unrealized gain (loss) on
investments:
Net realized gain (loss)..................... 5,060,826 5,853,076 5,663,060 (3,107) 2,008 235
Net unrealized appreciation
(depreciation) during the period........... (9,288,287) 24,834,482 16,843,903 (23,648) (5,287) 1,405
----------- ----------- ----------- --------- --------- --------
Net realized and unrealized gain (loss) on
investments.................................. (4,227,461) 30,687,558 22,506,963 (26,755) (3,279) 1,640
----------- ----------- ----------- --------- --------- --------
Net increase (decrease) in net assets
resulting from operations.................... $38,305,46 $71,162,994 $57,822,472 $ 21,869 $ 24,930 $ 21,517
=========== =========== =========== ========= ========= ========
</TABLE>
<TABLE>
<CAPTION>
Small Cap Value Subaccount International Opportunities Subaccount
-------------------------------- --------------------------------------
1999 1998 1997 1999 1998 1997
--------- ---------- -------- ----------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
Investment income:
Distributions received from:
John Hancock Variable Series
Trust I.................................... $ 97,290 $ 24,781 $ 256,363 $ 354,646 $ 27,799 $ 35,111
M Fund Inc................................... -- -- -- -- -- --
Interest income on policy loans................ -- -- -- -- -- --
Total investment income........................ 97,290 24,781 256,363 354,646 27,799 35,111
--------- ---------- ----------- ----------- --------- --------
Expenses:
Mortality and expense risks.................. 24,661 23,711 10,530 24,257 19,481 11,575
Net investment income.......................... --------- ---------- ----------- ----------- --------- --------
72,629 1,070 245,833 330,389 8,318 23,536
Net realized and unrealized gain (loss) on
investments: in (loss)....................... (217,582) 61,917 129,604 123,861 64,757 78,058
Net realized gain (loss).....................
Net unrealized appreciation
(depreciation) during the period........... (40,472) (364,339) (32,439) 839,140 339,709 (141,034)
--------- ---------- ----------- ----------- --------- --------
Net realized and unrealized gain (loss) on
investments.................................. (258,054) (302,422) 97,165 963,001 404,466 (62,976)
--------- ---------- ----------- ----------- --------- --------
Net increase (decrease) in net assets
resulting from operations.................... $(185,425) $(301,352) $ 342,998 $1,293,390 $412,784 $(39,440)
========= ========== =========== =========== ========= ========
</TABLE>
See accompanying notes.
99
<PAGE>
JOHN HANCOCK VARIABLE LIFE ACCOUNT U
STATEMENT OF OPERATIONS (continued)
Years and periods ended December 31,
<TABLE>
<CAPTION>
Equity Index Subaccount Global Bond Subaccount
-------------------------------- ---------------------------
1999 1998 1997 1999 1998 1997
-------- ------- ------- ------- -------- -------
<S> <C> <C> <C> <C> <C> <C>
Investment income:
Distributions received from:
John Hancock Variable Series
Trust I.................................... $ 921,698 $ 367,284 $ 220,686 $ 91,316 $62,244 $84,597
M Fund Inc................................... -- -- -- -- -- --
Interest income on policy loans................ -- -- -- -- -- --
Total investment income........................ 921,698 367,284 220,686 91,316 62,244 84,597
------------ ---------- ---------- --------- ------- -------
Expenses:
Mortality and expense risks.................. 103,983 60,274 28,637 9,736 7,516 5,827
Net investment income.......................... 817,715 307,010 192,049 81,580 54,728 78,770
------------ ---------- ---------- --------- ------- -------
Net realized and unrealized gain (loss) on
investments: in (loss).......................
Net realized gain (loss)..................... 471,802 132,619 38,987 (1,996) 32,917 5,891
Net unrealized appreciation
(depreciation) during the period........... 2,019,913 2,082,107 1,193,531 (126,001) 11,342 (3,195)
------------ ---------- ---------- --------- ------- -------
Net realized and unrealized gain (loss) on
investments.................................. 2,491,715 2,214,726 1,232,518 (127,997) 44,259 2,696
------------ ---------- ---------- --------- ------- -------
Net increase (decrease) in net assets
resulting from operations.................... $ 3,309,430 $ 2,521,736 $1,424,567 $ (46,417) $98,987 $81,466
============ ========== ========== ========= ======= =======
</TABLE>
<TABLE>
<CAPTION>
Turner Core Growth Subaccount Brandes International Equity Subaccount
--------------------------------- ----------------------------------
1999 1998 1997 1999 1998 1997
---------- --------- --------- --------- --------- --------
<S> <C> <C> <C> <C> <C> <C>
Investment income:
Distributions received from:
John Hancock Variable Series
Trust I.................................... $ -- $ -- $ -- $ -- $ -- $ --
M Fund Inc................................... 38,038 5,535 11,090 18,453 13,237 2,278
