<PAGE>
LOGO
John Hancock Variable Life Insurance Company
(JHVLICO)
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY
JOHN HANCOCK VARIABLE LIFE ACCOUNT S
JOHN HANCOCK SERVICING OFFICE:
P.O. Box 111
Boston, Massachusetts 02117
TELEPHONE 1-800-REAL LIFE (1-800-732-5543)
FAX 617-886-3048
PROSPECTUS DECEMBER 3, 1998
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 "series"
type 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: Managed, Growth & Income, Equity Index, Large Cap Value, Large Cap
Growth, Mid Cap Value, Mid Cap Growth, Diversified Mid Cap Growth (formerly,
Special Opportunities), Real Estate Equity, Small/Mid Cap CORE, Small Cap Value,
Small Cap Growth, Global Equity, International Balanced, International Equity
Index (formerly, International Equities), International Opportunities, Emerging
Markets Equity, Short-Term Bond (formerly, Short-Term U.S. Government), Bond
Index, Sovereign Bond, Strategic Bond, High Yield Bond, and Money Market. 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.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
SUMMARY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
JHVLICO and JOHN HANCOCK . . . . . . . . . . . . . . . . . . . . . . . 6
THE ACCOUNT AND SERIES FUND . . . . . . . . . . . . . . . . . . . . . 7
The Account . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Series Fund . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
THE FIXED ACCOUNT . . . . . . . . . . . . . . . . . . . . . . . . . . 11
POLICY PROVISIONS AND BENEFITS . . . . . . . . . . . . . . . . . . . . 12
Requirements for Issuance of Policy . . . . . . . . . . . . . . . . 12
Premiums . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Account Value and Surrender Value . . . . . . . . . . . . . . . . . 14
Death Benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Transfers Among Subaccounts . . . . . . . . . . . . . . . . . . . . 17
Loan Provisions and Indebtedness . . . . . . . . . . . . . . . . . . 18
Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Exchange Privilege . . . . . . . . . . . . . . . . . . . . . . . . . 20
CHARGES AND EXPENSES . . . . . . . . . . . . . . . . . . . . . . . . . 20
Charges Deducted from Premiums . . . . . . . . . . . . . . . . . . . 20
Sales Charges . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Reduced Charges for Eligible Groups . . . . . . . . . . . . . . . . 21
Charges Deducted from Account Value or Assets . . . . . . . . . . . 22
Guarantee of Certain Charges . . . . . . . . . . . . . . . . . . . . 24
DISTRIBUTION OF POLICIES . . . . . . . . . . . . . . . . . . . . . . . 24
TAX CONSIDERATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Policy Proceeds . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Charge for JHVLICO's Taxes . . . . . . . . . . . . . . . . . . . . . 26
Corporate and H.R. 10 Plans . . . . . . . . . . . . . . . . . . . . 26
BOARD OF DIRECTORS AND EXECUTIVE OFFICERS OF JHVLICO . . . . . . . . . 27
REPORTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
VOTING PRIVILEGES . . . . . . . . . . . . . . . . . . . . . . . . . . 28
CHANGES THAT JHVLICO CAN MAKE . . . . . . . . . . . . . . . . . . . . 28
LEGAL MATTERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
REGISTRATION STATEMENT . . . . . . . . . . . . . . . . . . . . . . . . 29
EXPERTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . 29
APPENDIX--OTHER POLICY PROVISIONS . . . . . . . . . . . . . . . . . . 63
APPENDIX--IMPACT OF YEAR 2000 . . . . . . . . . . . . . . . . . . . . 65
APPENDIX--ILLUSTRATION OF DEATH BENEFITS, SURRENDER VALUES AND
ACCUMULATED PREMIUMS . . . . . . . . . . . . . . . . . . . . . . . . 66
</TABLE>
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING IN ANY JURISDICTION IN WHICH
SUCH OFFERING MAY NOT LAWFULLY BE MADE. NO PERSON IS AUTHORIZED TO MAKE ANY
REPRESENTATIONS IN CONNECTION WITH THIS OFFERING OTHER THAN THOSE CONTAINED IN
THIS PROSPECTUS.
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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:
<TABLE>
<CAPTION>
Page
<S> <C>
Account . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Account Value . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Additional Sum Insured . . . . . . . . . . . . . . . . . . . . . . . 16
Age . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64
Basic Sum Insured . . . . . . . . . . . . . . . . . . . . . . . . . 1
DAC Tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Death Benefit . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Fixed Account . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Fund . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Front Cover
Grace Period . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Guaranteed Death Benefit . . . . . . . . . . . . . . . . . . . . . . 16
Guaranteed Death Benefit Premium . . . . . . . . . . . . . . . . . . 13
Indebtedness . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Investment Rule . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Loan Account . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Minimum First Premium . . . . . . . . . . . . . . . . . . . . . . . 12
Modal Processing Date . . . . . . . . . . . . . . . . . . . . . . . 13
Planned Premium . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Policy Anniversary . . . . . . . . . . . . . . . . . . . . . . . . . 64
Portfolio . . . . . . . . . . . . . . . . . . . . . . . . . . .
Front Cover
Servicing Office . . . . . . . . . . . . . . . . . . . . . . . .
Front Cover
Subaccount . . . . . . . . . . . . . . . . . . . . . . . . . .
Front Cover
Surrender Value . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Target Premium . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Total Sum Insured . . . . . . . . . . . . . . . . . . . . . . . . . 15
Valuation Date . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Valuation Period . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Variable Subaccounts . . . . . . . . . . . . . . . . . . . . . .
Front Cover
7-Pay Limit . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
</TABLE>
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SUMMARY
WHAT IS THE VARIABLE LIFE POLICY BEING OFFERED?
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. A premium payment is periodically made
to JHVLICO. 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 of the Policy (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 Total Sum Insured less any withdrawals
that the Owner has made. The death benefit under Option B equals the Total 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. 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 Total 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
Total 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. The
Account is subdivided into a number of variable Subaccounts, each of which
corresponds to one of the Portfolios of the Fund. The assets of each variable
Subaccount are invested in the corresponding Portfolio of the Fund. The current
Portfolios of the Fund are: Managed, Growth & Income, Equity Index, Large Cap
Value, Large Cap Growth, Mid Cap Value, Mid Cap Growth, Diversified Mid Cap
Growth, Real Estate Equity, Small/Mid Cap CORE, Small Cap Value, Small Cap
Growth, Global Equity, International Balanced, International Equity Index,
International Opportunities, Emerging Markets Equity, Short-Term Bond, Bond
Index, Sovereign Bond, Strategic Bond, High Yield Bond, and Money Market.
