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John Hancock Variable Life
Insurance Company
(JHVLICO)
LOGO
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY
JOHN HANCOCK VARIABLE LIFE ACCOUNT S
LIFE AND ANNUITY SERVICES P.O. BOX 111 BOSTON, MASSACHUSETTS 02117
TELEPHONE 1-800-REAL LIFE (1-800-732-5543) FAX 617-572-5410
PROSPECTUS AUGUST 6, 1996
This Prospectus describes a flexible premium variable life policy ("Policy")
which can be funded, at the discretion of the Owner, by any of the variable
subaccounts of John Hancock Variable Life Account S (the "Account"), by a
fixed subaccount (the "Fixed Account"), or by any combination of the Fixed
Account and the variable subaccounts (collectively, the "Subaccounts"). The
assets of each variable Subaccount will be invested in a corresponding
investment portfolio ("Portfolio") of John Hancock Variable Series Trust I
(the "Fund"), a mutual fund advised by John Hancock Mutual Life Insurance
Company ("John Hancock"). The assets of the Fixed Account will be invested in
the general account of John Hancock Variable Life Insurance Company
("JHVLICO").
The Prospectus for the Fund, which is attached to this Prospectus, describes
the investment objectives, policies and risks of investing in the Portfolios
of the Fund: Growth and Income (formerly Stock), Large Cap Growth (formerly
Select Stock), Sovereign Bond (formerly Bond), Money Market, Managed, Real
Estate Equity, International Equities (formerly International), Short-Term
U.S. Government, Special Opportunities, Small Cap Growth, Small Cap Value, Mid
Cap Growth, Mid Cap Value, International Balanced, International
Opportunities, Large Cap Value, Strategic Bond and Equity Index. Other
variable Subaccounts and Portfolios may be added in the future.
Replacing existing insurance with a Policy described in this Prospectus may
not be to your advantage.
THIS PROSPECTUS SHOULD BE READ AND RETAINED FOR FUTURE REFERENCE.
IT IS NOT VALID UNLESS ATTACHED TO A CURRENT PROSPECTUS FOR THE FUND.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
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TABLE OF CONTENTS
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Page
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SUMMARY................................................................... 1
JHVLICO and JOHN HANCOCK.................................................. 6
THE ACCOUNT AND SERIES FUND............................................... 6
The Account............................................................. 6
Series Fund............................................................. 7
THE FIXED ACCOUNT......................................................... 9
POLICY PROVISIONS AND BENEFITS............................................ 10
Requirements for Issuance of Policy..................................... 10
Premiums................................................................ 10
Account Value and Surrender Value....................................... 12
Death Benefits.......................................................... 13
Transfers Among Subaccounts............................................. 15
Telephone Transfers and Policy Loans.................................... 16
Loan Provisions and Indebtedness........................................ 16
Default................................................................. 17
Exchange Privilege...................................................... 18
CHARGES AND EXPENSES...................................................... 18
Charges Deducted from Premiums.......................................... 18
Sales Charges........................................................... 18
Reduced Charges for Eligible Groups..................................... 19
Charges Deducted from Account Value or Assets........................... 20
Guarantee of Certain Charges............................................ 22
DISTRIBUTION OF POLICIES.................................................. 22
TAX CONSIDERATIONS........................................................ 23
Policy Proceeds......................................................... 23
Charge for JHVLICO's Taxes.............................................. 24
Corporate and H.R. 10 Plans............................................. 24
BOARD OF DIRECTORS AND EXECUTIVE OFFICERS OF JHVLICO...................... 25
REPORTS................................................................... 25
VOTING PRIVILEGES......................................................... 26
CHANGES THAT JHVLICO CAN MAKE............................................. 26
LEGAL MATTERS............................................................. 27
REGISTRATION STATEMENT.................................................... 27
EXPERTS................................................................... 27
FINANCIAL STATEMENTS...................................................... 27
APPENDIX--OTHER POLICY PROVISIONS......................................... A-1
Settlement Provisions................................................... A-1
Additional Insurance Benefits........................................... A-1
General Provisions...................................................... A-1
APPENDIX--ILLUSTRATION OF DEATH BENEFITS, SURRENDER VALUES AND ACCUMULATED
PREMIUMS................................................................. A-3
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THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING IN ANY JURISDICTION IN WHICH
SUCH OFFERING MAY NOT LAWFULLY BE MADE. NO PERSON IS AUTHORIZED TO MAKE ANY
REPRESENTATIONS IN CONNECTION WITH THIS OFFERING OTHER THAN THOSE CONTAINED IN
THIS PROSPECTUS.
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INDEX OF DEFINED WORDS AND PHRASES
Below are listed certain words and phrases used in this Prospectus, together
with identification of the page on which each is defined or explained:
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Page
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Account.............................................................. 6
Account Value........................................................ 1
Additional Sum Insured............................................... 14
Age.................................................................. A-2
Basic Sum Insured.................................................... 1
DAC Tax.............................................................. 18
Death Benefit........................................................ 13
Fixed Account........................................................ 9
Fund......................................................... Front Cover
Grace Period......................................................... 17
Guaranteed Death Benefit............................................. 14
Guaranteed Death Benefit Premium..................................... 10
Home Office.................................................. Front Cover
Indebtedness......................................................... 16
Investment Rule...................................................... 11
Loan Account......................................................... 16
Minimum First Premium................................................ 10
Modal Processing Date................................................ 11
Planned Premium...................................................... 10
Policy Anniversary................................................... A-2
Portfolio.................................................... Front Cover
Subaccount................................................... Front Cover
Sum Insured.......................................................... 4
Surrender Value...................................................... 12
Target Premium....................................................... 19
Valuation Date....................................................... 9
Valuation Period..................................................... 9
Variable Subaccounts......................................... Front Cover
7-Pay Limit.......................................................... 12
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SUMMARY
WHAT IS THE VARIABLE LIFE POLICY BEING OFFERED?
John Hancock Variable Life Insurance Company ("JHVLICO") issues variable
life insurance policies. The Policies described in this Prospectus provide
life insurance coverage when the insured dies. The Policies also provide for
premium flexibility. JHVLICO issues other variable life insurance policies.
These other policies are offered by means of other Prospectuses.
As explained below, the death benefit and Surrender Value under the Policy
may increase or decrease daily. The Policies differ from ordinary fixed-
benefit life insurance in the way they work. However, the Policies are like
fixed-benefit life insurance in providing lifetime protection against economic
loss resulting from the death of the insured. The Policies are primarily
insurance and not investments.
The Policies work generally as follows: the Policy owner (the "Owner")
periodically gives JHVLICO a premium payment. JHVLICO takes from each premium
an amount for taxes and sales expenses. JHVLICO then places the rest of the
premium into as many Subaccounts as directed by the Owner. The assets
allocated to each variable Subaccount are invested in shares of the
corresponding Portfolio of the Fund. The currently available Portfolios are
identified on the cover of this Prospectus. The assets allocated to the Fixed
Account are invested in the general account of JHVLICO. During the year,
JHVLICO takes charges from each Subaccount and credits or charges each
Subaccount with its respective investment performance. The insurance charge,
which is deducted from the invested assets attributable to each Policy
("Account Value"), varies monthly with the then attained age of the insured
and with the amount of insurance provided at the start of each month.
The Policy provides for payment of death benefit proceeds when the insured
dies. The death benefit proceeds will equal the death benefit, plus any
additional benefit included by rider and then due, minus any Indebtedness. The
death benefit under Option A equals the Sum Insured less any withdrawals that
the Owner has made. The death benefit under Option B equals the Sum Insured
plus the Policy Account Value on the date of death of the insured. The Policy
also increases the death benefit if necessary to ensure that the Policy will
continue to qualify as life insurance under the Federal tax laws.
Within limits prescribed by JHVLICO, the Owner may also elect whether to
purchase the coverage as part of the "Basic Sum Insured" or as an "Additional
Sum Insured". The Basic Sum Insured will not lapse during the first five
Policy years, so long as the Guaranteed Death Benefit Premiums specified in
the Policy have been paid. The Additional Sum Insured is subject to lapse, but
has certain cost and other advantages.
The initial Account Value is the amount of the premium that JHVLICO credits
to the Policy, after deduction of the initial charges. The Account Value
increases or decreases daily depending on the investment experience of the
Subaccounts to which the amounts are allocated at the direction of the Owner.
JHVLICO does not guarantee a minimum amount of Account Value. Therefore, the
Owner bears the investment risk for that portion of the Account Value
allocated to the variable Subaccounts. The Owner may surrender a Policy at any
time while the insured is living. The Surrender Value is the Account Value
less any Indebtedness plus, in the first two Policy years, any Sales Charge
Refund. The Owner may also make partial withdrawals from a Policy, subject to
certain restrictions and an administrative charge. If the Owner surrenders in
the early Policy years, the amount of Surrender Value would be low (as
compared with other investments without sales charges) and, consequently, the
insurance protection provided prior to surrender would be costly.
The minimum Sum Insured that may be bought at issue is $100,000. All persons
insured must meet specified age limits and certain health and other criteria
called "underwriting standards." The smoking status of the
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insured is generally reflected in the insurance charges made. Policies issued
under certain circumstances will not directly reflect the sex of the insured
in either the premium rates or the charges and values under the Policy.
WHAT IS THE AMOUNT OF THE PREMIUMS?
Premiums are flexible, and the Owner may choose the amount and frequency of
premium payments, so long as each premium payment is at least $50 and meets
certain other requirements.
The minimum amount of premium required at the time of Policy issue is
determined by JHVLICO based on the characteristics of the insured, the
Policy's Sum Insured at issue, and the Policy options selected by the Owner.
Unless the Guaranteed Death Benefit is in effect, if the Policy Account Value
at the beginning of any Policy month is insufficient to pay the monthly Policy
charges then due, JHVLICO will estimate the amount of additional premiums
necessary to keep the Policy in force for three months. The Owner will have a
61 day grace period to pay at least that amount or the Policy will lapse.
At the time of Policy issue, the Owner may designate the amount and
frequency of Planned Premium payments. The Owner may pay premiums other than
the Planned Premium payments, subject to certain limitations.
WHAT IS JOHN HANCOCK VARIABLE LIFE ACCOUNT S?
The Account is a separate investment account of JHVLICO, operated as a unit
investment trust, which supports benefits payable under the Policies. Each
variable Subaccount within the Account is invested in a corresponding
Portfolio of John Hancock Variable Series Trust I which is a "series" type of
mutual fund. The Portfolios of the Fund which are currently available are
Growth and Income, Large Cap Growth, Sovereign Bond, Money Market, Managed,
Real Estate Equity, International Equities, Short-Term U.S. Government,
Special Opportunities, Small Cap Growth, Small Cap Value, Mid Cap Growth, Mid
Cap Value, International Balanced, International Opportunities, Large Cap
Value, Strategic Bond and Equity Index.
John Hancock receives a fee from John Hancock Variable Series Trust I for
providing investment management services to each Portfolio. The following
chart shows the maximum investment management fee and other Fund expenses for
each Portfolio.
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SHORT-
REAL TERM
GROWTH SOVEREIGN MONEY LARGE CAP INTERNATIONAL ESTATE U.S. SPECIAL
& INCOME BOND MARKET GROWTH MANAGED EQUITIES EQUITY GOVERNMENT OPPORTUNITIES
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
--------- --------- --------- --------- --------- ------------- --------- ------------- -------------
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ANNUAL FUND
OPERATING
EXPENSES AFTER
EXPENSE
REIMBURSEMENT (AS
A PERCENTAGE OF
AVERAGE NET
ASSETS)
Investment
Management Fees. 0.25% 0.25% 0.25% 0.40% 0.34% 0.60% 0.60% 0.50% 0.75%
Other Fund
Expenses........ 0.03% 0.05% 0.10% 0.07% 0.04% 0.25%* 0.13% 0.25%* 0.25%*
Total Fund
Operating
Expenses........ 0.28% 0.30% 0.35% 0.47% 0.38% 0.85% 0.73% 0.75% 1.00%
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EQUITY LARGE CAP MID CAP MID CAP SMALL CAP SMALL CAP STRATEGIC INTERNATIONAL INTERNATIONAL
INDEX VALUE GROWTH VALUE GROWTH VALUE BOND OPPORTUNITIES BALANCED
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
--------- --------- --------- --------- --------- ------------- --------- ------------- -------------
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ANNUAL FUND
OPERATING
EXPENSES AFTER
EXPENSE
REIMBURSEMENT (AS
A PERCENTAGE OF
AVERAGE NET
ASSETS)
Investment
Management Fees. 0.25% 0.75% 0.85% 0.80% 0.75% 0.80% 0.75% 1.00% 0.85%
Other Fund
Expenses+....... 0.25% 0.25% 0.25% 0.25% 0.25% 0.25% 0.25% 0.25% 0.25%
Total Fund
Operating
Expenses........ 0.50% 1.00% 1.10% 1.05% 1.00% 1.05% 1.00% 1.25% 1.10%
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* John Hancock reimburses a Portfolio when the Portfolio's Other Fund
Expenses, excluding taxes, brokerage and the like, exceed 0.25% of its average
daily net asset value. This was done for the year ended December 31, 1995 with
respect to the International Equities, Special Opportunities, and Short-Term
U.S. Government Portfolios. Absent the reimbursement, the Other Fund Expenses
percentages for the International Equities, Special Opportunities, and Short-
Term U.S. Government Portfolios would have been .87%, 1.91%, and 1.83%,
respectively.
+ Other Fund Expenses for the Equity Index, Large Cap Value, Mid Cap Growth,
Mid Cap Value, Small Cap Growth, Small Cap Value, Strategic Bond,
International Opportunities, and International Balanced Portfolios are based
upon estimates for the current fiscal year.
For a full description of the Fund see the Prospectus for the Fund attached
to this Prospectus.
WHAT ARE THE CHARGES MADE BY JHVLICO?
State Premium Tax Charge and Federal DAC Tax Charge. Charges deducted from
each premium payment, currently 2.35% for state premium taxes and 1.25% as a
Federal deferred acquisition cost or "DAC Tax" charge.
Sales Charge Deduction from Premium. A charge equal to no more than 6% of
the Target Premium received in Policy years 1 through 10 and no more than 3%
of the Target Premium in any year after Policy year 10. JHVLICO currently
intends to waive this deduction from premiums received after the first 10
Policy years.
Sales Charge Deduction from Account Value. A charge deducted monthly from
Account Value, for the first 5 Policy years, in an amount set forth in the
Policy that varies by age and sex per $1,000 of Basic Sum Insured at issue.
For example, this monthly amount for a 45 year old male is 30c per $1,000 of
Basic Sum Insured.
Issue Charge. A charge deducted monthly from Account Value at the rate of
$20 per month for the first 12 Policy months, plus, for the first 5 Policy
years, an amount set forth in the Policy that varies by age and sex per $1,000
of the Basic Sum Insured at issue. For example, this additional monthly amount
for a 45 year old male is 3c per $1,000 of Basic Sum Insured.
Maintenance Charge. A charge deducted monthly from Account Value in an
amount equal to no more than $8 (currently $6) per Policy.
Insurance Charge. A charge based upon the amount for which JHVLICO is at
risk, considering the attained age and risk classification of the insured and
JHVLICO's then current monthly insurance rates (never to exceed rates set
forth in the Policy) deducted monthly from Account Value.
Charge for Mortality and Expense Risks. A charge made daily at a maximum
effective annual rate of .90% (currently .60%) of the assets of the Account.
Charge for Extra Mortality Risks. An additional charge, depending upon the
age of the insured and the degree of additional mortality risk, required if
the insured does not qualify for the standard underwriting class. This
additional charge is deducted monthly from Account Value.
Charge for Optional Rider Benefits. An additional charge required if the
Owner elects to purchase optional insurance benefits by rider. This additional
charge is deducted monthly from Account Value.
Charge for Partial Withdrawal. A charge of $20 made against Account Value at
the time of withdrawal.
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See "Charges and Expenses" for a full description of the charges under the
Policy.
IS THERE A CHARGE AGAINST THE ACCOUNT FOR FEDERAL INCOME TAX?
Currently no charge is made against any Subaccount for Federal income taxes;
but if JHVLICO incurs, or expects to incur, income taxes attributable to any
Subaccount or this class of Policies in future years, it reserves the right to
make a charge. JHVLICO expects that it will continue to be taxed as a life
insurance company. See "Charge for JHVLICO's Taxes".
WHAT IS THE RELATIONSHIP BETWEEN THE PREMIUM AND THE AMOUNT ALLOCATED TO THE
SUBACCOUNTS?
The initial net premium is allocated by JHVLICO from its general account to
the Money Market Subaccount on the date of issue of the Policy. The initial
net premium is the gross Minimum First Premium, plus any additional amount of
premium that has been paid prior to the date of issue, less the charges
deducted for sales expenses, state premium taxes and the Federal DAC Tax
charge. These charges also apply to subsequent premium payments. Twenty days
after the date of issue, the amount in the Money Market Subaccount is
reallocated among the Subaccounts in accordance with the Owner's election. Net
premiums derived from payments received after this reallocation date are
allocated, generally on the date of receipt, to one or more of the Subaccounts
as elected by the Owner.
HOW ARE AMOUNTS ALLOCATED TO EACH SUBACCOUNT?
At issue and subsequently thereafter, the Owner will provide us with the
rule ("Investment Rule") we will follow to invest net premiums or other
amounts in any of the Subaccounts. The Owner may change the Investment Rule
under which JHVLICO will allocate amounts to Subaccounts. See "Premiums--
Billing, Allocation of Premium Payments (Investment Rule)".
WHAT COMMISSIONS ARE PAID TO AGENTS?
The Policies are sold through agents who are licensed by state authorities
to sell JHVLICO's insurance policies. Commissions payable to agents are
described under "Distribution of Policies". Sales expenses in any year are not
equal to the deduction for sales expenses in that year. Rather, total sales
expenses under the Policies are intended to be recovered over the lifetimes of
the insureds covered by the Policies.
WHAT IS THE DEATH BENEFIT?
The death benefit proceeds will equal the death benefit of the Policy, plus
any additional rider benefits included and then due, minus any Indebtedness.
The death benefit payable depends on the Policy's Sum Insured (the Sum Insured
is the Basic Sum Insured plus the amount of any Additional Sum Insured) and
the death benefit option selected by the Owner at the time the Policy is
issued, as follows:
OPTION A: The death benefit equals the Policy's current Sum Insured less
any withdrawals of Account Value that the Owner has made.
OPTION B: The death benefit is the Policy's current Sum Insured plus the
Policy Account Value on the date of death of the insured, and varies in
amount based on investment results.
The death benefit of the Policy under Options A or B will be increased if
necessary to ensure that the Policy will continue to qualify as life insurance
under the Federal tax law. See "Death Benefits" and "Tax Considerations".
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Under the Guaranteed Death Benefit provision, the Policy is guaranteed not
to lapse during the first 5 Policy years, provided that, on each Modal
processing date, the amount of cumulative premiums paid, minus any
withdrawals, is at least equal to the cumulative amount of Guaranteed Death
Benefit Premiums due to date.
HOW DOES THE ACCOUNT VALUE OF A POLICY VARY IN RELATION TO THE SUBACCOUNTS'
INVESTMENT EXPERIENCE?
In general, the Account Value for any day equals the Account Value for the
previous day, increased by any net premium placed in the Subaccounts for the
Policy, decreased by any charges made against the Account Value, and increased
or decreased by the investment experience of the Subaccounts. No minimum
Account Value for the Policy is guaranteed.
WHAT IS THE LOAN PROVISION AND HOW DOES A LOAN AFFECT THE DEATH BENEFIT,
ACCOUNT VALUE AND SURRENDER VALUE?
The Owner may obtain a Policy loan in the maximum amount of 90% of that
portion of the Account Value attributable to the variable Subaccount
investments plus 100% of that portion of the Account Value attributable to
Fixed Account investments. Interest charged on any loan will accrue daily at
an annual rate determined by JHVLICO at the start of each Policy year. This
interest rate will be at an effective annual rate of 4.75% in the first 20
Policy years and 4.25% thereafter, accrued daily. A loan plus accrued interest
("Indebtedness") may be repaid at the discretion of the Owner in whole or in
part in accordance with the terms of the Policy.
While a loan is outstanding, the rate of interest credited to the Account
Value because of the loan will usually be different than the net investment
experience of the Subaccounts. Therefore, the Account Value, the Surrender
Value and any death benefit above the current Sum Insured are permanently
affected by any loan.
IS THERE A SHORT-TERM CANCELLATION RIGHT?
The Owner may surrender a Policy by delivering or mailing it within 45 days
after the date Part A of the application has been completed, or within at
least 10 days after receipt of the Policy by the Owner, or within 10 days
after mailing by JHVLICO of a Notice of Withdrawal Right, whichever is latest,
to JHVLICO's Home Office, or to the agent or agency office through which it
was delivered. Coverage under the Policy will be cancelled immediately as of
the date of such mailing or delivery. Any premium paid on it will be refunded.
If required by state law, the refund will equal the Account Value at the end
of the Valuation Period in which the Policy is received plus all charges or
deductions made against premiums plus an amount reflecting charges against the
Subaccounts and the investment management fee of the Fund.
WHAT INVESTMENT TRANSFERS ARE ALLOWED AN OWNER?
The Owner may transfer the Account Value among the variable Subaccounts or
into the Fixed Account at any time. Transfers out of the Fixed Account,
however, are subject to restrictions.
ARE THE BENEFITS UNDER A POLICY SUBJECT TO FEDERAL INCOME TAX?
The benefits under Policies described in this Prospectus are expected to
receive the same tax treatment under the Internal Revenue Code of 1986 as
benefits under traditional fixed-benefit life insurance policies. Thus, death
benefits payable under the Policies will not be included in the beneficiary's
gross income. Also, the Owner is not taxed on interest and gains under the
Policy unless and until values are actually received through withdrawal,
surrender, or other distributions.
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Under Federal tax law, distributions from Policies on which premiums greater
than a "7-pay" premium limit (as defined in the law) have been paid, will be
subject to special taxation. See "Premiums--7-Pay Premium Limit" and "Policy
Proceeds" for a discussion of how the "7-pay" premium limit may be exceeded
under a Policy. A distribution on such a Policy (called a "modified
endowment") will be taxed to the extent there is any income (gain) to the
Owner and an additional penalty tax may be imposed on the taxable amount.
JHVLICO AND JOHN HANCOCK
JHVLICO, a stock life insurance company chartered in 1979 under
Massachusetts law, is authorized to transact a life insurance and annuity
business in Massachusetts and all other states, except New York. JHVLICO began
selling variable life insurance policies in 1980.
JHVLICO is a wholly-owned subsidiary of John Hancock, a company chartered in
Massachusetts in 1862. Its Home Office is at John Hancock Place, Boston,
Massachusetts 02117. John Hancock's assets are over $45 billion and it has
invested over $380 million in JHVLICO in connection with JHVLICO's
organization and operations. It is anticipated that John Hancock will from
time to time make additional capital contributions to JHVLICO to enable it to
meet its reserve requirements and expenses in connection with its business,
and John Hancock is committed to make additional capital contributions if
necessary to ensure that JHVLICO maintains a positive net worth.
THE ACCOUNT AND SERIES FUND
THE ACCOUNT
The Account, a separate account established under Massachusetts law, meets
the definition of "separate account" under the Federal securities laws and is
registered as a unit investment trust under the Investment Company Act of 1940
("1940 Act").
The Account's assets are the property of JHVLICO. Each Policy provides that
the portion of the Account's assets equal to the reserves and other
liabilities under the Policy shall not be chargeable with liabilities arising
out of any other business JHVLICO may conduct. In addition to the assets
attributable to variable life policies, the Account's assets include assets
derived from charges made by JHVLICO. From time to time these additional
assets may be transferred in cash by JHVLICO to its general account. Before
making any such transfer, JHVLICO will consider any possible adverse impact
the transfer might have on any Subaccount. Additional premiums are charged for
Policies where the insured is classified as a substandard risk and a portion
of these premiums is allocated to the Account.
The Account is registered with the Securities and Exchange Commission (the
"Commission") under the 1940 Act. Such registration does not involve
supervision by the Commission of the management or policies of the Account,
JHVLICO or John Hancock.