Interest income on policy loans................ -- -- -- -- -- --
Total investment income........................ 38,038 5,535 11,090 18,453 13,237 2,278
--------- --------- ---------- --------- -------- --------
Expenses:
Mortality and expense risks.................. 2,102 1,022 505 1,904 1,143 746
Net investment income.......................... 35,936 4,513 10,585 16,549 12,094 1,532
--------- --------- ---------- --------- -------- --------
Net realized and unrealized gain (loss) on
investments:
Net realised gain............................ 44,245 14,364 3,166 7,704 1,184 133
--------- --------- ---------- --------- -------- --------
Net unrealized appreciation during
the period............................... 37,727 49,605 12,370 119,400 15,813 2,674
Net realized and unrealized gain (loss) on
investments.................................. 81,972 63,969 15,536 127,104 16,997 2,807
--------- --------- ---------- --------- -------- --------
Net increase in net assets resulting from
operations.................................. $117,908 $ 68,482 $ 26,121 $ 143,653 $ 29,091 $ 4,339
========= ========= ========== ========= ======== ========
</TABLE>
See accompanying notes
100
<PAGE>
JOHN HANCOCK VARIABLE LIFE ACCOUNT U
STATEMENT OF OPERATIONS (continued)
Years and periods ended December 31,
<TABLE>
<CAPTION>
Frontier Capital Appreciation Emerging Markets Equity Global
Subaccount Subaccount Equity Subaccount
-------------------------------- ----------------- -----------------
1999 1998 1997 1999 1998* 1999 1998*
-------- ------- ------- ------- -------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Investment income:
Distributions received from:
John Hancock Variable Series Trust I........... $ -- $ $ -- $ 13,510 $ 1 $ 508 $ 1
M Fund Inc..................................... 20,787 1,888 8,986 -- -- -- --
Interest income on policy loans.................. -- -- -- -- -- -- --
Total investment income.......................... 20,787 1,888 8,986 13,510 1 508 1
-------- --------- -------- --------- ----- -------- ------
Expenses:
Mortality and expense risks.................... 3,019 2,096 1,464 720 -- 267 --
-------- --------- -------- --------- ----- -------- ------
Net investment income (loss)..................... 17,768 (208) 7,522 12,790 1 241 1
Net realized and unrealized gain on
investments:
Net realized gain.............................. 22,678 12,123 9,048 5,339 -- 602 1
Net unrealized appreciation (depreciation)
during the period............................ 164,599 (17,930) 40,541 86,570 10 13,424 45
-------- --------- -------- --------- ----- -------- ------
Net realized and unrealized gain (loss) on
investments.................................... 187,277 (5,807) 49,589 91,909 10 14,026 46
-------- --------- -------- --------- ----- -------- ------
Net increase (decrease) in net assets resulting
from operations................................ $205,045 $ (6,015) $ 57,111 $104,699 $ 11 $ 14,267 $ 47
-------- --------- -------- --------- ----- -------- ------
</TABLE>
<TABLE>
<CAPTION>
Small/Mid Enhanced
Cap CORE High Yield U.S. Equity
Bond Index Subaccount Subaccount Bond Subaccount Subaccount
------------------------- ---------------- ------------------- ------------
1999 1998* 1999 1998* 1999 1998* 1999**
------------- ---------- ------- ------- -------- --------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Investment income:
Distributions received from:
John Hancock Variable Series Trust I............... $ 17,417 $ 149 $ 6,810 $ -- $2,748 $ 19 $ --
M Fund Inc......................................... -- -- -- -- -- -- 1,117
Interest income on policy loans.................... -- -- -- -- -- -- --
--------- ------ -------- ------ ------ ------ --------
Total investment income............................ 17,417 149 6,810 2,748 19 1,117
Expenses:
Mortality and expense risks........................ 1,565 3 178 -- 206 1 4
--------- ------ -------- ------ ------ ------ --------
Net investment income.............................. 15,852 146 6,632 -- 2,542 18 1,113
Net realized and unrealized gain (loss) on
investments:
Net realized gain (loss)........................... (1,422) (1) 252 -- (186) -- 91
Net unrealized appreciation (depreciation)
during the period.................................. (22,820) (196) 3,005 6 (511) (26) (879)
--------- ------ -------- ------ ------ ------ --------
Net realized and unrealized gain (loss) on
investments........................................ (24,242) (197) 3,257 6 (697) (26) (788)
Net increase (decrease) in net assets resulting
from operations.................................... $ (8,390) $ (51) $ 9,889 $ 6 $1,845 $ (8) $ 325
========= ====== ======== ====== ====== ====== ========
</TABLE>
_____________
* From May 1, 1998 (commencement of operations).
** From March 9, 1999 (commencement of operations).
See accompanying notes.