The figures in the following chart are expressed as a percentage of each
Portfolio's average daily net assets. The figures reflect the investment
management fees currently payable and the 1997 other fund expenses allocated to
John Hancock Variable Series Trust I (except that other fund expenses for the
Small/Mid Cap CORE, Global Equity, Emerging Markets Equity, Bond Index, and High
Yield Bond Portfolios are based upon estimates for the current fiscal year).
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<TABLE>
<CAPTION>
Other
Fund
Other Fund Total Expenses
Expenses Fund Absent
Management After Expense Operating Expense
Fund Name Fee Reimbursement Expenses Reimbursement/*/
--------- ---------- ------------- --------- ----------------
<S> <C> <C> <C> <C>
Managed . . . . . . . 0.33% 0.04% 0.37% N/A
Growth & Income . . . 0.25% 0.03% 0.28% N/A
Equity Index. . . . . 0.15% 0.25% 0.40% 0.40%
Large Cap Value . . . 0.75% 0.25% 1.00% 0.31%
Large Cap Growth. . . 0.39% 0.05% 0.44% N/A
Mid Cap Value . . . . 0.80% 0.25% 1.05% 0.34%
Mid Cap Growth. . . . 0.85% 0.25% 1.10% 0.57%
Diversified Mid Cap
Growth . . . . . . . 0.75% 0.10% 0.85% N/A
Real Estate Equity. . 0.60% 0.09% 0.69% N/A
Small/Mid Cap CORE. . 0.80% 0.25% 1.05% N/A
Small Cap Value . . . 0.80% 0.25% 1.05% 0.50%
Small Cap Growth. . . 0.75% 0.25% 1.00% 0.37%
Global Equity . . . . 0.90% 0.25% 1.15% N/A
International Balanced 0.85% 0.25% 1.10% 0.71%
International Equity
Index. . . . . . . . 0.18% 0.19% 0.37% N/A
International
Opportunities. . . . 0.97% 0.25% 1.22% 0.60%
Emerging Markets
Equity . . . . . . . 1.30% 0.25% 1.55% N/A
Short-Term Bond . . . 0.30% 0.21% 0.51% N/A
Bond Index. . . . . . 0.15% 0.25% 0.40% N/A
Sovereign Bond. . . . 0.25% 0.06% 0.31% N/A
Strategic Bond. . . . 0.75% 0.25% 1.00% 0.57%
High Yield Bond . . . 0.65% 0.25% 0.90% N/A
Money Market. . . . . 0.25% 0.08% 0.33% N/A
</TABLE>
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* John Hancock reimburses a Portfolio when the Portfolio's other fund expenses
exceed 0.25% of the Portfolio's average daily net assets.
For a full description of the Fund see the Prospectus for the Fund attached to
this Prospectus.
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 deducted from premium payments
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
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$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) for all Policy years.
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 deducted daily from the
variable Subaccounts at a maximum effective annual rate of .90% (currently .60%)
of the assets of each variable Subaccount.
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 any optional insurance benefits by rider. Any such additional
charge is deducted monthly from Account Value.
Charge for Partial Withdrawal. A charge of $20 deducted from Account Value at
the time of withdrawal.
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)".
4
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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 Total Sum Insured (the Total 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 Total Sum Insured
less any withdrawals of Account Value that the Owner has made.
OPTION B: The death benefit is the Policy's current Total 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".
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.
The Guaranteed Minimum Death Benefit Feature applies only to the Basic Sum
Insured and not to any amount of Additional Sum Insured.
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 by any
partial withdrawal, 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 and minus any existing Indebtedness. Interest charged on any loan
will accrue and compound daily at an effective annual rate of 4.75% in the first
20 Policy years and 4.25% thereafter. 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 Total Sum Insured are permanently
affected by any loan.
5
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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 Servicing 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.
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 approximately $59 billion and it
has invested over $380 million in JHVLICO in connection with JHVLICO's
organization and operations. It is anticipated that John Hancock will from time
to time make additional capital contributions to JHVLICO to enable it to meet
its reserve requirements and expenses in connection with its business, and John
Hancock is committed to make additional capital contributions if necessary to
ensure that JHVLICO maintains a positive net worth.
6
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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 the corresponding
Portfolio 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.
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.
Managed Portfolio
The investment objective of this Portfolio is to achieve maximum long-term
total return consistent with prudent investment risk. Investments will be made
in common stocks, convertibles and other equity investments, in bonds and other
fixed income securities and in money market instruments.
Growth & Income Portfolio
The investment objective of this Portfolio is to achieve intermediate and
long-term growth of capital, with income as a secondary consideration. This
objective will be pursued by investments principally in common stocks (and
securities convertible into or with rights to purchase common stocks) of
companies believed to offer growth potential over both the intermediate and the
long term.
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Equity Index Portfolio
The investment objective of this Portfolio is 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
The investment objective of this Portfolio is to provide substantial dividend
income, as well as long-term capital appreciation, through investments in the
common stocks of established companies believed to offer favorable prospects for
increasing dividends and capital appreciation.
Large Cap Growth Portfolio
The investment objective of this Portfolio is to achieve above-average capital
appreciation through the ownership of common stocks (and securities convertible
into with rights to purchase common stocks) of companies believed to offer
above-average capital appreciation opportunities. Current income is not an
objective of the Portfolio.
Mid Cap Value Portfolio
The investment objective of this Portfolio is to provide long-term growth of
capital primarily through investment in the common stocks of medium
capitalization companies believed to sell at a discount to their intrinsic
value.
Mid Cap Growth Portfolio
The investment objective of this Portfolio is to provide long-term growth of
capital through a non-diversified portfolio investing primarily in common stocks
of medium capitalization companies.
Diversified Mid Cap Growth Portfolio
The investment objective of this Portfolio is to provide long-term growth of
capital through a diversified portfolio investing primarily in common stocks of
medium capitalization growth companies.
Real Estate Equity Portfolio
The investment objective of this Portfolio is to provide above-average income
and long-term growth of capital by investment principally in equity securities
of companies in the real estate and related industries.
Small/Mid Cap CORE Portfolio
The investment objective of this Portfolio is to achieve long-term growth of
capital through a broadly diversified portfolio of equity securities of U.S.
issuers which are included in the Russell 2500 Index at the time of investment.
Small Cap Value Portfolio
The investment objective of this Portfolio is to provide long-term growth of
capital by investing in a well diversified portfolio of equity securities of
small capitalization companies exhibiting value characteristics.