The assets in the variable Subaccounts are invested in corresponding
Portfolios of the Fund, but the assets of one variable Subaccount are not
necessarily legally insulated from liabilities associated with another
variable Subaccount. New variable Subaccounts may be added or existing
variable Subaccounts may be deleted as new Portfolios are added to or deleted
from the Fund and made available to Owners.
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SERIES FUND
The Fund is a "series" type of mutual fund registered with the Commission
under the 1940 Act as an open-end diversified management investment company.
The Fund serves as the investment medium for the Account and other unit
investment trust separate accounts established for other variable life
insurance policies and variable annuity contracts. (See the attached Fund
Prospectus for a description of a need to monitor for possible conflicts and
other consequences.) A very brief summary of the investment objectives of each
Portfolio is set forth below.
Growth and Income (formerly Stock) Portfolio: to achieve intermediate and
long-term growth of capital, with income as a secondary consideration. This
objective will be pursued by investments principally in common stocks (and in
securities convertible into or with rights to purchase common stocks) of
companies believed by management to offer growth potential over both the
intermediate and long-term.
Large Cap Growth (formerly Select Stock) Portfolio: to achieve above-average
capital appreciation through the ownership of common stocks of companies
believed by management to offer above-average capital appreciation
opportunities. Current income is not an objective of the Portfolio.
Sovereign Bond (formerly Bond) Portfolio: to provide as high a level of
long-term total rate of return as is consistent with prudent investment risk,
through investment in a diversified portfolio of freely marketable debt
securities. Total rate of return consists of current income, including
interest and discount accruals, and capital appreciation.
Money Market Portfolio: to provide maximum current income consistent with
capital preservation and liquidity. It seeks to achieve this objective by
investing in a managed portfolio of high quality money market instruments.
Managed Portfolio: to achieve maximum long-term total return consistent with
prudent investment risk. Investments will be made in common stocks,
convertibles and other fixed income securities and in money market
instruments.
Real Estate Equity Portfolio: to provide above-average income and long-term
growth of capital by investment principally in equity securities of companies
in the real estate and related industries.
International Equities (formerly International) Portfolio: to achieve long-
term growth of capital by investing primarily in foreign equity securities.
Special Opportunities Portfolio: to achieve long-term capital appreciation
by emphasizing investments in equity securities of issuers in various economic
sectors.
Short-Term U.S. Government Portfolio: to provide a high level of current
income consistent with the maintenance of principal, through investment in a
portfolio of short-term U.S. Treasury securities and U.S. Government agency
securities.
Equity Index Portfolio: to provide investment results that correspond to the
total return of the U.S. market as represented by the S&P 500 utilizing common
stocks that are publicly traded in the United States.
Large Cap Value Portfolio: to provide substantial dividend income, as well
as long-term capital appreciation, through investments in the common stocks of
established companies management to offer favorable prospects for increasing
dividends and capital appreciation.
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Mid Cap Growth Portfolio: to provide long-term growth of capital through a
non-diversified portfolio investing largely in common stocks of mid-sized
companies.
Mid Cap Value Portfolio: to provide long-term growth of capital primarily
through investment in the common stocks of medium capitalization companies
believed by management to sell at a discount to their intrinsic value.
Small Cap Growth Portfolio: to provide long-term growth of capital through a
diversified portfolio investing primarily in common stocks of small
capitalization emerging growth companies.
Small Cap Value Portfolio: to provide long-term growth of capital by
investing in a well diversified portfolio of equity securities of small
capitalization companies exhibiting growth value characteristics.
Strategic Bond Portfolio: to provide a high total return consistent with
moderate risk of capital and maintenance of liquidity, from a portfolio of
domestic and international fixed income securities.
International Opportunities Portfolio: to provide capital appreciation
through investments in common stocks of primarily well-established, non-United
States companies.
International Balanced Portfolio: to maximize total U.S. dollar return,
consisting of capital appreciation and current income through investment in
non-U.S. equity and fixed income securities.
John Hancock acts as the investment manager for the above portfolios, and
John Hancock's indirectly owned subsidiary, Independence Investment
Associates, Inc., with its principal place of business at 53 State Street,
Boston, Massachusetts, provides sub-investment advice with respect to the
Growth and Income, Large Cap Growth, Equity Index, Managed, Real Estate Equity
and Short-Term U.S. Government Portfolios. Another indirectly owned
subsidiary, John Hancock Advisers, Inc., located at 101 Huntington Avenue,
Boston, Massachusetts, provides sub-investment advice with respect to the
Sovereign Bond, Small Cap Growth and Special Opportunities Portfolios; and
John Hancock Advisers and its subsidiary, John Hancock Advisers International,
Limited, located at 34 Dover Street, London, England, provide sub-investment
advice with respect to the International Equities Portfolio.
T.Rowe Price Associates, Inc., located at 100 East Pratt St., Baltimore, MD
21202, provides sub-investment advice with respect to the Large Cap Value
Portfolio and, together with its subsidiary, Rowe Price-Fleming International,
Inc., also located at 100 East Pratt St., Baltimore, MD 21202, provides sub-
investment advice with respect to the International Opportunities Portfolio.
Invesco Management and Research located at 101 Federal Street, Boston, MA
02110, is the sub-investment adviser to the Small Cap Value Portfolio. Janus,
with its principal place of business at 100 Filmore Street, Denver, CO 80206,
is the sub-investment adviser to the Mid Cap Growth Portfolio. Neuberger and
Berman Investment Management of 605 Third Avenue, New York, NY 10158, provides
sub-investment advice to the Mid Cap Value Portfolio. J.P. Morgan Investment
Management Inc., located at 522 Fifth Avenue, New York, NY 10036, provides
investment advice with respect to the Strategic Bond Portfolio, and Brinson
Partners, Inc., of 209 S. LaSalle Street, Chicago, IL 60604, does likewise
with respect to the International Balanced Portfolio.
JHVLICO will purchase and redeem Fund shares for the Account at their net
asset value without any sales or redemption charges. Shares of the Fund
represent an interest in one of the Portfolios of the Fund which corresponds
to a variable Subaccount of the Account. Any dividend or capital gains
distributions received by the Account will be reinvested in Fund shares at
their net asset value as of the dates paid.
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On each Valuation Date, shares of each Portfolio are purchased or redeemed
by JHVLICO for each variable Subaccount based on, among other things, the
amount of net premiums allocated to the variable Subaccount, distributions
reinvested, transfers to, from and among variable Subaccounts, all to be
effected as of that date. Such purchases and redemptions are effected at the
net asset value per Fund share for each Portfolio determined on that same
Valuation Date. A Valuation Date is any date on which JHVLICO is open for
business, the New York Stock Exchange is open for trading and on which the
Fund values its shares. A Valuation Period is that period of time from the
beginning of the day following a Valuation Date to the end of the next
following Valuation Date.
A full description of the Fund, its investment objectives, policies and
restrictions, its charges, expenses and all other aspects of its operation is
contained in the attached Prospectus and the statement of additional
information referred to therein, which should be read together with this
Prospectus.
THE FIXED ACCOUNT
An Owner may allocate premiums to the Fixed Account or transfer all or a
part of the Account Value under a Policy to the Fixed Account. The amount so
allocated or transferred will become a part of JHVLICO's general account
assets. JHVLICO's general account consists of assets owned by JHVLICO other
than those in the Account and in other separate accounts that have been or may
be established by JHVLICO. Subject to applicable law, JHVLICO has sole
discretion over the investment of assets of the general account, and Owners do
not share in the investment experience of those assets. Instead, JHVLICO
guarantees that the Account Value allocated to the Fixed Account will accrue
interest daily at an effective annual rate of at least 4% without regard to
the actual investment experience of the general account. Transfers from the
Fixed Account are subject to certain limitations. See "Transfers Among
Subaccounts".
The Account Value in the Fixed Account is equal to the portion of the net
premiums allocated to it, plus any amounts transferred to it and interest
credited to it, minus any charges deducted from it or partial withdrawals or
amounts transferred from it. JHVLICO guarantees that interest credited to the
Account Value in the Fixed Account will not be less than an effective annual
rate of 4%. JHVLICO may, in its sole discretion, credit higher rates although
it is not obligated to do so. The Owner assumes the risk that interest
credited will not exceed 4% per year. Upon request and in the annual
statement, JHVLICO will inform Owners of the then-applicable rates. The rate
of interest declared with respect to any amount in the Fixed Account may
depend on when that amount was first allocated to the Fixed Account.
Because of exemptive and exclusionary provisions, interests in JHVLICO's
general account have not been registered under the Securities Act of 1933 and
the 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 JHVLICO has been advised that
the staff of the Securities and Exchange Commission has not reviewed the
disclosure in this Prospectus relating to the Fixed Account. Disclosure
regarding the Fixed Account may, however, be subject to certain generally-
applicable provisions of the Federal securities laws relating to accuracy and
completeness of statements made in prospectuses.
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POLICY PROVISIONS AND BENEFITS
REQUIREMENTS FOR ISSUANCE OF POLICY
The Policy is generally available with a minimum Basic Sum Insured at issue
of $100,000. At the time of issue, the insured must be age 20 through 75. All
persons insured must meet certain health and other criteria called
"underwriting standards". The smoking status of the insured is reflected in
the insurance charges made. Policies issued in certain jurisdictions or in
connection with certain employee benefit plans will not directly reflect the
sex of the insured in either the premium rates or the charges or values under
the Policy. Accordingly, the illustrations set forth in this Prospectus may
differ for such Policies. Amounts of coverage that JHVLICO will accept under
the Policies may be limited by JHVLICO's underwriting and reinsurance
procedures as in effect from time to time.
PREMIUMS
Payment Flexibility. Premiums are flexible. The Owner may choose the amount
and frequency of premium payments, so long as each premium payment is at least
$50 and meets the other requirements described below.
Minimum First Premium. The amount of premium required at the time of issue
is determined by JHVLICO, and depends on the age, sex, and underwriting class
of the insured at issue, the Policy's Sum Insured at issue, and any additional
benefits selected. The Minimum First Premium must be received by JHVLICO at
its Home Office before the Policy is in full force and effect. See "Death
Benefits". There is no grace period for the payment of the Minimum First
Premium.
Minimum Premiums. If the Policy's Surrender Value at the beginning of any
Policy month is insufficient to pay the monthly Policy charges then due,
JHVLICO will notify the Owner and the Policy will enter a grace period, unless
the Guaranteed Death Benefit is in effect. If premiums sufficient to pay at
least three months' estimated charges are not paid by the end of the grace
period, the Policy will lapse. See "Default".
Planned Premium Schedule. At the time of issue, the Owner may designate a
Planned Premium schedule for the amount and frequency of premium payments.
JHVLICO will send billing statements for the amount chosen at the frequency
chosen. The Owner may change the Planned Premium after issue. The Owner may
also pay a premium in excess of the Planned Premium, subject to the
limitations described below. At the time of Policy issuance, JHVLICO will
determine whether the Planned Premium schedule will exceed the 7-Pay limit
discussed below. If so, JHVLICO will not issue the Policy unless the Owner
signs a form acknowledging that fact.
Other Premium Limitations. Federal tax law requires a minimum death benefit
in relation to Account Value. See "Death Benefits--Definition of Life
Insurance". The death benefit of the Policy will be increased if necessary to
ensure that the Policy will continue to satisfy this requirement. If the
payment of a given premium will cause the Policy Account Value to increase to
such an extent that an increase in death benefit is necessary to satisfy
federal tax law requirements, JHVLICO has the right to not accept the excess
portion of that premium payment, or to require evidence of insurability before
that portion is accepted. In no event, however, will JHVLICO refuse to accept
any premium necessary to maintain the Guaranteed Death Benefit in effect under
a Policy. Also, if an owner has elected to use the "guideline premium and cash
value corridor" test for Federal income tax premium limitation purposes,
JHVLICO will not accept the portion of the premium which exceeds the maximum
amount permitted under that test. See "Definition of Life Insurance" under
"Death Benefits".
Guaranteed Death Benefit Premiums. A Guaranteed Death Benefit feature may
apply during the first five Policy years. See "Death Benefits". The Guaranteed
Death Benefit Premiums required to maintain this benefit in force depend on
the issue age, sex, underwriting class of the insured at issue, the Basic Sum
Insured at issue,
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the ratio of Basic Sum Insured to Total Sum Insured at issue and any
additional benefits selected. 1/12th of the Guaranteed Death Benefit Premium
is required for Owners electing a monthly premium payment mode; 1/4 of the
Guaranteed Death Benefit Premium is required for Owners electing the quarterly
mode; 1/2 of the Guaranteed Death Benefit Premium is required for Owners
electing the semi-annual mode; and the full Guaranteed Death Benefit Premium
is required for Owners electing the annual mode. The due date for each premium
is referred to as the Modal processing date. To keep the Guaranteed Death
Benefit in effect, the amount of actual premiums paid minus any withdrawals
must at each Modal processing date be at least equal to the Guaranteed Death
Benefit Premiums due to date. If this test is not satisfied on any Modal
processing date, JHVLICO will notify the Owner of the shortfall immediately
and a Guaranteed Death Benefit grace period will commence as of that
anniversary. The Guaranteed Death Benefit grace period will end on the second
monthly processing date after the determination of the shortfall. This notice
will be mailed to the Owner's last-known address at least 31 days prior to the
end of the Guaranteed Death Benefit grace period. If JHVLICO does not receive
payment for the amount of the deficiency by the end of the Guaranteed Death
Benefit grace period, the Guaranteed Death Benefit feature will lapse.
Billing, Allocation of Premium Payments (Investment Rule). The Owner may at
any time elect to be billed by JHVLICO for an amount of premium other than the
Guaranteed Death Benefit Premium. The Owner may also elect to be billed for
premiums on an annual, semi-annual, quarterly or monthly basis. All premiums
are payable at JHVLICO's Home Office.
Any premium payment will be processed by JHVLICO as of the end of the
Valuation Period in which it is received, unless one of the three exceptions
noted below is applicable. Each premium payment will be reduced by the state
premium tax charge, any applicable sales charge, and the Federal DAC Tax
charge. See "Charges and Expenses". The remainder is the net premium.
The Owner at the time of application must elect an Investment Rule which
will allocate net premiums and any credits to any of the Subaccounts. The
Owner must select allocation percentages in whole numbers, and the total
allocated must equal 100%. The Owner may thereafter change the Investment Rule
prospectively at any time. The change will be effective as to any net premiums
and credits applied after receipt at JHVLICO's Home Office of notice
satisfactory to JHVLICO. Notwithstanding the Investment Rule, all net premiums
credited to Account Value as of a date prior to the end of the Valuation
Period that includes the 20th day following the date of issue will
automatically be allocated to the Money Market Subaccount. At the end of that
Valuation Period, the Policy's Account Value will be reallocated automatically
among the Subaccounts in accordance with the Investment Rule chosen by the
Owner.
There are three exceptions to the normal practice of processing a premium
payment as of the end of the Valuation Period in which it is received:
(1) A payment received prior to a Policy's date of issue will be
processed as if received on the Valuation Date immediately
preceding the date of issue.
(2) If the Minimum First Premium is not received prior to the date of
issue, each payment received thereafter will be processed as if
received on the Valuation Date immediately preceding the date of
issue until all of the Minimum First Premium is received.
(3) That portion of any premium that we delay accepting as described
under "Other Premium Limitations" above, or "7-Pay Premium Limit"
below, will be processed as of the end of the Valuation Period in
which we accept that amount.
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7-Pay Premium Limit. Federal tax law modifies the tax treatment of certain
Policy distributions such as loans, surrenders, partial surrenders, and
withdrawals. The application of this modified treatment to any Owner depends
upon whether premiums have been paid at any time during the first 7 Policy
years that exceed a "7-pay" premium limit as defined in the law. The "7-pay"
premium is greater than the Guaranteed Death Benefit Premium . The 7-pay limit
is the total of net level premiums that would have been payable at any time
for the Policy to be fully paid-up after the payment of 7 level annual
premiums. If the total premiums paid exceed the 7-pay limit, the Policy will
be treated as a "modified endowment", which means that the Owner will be
subject to tax to the extent of any income (gain) on any distributions made
from the Policy. A material change in the Policy will result in a new 7-pay
limit and test period. A reduction in the Policy's benefits within the 7-year
period following issuance of, or a material change in, the Policy may also
result in the application of the modified endowment treatment. See "Policy
Proceeds" under "Tax Considerations". If JHVLICO receives any premium payment
that will cause a Policy to become a modified endowment, the excess portion of
that premium payment will not be accepted unless the Owner signs an
acknowledgment of that fact. When it identifies such an excess premium,
JHVLICO sends the Owner immediate notice and refunds the excess premium if it
has not received notice of the acknowledgment by the time the premium payment
has had a reasonable time to clear the banking system, but in no case longer
than two weeks.
ACCOUNT VALUE AND SURRENDER VALUE
Amount of Account Value. The Account Value increases or decreases depending
upon a number of factors, such as the applicable Subaccount's investment
experience, the proportion of the Account Value invested in each Subaccount
and the interest credited to any Loan Account established upon the making of a
Policy loan. In general the Account Value for any day equals the Account Value
for the previous day, decreased by charges against the Account Value,
increased or decreased by the investment experience of the Subaccounts and
increased by net premiums received. No minimum amount of Account Value is
guaranteed.
A Policy loan will not affect the total amount of Account Value at the time
the loan is made but will result in a different rate of return being credited
to the Loan Account portion of the Account Value.
Amount of Surrender Value. The Surrender Value will be the Account Value
less any Indebtedness. Upon a full surrender during the first two Policy
years, JHVLICO will add to the Surrender Value an amount equal to the excess
of (a) the total sales charges that have been deducted (whether from premiums
or Account Value) under the Policy to date over (b) the sum of 30% of premiums
paid under the Policy that do not exceed one "SEC Guideline Annual Premium",
plus 10% of any additional premiums paid that do not exceed a second SEC
Guideline Annual Premium, plus 9% of any premiums paid in excess of two such
SEC Guideline Annual Premiums. This excess amount is the "Sales Charge
Refund". The SEC Guideline Annual premium is the level annual premium that
would be required for a fixed life insurance policy on the life of the insured
with a face amount equal to the Basic Sum Insured, plus any Additional Sum
Insured, and having the same optional insurance riders, if any, as the Policy,
based on certain assumptions prescribed by the Commission for this purpose.
When Policy May Be Surrendered. A Policy may be surrendered for its
Surrender Value at any time while the insured is living and the Policy is not
in a grace period. Surrender takes effect and the Surrender Value is
determined as of the end of the Valuation Period in which occurs the later of
receipt at JHVLICO's Home Office of a signed request or the surrendered
Policy.
Partial Withdrawal of Surrender Value. The Owner may request withdrawal of
part of the Surrender Value in accordance with JHVLICO's rules then in effect.
Any withdrawal must be at least $1,000 and is subject to an administrative
charge of $20.
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An Owner may request a partial withdrawal of Surrender Value at any time
while the insured is living, provided that the Policy is not in a grace
period. This privilege, which reduces the Account Value by the amount of the
withdrawal and the associated charge, may not be used to reduce the Account
Value below the amount JHVLICO estimates will be required to pay three months'
charges under the Policy as they fall due. The withdrawal will be effective as
of the end of the Valuation Period in which JHVLICO receives written notice
satisfactory to it at its Home Office.
A withdrawal will reduce any Option A Sum Insured by the amount withdrawn. A
withdrawal will not reduce any Option B Sum Insured but, because Account Value
will be reduced, the death benefit under this option also will be reduced.
JHVLICO reserves the right to refuse any withdrawal request that would cause
the Policy's Sum Insured to fall below $100,000.
An amount equal to the Account Value withdrawn will be removed from each
Subaccount in the same proportion as the Account Value is then allocated among
the Subaccounts. A withdrawal is not a loan and, once made, cannot be repaid.
A surrender or withdrawal may have significant tax consequences. See "Tax
Considerations".
DEATH BENEFITS
The death benefit proceeds are payable when the insured dies while the
Policy is in effect. The death benefit proceeds will equal the death benefit
of the Policy, plus any additional rider benefits then due, minus any
Indebtedness. If the insured dies during a grace period, JHVLICO will also
deduct any overdue monthly deductions.
The death benefit payable depends on the current Sum Insured and the death
benefit option selected by the Owner at the time the Policy is issued, as
follows:
OPTION A: The death benefit equals the current Sum Insured, subject to
any increases described below under "Definition of Life Insurance", and
reduced by the amount of any partial withdrawals that have been made over
the life of the Policy.
OPTION B: The death benefit is the current Sum Insured, plus the Policy
Account Value at the end of the Valuation Period in which the insured dies.
This death benefit is a varying amount and fluctuates with the amount of
the Account Value. This death benefit is also subject to any increase
described below under "Definition of Life Insurance".
The Sum Insured is the Basic Sum Insured, plus the amount of any Additional
Sum Insured (discussed below).
Owners who prefer to have favorable investment experience reflected in
increased insurance coverage should choose Option B. Owners who prefer to have
insurance coverage that generally does not vary in amount and lower cost of
insurance charges should choose Option A.
Definition of Life Insurance. Federal tax law requires a minimum death
benefit in relation to cash value for a Policy to qualify as life insurance.
The death benefit of a Policy will be increased if necessary to ensure that
the Policy will continue to qualify as life insurance. One of two tests under
current Federal tax law can be used to determine if a Policy complies with the
definition of life insurance in Section 7702 of the Code.
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The "guideline premium and cash value corridor" test limits the amount of
premiums payable under a Policy to a certain amount for an insured of a
particular age and sex. The test also applies a prescribed "Corridor Factor"
to determine a minimum ratio of death benefit to Account Value. The Corridor
Factor depends upon the attained age of the insured. The Corridor Factor
decreases slightly (or remains the same at older and younger ages) from year
to year as the attained age of the insured increases. A complete list of
Corridor Factors is set forth in the Policy. All Option B Policies will be
subject to the "guideline premium and cash value corridor" test.
The Owner may, at the time an Option A death benefit is applied for, choose
either the "guideline premium and cash value corridor" test discussed above or
may elect for the Policy to be governed by the "cash value accumulation test"
under Section 7702.
The "cash value accumulation test" also limits the amount of premiums
payable under a Policy to a prescribed amount, using a minimum ratio of death
benefit to a Policy's Account Value, but employs as a standard a "net single
premium" computed in compliance with the Code. If the Account Value under a
Policy is at any time greater than the net single premium at the insured's age
and sex for the proposed death benefit, the death benefit will be increased
automatically by multiplying the Account Value by a "Death Benefit Factor"
computed in compliance with the Code. The Death Benefit Factor depends upon
the sex and then attained age of the insured. The Death Benefit Factor
decreases slightly from year to year as the attained age of the insured
increases. A complete list of Death Benefit Factors is set forth in the
Policy. An Option A death benefit using the cash value accumulation test will
offer the best opportunity for the Owner who is looking for an increasing
death benefit in later Policy year and/or would like to fund the Policy at the
"7-pay" limit for the full 7 years. An Option A death benefit using the
guideline premium and cash value corridor test will offer the best opportunity
for the Account Value under a Policy to increase without increasing the death
benefit as quickly as it might under the other options.
If the Account Value is reduced (e.g. by withdrawals, charges or adverse
investment performance) at a time when a minimum death benefit under Section
7702 is in effect, such minimum death benefit will also be reduced.
Guaranteed Death Benefit. During the first 5 Policy years the Policy is
guaranteed not to lapse, provided that the amount of premiums paid through
each Modal processing date minus any withdrawals is at least equal to the sum
of the cumulative Guaranteed Death Benefit Premiums due to date. At any time
when this feature is not in force, the death benefit of the Policy is not
guaranteed and the Policy may lapse if the Account Value falls to a low level.
Additional Sum Insured. The Owner may apply for an amount of Additional Sum
Insured under the Policy, pursuant to which an additional amount of death
benefit will be paid upon the death of the insured under the Policy.
Purchasers of a Policy should consider various 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 Additional Sum Insured can be decreased, or, upon application
and submission of evidence of insurability, increased subsequent to Policy
issuance. JHVLICO may refuse to accept any request to reduce the Additional
Sum Insured (a) that would cause the Policy's current Sum Insured to fall
below $100,000 or (b) if immediately following the reduction, the Policy's
current death benefit would reflect an increase necessary for the Policy to
continue to qualify as life insurance (see "Death Benefits--Definition of Life
Insurance"). Any increase or decrease in Additional Sum Insured will become
effective at the beginning of the first Policy month after JHVLICO receives in
good order at its Home Office all information necessary to process the change,
and, in the case of an increase in coverage, approves the change.