101
<PAGE>
JOHN HANCOCK VARIABLE LIFE ACCOUNT U
STATEMENTS OF CHANGES IN NET ASSETS
Years and periods ended December 31,
<TABLE>
<CAPTION>
Large Cap Growth Subaccount Sovereign Bond Subaccount
-------------------------------------------- ---------------------------------------------
1999 1998 1997 1999 1998 1997
------------- ------------- ------------ ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Increase (decrease) in net assets
from operations:
Net investment income............. $ 24,389,814 $ 12,025,213 $ 8,071,685 $ 20,233,648 $ 22,087,857 $ 19,822,561
Net realized gains................ 4,239,424 3,520,199 4,216,904 192,098 1,600,539 1,088,488
Net unrealized appreciation
(depreciation) during the
period.......................... 1,727,703 18,509,310 7,920,403 (20,304,536) (2,317,324) 2,987,952
------------- ------------- ------------ ------------- ------------- -------------
Net increase in net assets resulting
from operations................... 30,356,941 34,054,722 20,208,992 121,210 21,371,072 23,899,001
From policyholder transactions:
Net premiums from
policyholders................... 37,307,814 21,681,632 18,819,133 26,114,799 32,901,747 31,136,450
Net benefits to policyholders..... (25,817,420) (21,510,240) (19,915,971) (35,577,616) (39,577,750) (39,506,771)
Net increase (decrease) in policy
loans........................... -- 2,561,877 (41,068) -- 1,607,456 1,612,490
------------- ------------- ------------ ------------- ------------- -------------
Net increase (decrease) in net assets
resulting from policyholder
transactions..................... 11,490,394 2,733,269 (1,137,906) (9,462,817) (5,068,547) (6,757,831)
------------- ------------- ------------ ------------- ------------- -------------
Net increase (decrease) in net
assets............................ 41,847,335 36,787,991 19,071,086 (9,341,607) 16,302,525 17,141,170
Net assets at beginning of
period............................ 135,214,997 98,427,006 79,355,920 302,462,406 286,159,881 269,018,711
------------- ------------- ------------ ------------- ------------- -------------
Net assets at end of period......... $ 177,062,332 $ 135,214,997 $ 98,427,006 $ 293,120,799 $ 302,462,406 $ 286,159,881
============= ============= ============ ============= ============= =============
International Equity Index Subaccount Small Cap Growth Subaccount
-------------------------------------------- ---------------------------------------------
1999 1998 1997 1999 1998 1997
------------- ------------- ------------ ------------- ------------- -------------
Increase (decrease) in net assets
from operations:
Net investment income (loss)...... $ 950,123 $ 3,440,236 $ 904,106 $ 1,234,844 $ (20,335) $ (10,199)
Net realized gains................ 168,248 148,419 209,781 491,241 55,393 34,153
Net unrealized appreciation
(depreciation) during the
period.......................... 5,712,567 105,161 (2,036,425) 2,317,857 518,731 226,085
------------- ------------- ------------ ------------- ------------ -------------
Net increase (decrease) in net assets
resulting from operations......... 6,830,938 3,693,816 (922,538) 4,043,942 553,789 250,039
From policyholder transactions:
Net premiums from
policyholders................... 7,373,967 6,549,988 6,398,146 4,316,218 2,382,203 1,906,439
Net benefits to policyholders..... (6,834,914) (5,210,982) (4,052,306) (2,206,402) (998,381) (626,114)
Net increase in policy loans...... -- 86,200 41,466 -- -- --
------------- ------------- ------------ ------------- ------------ -------------
Net increase in net assets resulting
from policyholder transactions.... 539,053 1,425,206 2,387,306 2,109,816 1,383,822 1,280,325
------------- ------------- ------------ ------------- ------------ -------------
Net increase in net assets.......... 7,369,991 5,119,022 1,464,768 6,153,758 1,937,611 1,530,364
Net assets at beginning of
period............................ 24,529,048 19,410,026 17,945,258 4,671,820 2,734,209 1,203,845
------------- ------------- ------------ ------------- ------------ -------------
Net assets at end of period......... $ 31,899,039 $ 24,529,048 $ 19,410,026 $ 10,825,578 $ 4,671,820 $ 2,734,209
============= ============= ============ ============= ============ =============
</TABLE>
See accompanying notes.
102
<PAGE>
JOHN HANCOCK VARIABLE LIFE ACCOUNT U
STATEMENTS OF CHANGES IN NET ASSETS (continued)
Years and periods ended December 31,
<TABLE>
<CAPTION>
International Balanced Subaccount Mid Cap Growth Subaccount
--------------------------------------- ------------------------------------------
1999 1998 1997 1999 1998 1997
----------- ----------- ----------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Increase (decrease) in net assets
from operations
Net investment income (loss)........ $ 92,816 $ 52,891 $ 28,109 $ 2,058,661 $ 445,161 $ (5,801)
Net realized gains (losses)......... 4,711 (4,506) 12,000 773,222 73,958 394
Net unrealized appreciation
(depreciation) during the
period............................ (38,997) 78,455 (41,999) 6,801,000 647,137 199,441
----------- ----------- ----------- ------------ ------------ ------------
Net increase (decrease) in net assets
resulting from operations........... 58,530 126,840 (1,890) 9,632,883 1,166,256 194,034
From policyholder transactions:
Net premiums from policyholders..... 377,958 341,482 602,033 8,941,124 3,164,065 1,031,218
Net benefits to policyholders....... (131,331) (310,766) (102,953) (2,937,257) (612,975) (294,344)
Net increase in policy loans........ -- -- -- -- -- --
----------- ----------- ----------- ------------ ------------ ------------
Net increase in net assets resulting
from policyholder transactions...... 246,627 30,716 499,080 6,003,867 2,551,090 736,874
----------- ----------- ----------- ------------ ------------ ------------
Net increase in net assets............ 305,157 157,556 497,190 15,636,750 3,717,346 930,908
Net assets at beginning of period..... 872,075 714,519 217,329 5,215,505 1,498,159 567,251
----------- ----------- ----------- ------------ ------------ ------------
Net assets at end of period........... $ 1,177,232 $ 872,075 $ 714,519 $ 20,852,255 $ 5,215,505 $ 1,498,159
=========== =========== =========== ============ ============ ============
Large Cap Value Subaccount Money Market Subaccount
--------------------------------------- ------------------------------------------
1999 1998 1997 1999 1998 1997
----------- ----------- ----------- ------------ ------------ ------------
Increase (decrease) in net assets
from operations:
Net investment income............... $ 593,922 $ 388,873 $ 241,145 $ 3,517,874 $ 3,481,729 $ 3,342,641
Net realized gains.................. 165,556 673,582 217,073 -- -- --
Net unrealized appreciation
(depreciation) during the
period............................ (569,216) (479,093) 532,936 -- -- --
----------- ----------- ----------- ------------ ------------ ------------
Net increase in net assets
resulting from operations........... 190,262 583,362 991,154 3,517,874 3,481,729 3,342,641
From policyholder transactions:
Net premiums from
policyholders..................... 3,166,658 4,214,076 3,739,319 33,694,123 24,612,731 19,023,054
Net benefits to policyholders....... (1,903,017) (3,212,048) (1,140,574) (30,672,090) (24,024,723) (20,817,572)
Net increase in policy loans........ -- -- -- -- 421,166 390,775
----------- ----------- ----------- ------------ ------------ ------------
Net increase (decrease) in net assets
resulting from policyholder
transactions........................ 1,263,641 1,002,028 2,598,745 3,022,033 1,009,174 (1,403,743)
----------- ----------- ----------- ------------ ------------ ------------
Net increase in net assets............ 1,453,903 1,585,390 3,589,899 6,539,907 4,490,903 1,938,898
Net assets at beginning of
period.............................. 8,099,390 6,514,000 2,924,101 70,098,734 65,607,831 63,668,933
----------- ----------- ----------- ------------ ------------ ------------
Net assets at end of period........... $ 9,553,293 $ 8,099,390 $ 6,514,000 $ 76,638,641 $ 70,098,734 $ 65,607,831
=========== =========== =========== ============ ============ ============
</TABLE>
See accompanying notes.