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Small Cap Growth Portfolio
The investment objective of this Portfolio is to provide long-term growth of
capital through a diversified portfolio investing primarily in common stocks of
small capitalization emerging growth companies.
Global Equity Portfolio
The investment objective of this Portfolio is to achieve long-term growth of
capital through a diversified portfolio of marketable securities, primarily
equity securities, of both U.S. and foreign issuers.
International Balanced Portfolio
The investment objective of this Portfolio is 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.
International Equity Index Portfolio
The investment objective of this Portfolio is to provide investment results
that correspond to the total return of the major developed international
(non-U.S.) equity markets, as represented by the MSCI AEFE GDP Index.
International Opportunities Portfolio
The investment objective of this Portfolio is to provide capital appreciation
through investments in common stocks of primarily well-established, non-United
States companies.
Emerging Markets Equity Portfolio
The investment objective of this Portfolio is to achieve capital appreciation
by investing primarily in equity securities of companies in countries having
economies and markets generally considered by the World Bank or the United
Nations to be emerging or developing.
Short-Term Bond Portfolio
The investment objective of this Portfolio is to provide a high level of
current income consistent with a low degree of share price fluctuation through
investment primarily in a diversified portfolio of short- and intermediate-term
investment-grade debt obligations.
Bond Index Portfolio
The investment objective of this Portfolio is to provide investment results
that correspond to the total return and risk characteristics of the U.S.
investment grade fixed income market, as represented by a Lehman Brothers bond
index that tracks the performance of investment grade debt securities.
Sovereign Bond Portfolio
The investment objective of this Portfolio is to provide as high a level of
long-term total rate of return as is consistent with prudent investment risk
through investment primarily in a diversified portfolio of freely marketable
debt securities.
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Strategic Bond Portfolio
The investment objective of this Portfolio is to provide total return
consistent with moderate risk of capital and maintenance of liquidity, through a
portfolio of domestic and international fixed income securities.
High Yield Bond Portfolio
The investment objective of this Portfolio is to provide high current income
and capital appreciation with capital preservation through investing primarily
in high yield (below investment grade) debt securities.
Money Market Portfolio
The investment objective of this Portfolio is to provide maximum current
income consistent with capital preservation and liquidity, through investment in
high quality money market instruments.
John Hancock acts as the investment manager for the above portfolios, and John
Hancock's indirectly owned subsidiary, Independence Investment Associates, Inc.
("IIA"), with its principal place of business at 53 State Street, Boston, MA
02109, provides sub-investment advice with respect to the Managed, Growth and
Income, Large Cap Growth, Real Estate Equity and Short-Term Bond Portfolios.
Independence International Associates, Inc., a subsidiary of IIA located at the
same address as IIA, is a sub-investment adviser to the International Equity
Index Portfolio.
Another indirectly owned subsidiary of John Hancock, John Hancock Advisers,
Inc., located at 101 Huntington Avenue, Boston, MA 02199, provides
sub-investment advice with respect to the Sovereign Bond, Diversified Mid Cap
Growth, and Small Cap Growth Portfolios.
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 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.
State Street Bank & Trust, N.A., at Two International Place, Boston, MA 02110,
is the sub-investment adviser to the Equity Index Portfolio. INVESCO Management
& Research located at 101 Federal Street, Boston, MA 02110, is the
sub-investment adviser to the Small Cap Value Portfolio. Janus Capital
Corporation, 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 & Berman, LLC, 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
sub-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.
Goldman Sachs & Company, located at One New York Plaza, New York, New York
10004, is sub-investment adviser to the Small/Mid Cap CORE Portfolio. Scudder
Kemper Investments, Inc., located at 345 Park Avenue, New York, New York 10154,
is the sub-investment adviser to the Global Equity Portfolio. Montgomery Asset
Management, LLC, located at 101 California Street, San Francisco, California
94111, is the sub-investment adviser to the Emerging Markets Equity Portfolio.
Mellon Bond Associates, located at One Mellon Bank Center, Suite 4135,
Pittsburgh, Pennsylvania 15258, is the sub-investment adviser to the Bond Index
Portfolio. Wellington Management Company, LLC, located at 75 State Street,
Boston, Massachusetts 02109, is the sub-investment adviser to the High Yield
Bond Portfolio.
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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.
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 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. 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.
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. The
illustrations set forth in this Prospectus are sex distinct and, therefore, do
not reflect the sex-neutral rates, charges, or values that would apply to such
Policies.
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 Basic Sum Insured at issue, and any
additional benefits selected. The Minimum First Premium must be received by
JHVLICO at its Servicing Office in order for the Policy to be 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's standard procedures prohibit issuance of 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
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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, 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. The 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 permanently
lapse with no possibility for restoration.
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 Servicing 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 Servicing Office of notice satisfactory to
JHVLICO. Notwithstanding the Investment Rule, any net premium (or portion
thereof) 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 (or of the premium's date of receipt, if later), 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.
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(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.
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 and by any
partial withdrawal, 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.
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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
Servicing 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.
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 Total Sum Insured by the amount
withdrawn. A withdrawal will not reduce any Option B Total 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 Total 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 Total 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 Total Sum Insured, plus any
increases in the death benefit described below under "Definition of Life
Insurance", and minus the amount of any partial withdrawals that have been
made over the life of the Policy.
OPTION B: The death benefit is the current Total 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 Total Sum Insured is the Basic Sum Insured plus the amount of any
Additional Sum Insured (discussed below).
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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.
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.
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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 Total 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 Servicing Office all information necessary to process the
change, and, in the case of an increase in coverage, approves the change.
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 Policy years plus the Planned Premium for
the current Policy 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 Total
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
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variable Subaccount will be effective at the end of the Valuation Period in
which JHVLICO receives at its Servicing 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 its Servicing Office. (JHVLICO reserves the
right to defer such Fixed Account transfers for up to 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. If an Owner requests a change inconsistent with the transfer
provisions, the portion of the request inconsistent with the transfer provisions
will not be effective.
No transfers among Subaccounts 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 or sending a written request via fax to
1-800-621-0448. 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. If the fax request option becomes unavailable, another
means of telecommunication will be substituted.
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 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
effective annual rate of 4.75% in the first 20 Policy years, and 4.25%
thereafter.
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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 repayment will be allocated to the appropriate Subaccounts
as stipulated in the then 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 then 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, the Account Value, the Surrender
Value and any death benefit above the Total Sum Insured 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 unless a
repayment of at least the amount specified in the notice 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.
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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) may be reinstated in
accordance with the Policy's terms. Evidence of insurability satisfactory to
JHVLICO will be required and payment of the required premium and charges. The
request must be received at JHVLICO's Servicing 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
Servicing 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 and to any variations in Policy provisions required by the regulatory
authorities of the state that has approved the Policy for issue.