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Any decision by the Owner to modify the amount of Additional Sum Insured
coverage after issue can have significant tax consequences. See "Tax
Considerations--Policy Proceeds".
Also, the Owner may elect among several forms of Additional Sum Insured
coverage at the time the Owner applies for it: a level amount of coverage; an
amount of coverage that increases on each Policy anniversary up to a
prescribed limit; an amount of coverage that increases on each Policy
anniversary to the amount of premiums paid during prior years plus the Planned
Premium for the current year, subject to certain limits; or a combination of
those forms of coverage.
The amount of sales charge deducted from premiums and from Account Value 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. The Guaranteed Death Benefit Premium will be affected by the amount
of any Additional Sum Insured elected relative to the Total Sum Insured.
The amount of any Additional Sum Insured is not included in any Guaranteed
Death Benefit. Therefore, if the Policy's Account 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.
The Additional Sum Insured at issue is limited to 400% of the Basic Sum
Insured. Generally, an Owner 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. On the other hand, for Owners that wish to take
advantage of the Guaranteed Death Benefit, the proportion of the Policy's Sum
Insured that is guaranteed can be increased by taking out more coverage as
Basic Sum Insured at the time of Policy issue. It could be to the Owner's
advantage either to increase the amount of coverage applied for as Basic Sum
Insured in order that the Guaranteed Death Benefit will be available or, if
such guarantee is not of value to the Owner, to maximize the proportion of the
Additional Sum Insured.
Temporary Coverage Prior to Policy Delivery. If a specified amount of
premium is paid with the application for a Policy, temporary term coverage may
be available prior to the time that coverage under the Policy takes effect.
Temporary term coverage is subject to the terms and conditions described in
the application for a Policy.
TRANSFERS AMONG SUBACCOUNTS
The Owner may reallocate the amounts held for the Policy in the Subaccounts
with no charge at any time, except as noted below. The Owner may either (1)
use percentages (in whole numbers) to be transferred among Subaccounts or (2)
designate the dollar amount of funds to be transferred among Subaccounts. The
reallocation must be such that the total in the Subaccounts after reallocation
equals 100% of Account Value. Transfers out of a variable Subaccount will be
effective at the end of the Valuation Period in which JHVLICO receives at its
Home Office notice satisfactory to JHVLICO.
Transfers out of the Fixed Account to the variable Subaccounts are permitted
only once each Policy year and only during the 31-day period beginning on the
Policy anniversary. Transfers out of the Fixed Account may be requested from
60 days before to 30 days after the Policy anniversary. If received on or
before the Policy anniversary, requests for transfer out of the Fixed Account
will be processed on the Policy anniversary (or the next Valuation Date if the
Policy anniversary does not occur on a Valuation Date); if received after the
Policy anniversary, they will be processed at the end of the Valuation Period
in which JHVLICO receives the request at
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its Home Office. (JHVLICO reserves the right to defer such Fixed Account
transfers for six months.) If an Owner requests a transfer out of the Fixed
Account 61 days or more prior to the Policy anniversary, that portion of the
reallocation will not be processed and the Owner's confirmation statement will
not reflect a transfer out of the Fixed Account as to such request. Transfers
among variable Subaccounts and transfers into the Fixed Account may be
requested at any time. A maximum of 20% of Fixed Account assets or, if
greater, $500 may be transferred out of the Fixed Account in any Policy year.
Currently, there is no minimum amount limit on transfers out of the Fixed
Account, but JHVLICO reserves the right to impose such a limit in the future.
No transfers may be made while the Policy is in a grace period.
Telephone Transfers and Policy Loans. Once a written authorization is
completed by the Owner, the Owner may request a transfer or policy loan by
telephoning 1-800-732-5543. During periods of heavy telephone usage,
implementing a telephone transfer or policy loan may be difficult. If an Owner
is unable to reach JHVLICO via the above number, the Owner should send a
written request via fax to 1-800-621-0448. (Any requests via fax are
considered telephone requests and are bound by the conditions in the Owner's
signed telephone authorization form.) Any fax request should include the
Owner's name, daytime telephone number, Policy number and, in the case of
transfers, the names of the subaccounts from which and to which money will be
transferred. The right to discontinue telephone transactions at any time
without notice to Owners is specifically reserved.
An Owner who authorizes telephone transactions will be liable for any loss,
expense or cost arising out of any unauthorized or fraudulent telephone
instructions which JHVLICO reasonably believes to be genuine, unless such
loss, expense or cost is the result of JHVLICO's mistake or negligence.
JHVLICO employs procedures which provide adequate 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 JHVLICO does not employ reasonable
procedures to confirm that instructions communicated by telephone are genuine,
it may be liable for any loss due to unauthorized or fraudulent instructions.
LOAN PROVISIONS AND INDEBTEDNESS
Loan Provisions. Loans may be made at any time a Loan Value is available,
the insured is alive and the Policy is not in a grace period. The Owner may
borrow money, assigning the Policy as the only security for the loan, by
completion of a form satisfactory to JHVLICO or, if the telephone transaction
authorization form has been completed by telephone. The Loan Value will be 90%
of that portion of the Account Value attributable to the variable Subaccount
investments plus 100% of that portion of the Account Value attributable to
Fixed Account investments. Interest charged on any loan will accrue and
compound daily at an annual rate determined by JHVLICO at the start of each
Policy Year. This interest rate will be at an effective annual rate of 4.75%
in the first 20 Policy years, and 4.25% thereafter, accrued daily.
The amount of any outstanding loan plus accrued interest is called the
"Indebtedness". The amount of the loan available will be the Loan Value less
any existing Indebtedness. A loan will not be permitted unless it is at least
$1,000. A loan may be repaid in full or in part at any time before the
insured's death and while the Policy is not in a grace period. When a loan is
made, an amount equal to the loan proceeds will be transferred out of the
Account and the Fixed Account, as applicable. This amount is allocated to the
Loan Account, a portion of JHVLICO's general account. Each Subaccount will be
reduced in the same proportion as the Account Value is then allocated among
the Subaccounts. Upon each loan repayment, the same proportionate amount of
the entire loan as was borrowed from the Fixed Account will be repaid to the
Fixed Account. The remainder of the loan
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repayment will be allocated to the appropriate Subaccounts as stipulated in
the current Investment Rule. For example, if the entire loan outstanding is
$3000 of which $1000 was borrowed from the Fixed Account, then upon a
repayment of $1500, $500 would be allocated to the Fixed Account and the
remaining $1000 would be allocated to the appropriate Subaccounts as
stipulated in the current Investment Rule. If an Owner wishes any payment to
constitute a loan repayment (rather than a premium payment), the Owner must so
specify.
Effect of Loan and Indebtedness. While the Indebtedness is outstanding, that
portion of the Account Value that is in the Loan Account is credited with
interest at a rate that is .75% less than the loan interest rate for the first
20 Policy years and, thereafter, .25% less than the loan interest rate. This
rate will usually be different than the net return for the Subaccounts. Since
the Loan Account and the remaining portion of the Account Value will generally
have different rates of investment return, any death benefit above the Sum
Insured, the Account Value, and the Surrender Value are permanently affected
by any Indebtedness, whether or not repaid in whole or in part. The amount of
any Indebtedness is subtracted from the amount otherwise payable when the
Policy proceeds become payable.
Whenever the Indebtedness equals or exceeds the Account Value, the Policy
terminates 31 days after notice has been mailed by JHVLICO to the Owner and
any assignee of record at their last known addresses specifying the minimum
amount which must be paid to keep the Policy in force beyond that period. The
Policy lapses, unless a repayment of at least that amount is made within that
period.
Tax Considerations. If the Policy is a modified endowment at the time a loan
is made, that loan may have significant tax consequences. See "Tax
Considerations".
DEFAULT
Premium Grace Period, Default and Lapse. Unless the Guaranteed Death Benefit
is in force, at the beginning of each Policy month JHVLICO determines whether
the Surrender Value is sufficient to pay all monthly charges then due under
the Policy. If not, the Policy is in default and JHVLICO will notify the Owner
of the amount estimated to be necessary to pay three months' deductions, and a
grace period will be in effect until 61 days after the date the notice was
mailed. If JHVLICO does not receive payment of at least this amount by the end
of the grace period, the Policy will lapse, and any remaining amount owed to
the Owner as of the date of lapse will be paid to the Owner.
If the Guaranteed Death Benefit is in effect and the Policy provides for an
Additional Sum Insured, the grace period and lapse procedures set forth in the
preceding paragraph will apply only to the Additional Sum Insured. Lapse of
the Additional Sum Insured can have significant tax consequences. See "Tax
Considerations--Policy Proceeds". If the Guaranteed Death Benefit has been in
effect and lapses at the end of a grace period (as described in "Premiums--
Guaranteed Death Benefit Premiums"), the usual default, grace period and lapse
procedures described in the preceding paragraph will be applied commencing
with the first day of the first Policy month following the lapse of the
Guaranteed Death Benefit.
The insurance under the Policy continues in full force during any grace
period but, if the insured dies during the grace period, the amount in default
is deducted from the death benefit otherwise payable. Written notice will be
furnished to the Owner at his or her last known address, at least 31 days
prior to the end of any grace period, specifying the minimum amount which must
be paid to continue the Policy in force on a premium paying basis after the
end of the grace period.
Reinstatement. A lapsed Policy (or a lapsed Additional Sum Insured, if the
Basic Sum Insured remains in force or is reinstated) or the Guaranteed Death
Benefit may be reinstated in accordance with the Policy's terms.
17
<PAGE>
Evidence of insurability satisfactory to JHVLICO will be required (except as
to a request to restore the Guaranteed Death Benefit within 1 year after the
beginning of its grace period) and payment of the required premium and
charges. The request must be received at JHVLICO's Home Office within 1 year
after the beginning of the grace period. A reinstatement of the Basic Sum
Insured or the Additional Sum Insured may be deemed a material change for
Federal income tax purposes. See "Premiums--7-Pay Premium Limit" and "Tax
Considerations".
EXCHANGE PRIVILEGE
The Owner may transfer the entire Account Value under the Policy to the
Fixed Account at any time, creating a non-variable policy. The exchange will
be effective at the end of the Valuation Period in which JHVLICO receives at
its Home Office notice of the transfer satisfactory to JHVLICO.
----------------
The foregoing description of Policy provisions is qualified by reference to
the specimen Policy which has been filed as an exhibit to the Registration
Statement.
CHARGES AND EXPENSES
CHARGES DEDUCTED FROM PREMIUMS
In addition to the sales charge (see "Sales Charges" below), the following
charges are deducted from premiums:
State Premium Tax Charge. A charge currently equal to 2.35% of each premium
payment will be deducted from each premium payment. Premium taxes vary from
state to state, ranging from zero to 4% currently. A charge of 2.35% is made,
regardless of the premium tax imposed by any state. The 2.35% rate is the
average rate currently expected to be paid on premiums received in all states
over the lifetimes of the insureds covered by the Policies. JHVLICO will not
increase this charge under outstanding Policies, but reserves the right to
change this charge for Policies not yet issued in order to correspond with
changes in the state premium tax levels.
Federal DAC Tax Charge. A charge currently equal to 1.25% of each premium
payment will be deducted from each premium payment to cover the estimated cost
to JHVLICO of the Federal income tax treatment of the Policies' deferred
acquisition costs--commonly referred to as the "DAC Tax". JHVLICO has
determined that this charge is reasonable in relation to JHVLICO's increased
Federal income tax burden under the Internal Revenue Code resulting from the
receipt of premiums. JHVLICO will not increase this charge under outstanding
Policies, but reserves the right, subject to any required regulatory approval,
to change this charge for Policies not yet issued in order to correspond with
changes in the Federal income tax treatment of the Policies' deferred
acquisition costs.
SALES CHARGES
Charges are made to compensate JHVLICO for the cost of selling the Policy.
This cost includes agents' commissions, commission overrides, advertising, and
the printing of Prospectuses and sales literature. The amount of the charge in
any Policy year cannot be specifically related to sales expenses for that
year. JHVLICO expects to recover its total sales expenses over the period the
Policies are in effect. To the extent that sales charges are insufficient to
cover total sales expenses, the sales expenses may be recovered from other
sources,
18
<PAGE>
including gains from the charge for mortality and expense risks and other
gains with respect to the Policies, or from JHVLICO's general assets. See
"Distribution of Policies".
From Premiums. Part of the sales charge is deducted from premiums received.
The amount is 6% of the premiums received in Policy years 1 through 10 that do
not exceed that year's total Target Premium and 3% of the premiums received in
Policy years 11 and later that do not exceed each year's Target Premium. The
Target Premium is established at issue and is the sum of Base Policy Target
Premium and any rider premium. The Base Policy Target Premium is set forth in
the Policy. Target Premiums will vary based on the issue age, sex, and
underwriting class of the insured. JHVLICO currently intends to make this
deduction only in the first 10 Policy years, but this is not contractually
guaranteed and the right is reserved to continue deductions over a longer
period. Because the Policies were first offered for sale in 1996, no Policies
have yet been outstanding for more than 10 years.
No sales charge is deducted from a premium payment received in excess of one
Target Premium in any Policy year.
An Owner may structure the timing and amount of premium payments to minimize
the sales charges deducted from premium payments, although doing so involves
certain risks. Paying less than one target premium in the first Policy year or
paying more than one target premium in any Policy year could reduce the
Owner's total sales charges over time. For example, an Owner, paying ten
target premiums of $10,000 each, would pay total sales charges of $6,000 if he
paid $10,000 in each of the first ten Policy years, but only $3,000 if he paid
$20,000 (i.e., two times the target premium amount) in every other Policy year
up to the ninth Policy year. However, delaying the payment of target premiums
to later Policy years could increase the risk that the Guaranteed Death
Benefit will lapse and that the Surrender Value will be insufficient to pay
monthly Policy charges as they come due. As a result, the Policy or any
Additional Sum Insured may lapse and eventually terminate. See "Default".
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 the Owner upon receipt of Policy distributions.
See "Premiums--7-Pay Premium Limit".
From Account Value. The remainder of the sales charge is deducted monthly
from Account Value, for the first 5 Policy years, in an amount set forth in
the Policy that varies by age and sex per $1,000 of the Basic Sum Insured at
issue. For example, this monthly amount for a male age 45 is 30c per $1,000 of
Basic Sum Insured.
REDUCED CHARGES FOR ELIGIBLE GROUPS
The sales charges and issue charge (described below) 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 JHVLICO
anticipates that the sales to the members of the class will result in lower
than normal sales or administrative expenses. The charge for mortality and
expense risks (described below) otherwise applicable may be reduced with
respect to Policies issued to a trustee, employer or similar entity where
JHVLICO anticipates that, because of the nature of the group on whose behalf
the Policies are purchased, there will be a lower than normal risk of the
mortality and expense charge not being sufficient to cover actual mortality
and expense costs. These reductions will be made in accordance with JHVLICO's
rules in effect at the time of the application for a Policy. The factors
considered by JHVLICO in determining the eligibility of a particular group for
reduced charges, and the level of the reduction, are as follows: the nature of
the association and its organizational framework; the method by which sales
will be made to the members of the class; the facility with which premiums
will be collected from the associated individuals and the association's
capabilities with respect to administrative tasks;
19
<PAGE>
the anticipated persistency 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 to be paid by or for the class of associated
individuals; and any other such circumstances which justify a reduction in
sales or administrative charges or mortality and expense risk charges. Any
reduction will be reasonable and will apply uniformly to all prospective
Policy purchasers in the class and will not be unfairly discriminatory to the
interests of any Owner.
CHARGES DEDUCTED FROM ACCOUNT VALUE OR ASSETS
The following charges are deducted from Account Value or assets:
Issue Charge. JHVLICO will deduct an issue charge from Account Value, at the
rate of $20 per month for the first 12 Policy months, plus, for the first 5
Policy years, an amount set forth in the Policy that varies by age and sex per
$1,000 of the Basic Sum Insured at issue. For example, this additional monthly
amount for a 45 year old male is 3c per $1000 of Basic Sum Insured.
The issue charge is to compensate JHVLICO for expenses incurred in
connection with the issuance of the Policy, other than sales expenses. Such
expenses include medical examinations, insurance underwriting costs and costs
incurred in processing applications and establishing permanent Policy records.
Maintenance charge. JHVLICO will deduct from the Account Value a monthly
charge not to exceed $8 per Policy. The current monthly charge is $6 per
Policy.
This charge is to compensate JHVLICO for administrative expenses, including
recordkeeping, processing death claims and surrenders, making Policy changes,
reporting and other communications to Owners and other similar expense and
overhead costs.
Insurance Charge. The insurance charge deducted monthly from Account Value
is based on the attained age of the insured and the amount at risk. The amount
at risk is the difference between the current death benefit and the Account
Value (after reflecting all charges against Account Value). The amount of the
insurance charge is determined by multiplying JHVLICO's then current monthly
rate for insurance by the amount at risk.
Current monthly rates for insurance are based on the sex, age, smoking
status and underwriting class of the insureds and the length of time the
Policy has been in effect. JHVLICO will review these rates at least every 5
years, and may change these rates from time to time based on JHVLICO's
expectations of future experience. However, these rates will never be more
than the guaranteed maximum rates based on the 1980 Commissioners' Standard
Ordinary Mortality Tables, as set forth in the Policy.
Lower current insurance rates are offered at most ages for insureds who
qualify for the standard or select underwriting class and whose applications
are fully underwritten, i.e. subject to evidence of insurability on the part
of the insured, a process which may involve a medical examination. On the
other hand, higher current insurance rates are generally applicable if the
Policies are issued on a guaranteed issue basis, where evidence of
insurability is not required.
Policies issued to trustees, employers and similar entities are often issued
on a guaranteed issue basis. Because only limited underwriting information is
obtained in this alternative underwriting procedure, Policies in this class
may present additional mortality expense to JHVLICO relative to Policies which
are fully underwritten. This additional insurance risk is generally reflected
in higher insurance rates, nevertheless guaranteed not to exceed the 1980
Commissioners' Standard Ordinary Mortality Tables.
20
<PAGE>
Beginning on the first processing date of the tenth Policy year, JHVLICO
intends to make a credit to the Account Value on a monthly basis. This credit
will be reflected as a reduction to the insurance charge as described below.
This credit is not guaranteed but it is JHVLICO's present intention to effect
this reduction in the tenth Policy year and each Policy year thereafter.
The amount of the reduction will depend upon the length of time the Policy
has been in force. In the tenth Policy year the monthly insurance charge will
be reduced by an amount equal to a percentage of the current non-loaned
portion of the Account Value. This percentage will begin at an annual
effective rate of .20% in the tenth Policy year and increase annually by .01%
through and including the thirtieth Policy year. Thereafter the percentage
reduction each year the Policy remains in force will be at an annual effective
rate of .40%.
For example, it is expected that the reduction percentage in Policy year 11
would be at an effective annual rate of .21%, in Policy year 20 would be .30%
and in Policy year 30 would be .40%.
JHVLICO reserves the right to modify or discontinue this reduction. Because
the Policies were first offered for sale in 1996, no reductions have yet been
made.
Charge for Mortality and Expense Risks. A daily charge is made for mortality
and expense risks assumed by JHVLICO at a maximum effective annual rate of
.90% of the value of the Account's assets attributable to the Policies. The
current charge is at an effective annual rate of .60%. This charge begins when
amounts under a Policy are first allocated to the Account. The mortality risk
assumed is that insureds may live for a shorter period of time than estimated
and, therefore, a greater amount of death benefit than expected will be
payable in relation to the amount of premiums received. The expense risk
assumed is that expenses incurred in issuing and administering the Policies
will be greater than estimated. JHVLICO will realize a gain from this charge
to the extent it is not needed to provide for benefits and expenses under the
Policies.
Charges for Extra Mortality Risks. An insured who does not qualify for the
standard or select underwriting class must pay an additional charge because of
the extra mortality risk. The level of the charge depends upon the age of the
insured and the degree of extra mortality risk. This additional charge is
deducted monthly from Account Value.
Charges for Optional Rider Benefits. An additional charge must be paid if
the Owner elects to purchase an optional insurance benefit by Policy rider.
This additional charge is deducted monthly from Account Value.
Charges for Taxes. Currently no charge is made against Account Value for
JHVLICO's Federal income taxes but if JHVLICO incurs, or expects to incur,
income taxes attributable to the Account or this class of Policies in future
years, it reserves the right to make a charge, and any charge would affect
what the Subaccounts earn. Charges for other taxes, if any, attributable to
the Subaccounts may also be made.
Charge for Partial Withdrawal. JHVLICO will deduct a charge in the amount of
$20 on a partial withdrawal of Surrender Value, as described under "Account
Value and Surrender Value". The charge will be deducted from Account Value.
The charge is to compensate JHVLICO for the administrative expenses of
effecting the withdrawal.
Fund Investment Management Fee. The Account purchases shares of the Fund at
net asset value, a value which reflects the deduction from the assets of the
Fund of its investment management fee, which is described briefly in the
Summary of this Prospectus, and of certain non-advisory operating expenses.
For a full description of these deductions, see the attached Prospectus for
the Fund.
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<PAGE>
The monthly deductions from Account Value described above are deducted on
the date of issue and on the first day of each Policy month thereafter. These
deductions are made from the Subaccounts in proportion to the amount of
Account Value in each. For each month that JHVLICO is unable to deduct any
charge because there is insufficient Account Value, the uncollected charges
will accumulate and be deducted when and if sufficient Account Value is
available.
GUARANTEE OF CERTAIN CHARGES
The state premium tax charge, the Federal DAC Tax charge, the issue charge
and the charge for partial withdrawals are guaranteed not to increase over the
life of the Policy. The administrative charge, the sales charges, the
mortality and expense risk charge, and the insurance charge are guaranteed not
to exceed the maximums set forth in the Policy.
DISTRIBUTION OF POLICIES
Applications are solicited by agents who are licensed by state insurance
authorities to sell JHVLICO's Policies and who are also registered
representatives ("representatives") of John Hancock or other broker-dealer
firms, as discussed below. John Hancock performs insurance underwriting,
determines whether to accept or reject the application for a Policy and each
insured's risk classification and, pursuant to a sales agreement among John
Hancock, JHVLICO, and the Account, acts as the principal underwriter of the
Policies. The sales agreement will remain in effect until terminated upon
sixty days' written notice by any party. JHVLICO will make the appropriate
refund if a Policy ultimately is not issued or is returned under the short-
term cancellation provision. Officers and employees of John Hancock and
JHVLICO are covered by a blanket bond by a commercial carrier in the amount of
$25 million.
John Hancock's representatives are compensated for sales of the Policies on
a commission and service fee basis by John Hancock, and JHVLICO reimburses
John Hancock for such compensation and for other direct and indirect expenses
(including agency expense allowances, general agent, district manager and
supervisor's compensation, agent's training allowances, deferred compensation
and insurance benefits of agents, general agents, district managers and
supervisors, agency office clerical expenses and advertising) actually
incurred in connection with the marketing and sale of the Policies.
The maximum commission payable to a John Hancock representative for selling
a Policy is 20% of the Target Premium paid in the first Policy year plus an
amount equal to 6% of the first Policy year's Target Premium which will be
payable to the representative in each of Policy years 2 through 4; 6% of the
Target Premium paid in Policy years 2 through 4; and 3% of the Target Premium
paid in each year thereafter. The maximum commission on any premium paid in
any Policy year in excess of the Target Premium is 3%.
Representatives with less than four years of service with John Hancock and
those compensated on salary plus bonus or level commission programs may be
paid on a different basis. Representatives who meet certain productivity and
persistency standards with respect to the sale of policies issued by JHVLICO
and John Hancock will be eligible for additional compensation.
John Hancock is registered with the Commission under the Securities Exchange
Act of 1934 as a broker-dealer and is a member of the National Association of
Securities Dealers, Inc. John Hancock is not a member of the Securities
Investor Protection Corporation because it is exempt from membership in that
organization. The Policies are also sold through other registered broker-
dealers that have entered into selling agreements with John
22
<PAGE>
Hancock and whose representatives are authorized by applicable law to sell
variable life insurance policies. The commissions which will be paid by such
broker-dealers to their representatives will be in accordance with their
established rules. The commission rates may be more or less than those set
forth above for John Hancock's representatives. In addition, their qualified
registered representatives may be reimbursed by the broker-dealers under
expense reimbursement allowance programs in any year for approved voucherable
expenses incurred. John Hancock will compensate the broker-dealers as provided
in the selling agreements, and JHVLICO will reimburse John Hancock for such
amounts and for certain other direct expenses in connection with marketing the
Policies through other broker-dealers.