103
<PAGE>
JOHN HANCOCK VARIABLE LIFE ACCOUNT U
STATEMENTS OF CHANGES IN NET ASSETS (continued)
Years and periods ended December 31,
<TABLE>
<CAPTION>
Mid Cap Value Subaccount Small/Mid Cap Growth Subaccount
--------------------------------------- -----------------------------------------------
1999 1998 1997 1999 1998 1997
----------- ----------- ----------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Increase (decrease) in net assets
from operations:
Net investment income............... $ 1,508 $ 16,578 $ 172,261 $ 1,833,840 $ 154,352 $ 968,412
Net realized gains (losses)......... (241,740) (422,902) 121,152 (13,020) 56,968 533,297
Net unrealized appreciation
(depreciation) during the
period............................ 469,537 (260,362) (86,033) (1,274,161) 334,213 (1,073,252)
----------- ----------- ----------- -------------- -------------- --------------
Net increase (decrease) in net assets
resulting from operations........... 229,305 (666,686) 207,380 546,659 545,533 428,457
From policyholder transactions:
Net premiums from policyholders..... 1,886,594 5,997,691 2,070,644 3,493,643 3,953,326 6,338,416
Net benefits to policyholders....... (1,745,112) (2,912,034) (190,430) (3,105,108) (3,311,846) (3,379,629)
Net increase in policy loans........ -- -- -- -- -- --
----------- ----------- ----------- -------------- -------------- --------------
Net increase in net assets resulting
from policyholder transactions...... 141,482 3,085,657 1,880,214 388,535 641,480 2,958,787
----------- ----------- ----------- -------------- -------------- --------------
Net increase in net assets............ 370,787 2,418,971 2,087,594 935,194 1,187,013 3,387,244
Net assets at beginning of period..... 4,865,793 2,446,822 359,228 11,474,379 10,287,366 6,900,122
----------- ----------- ----------- -------------- -------------- --------------
Net assets at end of period........... $ 5,236,580 $ 4,865,793 $ 2,446,822 $ 12,409,573 $ 11,474,379 $ 10,287,366
=========== =========== =========== ============== ============== ==============
Real Estate Equity Subaccount Growth & Income Subaccount
--------------------------------------- -----------------------------------------------
1999 1998 1997 1999 1998 1997
----------- ----------- ----------- -------------- -------------- --------------
Increase (decrease) in net assets
from operations:
Net investment income............... $ 823,618 $ 876,235 $ 1,021,142 $ 131,096,419 $ 102,464,177 $ 105,589,330
Net realized gains.................. 123,591 442,876 551,925 22,802,197 22,835,488 16,543,458
Net unrealized appreciation
(depreciation) during the
period............................ (1,106,755) (3,720,942) 447,661 7,687,109 112,457,395 67,250,127
----------- ----------- ----------- -------------- -------------- --------------
Net increase (decrease) in net assets
resulting from operations........... (159,546) (2,401,831) 2,020,728 161,585,725 237,757,060 189,382,915
From policyholder transactions:
Net premiums from
policyholders..................... 2,304,591 6,295,255 7,786,904 101,973,160 92,955,980 86,308,294
Net benefits to policyholders....... (3,311,591) (5,507,305) (5,481,110) (133,701,210) (134,661,151) (115,839,460)
Net increase in policy loans........ -- (83,216) 265,517 -- 18,165,114 18,568,293
----------- ----------- ----------- -------------- -------------- --------------
Net increase (decrease) in net assets
resulting from policyholder assets
transactions........................ (1,007,000) 704,734 2,571,311 (31,728,050) (23,540,057) (10,962,873)
----------- ----------- ----------- -------------- -------------- --------------
Net increase in net assets............ (1,166,546) (1,697,097) 4,592,039 129,857,675 214,217,003 178,420,042
Net assets at beginning of
period.............................. 14,545,018 16,242,115 11,650,076 1,148,881,879 934,664,876 756,244,834
----------- ----------- ----------- -------------- -------------- --------------
Net assets at end of period........... $13,378,472 $14,545,018 $16,242,115 $1,278,739,554 $1,148,881,879 $ 934,664,876
=========== =========== =========== ============== ============== ==============
</TABLE>
See accompanying notes.