CHARGES AND EXPENSES
CHARGES DEDUCTED FROM PREMIUMS
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. 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.
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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,
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 would pay total sales charges of 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. 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
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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; 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 monthly 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 for all Policy years. The current monthly charge is $6.
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.
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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.
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 effective annual 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 effective annual 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 deducted from the
variable Subaccounts for mortality and expense risks assumed by JHVLICO at a
maximum effective annual rate of .90% of the value of the assets of each
variable Subaccount attributable to the Policy. 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 any optional insurance benefit by Policy rider. Any
such 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.
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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 and Other Fund Expenses. 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 fees and certain
non-advisory Fund operating expenses, which are described in the Summary of this
Prospectus. For a full description of these deductions, see the attached
Prospectus for the Fund.
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
Distribution of the Policies described in this Prospectus will be limited to
certain distribution channels which target members of affinity groups or other
groups of associated individuals. The eligibility of such channels will be
determined in accordance with JHVLICO's rules in effect at any given time. Any
of the following factors may be considered by JHVLICO in determining
eligibility: the nature of the group and its organizational framework; the
method by which sales will be made to the members; the facility with which
premiums will be collected from the members; the anticipated persistency of the
Policies; the size of the group or 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 members; and any other such circumstances which, in JHVLICO's
opinion, would justify the compensation levels specified herein. Applications
are solicited by agents who are licensed by state insurance authorities to sell
JHVLICO's Policies and who are also registered representatives
("representatives") of John Hancock Distributors, Inc. ("Distributors"), an
indirect wholly-owned subsidiary of John Hancock located at 197 Clarendon
Street, Boston, MA 02117, or other broker-dealer firms, as discussed below. John
Hancock performs insurance underwriting and determines whether to accept or
reject the application for a Policy and each insured's risk classification.
Pursuant to a sales agreement among John Hancock, Distributors, JHVLICO, and the
Account, Distributors acts as the principal underwriter of the Policies. The
sales agreement will remain in effect until terminated upon sixty days' written
notice by any party. JHVLICO will make the appropriate refund if a Policy
ultimately is not issued or is returned under the short-term cancellation
provision. Officers and employees of John Hancock and JHVLICO are covered by a
blanket bond by a commercial carrier in the amount of $25 million.
Distributors' representatives are compensated for sales of the Policies on a
commission and service fee basis by Distributors, and JHVLICO reimburses
Distributors for such compensation and for other direct and indirect expenses
(including agency expense allowances, general agent, district manager and
supervisor's compensation, agent's training allowances, deferred compensation
and insurance benefits of agents, general agents, district
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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 Distributors representative for selling a
Policy is 45% of a certain portion of premium paid in the first Policy year; 11%
of the same portion of premium paid in each of Policy years 2 through 4; and 3%
of the same portion of premium paid in each Policy year thereafter. The maximum
commission on any premium paid in excess of such portion in any Policy year is
3%. The portion of premium referenced in this paragraph will be at least equal
to the Target Premium.
Representatives who meet certain productivity and persistency standards with
respect to the sale of policies issued by JHVLICO and John Hancock will be
eligible for additional compensation.
Distributors is registered with the Commission under the Securities Exchange
Act of 1934 as a broker-dealer, is a member of the National Association of
Securities Dealers, Inc., and is a member of the Securities Investor Protection
Corporation. The Policies are also sold through other registered broker-dealers
that have entered into selling agreements with Distributors and whose
representatives are authorized by applicable law to sell variable life insurance
policies. The commissions which will be paid by such broker-dealers to their
representatives will be in accordance with their established rules. The
commission rates may be more or less than those set forth above for
Distributors' representatives. In addition, their qualified registered
representatives may be reimbursed by the broker-dealers under expense
reimbursement allowance programs in any year for approved voucherable expenses
incurred. Distributors will compensate the broker-dealers as provided in the
selling agreements, and JHVLICO will reimburse Distributors for such amounts and
for certain other direct expenses in connection with marketing the Policies
through other broker-dealers. In addition, these representatives may earn
"credits" toward qualification for attendance at certain business meetings
sponsored by John Hancock.
Distributors serves as principal underwriter for other separate accounts
registered under the 1940 Act: John Hancock Variable Annuity Accounts U, I and
V, John Hancock Mutual Variable Life Insurance Account UV and John Hancock
Variable Life Accounts U and V. Distributors is also the 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
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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 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 age59
1/2.
Furthermore, any time there is a "material change" in a Policy (such as an
increase in Additional Sum Insured, 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 Total 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.
26
<PAGE>
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.
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; President and Chief Operating Officer, John
Hancock Mutual Life Insurance Company.
Henry D. Shaw Vice Chairman of the Board and President of JHVLICO;
Senior Vice President, John Hancock Mutual Life
Insurance Company.
Thomas J. Lee Director of JHVLICO; Vice President, John Hancock
Mutual Life Insurance Company.
Michele G. Van Leer Director of JHVLICO; Senior Vice President, John
Hancock Mutual Life Insurance Company.
Ronald J. Bocage Director, Vice President and Counsel, JHVLICO; Vice
President and Counsel, 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.
27
<PAGE>
Owners will be sent semiannually a report containing the financial statements
of the Fund, including a list of securities held in each Portfolio.
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
qualifying variable life insurance policies and variable annuity contracts at
regular and special meetings of the Fund's shareholders in accordance with
instructions received from owners of such policies or contracts. Shares of the
Fund held in the Account which are not attributable to such policies or
contracts and shares for which instructions from owners are not received will be
represented by JHVLICO at the meeting and will be voted for and against each
matter in the same proportions as the votes based upon the instructions received
from the owners of all such policies and contracts.
The number of Fund shares held in each 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
28
<PAGE>
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 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
The legal validity of the Policies described in this Prospectus has been
passed on by Ronald J. Bocage, Vice President and Counsel for JHVLICO. Messrs.
Freedman, Levy, Kroll & Simonds, Washington, D.C., have advised JHVLICO on
certain Federal securities law matters in connection with the Policies.
REGISTRATION STATEMENT
This Prospectus omits certain information contained in the Registration
Statement which has been filed with the Commission. More details may be obtained
from the Securities and Exchange Commission upon payment of the prescribed fee.
EXPERTS
The financial statements 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 Malcolm
Cheung, 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.