John Hancock serves as principal underwriter for other separate accounts
registered under the 1940 Act: John Hancock Variable Annuity Accounts U, I and
V, John Hancock Mutual Variable Life Insurance Account UV and John Hancock
Variable Life Accounts U and V. John Hancock is also the principal investment
manager and principal underwriter for the Fund.
TAX CONSIDERATIONS
The below description of Federal income tax consequences is only a brief
summary and is not intended as tax advice. For further information consult a
qualified tax advisor. Federal, state and local tax laws can change from time
to time and, as a result, the tax consequences to the Owner and beneficiary
may be altered.
POLICY PROCEEDS
Although the Policy contains provisions not found in fixed benefit life
insurance policies, JHVLICO believes the Policy will receive the same Federal
income and estate tax treatment. Section 7702 of the Internal Revenue Code
("Code") defines life insurance for Federal tax purposes. See "Death
Benefits--Definition of Life Insurance". If certain standards are met at issue
and over the life of the Policy, the Policy will come within that definition.
JHVLICO will monitor compliance with these standards. Furthermore, JHVLICO
reserves the right to make any changes in the Policy necessary to ensure the
Policy is within the definition of life insurance.
If the Policy complies with the definition of life insurance, JHVLICO
believes the death benefit under the Policy will be excludable from the
beneficiary's gross income under Section 101 of the Code. In addition,
increases in Account Value as a result of interest or investment experience
will not be subject to Federal income tax unless and until values are actually
received through withdrawal, surrender or other distributions.
A surrender, lapse or partial withdrawal may have tax consequences. For
example, the Owner will be taxed on a surrender to the extent that the Account
Value exceeds the premiums paid under the Policy, ignoring premiums paid for
riders. But under certain circumstances within the first 15 Policy years, the
Owner may be taxed on a withdrawal of Policy values even if total withdrawals
do not exceed total premiums paid.
JHVLICO also believes that, 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 loan
outstanding will be taxed to the Owner if a Policy lapses.
Distributions under Policies on which premiums greater than the "7-pay"
limit (see "Premiums--7-Pay Premium Limit") have been paid will be treated as
distributions from a "modified endowment," which are subject to special
taxation based on Federal tax law. The Owner of such a Policy will be taxed on
distributions such as loans, surrenders and partial withdrawals to the extent
of any income (gain) to the Owner (income-first
23
<PAGE>
basis). The distributions 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 affected income
distributed before the Owner attains age 59 1/2.
Furthermore, any time there is a "material change" in a Policy (such as the
addition of certain other Policy benefits after issue, or reinstatement of a
lapsed Policy), the Policy will be subject to a new "7-pay" test, with the
possibility of a tax on distributions if it were subsequently to become a
modified endowment. Moreover, if benefits under a Policy are reduced (such as
a reduction in the Sum Insured or death benefit or the reduction or
cancellation of certain rider benefits, or Policy termination) during the 7
years in which the 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 affiliates) to the
Owner during any calendar year generally will be treated as one contract for
the purpose of applying the modified endowment rules. Your tax advisor should
be consulted if you have questions regarding the possible impact of the 7-pay
limit on your Policy.
Federal estate and state and local estate, inheritance and other tax
consequences of ownership or receipt of Policy proceeds depend on the
circumstances of each Owner or beneficiary.
CHARGE FOR JHVLICO'S TAXES
Except for the DAC Tax charge, JHVLICO currently makes no charge for Federal
income taxes that may be attributable to this class of Policies. If JHVLICO
incurs, or expects to incur, income taxes attributable to this class of
Policies or any Subaccount in the future, it reserves the right to make a
charge for those taxes.
Under current laws, JHVLICO may incur state and local taxes (in addition to
premium taxes) in several states. At present, these taxes are not significant.
If there is a material change in applicable state or local tax laws, charges
for such taxes may be made.
CORPORATE AND H.R. 10 PLANS
The Policy may be acquired in connection with the funding of retirement
plans satisfying the qualification requirements of Section 401 of the Code. If
so, the Code provisions relating to such plans and life insurance benefits
thereunder should be carefully scrutinized.
24
<PAGE>
BOARD 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--Officers Principal Occupations
------------------- ---------------------
<S> <C>
David F. D'Alessandro Chairman of the Board and Chief Executive
Officer of JHVLICO; Senior Executive Vice
President and Director, John Hancock Mutual
Life Insurance Company.
Henry D. Shaw Vice Chairman of the Board and President of
JHVLICO; Senior Vice President, John
Hancock Mutual Life Insurance Company.
Thomas J. Lee Director of JHVLICO; Vice President, John
Hancock Mutual Life Insurance Company.
Michele G. Van Leer Director of JHVLICO; Vice President, John
Hancock Mutual Life Insurance Company.
Joseph A. Tomlinson Director and Vice President, JHVLICO; Vice
President, John Hancock Mutual Life
Insurance Company.
Robert R. Reitano Director of JHVLICO; Vice President, John
Hancock Mutual Life Insurance Company.
Robert S. Paster Director of JHVLICO; Second Vice President,
John Hancock Mutual Life Insurance Company.
Barbara L. Luddy Director and Actuary, JHVLICO; Second Vice
President, John Hancock Mutual Life
Insurance Company.
Daniel L. Ouellette Vice President, Marketing, JHVLICO; Vice
President, John Hancock Mutual Life
Insurance Company.
Patrick F. Smith Controller of JHVLICO; Assistant
Controller, John Hancock Mutual Life
Insurance Company.
</TABLE>
The business address of all Directors and officers of JHVLICO is John
Hancock Place, Boston, Massachusetts 02117.
REPORTS
At least once each Policy year a statement will be sent to the Owner setting
forth the amount of the death benefit, Basic Sum Insured, Additional Sum
Insured, Account Value, the portion of the Account Value in each Subaccount,
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) as of the last day of such year. Moreover,
confirmations will be furnished to Owners of premium payments, transfers among
Subaccounts, Policy loans, partial withdrawals and certain other Policy
transactions.
Owners will be sent semiannually a report containing the financial
statements of the Fund, including a list of securities held in each Portfolio.
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<PAGE>
VOTING PRIVILEGES
All of the assets in the variable Subaccounts of the Account are invested in
shares of the corresponding Portfolios of the Fund. JHVLICO will vote the
shares of each of the Portfolios of the Fund which are deemed attributable to
policies at regular and special meetings of the Fund's shareholders in
accordance with instructions received from owners of such policies. Shares of
the Fund held in the Account which are not attributable to policies and shares
for which instructions from owners are not received will be represented by
JHVLICO at the meeting and will be voted for and against each matter in the
same proportions as the votes based upon the instructions received from the
owners of all policies funded through the Account's corresponding variable
Subaccounts.
The number of Fund shares held in each variable Subaccount deemed
attributable to each Owner is determined by dividing the amount of a Policy's
Account Value held in the variable Subaccount by the net asset value of one
share in the corresponding Fund Portfolio in which the assets of that variable
Subaccount are invested. Fractional votes will be counted. The number of
shares as to which the Owner may give instructions will be determined as of
the record date for the Fund's meeting.
Owners of Policies may give instructions regarding the election of the Board
of Trustees of the Fund, ratification of the selection of independent
auditors, approval of Fund investment advisory agreements and other matters
requiring a vote under the 1940 Act. Owners will be furnished information and
forms by JHVLICO in order that voting instructions may be given.
JHVLICO may, when required by state insurance regulatory authorities,
disregard voting instructions if the instructions require that the shares be
voted so as to change the investment objectives of the Portfolios of the Fund
or to approve or disapprove an investment advisory or underwriting contract
for the Fund. JHVLICO also may disregard voting instructions in favor of
changes initiated by an Owner or the Fund's Board of Trustees in an investment
policy, investment adviser or principal underwriter of the Fund, if JHVLICO
(i) reasonably disapproves of such changes and (ii) in the case of a change of
investment policy or investment adviser, makes a good-faith determination that
the proposed change is contrary to state law or prohibited by state regulatory
authorities or that the change would be inconsistent with a variable
Subaccount's investment objectives or would result in the purchase of
securities which vary from the general quality and nature of investments and
investment techniques utilized by other separate accounts of JHVLICO or of an
affiliated life insurance company, which separate accounts have investment
objectives similar to those of the variable Subaccount. In the event JHVLICO
does disregard voting instructions, a summary of that action and the reasons
for such action will be included in the next semi-annual report to Owners.
CHANGES THAT JHVLICO CAN MAKE
The voting privileges described in this Prospectus are afforded based on
JHVLICO's understanding of applicable Federal securities law requirements. To
the extent that applicable law, regulations or interpretations change to
eliminate or restrict the need for such voting privileges, JHVLICO reserves
the right to proceed in accordance with any such revised requirements. JHVLICO
also reserves the right, subject to compliance with applicable law, including
approval of Owners if so required, (1) to transfer assets determined by
JHVLICO to be associated with the class of policies to which the Policies
belong from the Account to another separate account or variable Subaccount by
withdrawing the same percentage of each investment in the Account with
appropriate adjustments to avoid odd lots and fractions, (2) to operate the
Account as a "management-type investment company" under the 1940 Act, or in
any other form permitted by law, the investment adviser of which would be
26
<PAGE>
JHVLICO, an affiliate or John Hancock, (3) to deregister the Account under the
1940 Act, (4) to substitute for the Portfolio 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. JHVLICO 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.
LEGAL MATTERS
Legal matters in connection with the Policies described in this Prospectus
have been passed on by Sandra M. DaDalt, Counsel for JHVLICO. Messrs.
Freedman, Levy, Kroll & Simonds, Washington, D.C., have advised JHVLICO on
certain Federal securities law matters in connection with the Policies.
REGISTRATION STATEMENT
This Prospectus omits certain information contained in the Registration
Statement which has been filed with the Commission. More details may be
obtained from the Securities and Exchange Commission upon payment of the
prescribed fee.
EXPERTS
The financial statements for the year ended December 31, 1995 of the Account
and JHVLICO included in this Prospectus have been audited by Ernst & Young
LLP, independent auditors, for the periods indicated in their reports thereon
which appear elsewhere herein and have been included in reliance on their
reports given on their authority as experts in accounting and auditing.
Actuarial matters included in this Prospectus have been examined by Randi M.
Sterrn, F.S.A., an Actuary of JHVLICO.
FINANCIAL STATEMENTS
The financial statements of JHVLICO included herein should be distinguished
from the financial statements of the Account and should be considered only as
bearing upon the ability of JHVLICO to meet its obligations under the
Policies.
27
<PAGE>
JOHN HANCOCK VARIABLE LIFE ACCOUNT S
STATEMENT OF ASSETS AND LIABILITIES (UNAUDITED)
MARCH 31, 1996
<TABLE>
<CAPTION>
Money Real Estate Special
Select Stock Bond International Market Equity Opportunities
Subaccount Subaccount Subaccount Subaccount Subaccount Subaccount
------------ ---------- ------------- ---------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Assets
Investment in shares of
portfolios of John Han-
cock Variable Series
Trust I, at value...... $9,659,513 $1,989,477 $3,211,966 $5,166,731 $616,317 $2,691,633
Receivable from John
Hancock Variable Series
Trust I................ 12,933 11,530 6,398 715 6,299 --
---------- ---------- ---------- ---------- -------- ----------
Total assets............ 9,672,446 2,001,007 3,218,364 5,167,446 622,616 2,691,633
Liabilities
Asset charges payable... 126 28 51 76 10 43
---------- ---------- ---------- ---------- -------- ----------
Total liabilities....... 126 28 51 76 10 43
---------- ---------- ---------- ---------- -------- ----------
Net assets.............. $9,672,320 $2,000,979 $3,218,313 $5,167,370 $622,606 $2,691,590
========== ========== ========== ========== ======== ==========
</TABLE>
See accompanying notes.
28
<PAGE>
JOHN HANCOCK VARIABLE LIFE ACCOUNT S
STATEMENT OF ASSETS AND LIABILITIES (UNAUDITED) (CONTINUED)
MARCH 31, 1996
<TABLE>
<CAPTION>
Short-Term Turner Edinburgh Frontier
U.S. Core Overseas Capital
Stock Government Managed Growth Equity Appreciation
Subaccount Subaccount Subaccount Subaccount Subaccount Subaccount
----------- ---------- ---------- ---------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
Assets
Investment in shares of
portfolios of John Han-
cock Variable Series
Trust I, at value...... $13,548,121 $2,484,819 $4,924,306 $177,549 $59,677 $4,881
Receivable from John
Hancock Variable Series
Trust I................ 26,452 10,956 16,956 -- -- --
----------- ---------- ---------- -------- ------- ------
Total assets............ 13,574,573 2,495,775 4,941,262 177,549 59,677 4,881
Liabilities
Asset charges payable... 201 21 71 3 1 --
----------- ---------- ---------- -------- ------- ------
Total liabilities....... 201 21 71 3 1 --
----------- ---------- ---------- -------- ------- ------
Net assets.............. $13,574,372 $2,495,754 $4,941,191 $177,546 $59,676 $4,881
=========== ========== ========== ======== ======= ======
</TABLE>
See accompanying notes.
29
<PAGE>
JOHN HANCOCK VARIABLE LIFE ACCOUNT S
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Select Stock Bond International
Subaccount Subaccount Subaccount
------------------------------ ---------------------------- -------------------------------
Unaudited Unaudited Unaudited
three-month Year ended three-month Year ended three-month Year ended
period ended December 31 period ended December 31 period ended December 31
March 31 ----------------- March 31 --------------- March 31 ------------------
1996 1995 1994 1996 1995 1994 1996 1995 1994
------------ -------- -------- ------------ -------- ------ ------------ -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Investment in-
come:
Distributions
received from
the portfolios
of John Hancock
Variable Series
Trust I........ $ 44,758 $509,637 $ 39,711 $ 27,763 $ 66,972 $7,083 $ 6,514 $ 19,501 $ 11,324
-------- -------- -------- -------- -------- ------ ------- -------- --------
Total investment
income.......... 44,758 509,637 39,711 27,763 66,972 7,083 6,514 19,501 11,324
Expenses:
Mortality and
expense risks.. 9,533 17,330 2,688 2,146 4,148 509 3,726 10,434 2,129
-------- -------- -------- -------- -------- ------ ------- -------- --------
Net investment
income.......... 35,225 492,307 37,023 25,617 62,824 6,574 2,788 9,067 9,195
Net realized and
unrealized gain
(loss) on in-
vestments:
Net realized
gains (losses). 128,420 126,908 (37,955) 2,355 21,718 (2,259) 77,099 (25,931) 5,934
Net unrealized
appreciation
(depreciation)
during the
period......... 207,703 180,251 (24,086) (59,520) 34,574 (3,839) 12,365 153,715 (46,936)
-------- -------- -------- -------- -------- ------ ------- -------- --------
Net realized and
unrealized gain
(loss) on in-
vestments....... 336,123 307,159 (62,041) (57,165) 56,292 (6,098) 89,464 127,784 (41,002)
-------- -------- -------- -------- -------- ------ ------- -------- --------
Net increase
(decrease) in
net assets
resulting from
operations...... $371,348 $799,466 $(25,018) $(31,548) $119,116 $ 476 $92,252 $136,851 $(31,807)
======== ======== ======== ======== ======== ====== ======= ======== ========
<CAPTION>
Money Market Subaccount
-----------------------------
Unaudited
three-month Year ended
period ended December 31
March 31 ----------------
1996 1995 1994
------------ -------- -------
<S> <C> <C> <C>
Investment in-
come:
Distributions
received from
the portfolios
of John Hancock
Variable Series
Trust I........ $40,781 $119,746 $39,245
------------ -------- -------
Total investment
income.......... 40,781 119,746 39,245
Expenses:
Mortality and
expense risks.. 4,455 12,117 5,184
------------ -------- -------
Net investment
income.......... 36,326 107,629 34,061
Net realized and
unrealized gain
(loss) on in-
vestments:
Net realized
gains (losses). -- -- --
Net unrealized
appreciation
(depreciation)
during the
period......... -- -- --
------------ -------- -------
Net realized and
unrealized gain
(loss) on in-
vestments....... -- -- --
------------ -------- -------
Net increase
(decrease) in
net assets
resulting from
operations...... $36,326 $107,629 $34,061
============ ======== =======
</TABLE>
See accompanying notes.
30
<PAGE>
JOHN HANCOCK VARIABLE LIFE ACCOUNT S
STATEMENTS OF OPERATIONS (CONTINUED)
<TABLE>
<CAPTION>
Special Opportunities
Real Estate Equity Account Subaccount Stock Subaccount
---------------------------- ---------------------------- -------------------------------
Unaudited Unaudited Unaudited
three-month Year ended three-month Year ended three-month Year ended
period ended December 31 period ended December 31 period ended December 31
March 31 --------------- March 31 --------------- March 31 ------------------
1996 1995 1994 1996 1995 1994* 1996 1995 1994
------------ ------- ------- ------------ -------- ------ ------------ ---------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Investment in-
come:
Distributions
received from
the portfolios
of John Hancock
Variable Series
Trust I........ $ 9,373 $32,578 $10,909 $ -- $ 40,159 $1,493 $ 68,637 $ 669,643 $70,819
------- ------- ------- -------- -------- ------ -------- ---------- -------
Total investment
income.......... 9,373 32,578 10,909 -- 40,159 1,493 68,637 669,643 70,819
Expenses:
Mortality and
expense risks.. 871 2,766 689 3,079 4,949 607 14,908 23,428 3,073
------- ------- ------- -------- -------- ------ -------- ---------- -------
Net investment
income.......... 8,502 29,812 10,220 (3,079) 35,210 886 53,729 646,215 67,746
Net realized and
unrealized gain
(loss) on in-
vestments:
Net realized
gains (losses). 8,736 613 (10,840) 115,750 28,812 (117) 145,704 170,322 (1,272)
Net unrealized
appreciation
(depreciation)
during the
period......... 357 25,077 9,936 71,723 185,349 3,155 333,230 322,628 (67,362)
------- ------- ------- -------- -------- ------ -------- ---------- -------
Net realized and
unrealized gain
(loss) on in-
vestments....... 9,093 25,690 (904) 187,473 214,161 3,038 478,934 492,950 (68,634)
------- ------- ------- -------- -------- ------ -------- ---------- -------
Net increase
(decrease) in
net assets
resulting from
operations...... $17,595 $55,502 $ 9,316 $184,394 $249,371 $3,924 $532,663 $1,139,165 $ (888)
======= ======= ======= ======== ======== ====== ======== ========== =======
<CAPTION>
Short-Term U.S.
Government Subaccount
---------------------------
Unaudited
three-month Year ended
period ended December 31
March 31 --------------
1996 1995 1994**
------------ ------- ------
<S> <C> <C> <C>
Investment in-
come:
Distributions
received from
the portfolios
of John Hancock
Variable Series
Trust I........ $ 32,057 $64,502 $331
------------ ------- ------
Total investment
income.......... 32,057 64,502 331
Expenses:
Mortality and
expense risks.. 1,645 2,917 25
------------ ------- ------
Net investment
income.......... 30,412 61,585 306
Net realized and
unrealized gain
(loss) on in-
vestments:
Net realized
gains (losses). 1,850 8,251 (1)
Net unrealized
appreciation
(depreciation)
during the
period......... (43,893) 22,112 (325)
------------ ------- ------
Net realized and
unrealized gain
(loss) on in-
vestments....... (42,043) 30,363 (326)
------------ ------- ------
Net increase
(decrease) in
net assets
resulting from
operations...... $(11,631) $91,948 $(20)
============ ======= ======
</TABLE>
* From May 6, 1994 (commencement of operations).
** From May 1, 1994 (commencement of operations).
See accompanying notes.
31
<PAGE>
JOHN HANCOCK VARIABLE LIFE ACCOUNT S
STATEMENTS OF OPERATIONS (CONTINUED)
<TABLE>
<CAPTION>
Edinburgh Frontier
Turner Overseas Capital
Core Growth Equity Appreciation
Managed Subaccount Subaccount Subaccount Subaccount
----------------------------- ------------ ------------ ------------
Unaudited Unaudited Unaudited Unaudited
three-month Year ended three-month three-month three-month
period ended December 31 period ended period ended period ended
March 31 ---------------- March 31 March 31 March 31
1996 1995 1994 1996*** 1996*** 1996***
------------ -------- ------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Investment income:
Distributions received
from the portfolios of
John Hancock Variable
Series Trust I........ $47,637 $316,774 $12,985 $-- $-- $--
------- -------- ------- ---- ---- ----
Total investment income. 47,637 316,774 12,985 -- -- --
Expenses:
Mortality and expense
risks................. 5,660 10,978 1,318 36 26 2
------- -------- ------- ---- ---- ----
Net investment income... 41,977 305,796 11,667 (36) (26) (2)
Net realized and
unrealized gain (loss)
on investments:
Net realized gains
(losses).............. 12,945 179,131 (4,727) -- (1) --
Net unrealized appreci-
ation (depreciation)
during the period..... (5,236) 51,622 (8,296) 167 159 59
------- -------- ------- ---- ---- ----
Net realized and
unrealized gain (loss)
on investments......... 7,709 230,753 (13,023) 167 158 59
------- -------- ------- ---- ---- ----
Net increase (decrease)
in net assets resulting
from operations........ $49,686 $536,549 $(1,356) $131 $132 $ 57
======= ======== ======= ==== ==== ====
</TABLE>
*** From January 3, 1996 (commencement of operations).
See accompanying notes.
32
<PAGE>
JOHN HANCOCK VARIABLE LIFE ACCOUNT S
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
Select Stock Subaccount Bond Subaccount International Subaccount
-------------------------------------- --------------------------------- -----------------------------------
Unaudited Unaudited Unaudited
three-month Year ended three-month Year ended three-month Year ended
period ended December 31 period ended December 31 period ended December 31
March 31 ------------------------ March 31 -------------------- March 31 ----------------------
1996 1995 1994 1996 1995 1994 1996 1995 1994
------------ ----------- ----------- ------------ ---------- -------- ------------ ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Increase in net
assets from
operations:
Net investment
income......... $ 35,225 $ 492,307 $ 37,023 $ 25,617 $ 62,824 $ 6,574 $ 2,788 $ 9,067 $ 9,195
Net realized
gains (losses). 128,420 126,908 (37,955) 2,355 21,718 (2,259) 77,099 (25,931) 5,934
Net unrealized
appreciation
(depreciation)
during
the period..... 207,703 180,251 (24,086) (59,520) 34,574 (3,839) 12,365 153,715 (46,936)
----------- ----------- ----------- ---------- ---------- -------- ---------- ----------- ---------
Net increase
(decrease) in
net assets
resulting from
operations...... 371,348 799,466 (25,018) (31,548) 119,116 476 92,252 136,851 (31,807)
From policyholder
transactions:
Net premiums from
policyholders... 3,325,959 8,115,186 2,165,201 757,362 1,370,188 279,171 1,170,734 2,620,265 1,223,410
Net benefits to
policyholders.. (1,089,877) (2,752,131) (1,250,017) (113,120) (318,068) (62,598) (599,491) (1,194,625) (199,276)
----------- ----------- ----------- ---------- ---------- -------- ---------- ----------- ---------
Net increase in
net assets from
policyholder
transactions.... 2,236,082 5,363,055 915,184 644,242 1,052,120 216,573 571,243 1,425,640 1,024,134
----------- ----------- ----------- ---------- ---------- -------- ---------- ----------- ---------
Net increase in
net assets...... 2,607,430 6,162,521 890,166 612,694 1,171,236 217,049 663,495 1,562,491 992,327
Net assets at
beginning of
period.......... 7,064,890 902,369 12,203 1,388,285 217,049 -- 2,554,818 992,327 --
----------- ----------- ----------- ---------- ---------- -------- ---------- ----------- ---------
Net assets at end
of period....... $ 9,672,320 $ 7,064,890 $ 902,369 $2,000,979 $1,388,285 $217,049 $3,218,313 $ 2,554,818 $ 992,327
=========== =========== =========== ========== ========== ======== ========== =========== =========
<CAPTION>
Money Market Subaccount
----------------------------------------
Unaudited
three-month Year ended
period ended December 31
March 31 --------------------------
1996 1995 1994
------------- ------------- ------------
<S> <C> <C> <C>
Increase in net
assets from
operations:
Net investment
income......... $ 36,326 $ 107,629 $ 34,061
Net realized
gains (losses). -- -- --
Net unrealized
appreciation
(depreciation)
during
the period..... -- -- --
------------- ------------- ------------
Net increase
(decrease) in
net assets
resulting from
operations...... 36,326 107,629 34,061
From policyholder
transactions:
Net premiums from
policyholders... 8,595,417 19,983,940 7,344,361
Net benefits to
policyholders.. (8,090,885) (17,720,190) (5,123,289)
------------- ------------- ------------
Net increase in
net assets from
policyholder
transactions.... 504,532 2,263,750 2,221,072
------------- ------------- ------------
Net increase in
net assets...... 540,858 2,371,379 2,255,133
Net assets at
beginning of
period.......... 4,626,512 2,255,133 --
------------- ------------- ------------
Net assets at end
of period....... $ 5,167,370 $ 4,626,512 $ 2,255,133
============= ============= ============
</TABLE>
See accompanying notes.