104
<PAGE>
JOHN HANCOCK VARIABLE LIFE ACCOUNT U
STATEMENTS OF CHANGES IN NET ASSETS (continued)
Years and periods ended December 31,
<TABLE>
<CAPTION>
Managed Subaccount Short-Term Bond Subaccount
------------------------------------------ ------------------------------------
1999 1998 1997 1999 1998 1997
------------ ------------ ------------ ---------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
Increase (decrease) in net assets
from operations:
Net investment income................... $ 42,532,921 $ 40,475,436 $ 35,315,509 $ 48,624 $ 28,209 $ 19,877
Net realized gains (losses)............. 5,060,826 5,853,076 5,663,060 (3,107) 2,008 235
Net unrealized appreciation
(depreciation) during the period...... (9,288,287) 24,834,482 16,843,903 (23,648) (5,287) 1,405
------------ ------------ ------------ ---------- ---------- ---------
Net increase (decrease) in net assets
resulting from operations............... 38,305,460 71,162,994 57,822,472 21,869 24,930 21,517
From policyholder transactions:
Net premiums from policyholders......... 44,546,082 40,631,684 40,318,523 690,849 435,150 278,114
Net benefits to policyholders........... (55,332,758) (55,447,667) (54,498,285) (178,124) (274,762) (218,771)
Net increase in policy loans............ - 5,379,590 4,761,829 -- -- --
------------ ------------ ------------ ---------- ---------- ---------
Net increase (decrease) in net assets
resulting from policyholder
transactions............................ (10,786,676) (9,436,393) (9,417,933) 512,725 160,388 59,343
------------ ------------ ------------ ---------- ---------- ---------
Net increase in net assets................. 27,518,784 61,726,601 48,404,539 534,594 185,318 80,860
Net assets at beginning of period.......... 472,553,966 410,827,365 362,422,826 594,889 409,571 328,711
------------ ------------ ------------ ---------- ---------- ---------
Net assets at end of period................ $500,072,750 $472,553,966 $410,827,365 $1,129,483 $ 594,889 $ 409,571
============ ============ ============ ========== ========== =========
</TABLE>
<TABLE>
<CAPTION>
Small Cap Value Subaccount International Opportunities Subaccount
---------------------------------------- --------------------------------------
1999 1998 1997 1999 1998 1997
------------ ------------ ----------- ---------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
Increase (decrease) in net assets
from operations:
Net investment income.................. $ 72,629 $ 1,070 245,833 330,389 8,318 $ 23,536
Net realized gains (losses)............ (217,582) 61,917 129,604 123,861 64,757 78,058
Net unrealized appreciation
(depreciation) during the period..... (40,472) (364,359) (32,439) 839,140 339,709 (141,034)
------------ ------------ ------------ ----------- ----------- ----------
Net increase (decrease) in net assets
resulting from operations.............. (185,425) (301,372) 342,998 1,293,390 412,784 (39,440)
From policyholder transactions:
Net premiums from policyholders........ 1,446,109 2,644,808 2,466,836 1,632,955 2,203,753 1,969,364
Net benefits to policyholders.......... (1,547,128) (1,288,464) (358,679) (1,315,539) (1,443,700) (709,490)
Net increase in policy loans........... -- -- -- -- -- --
------------ ------------ ------------ ---------- ---------- ---------
Net increase (decrease) in net assets
resulting from policyholder
transactions........................... (101,019) 1,356,344 2,108,157 317,416 760,053 1,259,874
------------ ------------ ------------ ---------- ---------- ---------
Net increase (decrease) in net assets..... (286,444) 1,054,972 2,451,155 1,610,806 1,172,837 1,220,434
Net assets at beginning of period......... 4,397,860 3,342,888 891,733 3,699,780 2,526,943 1,306,509
------------ ------------ ------------ ----------- ---------- ----------
Net assets at end of period............... $ 4,111,416 $ 4,397,860 $ 3,342,888 $ 5,310,586 $3,699,780 $2,526,943
============ ============ ============ =========== ========== ==========
</TABLE>
See accompanying notes.