29
<PAGE>
JOHN HANCOCK VARIABLE LIFE ACCOUNT S
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1997
<TABLE>
<CAPTION>
Large Cap Sovereign International Small Cap International Mid Cap Large Cap
Growth Bond Equities Growth Balanced Growth Value
Subaccount Subaccount Subaccount Subaccount Subaccount Subaccount Subaccount
----------- ----------- ------------- ---------- ------------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Investments in shares of portfolios
of John Hancock Variable Series
Trust I, at value . . . . . . . . $32,504,276 $19,461,475 $8,790,049 $2,504,952 $1,475,245 $3,614,752 $5,190,146
Investments in shares of portfolios
of M Fund Inc., at value . . . . . -- -- -- -- -- -- --
Receivable from:
John Hancock Variable Series Trust
I . . . . . . . . . . . . . . . . 133,074 65,642 50,618 36,983 20 1,467 56,855
M Fund Inc. . . . . . . . . . . . -- -- -- -- -- -- --
----------- ----------- ---------- ---------- ---------- ---------- ----------
TOTAL ASSETS . . . . . . . . . . . 32,637,350 19,527,117 8,840,667 2,541,935 1,475,265 3,616,219 5,247,001
LIABILITIES
Payable to:
John Hancock Variable Life
Insurance Company . . . . . . . . 132,745 65,444 50,522 36,949 -- 1,429 56,794
M Fund Inc. . . . . . . . . . . . -- -- -- -- -- -- --
Asset charges payable . . . . . . . 329 198 96 34 20 38 61
----------- ----------- ---------- ---------- ---------- ---------- ----------
TOTAL LIABILITIES . . . . . . . . . 133,074 65,642 50,618 36,983 20 1,467 56,855
----------- ----------- ---------- ---------- ---------- ---------- ----------
NET ASSETS . . . . . . . . . . . . $32,504,276 $19,461,475 $8,790,049 $2,504,952 $1,475,245 $3,614,752 $5,190,146
=========== =========== ========== ========== ========== ========== ==========
<CAPTION>
Money Mid Cap Special Real Estate
Market Value Opportunities Equity
Subaccount Subaccount Subaccount Subaccount
----------- ---------- ------------- -------------
<S> <C> <C> <C> <C>
ASSETS
Investments in shares of portfolios $14,171,123 $6,066,901 $8,833,185 $4,191,379
of John Hancock Variable Series
Trust I, at value . . . . . . . .
Investments in shares of portfolios -- -- -- --
of M Fund Inc., at value . . . . .
Receivable from:
John Hancock Variable Series Trust 907,716 32,571 1,906 4,723
I . . . . . . . . . . . . . . . .
M Fund Inc. . . . . . . . . . . . -- -- -- --
----------- ---------- ---------- ----------
TOTAL ASSETS . . . . . . . . . . . 15,078,839 6,099,472 8,835,091 4,196,102
LIABILITIES
Payable to:
John Hancock Variable Life 907,538 32,502 1,806 4,668
Insurance Company . . . . . . . .
M Fund Inc. . . . . . . . . . . . -- -- -- --
Asset charges payable . . . . . . . 178 69 100 55
----------- ---------- ---------- ----------
TOTAL LIABILITIES . . . . . . . . . 907,716 32,571 1,906 4,723
----------- ---------- ---------- ----------
NET ASSETS . . . . . . . . . . . . $14,171,123 $6,066,901 $8,833,185 $4,191,379
=========== ========== ========== ==========
</TABLE>
- ---------
See accompanying notes.
30
<PAGE>
JOHN HANCOCK VARIABLE LIFE ACCOUNT S
STATEMENT OF ASSETS AND LIABILITIES (CONTINUED)
DECEMBER 31, 1997
<TABLE>
<CAPTION>
Short-Term
Growth & U.S. Small Cap International Equity Strategic
Income Managed Government Value Opportunities Index Bond
Subaccount Subaccount Subaccount Subaccount Subaccount Subaccount Subaccount
----------- ----------- ----------- ---------- ------------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Investments in shares of portfolios
of John Hancock Variable Series
Trust I, at value . . . . . . . . $47,996,192 $21,775,321 $12,476,155 $3,972,890 $6,035,554 $16,437,919 $1,620,281
Investments in shares of portfolios
of M Fund Inc., at value . . . . . -- -- -- -- -- -- --
Receivable from:
John Hancock Variable Series Trust
I . . . . . . . . . . . . . . . . 82,373 207,062 13,811 65,403 83,379 81,011 96,827
M Fund Inc. . . . . . . . . . . . -- -- -- -- -- -- --
----------- ----------- ----------- ---------- ---------- ----------- ----------
TOTAL ASSETS . . . . . . . . . . . 48,078,565 21,982,383 12,489,966 4,038,293 6,118,933 16,518,930 1,717,108
LIABILITIES
Payable to:
John Hancock Variable Life Insurance
Company. . . . . . . . . . . . . . 81,787 206,820 13,698 65,352 83,313 80,813 96,806
M Fund Inc. . . . . . . . . . . . -- -- -- -- -- -- --
Asset charges payable . . . . . . . 586 242 113 51 66 198 21
----------- ----------- ----------- ---------- ---------- ----------- ----------
TOTAL LIABILITIES . . . . . . . . . 82,373 207,062 13,811 65,403 83,379 81,011 96,827
----------- ----------- ----------- ---------- ---------- ----------- ----------
NET ASSETS . . . . . . . . . . . . $47,996,192 $21,775,321 $12,476,155 $3,972,890 $6,035,554 $16,437,919 $1,620,281
=========== =========== =========== ========== ========== =========== ==========
<CAPTION>
Turner Edinburgh Frontier
Core International Capital Enhanced
Growth Equity Appreciation U.S. Equity
Subaccount Subaccount Subaccount Subaccount
---------- ------------- ------------ -------------
<S> <C> <C> <C> <C>
ASSETS
Investments in shares of portfolios $ -- $ -- $ -- $ --
of John Hancock Variable Series
Trust I, at value . . . . . . . .
Investments in shares of portfolios 1,014,974 2,336,598 5,392,998 497,205
of M Fund Inc., at value . . . . .
Receivable from:
John Hancock Variable Series Trust -- -- -- --
I . . . . . . . . . . . . . . . .
M Fund Inc. . . . . . . . . . . . 1,017 81 13,180 6,438
---------- ---------- ---------- --------
TOTAL ASSETS . . . . . . . . . . . 1,015,991 2,336,679 5,406,178 503,643
LIABILITIES
Payable to:
John Hancock Variable Life Insurance -- -- -- --
Company. . . . . . . . . . . . . .