33
<PAGE>
JOHN HANCOCK VARIABLE LIFE ACCOUNT S
STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED)
<TABLE>
<CAPTION>
Special Opportunities
Real Estate Equity Subaccount Subaccount Stock Subaccount
------------------------------- --------------------------------- -------------------------------------
Unaudited Unaudited Unaudited
three-month Year ended three-month Year ended three-month Year ended
period ended December 31 period ended December 31 period ended December 31
March 31 ------------------ March 31 -------------------- March 31 -----------------------
1996 1995 1994 1996 1995 1994* 1996 1995 1994
------------ -------- --------- ------------ ---------- -------- ------------ ----------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Increase in net
assets from
operations:
Net investment
income......... $ 8,502 $ 29,812 $ 10,220 $ (3,079) $ 35,210 $ 886 $ 53,729 $ 646,215 $ 67,746
Net realized
gains (losses). 8,736 613 (10,840) 115,750 28,812 (117) 145,704 170,322 (1,272)
Net unrealized
appreciation
(depreciation)
during the
period......... 357 25,077 9,936 71,723 185,349 3,155 333,230 322,628 (67,362)
-------- -------- --------- ---------- ---------- -------- ----------- ----------- ----------
Net increase
(decrease) in
net assets
resulting from
operations...... 17,595 55,502 9,316 184,394 249,371 3,924 532,663 1,139,165 (888)
From policyholder
transactions:
Net premiums
from
policyholders.. 99,951 466,306 525,631 1,012,514 1,639,491 333,168 5,408,170 8,168,426 1,606,781
Net benefits to
policyholders.. (65,722) 370,910 (115,063) 175,378 (551,692) (4,202) (1,286,257) (1,740,418) (253,270)
-------- -------- --------- ---------- ---------- -------- ----------- ----------- ----------
Net increase in
net assets from
policyholder
transactions.... 34,229 95,396 410,568 837,136 1,087,799 328,966 4,121,913 6,428,008 1,353,511
-------- -------- --------- ---------- ---------- -------- ----------- ----------- ----------
Net increase in
net assets...... 51,824 150,898 419,884 1,021,530 1,337,170 332,890 4,654,576 7,567,173 1,352,623
Net assets at
beginning of
period.......... 570,782 419,884 -- 1,670,060 332,890 -- 8,919,796 1,352,623 --
-------- -------- --------- ---------- ---------- -------- ----------- ----------- ----------
Net assets at end
of period....... $622,606 $570,782 $ 419,884 $2,691,590 $1,670,060 $332,890 $13,574,372 $ 8,919,796 $1,352,623
======== ======== ========= ========== ========== ======== =========== =========== ==========
<CAPTION>
Short-Term U.S.
Government Subaccount
---------------------------------
Unaudited
three-month Year ended
period ended December 31
March 31 --------------------
1996 1995 1994**
------------ ----------- --------
<S> <C> <C> <C>
Increase in net
assets from
operations:
Net investment
income......... $ 30,412 $ 61,585 $ 306
Net realized
gains (losses). 1,850 8,251 (1)
Net unrealized
appreciation
(depreciation)
during the
period......... (43,893) 22,112 (325)
------------ ----------- --------
Net increase
(decrease) in
net assets
resulting from
operations...... (11,631) 91,948 (20)
From policyholder
transactions:
Net premiums
from
policyholders.. 439,527 2,439,840 41,816
Net benefits to
policyholders.. (141,189) (364,204) (333)
------------ ----------- --------
Net increase in
net assets from
policyholder
transactions.... 298,338 2,075,636 41,483
------------ ----------- --------
Net increase in
net assets...... 286,707 2,167,584 41,463
Net assets at
beginning of
period.......... 2,209,047 41,463 --
------------ ----------- --------
Net assets at end
of period....... $2,495,754 $2,209,047 $41,463
============ =========== ========
</TABLE>
* From May 6, 1994 (commencement of operations).
** From May 1, 1994 (commencement of operations).
See accompanying notes.
34
<PAGE>
JOHN HANCOCK VARIABLE LIFE ACCOUNT S
STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED)
<TABLE>
<CAPTION>
Edinburgh Frontier
Turner Overseas Capital
Core Growth Equity Appreciation
Managed Subaccount Subaccount Subaccount Subaccount
--------------------------------- ------------ ------------ ------------
Unaudited Unaudited Unaudited Unaudited
three-month Year ended three-month three-month three-month
period ended December 31 period ended period ended period ended
March 31 -------------------- March 31 March 31 March 31
1996 1995 1994 1996*** 1996*** 1996***
------------ ---------- -------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Increase in net assets
from operations:
Net investment income.. $ 41,977 $ 305,796 $ 11,667 $ (36) $ (26) $ (2)
Net realized gains
(losses).............. 12,945 179,131 (4,727) -- (1) --
Net unrealized appreci-
ation (depreciation)
during the period..... (5,236) 51,622 (8,296) 167 159 59
---------- ---------- -------- -------- ------- ------
Net increase (decrease)
in net assets resulting
from operations........ 49,686 536,549 (1,356) 131 132 57
From policyholder trans-
actions:
Net premiums from poli-
cyholders............. 1,461,575 5,502,408 859,794 177,415 59,884 4,857
Net benefits to policy-
holders............... (379,793) (2,875,967) (211,705) -- (340) (33)
---------- ---------- -------- -------- ------- ------
Net increase in net as-
sets from policyholder
transactions........... 1,081,782 2,626,441 648,089 177,415 59,544 4,824
---------- ---------- -------- -------- ------- ------
Net increase in net
assets................. 1,131,468 3,162,990 646,733 177,546 59,676 4,881
Net assets at beginning
of period.............. 3,809,723 646,733 -- -- -- --
---------- ---------- -------- -------- ------- ------
Net assets at end of
period................. $4,941,191 $3,809,723 $646,733 $177,546 $59,676 $4,881
========== ========== ======== ======== ======= ======
</TABLE>
*** From January 3, 1996 (commencement of operations).
See accompanying notes.
35
<PAGE>
JOHN HANCOCK VARIABLE LIFE ACCOUNT S
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
March 31, 1996
1. ORGANIZATION
John Hancock Variable Life Account S (the Account) is a separate investment
account of John Hancock Variable Life Insurance Company (JHVLICO), a wholly-
owned subsidiary of John Hancock Mutual Life Insurance Company (John Hancock).
The Account was created on November 12, 1993 and commenced operations on
December 14, 1993 from the receipt of policy premiums. John Hancock Variable
Life Account S 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 twelve 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 in shares of a corresponding portfolio of M
Funds, Inc. (M Group of Funds). New subaccounts may be added as new portfolios
are added to the Fund or the M Group of Funds, or as other investment options
are developed, and made available to policyholders. The twelve portfolios of
the Fund and of the M Group of Funds which are currently available are Select
Stock, Bond, International, Money Market, Real Estate Equity, Special
Opportunities, Stock, Short-Term U.S. Government, Managed, Turner Core Growth,
Edinburgh Overseas Equity and Frontier Capital Appreciation. 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
VALUATION OF INVESTMENTS
Investment in shares of the Fund and of the M Group of Funds are valued at the
reported net asset values of the respective portfolios. Investment
transactions are recorded on the trade date. Dividend income is recognized on
the ex-dividend date. Realized gains and losses on sales of fund shares are
determined on the basis of identified cost.
FEDERAL INCOME TAXES
The operations of the Account are included in the federal income tax return of
JHVLICO, which is taxed as a life insurance company under the Internal Revenue
Code. JHVLICO has the right to charge the Account any federal 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.
36
<PAGE>
JOHN HANCOCK VARIABLE LIFE ACCOUNT S
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 various rates ranging from
.50% to .625%, depending on the type of policy, of net assets (excluding
policy loans) of the Account. In addition, a monthly charge at varying levels
for the cost of insurance is deducted from the net assets of the Account.
JHVLICO makes certain deductions for administrative expenses and state premium
taxes from premium payments before amounts are transferred to the Account.
POLICY LOANS
Policy loans represent outstanding loans plus accrued interest. Interest is
accrued (net of a charge for policy loan administration determined at an
annual rate of .75% of the aggregate amount of policyholder indebtedness) and
compounded daily. At March 31, 1996, there were no outstanding policy loans.
3. TRANSACTION WITH AFFILIATES
John Hancock acts as the distributor, principal underwriter and investment
advisor for the Fund.
Certain officers of the Account are officers and directors of JHVLICO, the
Fund or John Hancock.
4. DETAILS OF INVESTMENTS
The details of the shares owned and cost and value of investments in the
portfolios of the Fund at March 31, 1996 were as follows:
<TABLE>
<CAPTION>
Shares
Portfolio Owned Cost Value
- --------- ------ ---- -----
<S> <C> <C> <C>
Select Stock................................... 533,141 $ 9,296,094 $ 9,659,513
Bond........................................... 203,667 2,018,263 1,989,477
International.................................. 198,811 3,092,822 3,211,966
Money Market................................... 516,673 5,166,731 5,166,731
Real Estate Equity............................. 51,875 580,947 616,317
Special Opportunities.......................... 186,841 2,431,406 2,691,633
Stock.......................................... 928,004 12,959,626 13,548,121
Short-Term U.S. Government..................... 247,053 2,506,926 2,484,819
Managed........................................ 358,062 4,886,176 4,924,306
Turner Core Growth............................. 16,671 177,382 177,549
Edinburgh Overseas Equity...................... 5,932 59,518 59,677
Frontier Capital Appreciation.................. 447 4,822 4,881
</TABLE>
37
<PAGE>
JOHN HANCOCK VARIABLE LIFE ACCOUNT S
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)--CONTINUED
Purchases, including reinvestment of dividend distributions and proceeds from
sales of shares in the portfolios of the Fund for the period ended March 31,
1996, were as follows:
<TABLE>
<CAPTION>
Portfolio Purchases Sales
- --------- --------- -----
<S> <C> <C>
Select Stock............................................. $3,147,300 $ 888,798
Bond..................................................... 704,392 46,033
International............................................ 1,269,939 702,255
Money Market............................................. 4,375,158 3,834,937
Real Estate Equity....................................... 106,089 69,646
Special Opportunities.................................... 1,215,444 381,344
Stock.................................................... 5,017,740 868,339
Short-Term U.S. Government............................... 474,813 156,998
Managed.................................................. 1,257,968 151,094
Turner Core Growth....................................... 177,415 33
Edinburgh Overseas Equity................................ 59,879 360
Frontier Capital Appreciation............................ 4,857 35
</TABLE>
38
<PAGE>
JOHN HANCOCK VARIABLE LIFE ACCOUNT S
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1995
<TABLE>
<CAPTION>
Real Short-Term
Select Money Estate Special U.S.
Stock Bond International Market Equity Opportunities Stock Government Managed
Subaccount Subaccount Subaccount Subaccount Subaccount Subaccount Subaccount Subaccount Subaccount
---------- ---------- ------------- ---------- ---------- ------------- ----------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Assets
Investment in
shares of
portfolios of
John Hancock
Variable Series
Trust I, at
value.......... $7,064,890 $1,388,285 $2,554,818 $4,626,512 $570,782 $1,670,060 $ 8,919,796 $2,209,047 $3,809,723
Receivable from
John Hancock
Variable Series
Trust I........ 39,836 1,076 2,172 612,373 12,369 81 1,291,449 9,631 93,566
---------- ---------- ---------- ---------- -------- ---------- ----------- ---------- ----------
Total assets.... 7,104,726 1,389,361 2,556,990 5,238,885 583,151 1,670,141 10,211,245 2,218,678 3,903,289
Liabilities
Payable to John
Hancock
Variable Life
Insurance
Company........ 39,567 1,011 2,051 612,185 12,340 -- 1,291,107 9,585 93,412
Asset charges
payable........ 269 65 121 188 29 81 342 46 154
---------- ---------- ---------- ---------- -------- ---------- ----------- ---------- ----------
Total liabili-
ties........... 39,836 1,076 2,172 612,373 12,369 81 1,291,449 9,631 93,566
---------- ---------- ---------- ---------- -------- ---------- ----------- ---------- ----------
Net assets...... $7,064,890 $1,388,285 $2,554,818 $4,626,512 $570,782 $1,670,060 $ 8,919,796 $2,209,047 $3,809,723
========== ========== ========== ========== ======== ========== =========== ========== ==========
</TABLE>
See accompanying notes.
39
<PAGE>
JOHN HANCOCK VARIABLE LIFE ACCOUNT S
STATEMENTS OF OPERATIONS
FOR THE YEARS AND PERIODS ENDED DECEMBER 31
<TABLE>
<CAPTION>
Select Stock Bond International
Subaccount Subaccount Subaccount Money Market Subaccount
------------------------ ----------------------- ------------------------- ---------------------------
1995 1994 1993* 1995 1994 1993* 1995 1994 1993* 1995 1994 1993*
-------- -------- ----- -------- ------- ----- -------- -------- ----- --------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Investment
income:
Distributions
received from
the portfolios
of
John Hancock
Variable Series
Trust I........ $509,637 $ 39,711 $ 541 $ 66,972 $ 7,083 -- $ 19,501 $ 11,324 -- $ 119,746 $ 39,245 --
-------- -------- ----- -------- ------- --- -------- -------- --- --------- -------- ----
Total investment
income.......... 509,637 39,711 541 66,972 7,083 -- 19,501 11,324 -- 119,746 39,245 --
Expenses:
Mortality and
expense risks.. 17,330 2,688 4 4,148 509 -- 10,434 2,129 -- 12,117 5,184 --
-------- -------- ----- -------- ------- --- -------- -------- --- --------- -------- ----
Net investment
income.......... 492,307 37,023 537 62,824 6,574 -- 9,067 9,195 -- 107,629 34,061 --
Net realized and
unrealized gain
(loss) on
investments:
Net realized
gains
(losses)....... 126,908 (37,955) -- 21,718 (2,259) -- (25,931) 5,934 -- -- -- --
Net unrealized
appreciation
(depreciation)
during the
year........... 180,251 (24,086) (447) 34,574 (3,839) -- 153,715 (46,936) -- -- -- --
-------- -------- ----- -------- ------- --- -------- -------- --- --------- -------- ----
Net realized and
unrealized gain
(loss) on
investments..... 307,159 (62,041) (447) 56,292 (6,098) -- 127,784 (41,002) -- -- -- --
-------- -------- ----- -------- ------- --- -------- -------- --- --------- -------- ----
Net increase
(decrease) in
net assets
resulting from
operations...... $799,466 $(25,018) $ 90 $119,116 $ 476 -- $136,851 $(31,807) -- $ 107,629 $ 34,061 --
======== ======== ===== ======== ======= === ======== ======== === ========= ======== ====
</TABLE>
* From December 14, 1993 (commencement of operations)
See accompanying notes.
40
<PAGE>
JOHN HANCOCK VARIABLE LIFE ACCOUNT S
STATEMENTS OF OPERATIONS (CONTINUED)
FOR THE YEARS AND PERIODS ENDED DECEMBER 31
<TABLE>
<CAPTION>
Short-Term
Real Special U.S.
Estate Equity Opportunities Government Managed
Subaccount Subaccount Stock Subaccount Subaccount Subaccount
----------------------- --------------- -------------------------- --------------- ------------------------
1995 1994 1993* 1995 1994** 1995 1994 1993* 1995 1994*** 1995 1994 1993*
------- -------- ----- -------- ------ ---------- -------- ----- ------- ------- -------- -------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Investment in-
come:
Distributions
received from
the portfolios
of John Hancock
Variable Series
Trust I........ $32,578 $ 10,909 -- $ 40,159 $1,493 $ 669,643 $ 70,819 -- $64,502 $ 331 $316,774 $ 12,985 --
------- -------- --- -------- ------ ---------- -------- --- ------- ----- -------- -------- ---
Total investment
income.......... 32,578 10,909 -- 40,159 1,493 669,643 70,819 -- 64,502 331 316,774 12,985 --
Expenses:
Mortality and
expense risks.. 2,766 689 -- 4,949 607 23,428 3,073 -- 2,917 25 10,978 1,318 --
------- -------- --- -------- ------ ---------- -------- --- ------- ----- -------- -------- ---
Net investment
income.......... 29,812 10,220 -- 35,210 886 646,215 67,746 -- 61,585 306 305,796 11,667 --
Net realized and
unrealized gain
(loss) on
investments:
Net realized
gains
(losses)....... 613 (10,840) -- 28,812 (117) 170,322 (1,272) -- 8,251 (1) 179,131 (4,727) --
Net unrealized
appreciation
(depreciation)
during the
year........... 25,077 9,936 -- 185,349 3,155 322,628 (67,362) -- 22,112 (325) 51,662 (8,296) --
------- -------- --- -------- ------ ---------- -------- --- ------- ----- -------- -------- ---
Net realized and
unrealized gain
(loss) on
investments..... 25,690 (904) -- 214,161 3,038 492,950 (68,634) -- 30,363 (326) 230,753 (13,023) --
------- -------- --- -------- ------ ---------- -------- --- ------- ----- -------- -------- ---
Net increase
(decrease) in
net assets
resulting from
operations...... $55,502 $ 9,316 -- $249,371 $3,924 $1,139,165 $ (888) -- $91,948 $ (20) $536,549 $ (1,336) --
======= ======== === ======== ====== ========== ======== === ======= ===== ======== ======== ===
</TABLE>
* From December 14, 1993 (commencement of operations)
** From May 6, 1994 (commencement of operations)
*** From May 1, 1994 (commencement of operations)
See accompanying notes.
41
<PAGE>
JOHN HANCOCK VARIABLE LIFE ACCOUNT S
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE YEARS AND PERIODS ENDED DECEMBER 31
<TABLE>
<CAPTION>
Select Stock Bond International
Subaccount Subaccount Subaccount
--------------------------------- --------------------------- ------------------------------
1995 1994 1993* 1995 1994 1993* 1995 1994 1993*
----------- ----------- ------- ---------- -------- ----- ----------- ---------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Increase in net
assets from
operations:
Net investment
income......... $ 492,307 $ 37,023 $ 537 $ 62,824 $ 6,574 -- $ 9,067 $ 9,195 --
Net realized
gains
(losses)....... 126,908 (37,955) -- 21,718 (2,259) -- (25,931) 5,934 --
Net unrealized
appreciation
(depreciation)
during the
year........... 180,251 (24,086) (447) 34,574 (3,839) -- 153,715 (46,936) --
----------- ----------- ------- ---------- -------- --- ----------- ---------- ---
Net increase
(decrease) in
net assets
resulting from
operations...... 799,466 (25,018) 90 119,116 476 -- 136,851 (31,807) --
From policyholder
transactions:
Net premiums
from
policyholders.. 8,115,186 2,165,201 12,650 1,370,188 279,171 -- 2,620,265 1,223,410 --
Net benefits to
policyholders.. (2,752,131) (1,250,017) (537) (318,068) (62,598) -- (1,194,625) (199,276) --
----------- ----------- ------- ---------- -------- --- ----------- ---------- ---
Net increase in
net assets from
policyholder
transactions.... 5,363,055 915,184 12,113 1,052,120 216,573 -- 1,425,640 1,024,134 --
----------- ----------- ------- ---------- -------- --- ----------- ---------- ---
Net increase in
net assets...... 6,162,521 890,166 12,203 1,171,236 217,049 -- 1,562,491 992,327 --
Net assets at
beginning of
period.......... 902,369 12,203 -- 217,049 -- -- 992,327 -- --
----------- ----------- ------- ---------- -------- --- ----------- ---------- ---
Net assets at end
of period....... $ 7,064,890 $ 902,369 $12,203 $1,388,285 $217,049 -- $ 2,554,818 $ 992,327 --
=========== =========== ======= ========== ======== === =========== ========== ===
<CAPTION>
Money Market
Subaccount
--------------------------------
1995 1994 1993*
------------- ------------ -----
<S> <C> <C> <C>
Increase in net
assets from
operations:
Net investment
income......... $ 107,629 $ 34,061 --
Net realized
gains
(losses)....... -- -- --
Net unrealized
appreciation
(depreciation)
during the
year........... -- -- --
------------- ------------ -----
Net increase
(decrease) in
net assets
resulting from
operations...... 107,629 34,061 --
From policyholder
transactions:
Net premiums
from
policyholders.. 19,983,940 7,344,361 --
Net benefits to
policyholders.. (17,720,190) (5,123,289) --
------------- ------------ -----
Net increase in
net assets from
policyholder
transactions.... 2,263,750 2,221,072 --
------------- ------------ -----
Net increase in
net assets...... 2,371,379 2,255,133 --
Net assets at
beginning of
period.......... 2,255,133 -- --
------------- ------------ -----
Net assets at end
of period....... $ 4,626,512 $ 2,255,133 --
============= ============ =====
</TABLE>
* From December 14, 1993 (commencement of operations)
See accompanying notes.
42
<PAGE>
JOHN HANCOCK VARIABLE LIFE ACCOUNT S
STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED)
FOR THE YEAR AND PERIODS ENDED DECEMBER 31
<TABLE>
<CAPTION>
Real Estate Equity Special Opportunities Short-Term U.S.
Subaccount Subaccount Stock Subaccount Government Subaccount
------------------------- ------------------------------------------------------ --------------------------
1995 1994 1993* 1995 1994** 1995 1994 1993* 1995 1994***
-------- --------- ----- ----------- ---------------------- ---------- ----- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Increase in net
assets from
operations:
Net investment
income......... $ 29,812 $ 10,220 -- $ 35,210 $ 886 $ 646,215 $ 67,746 -- $ 61,585 $ 306
Net realized
gains
(losses)....... 613 (10,840) -- 28,812 (117) 170,322 (1,272) -- 8,251 (1)
Net unrealized
appreciation
(depreciation)
during the
year........... 25,077 9,936 -- 185,349 3,155 322,628 (67,362) -- 22,112 (325)
-------- --------- --- ----------- --------- ----------- ---------- --- ------------ ---------
Net increase
(decrease) in
net assets
resulting from
operations...... 55,502 9,316 -- 249,371 3,924 1,139,165 (888) -- 91,948 (20)
From policyholder
transactions:
Net premiums
from
policyholders.. 466,306 525,631 -- 1,639,491 333,168 8,168,426 1,606,781 -- 2,439,840 41,816
Net benefits to
policyholders.. 370,910 (115,063) -- (551,692) (4,202) (1,740,418) (253,270) -- (364,204) (333)
-------- --------- --- ----------- --------- ----------- ---------- --- ------------ ---------
Net increase in
net assets from
policyholder
transactions.... 95,396 410,568 -- 1,087,799 328,966 6,428,008 1,353,511 -- 2,075,636 41,483
-------- --------- --- ----------- --------- ----------- ---------- --- ------------ ---------
Net increase in
net assets...... 150,898 419,884 -- 1,337,170 332,890 7,567,173 1,352,623 -- 2,167,584 41,463
Net assets at
beginning of
period.......... 419,884 -- -- 332,890 -- 1,352,623 -- -- 41,463 --
-------- --------- --- ----------- --------- ----------- ---------- --- ------------ ---------
Net assets at end
of period....... $570,782 $ 419,884 -- $ 1,670,060 $ 332,890 $ 8,919,796 $1,352,623 -- $ 2,209,047 $ 41,463
======== ========= === =========== ========= =========== ========== === ============ =========
<CAPTION>
Managed Subaccount
-----------------------------
1995 1994 1993*
------------ ---------- -----
<S> <C> <C> <C>
Increase in net
assets from
operations:
Net investment
income......... $ 305,796 $ 11,667 --
Net realized
gains
(losses)....... 179,131 (4,727) --
Net unrealized
appreciation
(depreciation)
during the
year........... 51,622 (8,296) --
------------ ---------- -----
Net increase
(decrease) in
net assets
resulting from
operations...... 536,549 (1,356) --
From policyholder
transactions:
Net premiums
from
policyholders.. 5,502,408 859,794 --
Net benefits to
policyholders.. (2,875,967) (211,705) --
------------ ---------- -----
Net increase in
net assets from
policyholder
transactions.... 2,626,441 648,089 --
------------ ---------- -----
Net increase in
net assets...... 3,162,990 646,733 --
Net assets at
beginning of
period.......... 646,733 -- --
------------ ---------- -----
Net assets at end
of period....... $ 3,809,723 $ 646,733 --
============ ========== =====
</TABLE>
* From December 14, 1993 (commencement of operations)
** From May 6, 1994 (commencement of operations)
*** From May 1, 1994 (commencement of operations)
See accompanying notes.