105
<PAGE>
JOHN HANCOCK VARIABLE LIFE ACCOUNT U
STATEMENTS OF CHANGES IN NET ASSETS (continued)
Years and periods ended December 31,
<TABLE>
<CAPTION>
Equity Index Subaccount Global Bond Subaccount
------------------------------------- -------------------------------------
1999 1998 1997 1999 1998 1997
----------- ---------- ------------ ----------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
Increase (decrease) in net assets from
operations:
Net investment income...................... $ 817,715 $ 307,010 $ 192,049 $ 81,580 $ 54,728 $ 78,770
Net realized gains (losses)................ 471,802 132,619 38,987 (1,996) 32,917 5,891
Net unrealized appreciation (depreciation)
during the period.......................... 2,019,913 2,082,107 1,193,531 (126,001) 11,342 (3,195)
----------- ----------- ----------- ----------- ----------- ----------
Net increase (decrease) in net assets
resulting from operations.................. 3,309,430 2,521,736 1,424,567 (46,417) 98,987 81,466
From policyholder transactions:
Net premiums from policyholders............ 7,762,529 4,632,113 6,068,371 1,115,699 798,933 807,985
Net benefits to policyholders.............. (2,563,485 (1,120,852) (260,531) (292,075) (1,158,109) (201,240)
Net increase in policy loans............... -- -- -- -- -- --
----------- ----------- ----------- ----------- ----------- ----------
Net increase (decrease) in net assets
resulting from policyholder transactions... 5,199,044 3,511,261 5,807,840 823,624 (359,176) 606,745
----------- ----------- ----------- ----------- ----------- ----------
Net increase (decrease) in net assets...... 8,508,474 6,032,997 7,232,407 777,207 (260,189) 688,211
Net assets at beginning of period.......... 13,609,150 7,576,153 343,746 1,105,468 1,365,657 677,446
----------- ----------- ----------- ----------- ----------- ----------
Net assets at end of period................ $22,117,624 $13,609,150 $ 7,576,153 $ 1,882,675 $ 1,105,468 $1,365,657
=========== =========== =========== =========== =========== ==========
</TABLE>
<TABLE>
<CAPTION>
Turner Core Growth Subaccount Brandes International Equity Subaccount
------------------------------------- ----------------------------------------
1999 1998 1997 1999 1998 1997
----------- ---------- ------------ ------------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Increase (decrease) in net assets from
operations:
Net investment income................... $ 35,936 $ 4,513 $ 10,585 $ 16,549 $ 12,094 $ 1,532
Net realized gains...................... 44,245 14,364 3,166 7,704 1,184 133
Net unrealized appreciation during the
period.................................. 37,727 49,605 12,370 119,400 15,813 2,674
----------- ----------- ----------- ----------- ----------- -----------
Net increase in net assets resulting from
operations.............................. 117,908 68,482 26,121 143,653 29,091 4,339
From policyholder transactions:
Net premiums from policyholders......... 240,351 203,590 91,440 239,618 55,021 146,796
Net benefits to policyholders........... (136,661) (77,651) (9,878) (29,520) (10,341) (34,985)
Net increase in policy loans............ -- -- -- -- -- --
----------- ----------- ----------- ----------- ----------- -----------
Net increase in net assets resulting from
policyholder transactions............... 103,690 125,939 81,562 210,098 44,680 111,811
----------- ----------- ----------- ----------- ----------- -----------
Net increase in net assets................. 221,598 194,421 107,683 353,751 73,771 116,150
Net assets at beginning of period.......... 314,594 120,173 12,490 234,377 160,606 44,456
----------- ----------- ----------- ----------- ----------- -----------
Net assets at end of period................ $ 536,192 $ 314,594 $ 120,173 $ 588,128 $ 234,377 $ 160,606
=========== =========== =========== =========== =========== ===========
</TABLE>
See accompanying notes.
106
<PAGE>
JOHN HANCOCK VARIABLE LIFE ACCOUNT U
STATEMENTS OF CHANGES IN NET ASSETS (continued)
Years and periods ended December 31,
<TABLE>
<CAPTION>
Frontier Capital Emerging Markets Equity Global
Appreciation Subaccount Subaccount Equity Subaccount
----------------------------------- ------------------------ -----------------------
1999 1998 1997 1999 1998* 1999 1998*
--------- -------- --------- ------------ ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Increase (decrease) in net assets from
operations:
Net investment income (loss)............. $ 17,768 $ (208) $ 7,522 $ 12,790 $ 1 $ 241 $ 1
Net realized gains....................... 22,678 12,123 9,048 5,339 -- 602 1
Net unrealized appreciation
(depreciation) during the
period................................. 164,599 (17,930) 40,541 86,570 10 13,424 45
--------- --------- -------- --------- ------- --------- ---------
Net increase (decrease) in net
assets resulting from operations....... 205,045 (6,015) 57,111 104,699 11 14,267 47
From policyholder transactions:
Net premiums from policyholders........ 255,268 128,779 327,804 433,406 2,018 108,420 915
Net benefits to policyholders.......... (89,136) (146,083) (47,276) (144,400) -- (11,064) (13)
Net increase in policy loans........... -- -- -- -- -- -- --
--------- --------- -------- --------- ------- --------- ---------
Net increase (decrease) in net
assets resulting from policyholder
transactions........................... 166,132 (17,304) 280,528 289,006 2,018 97,356 902
--------- --------- -------- --------- ------- --------- ---------
Net increase (decrease) in net
assets................................ 371,177 (23,319) 337,639 393,705 2,029 111,623 949
Net assets at beginning of period........ 357,497 380,816 43,177 2,029 0 949 0
--------- --------- -------- --------- -------- --------- ---------
Net assets at end of period.............. $ 728,674 $ 357,497 $380,816 $ 395,734 $ 2,029 $112,572 $ 949
========= ========= ======== ========= ======== ========= =========
</TABLE>
<TABLE>
<CAPTION>
Enhanced U.S.