M Fund Inc. . . . . . . . . . . . 1,004 55 13,127 6,433
Asset charges payable . . . . . . . 13 26 53 5
---------- ---------- ---------- --------
TOTAL LIABILITIES . . . . . . . . . 1,017 81 13,180 6,438
---------- ---------- ---------- --------
NET ASSETS . . . . . . . . . . . . $1,014,974 $2,336,598 $5,392,998 $497,205
========== ========== ========== ========
</TABLE>
- ---------
See accompanying notes.
31
<PAGE>
JOHN HANCOCK VARIABLE LIFE ACCOUNT S
STATEMENTS OF OPERATIONS
FOR THE YEARS AND PERIODS ENDED DECEMBER 31,
<TABLE>
<CAPTION>
Large Cap Growth Subaccount Sovereign Bond Subaccount
---------------------------------- -----------------------------
1997 1996 1995 1997 1996 1995
---------- ------------ -------- -------- --------- --------
<S> <C> <C> <C> <C> <C> <C>
Investment income:
Distribution received from:
John Hancock Variable
Series Trust I. . . . . . $2,884,498 $ 2,452,382 $509,637 $855,742 $242,881 $ 66,972
M Fund, Inc. . . . . . . . -- -- -- -- -- --
---------- ----------- -------- -------- -------- --------
Total investment income . . 2,884,498 2,452,382 509,637 855,742 242,881 66,972
Expenses:
Mortality and expense risks 91,256 49,880 17,330 39,184 14,129 4,148
---------- ----------- -------- -------- -------- --------
Net investment income (loss) 2,793,242 2,402,502 492,307 816,558 228,752 62,824
Net realized and unrealized
gain (loss) on investments:
Net realized gains (losses) 619,721 444,487 126,908 80,538 5,746 21,718
Net unrealized appreciation
(depreciation) during the
period . . . . . . . . . . 2,301,920 (1,104,574) 180,251 63,687 (69,973) 34,574
---------- ----------- -------- -------- -------- --------
Net realized and unrealized
gain (loss) on investments 2,921,641 (660,087) 307,159 144,225 (64,227) 56,292
---------- ----------- -------- -------- -------- --------
Net increase (decrease) in
net assets resulting from
operations . . . . . . . . $5,714,883 $ 1,742,415 $799,466 $960,783 $164,525 $119,116
========== =========== ======== ======== ======== ========
<CAPTION>
Small Cap
Growth International Balanced
International Equities Subaccount Subaccount Subaccount
---------------------------------- ------------------- -----------------------
1997 1996 1995 1997 1996* 1997 1996*
------------- --------- ---------- --------- --------- ------------ ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Investment income:
Distribution received from:
John Hancock Variable $ 422,913 $ 52,188 $ 19,501 $ 473 $ 512 $ 61,249 $2,947
Series Trust I. . . . . .
M Fund, Inc. . . . . . . . -- -- -- -- -- -- --
----------- -------- -------- -------- -------- -------- ------
Total investment income . . 422,913 52,188 19,501 473 512 61,249 2,947
Expenses:
Mortality and expense risks 33,893 23,132 10,434 6,547 1,547 4,443 356
----------- -------- -------- -------- -------- -------- ------
Net investment income (loss) 389,020 29,056 9,067 (6,074) (1,035) 56,806 2,591
Net realized and unrealized
gain (loss) on investments:
Net realized gains (losses) 244,810 165,730 (25,931) 21,707 (40,018) 8,667 56
Net unrealized appreciation
(depreciation) during the (1,219,540)
period . . . . . . . . . . ----------- 137,729 153,715 126,699 (2,665) (67,714) 5,307
-------- -------- -------- -------- -------- ------
Net realized and unrealized
gain (loss) on investments (974,730) 303,459 127,784 148,406 (42,683) (59,047) 5,363
----------- -------- -------- -------- -------- -------- ------
Net increase (decrease) in
net assets resulting from $ (585,710)
operations . . . . . . . . =========== $332,515 $136,851 $142,332 $(43,718) $ (2,241) $7,954
======== ======== ======== ======== ======== ======
<CAPTION>
Mid Cap Growth Large Cap
Subaccount Value
Manage Subaccount
----------------- -----------------
1997 1996* 1997 1996*
--------- ------- -------- ---------
----------------------------
<S> <C> <C> <C> <C>
Investment income:
Distribution received from:
John Hancock Variable $ -- $1,177 $194,199 $13,644
Series Trust I. . . . . .
M Fund, Inc. . . . . . . . -- -- -- --
-------- ------ -------- -------
Total investment income . . 1,177 194,199 13,644
Expenses:
Mortality and expense risks 8,287 719 11,163 964
-------- ------ -------- -------
Net investment income (loss) (8,287) 458 183,036 12,680
Net realized and unrealized
gain (loss) on investments:
Net realized gains (losses) 1,235 (391) 164,821 1,327
Net unrealized appreciation
(depreciation) during the 486,186
period . . . . . . . . . . -------- 6,440 279,449 23,553
------ -------- -------
Net realized and unrealized
gain (loss) on investments 487,421 6.049 444,270 24,880
-------- ------ -------- -------
Net increase (decrease) in
net assets resulting from $479,134
operations . . . . . . . . ======== $6,507 $627,306 $37,560
====== ======== =======
</TABLE>
- ---------
* From May 1, 1996 (commencement of operations).
See accompanying notes.
32
<PAGE>
JOHN HANCOCK VARIABLE LIFE ACCOUNT S
STATEMENTS OF OPERATIONS (CONTINUED)
FOR THE YEARS AND PERIODS ENDED DECEMBER 31,
<TABLE>
<CAPTION>
Mid Cap Value
Money Market Subaccount Subaccount Special Opportunities Subaccount
---------------------------- ------------------ ---------------------------------
1997 1996 1995 1997 1996* 1997 1996 1995
-------- -------- -------- --------- ------- ----------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Investment income:
Distributions received from:
John Hancock Variable Series
Trust I . . . . . . . . . . . $758,434 $287,321 $119,746 $446,081 $ 6,878 $ 878,600 $238,163 $ 40,159
M Fund Inc. . . . . . . . . . -- -- -- -- -- -- -- --
-------- -------- -------- -------- ------- --------- -------- --------
Total investment income . . . . 758,434 287,321 119,746 446,081 6,878 878,600 238,163 40,159
Expenses:
Mortality and expense risks . . 66,882 30,722 12,117 11,421 377 35,934 21,146 4,949
-------- -------- -------- -------- ------- --------- -------- --------
Net investment income . . . . . 691,552 256,599 107,629 434,660 6,501 842,666 217,017 35,210
Net realized and unrealized gain
(loss) on investments:
Net realized gains . . . . . . -- -- -- 101,787 845 297,666 317,400 28,812
Net unrealized appreciation
(depreciation) during the
period . . . . . . . . . . . -- -- -- (39,717) 13,910 (730,748) 344,786 185,349
-------- -------- -------- -------- ------- --------- -------- --------
Net realized and unrealized
gain (loss) on investments . -- -- -- 62,070 14,755 (433,082) 662,186 214,161
-------- -------- -------- -------- ------- --------- -------- --------
Net increase in net assets
resulting from operations . . . $691,552 $256,599 $107,629 $496,730 $21,256 $ 409,584 $879,203 $249,371
======== ======== ======== ======== ======= ========= ======== ========
<CAPTION>
Real Estate Equity Subaccount Growth & Income Subaccount
------------------------------ -----------------------------------
1997 1996 1995 1997 1996 1995
---------- --------- -------- ---------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
Investment income:
Distributions received from:
John Hancock Variable Series $246,677 $ 50,204 $32,578 $5,917,063 $3,056,625 $ 669,643
Trust I . . . . . . . . . . .