43
<PAGE>
JOHN HANCOCK VARIABLE LIFE ACCOUNT S
NOTES TO FINANCIAL STATEMENTS
December 31, 1995
1. ORGANIZATION
John Hancock Variable Life Account S (the Account) is a separate investment
account of John Hancock Variable Life Insurance Company (JHVLICO), a wholly-
owned subsidiary of John Hancock Mutual Life Insurance Company (John Hancock).
The Account was created on November 12, 1993. The Account commenced operations
on December 14, 1993 from the receipt of policy premiums. 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 nine
subaccounts. The assets of each subaccount are invested exclusively in shares
of a corresponding portfolio of John Hancock Variable Series Trust I (the
Fund). New subaccounts may be added as new portfolios are added to the Fund,
or as other investment options are developed, and made available to
policyowners. The nine portfolios of the Fund which are currently available
are Select Stock, Bond, International, Money Market, Real Estate Equity,
Special Opportunities, Stock, Short-Term U.S. Government and Managed. 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
VALUATION OF INVESTMENTS
Investment in shares of the Fund are valued at the reported net asset values
of the respective portfolios. Investment transactions are recorded on the
trade date. Dividend income is recognized on the ex-dividend date. Realized
gains and losses on sales of fund shares are determined on the basis of
identified cost.
FEDERAL INCOME TAXES
The operations of the Account are included in the federal income tax return of
JHVLICO, which is taxed as a life insurance company under the Internal Revenue
Code, JHVLICO has the right to charge the Account any federal income taxes, or
provision for federal income taxes, attributable to the operations of the
Account or to the policies funded in the Account. Currently, JHVLICO does not
make a charge for income or other taxes. Charges for state and local taxes, if
any, attributable to the Account may also be made.
EXPENSES
JHVLICO assumes mortality and expense risks of the variable life insurance
policies for which asset charges are deducted at various rates ranging from
.50% to .625%, depending on the type of policy, of net assets (excluding
policy loans) of the Account. In addition, a monthly charge at varying levels
for the cost of insurance is deducted from the net assets of the Account.
44
<PAGE>
JOHN HANCOCK VARIABLE LIFE ACCOUNT S
NOTES TO FINANCIAL STATEMENTS--CONTINUED
JHVLICO makes certain deductions for administrative expenses and state premium
taxes from premium payments before amounts are transferred to the Account.
POLICY LOANS
Policy loans represent outstanding loans plus accrued interest. Interest is
accrued (net of a charge for policy loan administration determined at an
annual rate of .75% of the aggregate amount of policyholder indebtedness) and
compounded daily. At December 31, 1995, there were no outstanding policy
loans.
3. TRANSACTION WITH AFFILIATES
John Hancock acts as the distributor, principal underwriter and investment
advisor for the Fund.
Certain officers of the Account are officers and directors of JHVLICO, the
Fund or John Hancock.
4. DETAILS OF INVESTMENTS
The details of the shares owned and cost and value of investments in the
portfolios of the Fund at December 31, 1995 were as follows:
<TABLE>
<CAPTION>
Shares
Portfolio Owned Cost Value
- --------- ------ ---- -----
<S> <C> <C> <C>
Select Stock..................................... 406,768 $6,909,172 $7,064,890
Bond............................................. 137,078 1,357,549 1,388,285
International.................................... 163,670 2,448,039 2,554,818
Money Market..................................... 462,652 4,626,511 4,626,511
Real Estate Equity............................... 48,801 535,768 570,782
Special Opportunities............................ 126,668 1,481,556 1,670,060
Stock............................................ 639,815 8,664,521 8,919,796
Short-Term U.S. Government....................... 215,888 2,187,261 2,209,047
Managed.......................................... 277,537 3,766,357 3,809,723
</TABLE>
Purchases, including reinvestment of dividend distributions and proceeds from
sales of shares in the portfolios of the Fund during 1995, were as follows:
<TABLE>
<CAPTION>
Portfolio Purchases Sales
- --------- --------- -----
<S> <C> <C>
Select Stock........................................... $ 7,299,567 $ 1,444,204
Bond................................................... 1,480,183 365,240
International.......................................... 2,211,508 776,801
Money Market........................................... 12,660,558 10,289,180
Real Estate Equity..................................... 451,518 326,311
Special Opportunities.................................. 1,350,626 227,618
Stock.................................................. 8,733,659 1,659,437
Short-Term U.S. Government............................. 2,584,350 447,128
Managed................................................ 5,369,428 2,437,190
</TABLE>
45
<PAGE>
REPORTS OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
Policyholders
John Hancock Variable Life Account S
of John Hancock Variable Life Insurance Company
We have audited the accompanying statement of assets and liabilities of John
Hancock Variable Life Account S (the "Account") (comprising, respectively, the
Select Stock, Bond, International, Money Market, Real Estate Equity, Special
Opportunities, Stock, Short-Term U.S. Government, and Managed Subaccounts) as
of December 31, 1995, and the related statements of operations and statements
of changes in net assets for the periods indicated therein. These financial
statements are the responsibility of the Account's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of each of the respective
subaccounts constituting John Hancock Variable Life Account S at December 31,
1995, and the results of their operations and the changes in their net assets
for each of the periods indicated, in conformity with generally accepted
accounting principles.
Ernst & Young LLP
Boston, Massachusetts
February 9, 1996
----------------
Board of Directors
John Hancock Variable Life Insurance Company
We have audited the accompanying statements of financial position of John
Hancock Variable Life Insurance Company as of December 31, 1995 and 1994, and
the related statements of operations and unassigned deficit and cash flows for
the years then ended. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
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, 1995 and 1994, and the results of its
operations and its cash flows for the years then ended in conformity with
generally accepted accounting principles for a stock life insurance company
wholly-owned by a mutual life insurance company and with reporting practices
prescribed or permitted by the Commonwealth of Massachusetts Division of
Insurance.
Ernst & Young LLP
Boston, Massachusetts
February 7, 1996
46
<PAGE>
JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY
STATEMENTS OF FINANCIAL POSITION
<TABLE>
<CAPTION>
(Unaudited) December 31
March 31 ------------------
1996 1995 1994
----------- ---- ----
(In millions)
<S> <C> <C> <C>
Assets
Bonds--Note 7.................................. $ 602.0 $ 552.8 $ 458.3
Preferred stocks............................... 5.0 5.0 5.3
Common stocks.................................. 1.4 1.7 1.9
Investment in affiliates....................... 67.5 65.3 59.9
Mortgage loans on real estate--Note 7.......... 154.5 146.7 148.5
Real estate.................................... 36.4 36.4 27.8
Policy loans................................... 65.8 61.8 47.3
Cash items:
Cash in banks................................ 0.0 11.6 29.3
Temporary cash investments................... 48.4 65.0 46.7
-------- -------- --------
48.4 76.6 76.0
Premiums due and deferred...................... 37.4 39.6 43.9
Investment income due and accrued.............. 18.1 18.6 14.7
Other general account assets................... 13.6 20.8 22.3
Assets held in separate accounts............... 2,575.9 2,421.0 1,721.0
-------- -------- --------
TOTAL ASSETS................................... $3,626.0 $3,446.3 $2,626.9
======== ======== ========
Obligations and Stockholder's Equity
OBLIGATIONS
Policy reserves.............................. $ 677.4 $ 671.1 $ 638.6
Federal income and other taxes payable--Note
1........................................... 11.0 14.2 17.3
Other accrued expenses....................... 96.9 79.9 22.8
Asset valuation reserve--Note 1.............. 15.5 15.4 12.6
Obligations related to separate accounts..... 2,571.8 2,417.0 1,717.7
-------- -------- --------
TOTAL OBLIGATIONS.............................. 3,372.6 3,197.6 2,409.0
Stockholder's Equity--Notes 2 and 6
Common Stock, $50 par value; authorized
50,000 shares; issued and outstanding 50,000
shares--1996 and 1995; 20,000 shares--1994.. 2.5 2.5 25.0
Paid-in capital.............................. 377.5 377.5 355.0
Unassigned deficit........................... (126.6) (131.3) (162.1)
-------- -------- --------
TOTAL STOCKHOLDER'S EQUITY..................... 253.4 248.7 217.9
-------- -------- --------
TOTAL OBLIGATIONS AND STOCKHOLDER'S EQUITY..... $3,626.0 $3,446.3 $2,626.9
======== ======== ========
</TABLE>
The accompanying notes are an integral part of the financial statements.
47
<PAGE>
JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY
STATEMENTS OF OPERATIONS AND UNASSIGNED DEFICIT
<TABLE>
<CAPTION>
(Unaudited)
Three months ended
March 31 Year ended December 31
-------------------- -------------------------
1996 1995 1995 1994 1993
---- ---- ---- ---- ----
(In millions)
<S> <C> <C> <C> <C> <C>
Income
Premiums.................... $ 175.4 $ 99.9 $ 570.9 $ 430.5 $ 398.8
Net investment income--
Note 4..................... 17.8 16.3 62.1 57.6 61.3
Other, net.................. 26.0 23.5 85.7 95.5 (4.0)
--------- --------- ------- ------- -------
219.2 139.7 718.7 583.6 456.1
Benefits and Expenses
Payments to policyholders
and beneficiaries.......... 61.0 51.3 213.4 187.5 190.8
Additions to reserves to
provide for future payments
to policyholders and bene-
ficiaries.................. 97.9 34.0 282.4 185.3 111.5
Expenses of providing serv-
ice to policyholders and
obtaining new insurance--
Note 6..................... 45.8 40.4 150.7 168.9 144.5
Cost of restructuring....... 0.0 0.0 0.0 3.0 0.0
State and miscellaneous
taxes...................... 2.4 2.9 12.7 11.3 9.8
--------- --------- ------- ------- -------
207.1 128.6 659.2 556.0 456.6
--------- --------- ------- ------- -------
GAIN (LOSS) FROM
OPERATIONS BEFORE FEDERAL
INCOME TAXES AND NET
REALIZED CAPITAL GAINS
(LOSSES)................. 12.1 11.1 59.5 27.6 (0.5)
Federal income taxes--Note 1.. 8.1 5.7 28.4 15.0 6.5
--------- --------- ------- ------- -------
GAIN (LOSS) FROM
OPERATIONS BEFORE NET
REALIZED CAPITAL GAINS
(LOSSES)................. 4.0 5.4 31.1 12.6 (7.0)
Net realized capital gains
(losses)--Note 5............. 0.0 (0.8) 0.5 0.4 (2.6)
--------- --------- ------- ------- -------
NET GAIN (LOSS)........... 4.0 4.6 31.6 13.0 (9.6)
Unassigned deficit at begin-
ning of year................. (131.3) (162.1) (162.1) (177.2) (142.3)
Net unrealized capital gains
(losses) and other adjust-
ments--Note 5................ 0.4 0.3 (3.0) (1.5) (3.2)
Valuation reserve changes--
Note 1....................... 0.0 0.0 0.0 2.7 2.3
Change in separate account
surplus...................... 0.2 (0.3) 0.7 0.0 0.5
Other reserves and
adjustments.................. 0.1 (0.4) 1.5 0.9 (24.9)
--------- --------- ------- ------- -------
UNASSIGNED DEFICIT AT END
OF PERIOD................ $ (126.6) $ (157.9) $(131.3) $(162.1) $(177.2)
========= ========= ======= ======= =======
</TABLE>
The accompany notes are an integral part of the financial statements.
48
<PAGE>
JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
(Unaudited)
Three months ended
March 31 Year ended December 31
-------------------- -------------------------
1996 1995 1995 1994 1993
---- ---- ---- ---- ----
(In millions)
<S> <C> <C> <C> <C> <C>
Cash flows from operating
activities:
Insurance premiums.......... $ 178.2 $ 102.8 $ 574.0 $ 436.4 $ 411.4
Net investment income....... 18.6 15.6 59.2 57.9 63.0
Benefits to policyholders
and beneficiaries.......... (55.6) (50.0) (198.3) (175.3) (176.6)
Dividends paid to
policyholders.............. (3.7) (2.9) (13.2) (11.9) (14.8)
Insurance expenses and
taxes...................... (49.4) (44.4) (161.5) (180.6) (148.4)
Net transfers to separate
accounts................... (96.4) (26.8) (257.4) (146.6) (91.9)
Other, net.................. 18.3 11.7 40.6 72.8 (22.7)
--------- --------- ------- ------- -------
NET CASH PROVIDED FROM
OPERATIONS............. 10.0 6.0 43.4 52.7 20.0
--------- --------- ------- ------- -------
Cash flows used in investing
activities:
Bond purchases.............. (72.2) (19.2) (172.5) (94.1) (92.3)
Bond sales.................. 10.4 4.2 18.9 23.1 74.0
Bond maturities and
scheduled redemptions...... 6.0 11.6 36.0 22.3 12.6
Bond prepayments............ 7.2 0.0 20.6 24.7 16.4
Stock purchases............. (1.5) (1.7) (1.7) (1.5) (59.8)
Proceeds from stock sales... 0.0 0.0 1.4 1.2 9.4
Real estate purchases....... (0.3) (2.8) (16.2) (18.4) (0.5)
Real estate sales........... 0.1 0.0 9.3 22.1 3.6
Other invested assets
purchases.................. 0.0 (0.1) (0.4) (0.9) (4.2)
Proceeds from the sale of
other invested assets...... 0.3 0.0 0.3 1.3 0.1
Mortgage loans issued....... (12.9) (3.0) (19.8) (37.9) (32.4)
Mortgage loan repayments.... 5.1 6.9 21.1 35.2 80.1
Other, net.................. 19.6 (11.4) 60.2 22.9 (45.6)
--------- --------- ------- ------- -------
NET CASH USED IN
INVESTING ACTIVITIES... (38.2) (15.5) (42.8) 0.0 (38.6)
--------- --------- ------- ------- -------
INCREASE (DECREASE) IN CASH
AND TEMPORARY CASH
INVESTMENTS.................. (28.2) (9.5) 0.6 52.7 (18.6)
Cash and temporary cash
investments at beginning of
year......................... 76.6 76.0 76.0 23.3 41.9
--------- --------- ------- ------- -------
CASH AND TEMPORARY CASH
INVESTMENTS AT THE END OF
PERIOD....................... $ 48.4 $ 66.5 $ 76.6 $ 76.0 $ 23.3
========= ========= ======= ======= =======
</TABLE>
The accompanying notes are an integral part of the financial statements.
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>
Balance at January 1, 1993................... $25.0 $356.8 $(142.3) $239.5
1993 Transactions:
Net loss................................... (9.6) (9.6)
Net unrealized capital losses and other
adjustments............................... (3.2) (3.2)
Valuation reserve changes.................. 2.3 2.3
Change in separate account surplus......... 0.5 0.5
Other reserves and adjustments............. (24.9) (24.9)
Return of capital.......................... (1.8) (1.8)
----- ------ ------- ------
Balance at December 31, 1993................. 25.0 355.0 (177.2) 202.8
1994 Transactions:
Net gain................................... 13.0 13.0
Net unrealized capital losses and other
adjustments............................... (1.5) (1.5)
Valuation reserve changes.................. 2.7 2.7
Other reserves and adjustments............. 0.9 0.9
----- ------ ------- ------
Balance at December 31, 1994................. 25.0 355.0 (162.1) 217.9
1995 Transactions:
Net gain................................... 31.6 31.6
Net unrealized capital losses and other
adjustments............................... (3.0) (3.0)
Change in separate account surplus......... 0.7 0.7
Other reserves and adjustments............. 1.5 1.5
Reclassification of paid-in capital........ (22.5) 22.5 0.0
----- ------ ------- ------
Balance at December 31, 1995................. $ 2.5 $377.5 $(131.3) $248.7
===== ====== ======= ======
For the three months ended March 31, 1995
(unaudited)
Balance at January 1, 1995................... $25.0 $355.0 $(162.1) $217.9
1995 Transactions:
Net gain................................... 4.6 4.6
Net unrealized capital gains and other
adjustments............................... 0.3 0.3
Change in separate account surplus......... (0.3) (0.3)
Other reserves and adjustments............. (0.4) (0.4)
Reclassification of paid-in capital........ (22.5) 22.5 0.0
----- ------ ------- ------
Balance at March 31, 1995.................... $ 2.5 $377.5 $(157.9) $222.1
===== ====== ======= ======
For the three months ended March 31, 1996
(unaudited)
Balance at January 1, 1996................... $ 2.5 $377.5 $(131.3) $248.7
1996 Transactions:
Net gain................................... 4.0 4.0
Net unrealized capital gains and other
adjustments............................... 0.4 0.4
Change in separate account surplus......... 0.2 0.2
Other reserves and adjustments............. 0.1 0.1
----- ------ ------- ------
Balance at March 31, 1996.................... $ 2.5 $377.5 $(126.6) $253.4
===== ====== ======= ======
</TABLE>
The accompanying notes are an integral part of the financial statements.
50
<PAGE>
NOTES TO FINANCIAL STATEMENTS
JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY
(INFORMATION AS OF, AND FOR THE PERIODS ENDED MARCH 31, 1996 AND 1995 IS
UNAUDITED.)
NOTE 1--NATURE OF OPERATIONS AND SIGNIFICANT ACCOUNTING PRACTICES
John Hancock Variable Life Insurance Company (the Company) is a wholly-owned
subsidiary of John Hancock Mutual Life Insurance Company (John Hancock). The
Company principally writes variable and universal life insurance policies.
Those policies primarily are marketed through John Hancock's sales
organization, which includes a career agency system composed of company owned,
unionized branch offices and independent general agencies. Policies also are
sold through various unaffiliated securities broker-dealers and certain other
financial institutions. Currently the Company writes business in all states
except New York.
The preparation of the financial statements of insurance companies 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.
The significant accounting practices of the Company are as follows:
Basis of Presentation: The 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 are currently
considered generally accepted accounting principles for a stock life insurance
company wholly-owned by a mutual life insurance company. However, in April
1993, the Financial Accounting Standard Board (FASB) issued Interpretation 40,
"Applicability of General Accepted Accounting Principles to Mutual Life
Insurance and Other Enterprises" (Interpretation). The Interpretation, as
amended, is effective for 1996 annual financial statements and thereafter and
no longer will allow statutory-basis financial statements to be described as
being prepared in conformity with generally accepted accounting principles
(GAAP). Upon the effective date of the Interpretation, in order for their
financial statements to be described as being prepared in conformity with
GAAP, mutual life insurance companies will be required to adopt all applicable
authoritative GAAP pronouncements in any general-purpose financial statements
that they may issue. The Company has not quantified the effects of the
application of the Interpretation on its financial statements.
The Company has not yet determined whether for general purposes it will
continue to issue statutory-basis financial statements or statements adopting
all applicable authoritative GAAP pronouncements. If the Company decides that
its general-purpose financial statements will be prepared in accordance with
GAAP rather than statutory accounting practices, the financial statements
included herein would have to be restated to reflect all applicable
authoritative GAAP pronouncements, including Statement of Financial Accounting
Standards (SFAS) Nos. 60, 97, and 113.
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.
51
<PAGE>
JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--CONTINUED
(INFORMATION AS OF, AND FOR THE PERIODS ENDED MARCH 31, 1996 AND 1995 IS
UNAUDITED.)
NOTE 1--NATURE OF OPERATIONS AND SIGNIFICANT ACCOUNTING PRACTICES-- CONTINUED
Valuation of Assets: General account investments are carried at amounts
determined on the following bases:
Bonds and stock values are carried as prescribed by the National
Association of Insurance Commissioners (NAIC): bonds generally at amortized
amounts or cost, preferred stocks generally at cost and common stocks at
market. The discount or premium on bonds is amortized using the interest
method.
Investments in affiliates are included on the statutory equity method.
Goodwill is amortized on a straight line basis over a ten year period.
Mortgage loans are carried at outstanding principal balance or amortized
cost.
Investment real estate is carried at depreciated cost, less encumbrances.
Depreciation on investment real estate is recorded on a straight line
basis.
Real estate acquired in satisfaction of debt and held for sale is carried
at the lower of cost or market as of the date of foreclosure.
Policy loans are carried at outstanding principal balance, not in excess of
policy cash surrender value.
Asset Valuation and Interest Maintenance Reserves: The Asset Valuation Reserve
(AVR) is computed in accordance with the prescribed NAIC formula and
represents a provision for possible fluctuations in the value of bonds, equity
securities, mortgage loans, real estate and other invested assets. Changes to
the AVR are charged or credited directly to the unassigned deficit.
The Company also records the NAIC prescribed Interest Maintenance Reserve
(IMR) that represents that portion of the after tax net accumulated
unamortized realized capital gains and losses on sales of fixed income
securities, principally bonds and mortgage loans attributable to changes in
the general level of interest rates. Such gains and losses are deferred and
amortized into income over the remaining expected lives of the investments
sold. At March 31, 1996, the IMR, net of 1996 amortization of $0.3 million,
amounted to $7.0 million which is included in policy reserves. The
corresponding amounts at March 31, 1995 were $0.3 million and $6.8 million,
respectively. At December 31, 1995, the IMR, net of 1995 amortization of $1.2
million, amounted to $6.9 million, which is included in policy reserves. The
corresponding 1994 amounts were $1.1 million and $7.1 million, respectively.
Separate Accounts: Separate account assets (unit investment trusts valued at
market) and separate account obligations (principally policyholder account
values) are included as separate captions in the statements of financial
position. In 1996, 1995 and 1994, the change in separate account surplus is
recognized through direct charges or credits to unassigned deficit. In 1993
separate account business was combined with the general account under the
appropriate captions in the consolidated summary of operations. The 1993
presentation was reclassified to permit comparison with the corresponding
1996, 1995 and 1994 amounts. The presentation has no effect on unassigned
deficit.
Fair Values of Financial Instruments: SFAS No. 107, "Disclosure about Fair
Value of Financial Instruments," requires disclosure of fair value information
about 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
52
<PAGE>
JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--CONTINUED
(INFORMATION AS OF, AND FOR THE PERIODS ENDED MARCH 31, 1996 AND 1995 IS
UNAUDITED.)
NOTE 1--NATURE OF OPERATIONS AND SIGNIFICANT ACCOUNTING PRACTICES-- CONTINUED
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.
The methods and assumptions utilized by the Company in estimating its fair
value disclosures for financial instruments are as follows:
The carrying amounts reported in the statement of financial position for
cash and temporary cash investments approximate their fair values.
Fair values for public bonds are obtained from an independent pricing
service. Fair values for private placement securities and publicly traded
bonds not provided by the independent pricing service are estimated by the
Company by discounting expected future cash flows using current market
rates applicable to the yield, credit quality and maturity of the
investments. The fair values for common and preferred stocks, other than
its subsidiary investments, which are carried at equity values, are based
on quoted market prices.
The fair value for mortgage loans is estimated using discounted cash flow
analyses using interest rates adjusted to reflect the credit
characteristics of the loans. Mortgage loans with similar characteristics
and credit risks are aggregated into qualitative categories for purposes of
the fair value calculations.
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 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 March 31, 1996 and December 31, 1995,
respectively. The fair value for commitments to purchase real estate
approximates the amount of the initial commitment.
Capital Gains and Losses: 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: 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.
53
<PAGE>
JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--CONTINUED
(INFORMATION AS OF, AND FOR THE PERIODS ENDED MARCH 31, 1996 AND 1995 IS
UNAUDITED.)