Small/Mid High Yield Equity
Bond Index Subaccount Cap CORE Subaccount Bond Subaccount Subaccount
---------------------- --------------------- ------------------ ----------------
1999 1998* 1999 1998* 1999 1998* 1999**
------- ------- ------- ---------- -------- ------ ----------------
<S> <C> <C> <C> <C> <C> <C> <C>
Increase (decrease) in net assets from
operations:
Net investment income (loss).......... $ 15,852 $ 146 $ 6,632 $ -- $ 2,542 $ 18 $ 1,113
Net realized gains (losses)........... (1,422) (1) 252 -- (186) -- 91
Net unrealized appreciation
(depreciation) during the
period.............................. (22,820) (196) 3,005 6 (511) (26) (879)
-------- -------- ------- ------- -------- ------ --------
Net increase (decrease) in net
assets resulting from operations...... (8,390) (51) 9,889 6 1,845 (8) 325
From policyholder transactions:
Net premiums from policyholders....... 412,326 10,254 97,385 104 98,955 2,887 13,814
Net benefits to policyholders......... (26,307) (69) (7,901) (2) (13,078) -- --
Net increase in policy loans.......... -- -- -- -- -- -- --
-------- -------- ------- ------- -------- ------ --------
Net increase in net assets resulting
from policyholder transactions........ 386,019 10,185 89,484 102 85,877 2,887 13,814
-------- -------- ------- ------- -------- ------ --------
Net increase in net assets............... 377,629 10,134 99,373 108 87,722 2,879 14,139
Net assets at beginning of period........ 10,134 0 108 0 2,879 0 0
-------- -------- ------- ------- -------- ------ --------
Net assets at end of period.............. $387,763 $ 10,134 $99,481 $ 108 $ 90,601 $2,879 $ 14,139
======== ======== ======= ======= ======== ====== ========
</TABLE>
__________
* From May 1, 1998 (commencement of operations).
** From March 9, 1999 (commencement of operations).
See accompanying notes.
107
<PAGE>
JOHN HANCOCK VARIABLE LIFE ACCOUNT U
NOTES TO FINANCIAL STATEMENTS
December 31, 1999
1. Organization
John Hancock Variable Life Account U (the Account) is a separate investment
account of John Hancock Variable Life Insurance Company (JHVLICO), a
wholly-owned subsidiary of John Hancock Mutual Life Insurance Company (John
Hancock). The Account was formed to fund variable life insurance policies
(Policies) issued by JHVLICO. The Account is operated as a unit investment trust
registered under the Investment Company Act of 1940, as amended, and currently
consists of twenty-seven subaccounts. The assets of each subaccount are invested
exclusively in shares of a corresponding Portfolio of John Hancock Variable
Series Trust I (the Fund) or of M Fund Inc. (M Fund). New subaccounts may be
added as new Portfolios are added to the Fund or to M Fund, or as other
investment options are developed and made available to policyholders. The
twenty-seven Portfolios of the Fund and M Fund which are currently available are
the Large Cap Growth, Sovereign Bond, International Equity Index, Small Cap
Growth, International Balanced, Mid Cap Growth, Large Cap Value, Money Market,
Mid Cap Value, Small/Mid Cap Growth (formerly, Diversified Mid Cap Growth), Real
Estate Equity, Growth & Income, Managed, Short-Term Bond, Small Cap Value,
International Opportunities, Equity Index, Global Bond (formerly, Strategic
Bond), Turner Core Growth, Brandes International Equity, Frontier Capital
Appreciation, Emerging Markets Equity, Global Equity, Bond Index, Small/Mid Cap
CORE, High Yield Bond, and Enhanced U.S. Equity Portfolios. Each Portfolio has a
different investment objective.
The net assets of the Account may not be less than the amount required
under state insurance law to provide for death benefits (without regard to the
minimum death benefit guarantee) and other policy benefits. Additional assets
are held in JHVLICO's general account to cover the contingency that the
guaranteed minimum death benefit might exceed the death benefit which would have
been payable in the absence of such guarantee.
The assets of the Account are the property of JHVLICO. The portion of the
Account's assets applicable to the policies may not be charged with liabilities
arising out of any other business JHVLICO may conduct.
2. Significant Accounting Policies
Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities, and
disclosure of contingent assets and liabilities, at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Valuation of Investments
Investment in shares of the Fund and of M Fund are valued at the reported
net asset values of the respective Portfolios. Investment transactions are
recorded on the trade date. Dividend income is recognized on the ex-dividend
date. Realized gains and losses on sales of underlying portfolio shares are
determined on the basis of identified cost.
Federal Income Taxes
The operations of the Account are included in the federal income tax return
of JHVLICO, which is taxed as a life insurance company under the Internal
Revenue Code. JHVLICO has the right to charge the Account any federal income
taxes, or provision for federal income taxes, attributable to the operations of
the Account or to the policies funded in the Account. Currently, JHVLICO does
not make a charge for income or other taxes. Charges for state and local taxes,
if any, attributable to the Account may also be made.
108
<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.