M Fund Inc. . . . . . . . . . -- -- -- -- -- --
-------- -------- ------- ---------- ---------- ----------
Total investment income . . . . 246,677 50,204 32,578 5,917,063 3,056,625 669,643
Expenses:
Mortality and expense risks . . 13,879 4,547 2,766 169,135 89,391 23,428
-------- -------- ------- ---------- ---------- ----------
Net investment income . . . . . 232,798 45,657 29,812 5,747,928 2,967,234 646,215
Net realized and unrealized gain
(loss) on investments:
Net realized gains . . . . . . 252,095 19,122 613 2,390,414 512,402 170,322
Net unrealized appreciation
(depreciation) during the (13,488)
period . . . . . . . . . . . -------- 191,067 25,077 435,778 (496,647) 322,628
-------- ------- ---------- ---------- ----------
Net realized and unrealized
gain (loss) on investments . 238,607 210,189 25,690 2,826,192 15,755 492,950
-------- -------- ------- ---------- ---------- ----------
Net increase in net assets
resulting from operations . . . $471,405 $255,846 $55,502 $8,574,120 $2,982,989 $1,139,165
======== ======== ======= ========== ========== ==========
</TABLE>
- ---------
* From May 1, 1996 (commencement of operations).
See accompanying notes.
33
<PAGE>
JOHN HANCOCK VARIABLE LIFE ACCOUNT S
STATEMENTS OF OPERATIONS (CONTINUED)
FOR THE YEARS AND PERIODS ENDED DECEMBER 31,
<TABLE>
<CAPTION>
Short-Term U.S.
Managed Subaccount Government Subaccount
------------------------------------------ -------------------------------------
1997 1996 1995 1997 1996 1995
------------------- ----------- -------- ----------------- --------- -------
<S> <C> <C> <C> <C> <C> <C>
Investment income:
Distributions received from:
John Hancock Variable Series Trust I . . $ 1,879,954 $1,281,149 $316,774 $ 415,542 $181,937 $64,502
M Fund Inc. . . . . . . . . . . . . . . -- -- -- -- -- --
------------------- ---------- -------- ---------------- -------- -------
Total investment income . . . . . . . . . 1,879,954 1,281,149 316,774 415,542 181,937 64,502
Expenses:
Mortality and expense risks . . . . . . . 65,383 35,103 10,978 20,551 9,277 2,917
------------------- ---------- -------- ---------------- -------- -------
Net investment income . . . . . . . . . . 1,814,571 1,246,046 305,796 394,991 172,660 61,585
Net realized and unrealized gain (loss) on
investments:
Net realized gains . . . . . . . . . . . 171,318 124,493 179,131 35,294 (52,888) 8,251
Net unrealized appreciation
(depreciation) during the
year. . . . . . . . . . . . . . . . . . 715,231 (507,517) 51,622 (25,976) (7,734) 22,112
------------------- ---------- -------- ---------------- -------- -------
Net realized and unrealized gain (loss)
on investments. . . . . . . . . . . . . 886,549 (383,024) 230,753 9,318 (60,622) 30,363
------------------- ---------- -------- ---------------- -------- -------
Net increase (decrease) in net assets
resulting from operations . . . . . . . . $ 2,701,120 $ 863,022 $536,549 $ 404,309 $112,038 $91,948
=================== ========== ======== ================ ======== =======
<CAPTION>
International Opportunities
Small Cap Value Subaccount
Subaccount --------------------------------------
--------------------------
1997 1996* 1997 1996*
----------------- -------- ----------------------------- --------
<S> <C> <C> <C> <C>
Investment income:
Distributions received from:
John Hancock Variable Series Trust I . . $ 299,278 $ 8,296 $ 69,078 $ 2,965
M Fund Inc. . . . . . . . . . . . . . . -- -- -- --
---------------- ------- ---------------------------- -------
Total investment income . . . . . . . . . 299,278 8,296 69,078 2,965
Expenses:
Mortality and expense risks . . . . . . . 8,494 523 13,177 1,439
---------------- ------- ---------------------------- -------
Net investment income . . . . . . . . . . 290,784 7,773 55,901 1,526
Net realized and unrealized gain (loss) on
investments:
Net realized gains . . . . . . . . . . . 75,149 58 80,782 242
Net unrealized appreciation
(depreciation) during the (18,626)
year. . . . . . . . . . . . . . . . . . ---------------- 14,046 (260,664) 36,666
------- ---------------------------- -------
Net realized and unrealized gain (loss)
on investments. . . . . . . . . . . . . 56,523 14,104 (179,882) 36,908
---------------- ------- ---------------------------- -------
Net increase (decrease) in net assets
resulting from operations . . . . . . . . $ 347,307 $21,877 $ (123,981) $38,434
================ ======= ============================ =======
<CAPTION>
Equity Index
Subaccount
----------------------
1997 1996*
------------- ----------
<S> <C> <C>
Investment income:
Distributions received from:
John Hancock Variable Series Trust I . . $ 409,920 $23,300
M Fund Inc. . . . . . . . . . . . . . . -- --
------------- -------
Total investment income . . . . . . . . . 409,920 23,300
Expenses:
Mortality and expense risks . . . . . . . 31,223 1,962
------------- -------
Net investment income . . . . . . . . . . 378,697 21,338
Net realized and unrealized gain (loss) on
investments:
Net realized gains . . . . . . . . . . . 901,978 17,398
Net unrealized appreciation
(depreciation) during the 392,256
year. . . . . . . . . . . . . . . . . . ------------- 55,782
-------
Net realized and unrealized gain (loss)
on investments. . . . . . . . . . . . . 1,294,234 73,180
------------- -------
Net increase (decrease) in net assets
resulting from operations . . . . . . . . $ 1,672,931 $94,518
============= =======
</TABLE>
- ---------
* From May 1, 1996 (commencement of operations).