NOTE 1--NATURE OF OPERATIONS AND SIGNIFICANT ACCOUNTING PRACTICES-- CONTINUED
Federal Income Taxes: Federal income taxes are provided 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, its Parent, in filing a consolidated federal
income tax return for the affiliated group. The federal income taxes of the
Company are allocated on a separate return basis with certain adjustments. The
Company made payments of $10.5 million and $12.1 million for the three months
ended March 31, 1996 and March 31, 1995, respectively. The Company made
payments of $32.2 million in 1995 and $17.0 million in 1993 and received tax
benefits of $7.0 million in 1994.
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.
No provision is generally recognized for timing differences that may exist
between financial reporting and taxable income or loss.
Adjustments to Policy Reserves: From time to time, the Company finds it
appropriate to modify certain required policy reserves because of changes in
actuarial assumptions or increased benefits. Reserve modifications resulting
from such determinations are recorded directly to the unassigned deficit.
During 1994, the Company refined certain actuarial assumptions inherent in the
calculation of preconversion yearly renewable term and gross premium
deficiency reserves, resulting in a $2.7 million decrease in the unassigned
deficit at December 31, 1994. Similar refinements to the actuarial assumptions
inherent in the calculation of active life waiver of premium disability
reserves were made during 1993 resulting in a $2.3 million decrease in the
unassigned deficit at December 31, 1993. During 1995 and the three months
ended March 31, 1996, there were no refinements in actuarial assumptions
inherent in the calculation of policy reserves.
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.
Reclassifications: Certain 1994 and 1993 amounts have been reclassified to
permit comparison with the corresponding 1996 and 1995 amounts.
NOTE 2--CAPITALIZATION
In prior years, the Company received capital contributions from John Hancock,
with a portion of the contributed capital being credited to common stock,
although no additional shares were issued. This practice, which is acceptable
to statutory authorities, has the effect of stating the carrying value of
issued shares of common stock at amounts other than $50 per share par value
with the offset reflected in paid-in capital.
54
<PAGE>
JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--CONTINUED
(INFORMATION AS OF, AND FOR THE PERIODS ENDED MARCH 31, 1996 AND 1995 IS
UNAUDITED.)
NOTE 2--CAPITALIZATION--CONTINUED
At December 31, 1994, the Company had 50,000 shares authorized with 20,000
shares issued and outstanding. On February 16, 1995, the Company issued the
remaining 30,000 shares to John Hancock and transferred $22.5 million from
common stock to paid-in capital. The par value per share is $50.
During 1993, the Company returned $1.8 million of paid-in capital to John
Hancock.
NOTE 3--ACQUISITION
On June 23, 1993, the Company acquired all of the outstanding shares of stock
of Colonial Penn Annuity and Life Insurance Company (CPAL) from Colonial Penn
Life Insurance Company, for an aggregate purchase price of approximately $42.5
million. At the date of acquisition, assets of CPAL were approximately $648.5
million, consisting principally of cash and temporary cash investments and
liabilities were approximately $635.2 million, consisting principally of
reserves related to a block of interest sensitive single-premium whole life
insurance business assumed by CPAL from Charter National Life Insurance
Company (Charter). The purchase price includes contingent payments of up to
approximately $7.3 million payable between 1994 and 1998 based on the actual
lapse experience of the business in force on June 23, 1993. The Company made
contingent payments to CPAL of $1.5 million for the three months ended March
31, 1996 and during 1995 and 1994. Unamortized goodwill of $17.8 and $17.1
million at March 31, 1996 and December 31, 1995, respectively and is being
amortized over ten years on a straight-line basis.
On June 24, 1993, the Company contributed $24.6 million in additional capital
to CPAL. CPAL was renamed John Hancock Life Insurance Company of America
(JHLICOA) on July 7, 1993. JHLICOA manages the business assumed from Charter
and does not currently issue new business.
NOTE 4--NET INVESTMENT INCOME
Investment income has been reduced by the following amounts:
<TABLE>
<CAPTION>
Three months
ended Year ended
March 31 December 31
------------- --------------
1996 1995 1995 1994 1993
------ ------ ---- ---- ----
(In millions)
<S> <C> <C> <C> <C> <C>
Investment expenses................................ $ 0.9 $ 0.7 $5.1 $3.4 $2.9
Interest expense................................... 0.0 0.0 0.0 0.2 0.0
Depreciation expense............................... 0.2 0.3 1.0 0.6 0.6
Investment taxes................................... 0.2 0.2 0.5 0.2 0.3
------ ------ ---- ---- ----
$ 1.3 $ 1.2 $6.6 $4.4 $3.8
====== ====== ==== ==== ====
</TABLE>
55
<PAGE>
JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--CONTINUED
(INFORMATION AS OF, AND FOR THE PERIODS ENDED MARCH 31, 1996 AND 1995 IS
UNAUDITED.)
NOTE 5--NET CAPITAL GAINS (LOSSES) AND OTHER ADJUSTMENTS
Net realized capital gains (losses) consist of the following items:
<TABLE>
<CAPTION>
Three months
ended Year ended
March 31 December 31
-------------- -------------------
1996 1995 1995 1994 1993
------ ------ ----- ----- -----
(In millions)
<S> <C> <C> <C> <C> <C>
Gains (losses) from asset sales............ $ 0.6 $ (0.8) $ 4.0 $(1.6) $ 9.6
Capital gains (tax) credit................. (0.2) 0.0 (2.5) 2.5 (4.2)
Net capital gains transferred to IMR....... (0.4) 0.0 (1.0) (0.5) (8.0)
------ ------ ----- ----- -----
Net Realized Capital Gains (Losses)...... $ 0.0 $ (0.8) $ 0.5 $ 0.4 $(2.6)
====== ====== ===== ===== =====
</TABLE>
Net unrealized capital gains (losses) and other adjustments consist of the
following items:
<TABLE>
<CAPTION>
Three months
ended Year ended
March 31 December 31
-------------- -------------------
1996 1995 1995 1994 1993
------ ------ ----- ----- -----
(In millions)
<S> <C> <C> <C> <C> <C>
Gains (losses) from changes in security
values and book value adjustments......... $ 0.5 $ 0.8 $(0.2) $ 0.7 $(1.4)
Increase in asset valuation reserve........ (0.1) (0.5) (2.8) (2.2) (1.8)
------ ------ ----- ----- -----
Net Unrealized Capital Gains (Losses) and
Other Adjustments....................... $ 0.4 $ 0.3 $(3.0) $(1.5) $(3.2)
====== ====== ===== ===== =====
</TABLE>
NOTE 6--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 1996, 1995, 1994, and 1993 to reflect
continuing changes in the Company's operations. The amount of the service fee
charged to the Company was $27.1 million, $27.4 million, $97.9 million, $117.0
million and $98.2 million for the three months ended March 31, 1996 and March
31, 1995, in 1995, 1994, and 1993, 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 $0.0 million,
$0.0 million, $1.8 million, $6.0 million, and $1.4 million for the three
months ended March 31, 1996 and March 31, 1995 and the years ended December
31, 1995, 1994 and 1993, 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.
56
<PAGE>
JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--CONTINUED
(INFORMATION AS OF, AND FOR THE PERIODS ENDED MARCH 31, 1996 AND 1995 IS
UNAUDITED.)
NOTE 6--TRANSACTIONS WITH PARENT--CONTINUED
Effective January 1, 1994, the Company entered into a modified coinsurance
agreement with John Hancock to reinsure 50% of 1994 issues of flexible premium
variable life insurance and scheduled premium variable life insurance
policies. In connection with this agreement, John Hancock transferred $11.7
million of cash for tax, commission, and expense allowances to the Company,
which increased the Company's net gain from operations by $3.4 million for the
three months ended March 31, 1996. The corresponding amounts for the three
months ended March 31, 1995 were $13.6 million and $6.6 million, respectively.
The corresponding amounts for the year ended December 31, 1995 were $32.7
million and $20.3 million, respectively. The corresponding amounts for the
year ended December 31, 1994 were $29.5 million and $26.9 million,
respectively.
NOTE 7--INVESTMENTS
The statement value and fair value of bonds are shown below:
<TABLE>
<CAPTION>
Gross Gross
Statement Unrealized Unrealized Fair
Three Months Ended March 31, 1996 Value Gains Losses Value
--------------------------------- --------- ---------- ---------- ------
(In millions)
<S> <C> <C> <C> <C>
U.S. treasury securities and obligations
of U.S. government corporations and
agencies................................ $ 98.2 $ 0.0 $1.3 $ 96.9
Obligations of states and political sub-
divisions............................... 12.3 1.0 0.0 13.3
Debt securities issued by foreign govern-
ments................................... 0.3 0.0 0.0 0.3
Corporate securities..................... 473.8 33.3 8.3 498.8
Mortgage-backed securities............... 17.4 0.2 0.3 17.3
------ ----- ---- ------
Totals................................. $602.0 $34.5 $9.9 $626.6
====== ===== ==== ======
<CAPTION>
Gross Gross
Statement Unrealized Unrealized Fair
Year Ended December 31, 1995 Value Gains Losses Value
---------------------------- --------- ---------- ---------- ------
(In millions)
<S> <C> <C> <C> <C>
U.S. treasury securities and obligations
of U.S. government corporations and
agencies................................ $ 89.0 $ 0.5 $0.0 $ 89.5
Obligations of states and political sub-
divisions............................... 11.4 1.1 0.0 12.5
Debt securities issued by foreign govern-
ments................................... 1.3 0.2 0.0 1.5
Corporate securities..................... 445.6 44.1 1.6 488.1
Mortgage-backed securities............... 5.5 0.3 0.1 5.7
------ ----- ---- ------
Totals................................. $552.8 $46.2 $1.7 $597.3
====== ===== ==== ======
</TABLE>
57
<PAGE>
JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--CONTINUED
(INFORMATION AS OF, AND FOR THE PERIODS ENDED MARCH 31, 1996 AND 1995 IS
UNAUDITED.)
NOTE 7--INVESTMENTS--CONTINUED
<TABLE>
<CAPTION>
Gross Gross
Statement Unrealized Unrealized Fair
Year Ended December 31, 1994 Value Gains Losses Value
---------------------------- --------- ---------- ---------- ------
(In millions)
<S> <C> <C> <C> <C>
U.S. treasury securities and obligations
of U.S. government corporations and
agencies................................ $ 10.4 $ 0.0 $ 0.5 $ 9.9
Obligations of states and political
subdivisions............................ 11.6 0.2 0.1 11.7
Debt securities issued by foreign
governments............................. 1.3 0.0 0.0 1.3
Corporate securities..................... 431.9 10.5 9.9 432.5
Mortgage-backed securities............... 3.1 0.1 0.1 3.1
------ ----- ----- ------
Totals................................. $458.3 $10.8 $10.6 $458.5
====== ===== ===== ======
</TABLE>
The statement value and fair value of bonds 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>
March 31, 1996 December 31, 1995
---------------- -------------------
Statement Fair Statement Fair
Value Value Value Value
--------- ------ ---------- --------
(In millions)
<S> <C> <C> <C> <C>
Due in one year or less.................... $ 5.6 $ 5.7 $ 18.7 $ 19.8
Due after one year through five years...... 244.9 249.4 266.8 278.6
Due after five years through ten years..... 182.2 189.4 153.1 167.4
Due after ten years........................ 151.9 164.8 108.7 125.8
------ ------ -------- --------
584.6 609.3 547.3 591.6
Mortgage-backed securities................. 17.4 17.3 5.5 5.7
------ ------ -------- --------
$602.0 $626.6 $ 552.8 $ 597.3
====== ====== ======== ========
</TABLE>
Proceeds from sales of bonds during the three months ended March 31, 1996 and
March 31, 1995 were $10.4 million and $4.2 million, respectively. Gross gains
of $0.5 million and $0.0 million and gross losses of $0.1 million and $0.0
million were realized on these transactions during the three months ended
March 31, 1996 and March 31, 1995, respectively.
Proceeds from sales of bonds during 1995, 1994 and 1993 were $18.9 million,
$23.1 million, and $74.0 million, respectively. Gross gains of $0.2 million in
1995, $0.0 million in 1994, and $8.5 million in 1993 and gross losses of $0.1
million in 1995, $0.1 million in 1994, and $0.0 million in 1993 were realized
on these transactions.
The cost of common stocks was $0.0 million, $0.1 million and $1.4 million at
March 31, 1996, December 31, 1995 and December 31, 1994, respectively. Gross
unrealized appreciation on common stocks totaled $1.4 million at March 31,
1996 and $1.7 million at December 31, 1995 and gross unrealized depreciation
totaled $0.0 million at March 31, 1996 and $0.1 million at December 31, 1995.
The fair value of preferred stock totaled $5.0 million at March 31, 1996, $5.2
million at December 31, 1995, and $5.0 million at December 31, 1994.
58
<PAGE>
JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--CONTINUED
(INFORMATION AS OF, AND FOR THE PERIODS ENDED MARCH 31, 1996 AND 1995 IS
UNAUDITED.)
NOTE 7--INVESTMENTS--CONTINUED
Mortgage loans with outstanding principal balances of $1.1 million and bonds
with amortized cost of $6.0 million were nonincome producing for the three
months ended March 31, 1996. The corresponding amounts for the twelve months
ended December 31, 1995 were $1.1 million and $4.0 million, respectively.
The mortgage loan portfolio was diversified by geographic region and specific
collateral property type as displayed below. The Company controls credit risk
through credit approvals, limits and monitoring procedures.
<TABLE>
<CAPTION>
March 31, 1996
---------------------------------------------
Statement Geographic Statement
Property Type Value Concentration Value
------------- --------- ------------- ---------
(In millions) (In millions)
<S> <C> <C> <C>
East North
Apartments........................ $ 57.4 Central $ 27.4
East South
Hotels............................ 0.0 Central 0.0
Industrial........................ 29.8 Middle Atlantic 10.5
Office buildings.................. 12.5 Mountain 11.6
Retail............................ 20.2 New England 19.7
1-4 Family........................ 0.0 Pacific 41.5
Agricultural...................... 22.6 South Atlantic 35.4
West South
Other............................. 12.0 Central 8.4
------ ------
$154.5 $154.5
====== ======
</TABLE>
<TABLE>
<CAPTION>
December 31, 1995
---------------------------------------------
Statement Geographic Statement
Property Type Value Concentration Value
------------- --------- ------------- ---------
(In millions) (In millions)
<S> <C> <C> <C>
East North
Apartments........................ $ 52.1 Central $ 30.1
East South
Hotels............................ 4.5 Central 1.9
Industrial........................ 25.4 Middle Atlantic 10.5
Office buildings.................. 12.6 Mountain 11.8
Retail............................ 20.3 New England 19.8
Agricultural...................... 19.8 Pacific 41.6
Other............................. 12.0 South Atlantic 31.0
------ ------
$146.7 $146.7
====== ======
</TABLE>
At March 31, 1996, the fair values of the commercial and agricultural mortgage
loans portfolios were $133.7 million and $29.3 million, respectively. The
corresponding amounts as of December 31, 1995 were $132.1 million and $22.2
million, respectively. The corresponding amounts as of December 31, 1994 were
$118.8 million and $27.3 million, respectively.
NOTE 8--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
59
<PAGE>
JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--CONTINUED
(INFORMATION AS OF, AND FOR THE PERIODS ENDED MARCH 31, 1996 AND 1995 IS
UNAUDITED.)
NOTE 8--REINSURANCE--CONTINUED
ceded to reinsurers during the three months ended March 31, 1996 were $24.6
million, $1.5 million, and $12.0 million, respectively. The corresponding
amounts during the three months ended March 31, 1995 were $15.6 million, $1.2
million, and $15.3 million, respectively. The corresponding amounts in 1995
were $72.4 million, $8.7 million, and $12.1 million, respectively. The
corresponding amounts in 1994 were $67.5 million, $12.3 million, and $16.3
million, respectively. The corresponding amounts in 1993 were $74.9 million,
$9.8 million, and $14.4 million, respectively.
To the extent that an assuming reinsurance company is unable to meet its
obligations under a reinsurance agreement, the Company remains liable as the
direct insurer on all risks reinsured.
NOTE 9--POLICYHOLDERS' RESERVES AND BENEFICIARIES' FUND
The Company's annuity reserves and deposit fund liabilities that are subject
to discretionary withdrawal (with adjustment), subject to discretionary
withdrawal (without adjustment), and not subject to discretionary withdrawal
provisions are summarized as follows:
<TABLE>
<CAPTION>
March 31, 1996 Percent
----------------- -------
(In millions)
<S> <C> <C>
Subject to discretionary withdrawal (with
adjustment):
With market value adjustment................... $ 0.0 0.0%
At book value less surrender charge............ 174.5 99.4
------ -----
Total with adjustment.......................... 174.5 99.4
Subject to discretionary withdrawal (without
adjustment) at book value..................... 1.1 0.6
Not to discretionary withdrawal.................. 0.0 0.0
------ -----
Total annuity reserves and deposit liabilities... $175.6 100.0%
====== =====
<CAPTION>
December 31, 1995 Percent
----------------- -------
(In millions)
<S> <C> <C>
Subject to discretionary withdrawal (with
adjustment):
With market value adjustment................... $ 0.0 0.0%
At book value less surrender charge............ 115.4 99.1
------ -----
Total with adjustment.......................... 115.4 99.1
Subject to discretionary withdrawal (without
adjustment) at book value..................... 1.0 0.9
Not subject to discretionary withdrawal.......... 0.0 0.0
------ -----
Total annuity reserves and deposit liabilities... $116.4 100.0%
====== =====
</TABLE>
NOTE 10--COMMITMENTS AND CONTINGENCIES
The Company has extended commitments to purchase long-term bonds and issue
real estate mortgages totalling $9.4 million and $0.0 million, respectively,
at March 31, 1996. The corresponding amounts at December 31,
60
<PAGE>
JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--CONTINUED
(INFORMATION AS OF, AND FOR THE PERIODS ENDED MARCH 31, 1996 AND 1995 IS
UNAUDITED.)
NOTE 10--COMMITMENTS AND CONTINGENCIES--CONTINUED
1995 were $16.6 million and $5.4 million, respectively. The Company monitors
the creditworthiness of borrowers under long-term bond commitments and
requires collateral as deemed necessary. If funded, loans related to real
estate mortgages would be fully collateralized by the related properties. The
fair values of the commitments described above were $9.5 million at March 31,
1996 and $23.8 million at December 31, 1995. The majority of these commitments
expire in 1996.
In the normal course of its business operations, the Company is involved in
litigation from time to time with claimants, beneficiaries and others, and a
number of litigation matters were pending as of March 31, 1996 and December
31, 1995. 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 of the Company.
61
<PAGE>
APPENDIX--OTHER POLICY PROVISIONS
SETTLEMENT PROVISIONS
In place of a single payment, an amount of $1,000 or more payable under the
Policy as a benefit or as the Surrender Value, if any, may be left with
JHVLICO under the terms of a supplementary agreement. The agreement will be
issued when the proceeds are applied through the election of any one of the
options below.
The following options are subject to the restrictions and limitations stated
in the Policy.
Option 1--Interest Income at the declared rate but not less than 3 1/2% a
year on proceeds held on deposit.
Option 2A--Income of a Specified Amount, with payments each year totaling
at least 1/12th of the proceeds, until the proceeds, with interest credited
at the declared rate but not less than 3 1/2% a year on unpaid balances,
are fully paid.
Option 2B--Income for a Fixed Period, with each payment as declared.
Option 3--Life Income with Payments for a Guaranteed Period.
Option 4--Life Income without Refund at the death of the Payee of any
part of the proceeds applied. Only one payment is made if the Payee dies
before the second payment is due.
Option 5--Life Income with Cash Refund at the death of the Payee of the
amount, if any, equal to the proceeds applied less the sum of all income
payments made.
No election of an option may provide for income payments of less than $50.
Other options may be arranged with JHVLICO's approval including optional
methods of settlement available from John Hancock.
The tax treatment of the Policy proceeds may vary, depending on which
settlement option is chosen and the timing of such choice. You should consult
your tax adviser in this regard.
ADDITIONAL INSURANCE BENEFITS
On payment of an additional premium or charge and subject to certain age and
insurance underwriting requirements, certain additional provisions, such as an
Accidental Death Benefit, which are subject to the restrictions and
limitations set forth therein, may be included in a Policy by rider.
GENERAL PROVISIONS
BENEFICIARY. The Beneficiary will be as shown in the application for the
Policy, unless thereafter changed by the Owner in accordance with the terms of
the Policy. If the insured dies and there is no surviving Beneficiary, the
Owner will be the Beneficiary, but if the insured was the Owner, the Owner's
estate will be the Beneficiary.
OWNER AND ASSIGNMENT. The Owner's interest in the Policy may be assigned
without the consent of any revocable Beneficiary. JHVLICO will not be on
notice of any assignment unless it is in writing and until a duplicate of the
original assignment has been filed at JHVLICO's Home Office. JHVLICO assumes
no responsibility for the validity or sufficiency of any assignment.
MISSTATEMENT OF AGE OR SEX. If the age or sex of the insured has been
misstated, JHVLICO will adjust the benefits payable to reflect the correct age
or sex.
A-1
<PAGE>
SUICIDE. If the insured commits suicide within 2 years (except where state
law requires a shorter period) from the date of issue shown in the Policy,
JHVLICO will pay in place of all other benefits an amount equal to the premium
paid less any Indebtedness on the date of death and any withdrawals. If the
suicide is within 2 years (except where state law requires a shorter period)
from the date of any Policy change that increases the death benefit, the death
benefit will be limited as set forth in the Policy.
AGE AND POLICY ANNIVERSARIES. For purpose of the Policy, an insured's "age"
is his or her age on his or her nearest birthday. Policy months and Policy
years are calculated from the date of issue.
AVIATION ACTIVITY EXCLUSION. If the insured dies in an aviation accident
while a crew member on other than a commercial aircraft and the Policy
provides at the request of the Owner for a limited benefit in such situation,
JHVLICO will pay in place of all other benefits an amount equal to the greater
of the premium paid or the Surrender Value, less any Indebtedness.
INCONTESTABILITY. The Policy shall be incontestable other than for
nonpayment of premiums after it has been in force during the lifetime of an
insured for 2 years from its issue date. If, however, evidence of insurability
is required with respect to any increase in death benefit, such increase shall
be incontestable after the increase has been in force for 2 years from the
increase date.
DEFERRAL OF DETERMINATIONS AND PAYMENTS. Payment of any death, surrender,
partial withdrawal or loan proceeds will ordinarily be made within seven days
after receipt at JHVLICO's Home Office of all documents required for any such
payment. Approximately two-thirds of the claims for death proceeds which are
made within two years after the date of issue of the Policy will be
investigated to determine whether the claim should be contested and payment of
these claims will therefore be delayed.
JHVLICO may defer any transaction requiring a determination of Account Value
in any variable Subaccount for any period during which: (1) the disposal or
valuation of the Account's assets is not reasonably practicable because the
New York Stock Exchange is closed or conditions are such that, under the
Commission's rules and regulations, trading is restricted or an emergency is
deemed to exist or (2) the Commission by order permits postponement of such
actions for the protection of Owners.
The foregoing description of Policy provisions is qualified by reference to
the specimen Policy which has been filed as an exhibit to the Registration
Statement.
A-2
<PAGE>
APPENDIX--ILLUSTRATION OF DEATH BENEFITS,
SURRENDER VALUES AND ACCUMULATED PREMIUMS
The following tables illustrate the changes in death benefit and Surrender
Value of the Policy, disregarding any Policy loans. Each table separately
illustrates the operation of a Policy for an identified issue age, Planned
Premium schedule and Sum Insured and shows how the death benefit and Surrender
Value may vary over an extended period of time assuming hypothetical rates of
investment return equivalent to constant gross annual rates of 0%, 6% and 12%.
The tables are based on given annual Planned Premiums paid at the beginning of
each Policy year and will assist in a comparison of the death benefit and
Surrender Value figures set forth in the tables with those under other
variable life insurance policies. Tables are provided for Options A and B. The
death benefit and Surrender Value for a Policy would be different if premiums
are paid in different amounts or at different times or if the actual gross
rates of investment return average 0%, 6% or 12% over a period of years, but
nevertheless fluctuate above or below the average for individual Policy years,
or if the Policy were issued under circumstances in which no distinctions are
made based on the gender of the insured.