109
<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, 1999 are as follows:
<TABLE>
<CAPTION>
Portfolio Shares Owned Cost Value
--------- ------------ ------------- -------------
<S> <C> <C> <C>
Large Cap Growth.................................... 5,741,593 $ 120,709,045 $ 156,931,243
Sovereign Bond...................................... 25,890,030 250,666,359 236,200,057
International Equity Index.......................... 1,479,056 24,178,244 29,055,936
Small Cap Growth.................................... 566,326 7,786,928 10,825,578
International Balanced.............................. 109,967 1,176,141 1,177,232
Mid Cap Growth...................................... 713,403 13,208,576 20,852,255
Large Cap Value..................................... 708,140 9,871,242 9,553,293
Money Market........................................ 6,251,999 62,519,986 62,519,986
Mid Cap Value....................................... 409,851 5,090,205 5,236,581
Small/Mid Cap Growth................................ 884,190 13,682,215 12,409,573
Real Estate Equity.................................. 1,000,760 13,989,522 11,482,706
Growth & Income..................................... 54,521,668 796,471,840 1,091,050,404
Managed............................................. 27,360,590 363,175,625 422,672,470
Short-Term Bond..................................... 116,179 1,157,416 1,129,483
Small Cap Value..................................... 376,603 4,498,794 4,111,416
International Opportunities......................... 350,017 4,215,384 5,310,586
Equity Index........................................ 1,081,124 16,808,530 22,117,624
Global Bond......................................... 191,740 1,993,841 1,882,675
Turner Core Growth.................................. 23,384 436,035 536,192
Brandes International Equity........................ 37,895 449,896 588,128
Frontier Capital Appreciation....................... 34,502 539,359 728,674
Emerging Markets Equity............................. 32,273 309,153 395,733
Global Equity....................................... 9,277 99,103 112,572
Bond Index.......................................... 41,614 410,779 387,762
Small/Mid Cap CORE.................................. 10,135 96,470 99,481
High Yield Bond..................................... 10,083 91,148 90,611
Enhanced U.S. Equity................................ 674 15,019 14,140
</TABLE>
110
<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
1999, were as follows:
<TABLE>
<CAPTION>
Portfolio Purchases Sales
--------- ------------ ------------
<S> <C> <C>
Large Cap Growth ............................................ $ 40,147,156 $ 8,250,657
Sovereign Bond .............................................. 27,217,744 17,748,511
International Equity Index .................................. ,421,148 3,377,977
Small Cap Growth ............................................ 4,824,260 1,479,601
International Balanced ...................................... 640,162 300,719
Mid Cap Growth .............................................. 9,490,182 1,427,655
Large Cap Value ............................................. 2,984,422 1,126,859
Money Market................................................. 21,519,371 15,378,894
Mid Cap Value ............................................... 1,426,492 1,283,502
Small/Mid Cap Growth......................................... 3,998,048 1,775,674
Real Estate Equity........................................... 1,670,570 1,772,028
Growth & Income ............................................. 133,888,047 52,458,290
Managed...................................................... 46,301,140 19,231,354
Short-Term Bond.............................................. 682,313 120,964
Small Cap Value.............................................. 1,054,005 1,082,396
International Opportunities.................................. 1,758,914 1,111,110
Equity Index ................................................ 7,177,051 1,160,291
Global Bond.................................................. 1,188,656 283,452
Turner Core Growth........................................... 279,803 140,177
Brandes International Equity................................. 255,671 29,025
Frontier Capital Appreciation ............................... 401,413 217,513
Emerging Markets Equity ..................................... 454,479 152,683
Global Equity ............................................... 107,485 9,888
Bond Index .................................................. 429,057 27,186
Small/Mid Cap CORE........................................... 106,540 10,425
High Yield Bond.............................................. 99,666 11,238
Enhanced U.S. Equity......................................... 26,361 11,432
</TABLE>
111
<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.
Key Word or Phrase Page
Account.............................................................. 33
account value........................................................ 9
Additional Sum Insured............................................... 16
asset - based charge................................................. 10
asset rebalancing.................................................... 14
attained age......................................................... 10
Basic Sum Insured.................................................... 16
beneficiary.......................................................... 43
business day......................................................... 34
changing Option A or B............................................... 20
changing the Total Sum Insured....................................... 20
charges.............................................................. 9
Code................................................................. 39
cost of insurance rates.............................................. 9
date of issue........................................................ 35
death benefit........................................................ 5
deductions........................................................... 9
dollar cost averaging................................................ 14
expenses of the Trust................................................ 11
fixed investment option.............................................. 34
full surrender....................................................... 15
fund................................................................. 2
grace period......................................................... 8
guaranteed death benefit feature..................................... 7
Guaranteed Death Benefit Premium..................................... 7
insurance charge..................................................... 9
insured person....................................................... 5
investment options................................................... 1
JHVLICO.............................................................. 33
lapse................................................................ 7
loan................................................................. 15
loan interest........................................................ 16
Maximum Monthly Benefit.............................................. 19
maximum premiums..................................................... 6
Minimum Initial Premium.............................................. 34
minimum insurance amount............................................. 17
minimum premiums..................................................... 6
modified endowment................................................... 41
monthly deduction date............................................... 35
Option A; Option B................................................... 16
optional benefits.................................................... 10
owner................................................................ 5
partial withdrawal................................................... 15
partial withdrawal charge............................................ 11
payment options...................................................... 21
Planned Premium...................................................... 6
policy anniversary................................................... 35
policy year.......................................................... 35
premium; premium payment............................................. 5
prospectus........................................................... 3
receive; receipt..................................................... 23
reinstate; reinstatement............................................. 8
sales charges........................................................ 9
SEC.................................................................. 2
Separate Account U................................................... 33
Servicing Office..................................................... 2
special loan account................................................. 16
subaccount........................................................... 33
surrender............................................................ 5
surrender value...................................................... 15
Target Premium....................................................... 9
tax considerations................................................... 39
telephone transactions............................................... 23
Total Sum Insured.................................................... 16
transfers of account value........................................... 14
Trust................................................................ 2
variable investment options.......................................... 1
we; us............................................................... 33
withdrawal........................................................... 15
withdrawal charges................................................... 11
you; your............................................................ 5
112