The amounts shown for the death benefit and Surrender Value are as of the
end of each Policy year. The first three tables headed "Using Current Charges"
assume that the current rates for insurance, sales, risk, and expense charges
will apply in each year illustrated, including the planned reductions after
the first 10 Policy years in cost of insurance charges and sales charges
deducted from premiums. The three tables headed "Using Maximum Charges" assume
that the maximum (guaranteed) insurance, sales, risk, and expense charges will
be made in each year illustrated. The amounts shown in all tables reflect an
average asset charge for the daily investment advisory expense charges to the
Portfolios of the Fund (equivalent to an effective annual rate of .60%) and an
assumed average asset charge for the annual nonadvisory operating expenses of
each Portfolio of the Fund (equivalent to an effective annual rate of .19%).
For a description of expenses charged to the Portfolios, including the
reimbursement of any Portfolio for annual non-advisory operating expenses in
excess of an effective annual rate of .25%, a continuing obligation of the
Fund's investment adviser, see the attached Prospectus for the Fund. The
charges for the daily investment management fee and the annual non-advisory
operating expenses are based on the hypothetical assumption that Policy values
are allocated equally among the nine variable Subaccounts. The actual
Portfolio charges and expenses associated with any Policy will vary depending
upon the actual allocation of Policy values among Subaccounts.
The tables reflect that no charge is currently made to the Account for
Federal income taxes. However, JHVLICO reserves the right to make such a
charge in the future and any charge would require higher rates of investment
return in order to produce the same Policy values. All of the tables do,
however, reflect the imposition of a Federal DAC Tax charge and a premium tax
charge.
The tables assume that no Additional Sum Insured or optional rider benefits
have been elected, that the application for the Policy has been fully
underwritten and that the insured has qualified for JHVLICO's select
underwriting class.
The second column of each table shows the amount to which the total premiums
paid to the end of a Policy year would accumulate if an amount equal to those
premiums were invested to earn interest, after taxes, at 5% compounded
annually.
JHVLICO will furnish upon request a comparable illustration reflecting the
proposed insured's age, sex, underwriting risk classification and the Sum
Insured at issue and Planned Premium amount requested, and assuming annual
Planned Premiums.
A-3
<PAGE>
PLAN: FLEXIBLE PREMIUM VARIABLE LIFE $100,000 SUM INSURED MALE, ISSUE AGE
45, FULLY UNDERWRITTEN SELECT UNDERWRITING CLASSOPTION A DEATH
BENEFIT GUIDELINE PREMIUM AND CASH VALUE CORRIDOR TEST PLANNED
PREMIUM: $2,000* USING CURRENT CHARGES
<TABLE>
<CAPTION>
Death Benefit Surrender Value
-------------------------------------------------------------------------------------------
Planned Premiums Assuming hypothetical gross annual return of Assuming hypothetical gross annual return of
End of accumulated at -------------------------------------------------------------------------------------------
Policy Year 5% annual interest 0% 6% 12% 0% 6% 12%
- ----------- ------------------ -------------- -------------- ----------------------------- --------------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C>
1 $ 2,100 $ 100,000 $100,000 $100,000 $ 927 $ 1,006 $1,086
2 4,305 100,000 100,000 100,000 2,225 2,449 2,685
3 6,620 100,000 100,000 100,000 3,170 3,614 4,097
4 9,051 100,000 100,000 100,000 4,242 4,980 5,815
5 11,604 100,000 100,000 100,000 5,279 6,388 7,693
6 14,284 100,000 100,000 100,000 6,673 8,244 10,165
7 17,098 100,000 100,000 100,000 8,023 10,162 12,875
8 20,053 100,000 100,000 100,000 9,330 12,143 15,848
9 23,156 100,000 100,000 100,000 10,590 14,188 19,110
10 26,414 100,000 100,000 100,000 11,826 16,332 22,739
11 29,834 100,000 100,000 100,000 13,134 18,676 26,872
12 33,426 100,000 100,000 100,000 14,391 21,105 31,432
13 37,197 100,000 100,000 100,000 15,594 23,619 36,471
14 41,157 100,000 100,000 100,000 16,739 26,223 42,045
15 45,315 100,000 100,000 100,000 17,824 28,920 48,219
16 49,681 100,000 100,000 100,000 18,843 31,715 55,069
17 54,265 100,000 100,000 100,000 19,792 34,611 62,683
18 59,078 100,000 100,000 100,000 20,665 37,614 71,163
19 64,132 100,000 100,000 100,000 21,456 40,731 80,626
20 69,439 100,000 100,000 109,370 22,158 43,969 91,141
25 100,227 100,000 100,000 187,225 24,108 62,417 162,805
30 139,522 100,000 100,000 295,764 22,342 86,550 281,680
35 189,673 100,000 125,473 504,065 13,551 119,498 480,062
</TABLE>
- --------
* The illustrations assume that Planned Premiums equal to the Target Premium
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.
IT IS EMPHASIZED THAT THE HYPOTHETICAL INVESTMENT RETURNS ARE ILLUSTRATIVE
ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF PAST OR FUTURE INVESTMENT
RESULTS. ACTUAL INVESTMENT RESULTS MAY BE MORE OR LESS THAN THOSE SHOWN AND
WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING INVESTMENT ALLOCATIONS MADE BY
THE OWNER. THE DEATH BENEFIT AND SURRENDER VALUE FOR A POLICY WOULD BE
DIFFERENT FROM THOSE SHOWN IF THE ACTUAL GROSS RATES OF INVESTMENT RETURN
AVERAGE 0%, 6%, OR 12% OVER A PERIOD OF YEARS, BUT ALSO FLUCTUATE ABOVE OR
BELOW THE AVERAGE FOR INDIVIDUAL POLICY YEARS. NO REPRESENTATIONS CAN BE MADE
THAT THESE HYPOTHETICAL INVESTMENT RESULTS CAN BE ACHIEVED FOR ONE YEAR OR
SUSTAINED OVER ANY PERIOD OF TIME.
A-4
<PAGE>
PLAN: FLEXIBLE PREMIUM VARIABLE LIFE $100,000 SUM INSURED MALE, ISSUE AGE
45, FULLY UNDERWRITTEN SELECT UNDERWRITING CLASSOPTION A DEATH
BENEFIT GUIDELINE PREMIUM AND CASH VALUE CORRIDOR TEST PLANNED
PREMIUM: $2,000* USING MAXIMUM CHARGES
<TABLE>
<CAPTION>
Death Benefit Surrender Value
------------------------------------------------------------------------------------------
Planned Premiums Assuming hypothetical gross annual return of Assuming hypothetical gross annual return of
End of accumulated at ------------------------------------------------------------------------------------------
Policy Year 5% annual interest 0% 6% 12% 0% 6% 12%
- ----------- ------------------ -------------- -------------- ----------------------------- -------------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C>
1 $ 2,100 $ 100,000 $ 100,000 $ 100,000 $ 607 $ 676 $ 746
2 4,305 100,000 100,000 100,000 1,569 1,753 1,947
3 6,620 100,000 100,000 100,000 2,163 2,515 2,899
4 9,051 100,000 100,000 100,000 2,867 3,437 4,086
5 11,604 100,000 100,000 100,000 3,519 4,359 5,354
6 14,284 100,000 100,000 100,000 4,510 5,683 7,128
7 17,098 100,000 100,000 100,000 5,437 7,017 9,039
8 20,053 100,000 100,000 100,000 6,292 8,354 11,096
9 23,156 100,000 100,000 100,000 7,070 9,690 13,310
10 26,414 100,000 100,000 100,000 7,794 11,016 15,693
11 29,834 100,000 100,000 100,000 8,430 12,392 18,329
12 33,426 100,000 100,000 100,000 9,002 13,754 21,179
13 37,197 100,000 100,000 100,000 9,477 15,098 24,269
14 41,157 100,000 100,000 100,000 9,851 16,422 27,629
15 45,315 100,000 100,000 100,000 10,119 17,721 31,292
16 49,681 100,000 100,000 100,000 10,268 18,984 35,293
17 54,265 100,000 100,000 100,000 10,286 20,200 39,674
18 59,078 100,000 100,000 100,000 10,155 21,356 44,483
19 64,132 100,000 100,000 100,000 9,855 22,433 49,777
20 69,439 100,000 100,000 100,000 9,363 23,412 55,627
25 100,227 100,000 100,000 111,384 3,253 26,205 96,855
30 139,522 ** 100,000 172,795 ** 22,119 164,567
35 189,673 ** 0 286,647 ** ** 272,998
</TABLE>
- --------
* The illustrations assume that Planned Premiums equal to the Target Premium
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.
IT IS EMPHASIZED THAT THE HYPOTHETICAL INVESTMENT RETURNS ARE ILLUSTRATIVE
ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF PAST OR FUTURE INVESTMENT
RESULTS. ACTUAL INVESTMENT RESULTS MAY BE MORE OR LESS THAN THOSE SHOWN AND
WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING INVESTMENT ALLOCATIONS MADE BY
THE OWNER. THE DEATH BENEFIT AND SURRENDER VALUE FOR A POLICY WOULD BE
DIFFERENT FROM THOSE SHOWN IF THE ACTUAL GROSS RATES OF INVESTMENT RETURN
AVERAGE 0%, 6%, OR 12% OVER A PERIOD OF YEARS, BUT ALSO FLUCTUATE ABOVE OR
BELOW THE AVERAGE FOR INDIVIDUAL POLICY YEARS. NO REPRESENTATIONS CAN BE MADE
THAT THESE HYPOTHETICAL INVESTMENT RESULTS CAN BE ACHIEVED FOR ONE YEAR OR
SUSTAINED OVER ANY PERIOD OF TIME.
A-5
<PAGE>
PLAN: FLEXIBLE PREMIUM VARIABLE LIFE $100,000 SUM INSURED MALE, ISSUE AGE
45, FULLY UNDERWRITTEN SELECT UNDERWRITING CLASSOPTION B DEATH
BENEFIT GUIDELINE PREMIUM AND CASH VALUE CORRIDOR TEST PLANNED
PREMIUM: $2,000* USING CURRENT CHARGES
<TABLE>
<CAPTION>
Death Benefit Surrender Value
-----------------------------------------------------------------------------------------
Planned Premiums Assuming hypothetical gross annual return of Assuming hypothetical gross annual return of
End of accumulated at -----------------------------------------------------------------------------------------
Policy Year 5% annual interest 0% 6% 12% 0% 6% 12%
- ----------- ------------------ -------------- -------------- ------------------------------------------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C>
1 $ 2,100 $ 100,925 $ 101,004 $ 101,084 $ 925 $ 1,004 $ 1,084
2 4,305 102,059 102,282 102,517 2,219 2,442 2,677
3 6,620 103,158 103,599 104,080 3,158 3,599 4,080
4 9,051 104,220 104,953 105,783 4,220 4,953 5,783
5 11,604 105,244 106,344 107,639 5,244 6,344 7,639
6 14,284 106,620 108,176 110,077 6,620 8,176 10,077
7 17,098 107,947 110,060 112,739 7,947 10,060 12,739
8 20,053 109,223 111,996 115,646 9,223 11,996 15,646
9 23,156 110,446 113,982 118,816 10,446 13,982 18,816
10 26,414 111,634 116,048 122,321 11,634 16,048 22,321
11 29,834 112,884 118,294 126,286 12,884 18,294 26,286
12 33,426 114,070 120,597 130,625 14,070 20,597 30,625
13 37,197 115,188 122,954 135,373 15,188 22,954 35,373
14 41,157 116,232 125,361 140,565 16,232 25,361 40,565
15 45,315 117,197 127,815 146,246 17,197 27,815 46,246
16 49,681 118,076 130,310 152,458 18,076 30,310 52,458
17 54,265 118,861 132,839 159,253 18,861 32,839 59,253
18 59,078 119,544 135,396 166,683 19,544 35,396 66,683
19 64,132 120,116 137,971 174,808 20,116 37,971 74,808
20 69,439 120,566 140,553 183,692 20,566 40,553 83,692
25 100,227 120,689 153,220 242,342 20,689 53,220 142,342
30 139,522 115,980 163,859 334,512 15,980 63,859 234,512
35 189,673 103,510 168,272 478,749 3,510 68,272 378,749
</TABLE>
- --------
* The illustrations assume that Planned Premiums equal to the Target Premium
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.
IT IS EMPHASIZED THAT THE HYPOTHETICAL INVESTMENT RETURNS ARE ILLUSTRATIVE
ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF PAST OR FUTURE INVESTMENT
RESULTS. ACTUAL INVESTMENT RESULTS MAY BE MORE OR LESS THAN THOSE SHOWN AND
WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING INVESTMENT ALLOCATIONS MADE BY
THE OWNER. THE DEATH BENEFIT AND SURRENDER VALUE FOR A POLICY WOULD BE
DIFFERENT FROM THOSE SHOWN IF THE ACTUAL GROSS RATES OF INVESTMENT RETURN
AVERAGE 0%, 6%, OR 12% OVER A PERIOD OF YEARS, BUT ALSO FLUCTUATE ABOVE OR
BELOW THE AVERAGE FOR INDIVIDUAL POLICY YEARS. NO REPRESENTATIONS CAN BE MADE
THAT THESE HYPOTHETICAL INVESTMENT RESULTS CAN BE ACHIEVED FOR ONE YEAR OR
SUSTAINED OVER ANY PERIOD OF TIME.
A-6
<PAGE>
PLAN: FLEXIBLE PREMIUM VARIABLE LIFE $100,000 SUM INSURED MALE, ISSUE AGE
45, FULLY UNDERWRITTEN SELECT UNDERWRITING CLASSOPTION B DEATH
BENEFIT GUIDELINE PREMIUM AND CASH VALUE CORRIDOR TESTPLANNED
PREMIUM: $2,000*USING MAXIMUM CHARGES
<TABLE>
<CAPTION>
Death Benefit Surrender Value
-------------------------------------------------------------------------------------------
Planned Premiums Assuming hypothetical gross annual return of Assuming hypothetical gross annual return of
End of accumulated at -------------------------------------------------------------------------------------------
Policy Year 5% annual interest 0% 6% 12% 0% 6% 12%
- ----------- ------------------ -------------- -------------- ----------------------------- --------------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C>
1 $ 2,100 $ 100,602 $ 100,671 $ 100,740 $ 602 $ 671 $ 740
2 4,305 101,395 101,577 101,769 1,555 1,737 1,929
3 6,620 102,135 102,482 102,861 2,135 2,482 2,861
4 9,051 102,821 103,381 104,018 2,821 3,381 4,018
5 11,604 103,448 104,270 105,243 3,448 4,270 5,243
6 14,284 104,408 105,550 106,956 4,408 5,550 6,956
7 17,098 105,293 106,824 108,780 5,293 6,824 8,780
8 20,053 106,098 108,083 110,719 6,098 8,083 10,719
9 23,156 106,814 109,319 112,775 6,814 9,319 12,775
10 26,414 107,434 110,519 114,949 7,434 10,519 14,949
11 29,834 108,011 111,739 117,312 8,011 11,739 17,312
12 33,426 108,480 112,909 119,809 8,480 12,909 19,809
13 37,197 108,838 114,021 122,450 8,838 14,021 22,450
14 41,157 109,080 115,067 125,241 9,080 15,067 25,241
15 45,315 109,200 116,036 128,189 9,200 16,036 28,189
16 49,681 109,187 116,910 131,295 9,187 16,910 31,295
17 54,265 109,028 117,669 134,560 9,028 17,669 34,560
18 59,078 108,706 118,290 137,980 8,706 18,290 37,980
19 64,132 108,201 118,743 141,545 8,201 18,743 41,545
20 69,439 107,495 118,999 145,249 7,495 18,999 45,249
25 100,227 100,431 116,320 165,613 431 16,320 65,613
30 139,522 ** 102,962 187,070 ** 2,962 87,070
35 189,673 ** ** 202,230 ** ** 102,230
</TABLE>
- --------
* The illustrations assume that Planned Premiums equal to the Target Premium
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.
IT IS EMPHASIZED THAT THE HYPOTHETICAL INVESTMENT RETURNS ARE ILLUSTRATIVE
ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF PAST OR FUTURE INVESTMENT
RESULTS. ACTUAL INVESTMENT RESULTS MAY BE MORE OR LESS THAN THOSE SHOWN AND
WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING INVESTMENT ALLOCATIONS MADE BY
THE OWNER. THE DEATH BENEFIT AND SURRENDER VALUE FOR A POLICY WOULD BE
DIFFERENT FROM THOSE SHOWN IF THE ACTUAL GROSS RATES OF INVESTMENT RETURN
AVERAGE 0%, 6%, OR 12% OVER A PERIOD OF YEARS, BUT ALSO FLUCTUATE ABOVE OR
BELOW THE AVERAGE FOR INDIVIDUAL POLICY YEARS. NO REPRESENTATIONS CAN BE MADE
THAT THESE HYPOTHETICAL INVESTMENT RESULTS CAN BE ACHIEVED FOR ONE YEAR OR
SUSTAINED OVER ANY PERIOD OF TIME.
A-7
<PAGE>
PLAN: FLEXIBLE PREMIUM VARIABLE LIFE $100,000 SUM INSURED MALE, ISSUE AGE
45, FULLY UNDERWRITTEN SELECT UNDERWRITING CLASSOPTION A DEATH
BENEFIT CASH VALUE ACCUMULATION TEST PLANNED PREMIUM: $2,000* USING
CURRENT CHARGES
<TABLE>
<CAPTION>
Death Benefit Surrender Value
-------------------------------------------------------------------------------------------
Planned Premiums Assuming hypothetical gross annual return of Assuming hypothetical gross annual return of
End of accumulated at -------------------------------------------------------------------------------------------
Policy Year 5% annual interest 0% 6% 12% 0% 6% 12%
- ----------- ------------------ -------------- -------------- ----------------------------- --------------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C>
1 $ 2,100 $ 100,000 $ 100,000 $1 00,000 $ 927 $ 1,006 $ 1,086
2 4,305 100,000 100,000 100,000 2,225 2,449 2,685
3 6,620 100,000 100,000 100,000 3,170 3,614 4,097
4 9,051 101,233 100,000 100,000 4,242 4,980 5,815
5 11,604 135,877 100,000 100,000 5,279 6,388 7,693
6 14,284 152,868 100,000 100,000 6,673 8,244 10,165
7 17,098 167,131 100,000 100,000 8,023 10,162 12,875
8 20,053 152,222 100,000 100,000 9,330 12,143 15,848
9 23,156 138,692 100,000 100,000 10,590 14,188 19,110
10 26,414 126,373 100,000 100,000 11,826 16,332 22,739
11 29,834 116,269 100,000 100,000 13,134 18,676 26,872
12 33,426 106,876 100,000 100,000 14,391 21,105 31,432
13 37,197 100,000 100,000 100,000 15,594 23,619 36,471
14 41,157 100,000 100,000 100,000 16,739 26,223 42,045
15 45,315 100,000 100,000 100,000 17,824 28,920 48,219
16 49,681 100,000 100,000 100,599 18,843 31,715 55,065
17 54,265 100,000 100,000 111,537 19,792 34,611 62,598
18 59,078 100,000 100,000 123,208 20,665 37,614 70,862
19 64,132 100,000 100,000 135,682 21,456 40,731 79,926
20 69,439 100,000 100,000 149,025 22,158 43,969 89,861
25 100,227 100,000 100,000 231,722 24,108 62,417 155,727
30 139,522 100,000 115,707 351,007 22,342 85,418 259,122
35 189,673 100,000 140,871 526,471 13,551 112,158 419,165
</TABLE>
- --------
* The illustrations assume that Planned Premiums equal to the Target Premium
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.
IT IS EMPHASIZED THAT THE HYPOTHETICAL INVESTMENT RETURNS ARE ILLUSTRATIVE
ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF PAST OR FUTURE INVESTMENT
RESULTS. ACTUAL INVESTMENT RESULTS MAY BE MORE OR LESS THAN THOSE SHOWN AND
WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING INVESTMENT ALLOCATIONS MADE BY
THE OWNER. THE DEATH BENEFIT AND SURRENDER VALUE FOR A POLICY WOULD BE
DIFFERENT FROM THOSE SHOWN IF THE ACTUAL GROSS RATES OF INVESTMENT RETURN
AVERAGE 0%, 6%, OR 12% OVER A PERIOD OF YEARS, BUT ALSO FLUCTUATE ABOVE OR
BELOW THE AVERAGE FOR INDIVIDUAL POLICY YEARS. NO REPRESENTATIONS CAN BE MADE
THAT THESE HYPOTHETICAL INVESTMENT RESULTS CAN BE ACHIEVED FOR ONE YEAR OR
SUSTAINED OVER ANY PERIOD OF TIME.
A-8
<PAGE>
PLAN: FLEXIBLE PREMIUM VARIABLE LIFE $100,000 SUM INSURED MALE, ISSUE AGE
45, FULLY UNDERWRITTEN SELECT UNDERWRITING CLASSOPTION A DEATH
BENEFIT CASH VALUE ACCUMULATION TEST PLANNED PREMIUM: $2,000* USING
MAXIMUM CHARGES
<TABLE>
<CAPTION>
Death Benefit Surrender Value
------------------------------------------------------------------------------------------
Planned Premiums Assuming hypothetical gross annual return of Assuming hypothetical gross annual return of
End of accumulated at ------------------------------------------------------------------------------------------
Policy Year 5% annual interest 0% 6% 12% 0% 6% 12%
- ----------- ------------------ -------------- -------------- ----------------------------- -------------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C>
1 $ 2,100 $ 100,000 $ 100,000 $ 100,000 $ 607 $ 676 $ 746
2 4,305 100,000 100,000 100,000 1,569 1,753 1,947
3 6,620 100,000 100,000 100,000 2,163 2,515 2,899
4 9,051 100,000 100,000 100,000 2,867 3,437 4,086
5 11,604 100,000 100,000 100,000 3,519 4,359 5,354
6 14,284 100,000 100,000 100,000 4,510 5,683 7,128
7 17,098 100,000 100,000 100,000 5,437 7,017 9,039
8 20,053 100,000 100,000 100,000 6,292 8,354 11,096
9 23,156 100,000 100,000 100,000 7,070 9,690 13,310
10 26,414 100,000 100,000 100,000 7,764 11,016 15,693
11 29,834 100,000 100,000 100,000 8,430 12,392 18,329
12 33,426 100,000 100,000 100,000 9,002 13,754 21,179
13 37,197 100,000 100,000 100,000 9,477 15,098 24,269
14 41,157 100,000 100,000 100,000 9,851 16,422 27,629
15 45,315 100,000 100,000 100,000 10,119 17,721 31,292
16 49,681 100,000 100,000 100,000 10,268 18,984 35,293
17 54,265 100,000 100,000 100,000 10,286 20,200 39,674
18 59,078 100,000 100,000 100,000 10,155 21,356 44,483
19 64,132 100,000 100,000 100,000 9,855 22,433 49,777
20 69,439 100,000 100,000 100,000 9,363 23,412 55,627
25 100,227 100,000 100,000 139,190 3,253 26,205 93,542
30 139,522 ** 100,000 199,849 ** 22,119 147,534
35 189,673 ** ** 278,928 ** ** 222,076
</TABLE>
- --------
* The illustrations assume that Planned Premiums equal to the Target Premium
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.
IT IS EMPHASIZED THAT THE HYPOTHETICAL INVESTMENT RETURNS ARE ILLUSTRATIVE
ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF PAST OR FUTURE INVESTMENT
RESULTS. ACTUAL INVESTMENT RESULTS MAY BE MORE OR LESS THAN THOSE SHOWN AND
WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING INVESTMENT ALLOCATIONS MADE BY
THE OWNER. THE DEATH BENEFIT AND SURRENDER VALUE FOR A POLICY WOULD BE
DIFFERENT FROM THOSE SHOWN IF THE ACTUAL GROSS RATES OF INVESTMENT RETURN
AVERAGE 0%, 6%, OR 12% OVER A PERIOD OF YEARS, BUT ALSO FLUCTUATE ABOVE OR
BELOW THE AVERAGE FOR INDIVIDUAL POLICY YEARS. NO REPRESENTATIONS CAN BE MADE
THAT THESE HYPOTHETICAL INVESTMENT RESULTS CAN BE ACHIEVED FOR ONE YEAR OR
SUSTAINED OVER ANY PERIOD OF TIME.
A-9