See accompanying notes.
34
<PAGE>
JOHN HANCOCK VARIABLE LIFE ACCOUNT S
STATEMENTS OF OPERATIONS (CONTINUED)
FOR THE YEARS AND PERIODS ENDED DECEMBER 31,
<TABLE>
<CAPTION>
Strategic Edinburgh Frontier Enhanced
Bond Turner Core Growth International Equity Capital Appreciation U.S.
Subaccount Subaccount Subaccount Subaccount Equity
----------------- ------------------- --------------------- --------------------- Subaccount
1997 1996* 1997 1996* 1997 1996* 1997 1996* 1997**
--------- ------- --------- --------- ---------- ---------- ---------- --------- ------------
-----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Investment income:
Distributions received
from:
John Hancock Variable
Series Trust I . . . . . $ 74,850 $7,425 $ -- $ -- $ -- $ -- $ -- $ -- $ --
M Fund Inc. . . . . . . . -- -- 91,360 21,778 32,677 5,263 128,190 -- 15,335
-------- ------ -------- ------- -------- -------- --------- -------- -------
Total investment income . . 74,850 7,425 91,360 21,778 32,677 5,263 128,190 15,335
Expenses:
Mortality and expense risks 3,820 349 4,071 2,140 7,502 2,280 10,040 1,679 478
Net investment income (loss) 71,030 7,076 87,289 19,638 25,175 2,983 118,150 (1,679) 14,857
Net realized and unrealized
gain (loss) on investments:
Net realized gains
(losses) . . . . . . . . 8,335 22 76,711 (9,767) 12,541 (2,433) 614,358 (21,044) 4,177
Net unrealized
appreciation
(depreciation) during the
year . . . . . . . . . . (11,727) (591) 32,626 16,054 (26,022) (12,286) (368,570) 5,101 6,844
-------- ------ -------- ------- -------- -------- --------- -------- -------
Net realized and unrealized
gain (loss) on investments (3,392) (569) 109,337 6,287 (13,481) (14,719) 245,788 (15,943) 11,021
-------- ------ -------- ------- -------- -------- --------- -------- -------
Net increase (decrease) in
net assets resulting from
operations . . . . . . . . $ 67,638 $6,507 $196,626 $25,925 $ 11,694 $(11,736) $ 363,938 $(17,622) $25,878
======== ====== ======== ======= ======== ======== ========= ======== =======
</TABLE>
- ---------
* From May 1, 1996 (commencement of operations).
** From July 1, 1997 (commencement of operations).
See accompanying notes.
35
<PAGE>
JOHN HANCOCK VARIABLE LIFE ACCOUNT S
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE YEARS AND PERIODS ENDED DECEMBER 31,
<TABLE>
<CAPTION>
Large Cap Growth Subaccount Sovereign Bond Subaccount
---------------------------------------- -------------------------------------
1997 1996 1995 1997 1996 1995
------------- ------------ ------------ ------------ ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Increase (decrease) in net assets
from operations:
Net investment income (loss) . . $ 2,793,242 $ 2,402,502 $ 492,307 $ 816,558 $ 228,752 $ 62,824
Net realized gains (losses). . . 619,721 444,487 126,908 80,538 5,746 21,718
Net unrealized appreciation
(depreciation) during the period 2,301,920 (1,104,574) 180,251 63,687 (69,973) 34,574
------------ ----------- ----------- ----------- ---------- ----------
Net increase (decrease) in net
assets resulting from operations 5,714,883 1,742,415 799,466 960,783 164,525 119,116
From policyholder transactions:
Net premiums from policyholders. 20,264,849 13,036,922 8,115,186 21,324,560 4,312,776 1,370,188
Net benefits to policyholders. . (10,390,849) (4,928,834) (2,752,131) (8,009,615) (679,839) (318,068)
------------ ----------- ----------- ----------- ---------- ----------
Net increase in net assets
resulting from policyholder
transactions . . . . . . . . . . 9,874,000 8,108,088 5,363,055 13,314,945 3,632,937 1,052,120
------------ ----------- ----------- ----------- ---------- ----------
Net increase in net assets. . . . 15,588,883 9,850,503 6,162,521 14,275,728 3,797,462 1,171,236
Net assets at beginning of period 16,915,393 7,064,890 902,369 5,185,747 1,388,285 217,049
------------ ----------- ----------- ----------- ---------- ----------
Net assets at end of period . . . $ 32,504,276 $16,915,393 $ 7,064,890 $19,461,475 $5,185,747 $1,388,285
============ =========== =========== =========== ========== ==========
<CAPTION>
Small Cap Growth International Balanced
International Equities Subaccount Subaccount Subaccount
--------------------------------------- ------------------------ -----------------------
1997 1996 1995 1997 1996* 1997 1996*
------------ ------------ ------------ ------------ ----------- ------------ ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Increase (decrease) in net assets
from operations:
Net investment income (loss) . . $ 389,020 $ 29,056 $ 9,067 $ (6,074) $ (1,035) $ 56,806 $ 2,591
Net realized gains (losses). . . 244,810 165,730 (25,931) 21,707 (40,018) 8,667 56
Net unrealized appreciation
(depreciation) during the period (1,219,540) 137,729 153,715 126,699 (2,665) (67,714) 5,307
----------- ----------- ----------- ----------- ---------- ---------- --------
Net increase (decrease) in net (585,710) 332,515 136,851 142,332 (43,718) (2,241) 7,954
assets resulting from operations
From policyholder transactions:
Net premiums from policyholders. 8,150,400 4,750,218 2,620,265 2,870,481 1,120,880 1,608,069 148,617
Net benefits to policyholders. . (4,505,840) (1,906,352) (1,194,625) (1,005,386) (579,637) (282,878) (4,276)
----------- ----------- ----------- ----------- ---------- ---------- --------
Net increase in net assets
resulting from policyholder 3,644,560
transactions . . . . . . . . . . ----------- 2,843,866 1,425,640 1,865,095 541,243 1,325,191 144,341
----------- ----------- ----------- ---------- ---------- --------
Net increase in net assets. . . . 3,058,850 3,176,381 1,562,491 2,007,427 497,525 1,322,950 152,295
Net assets at beginning of period 5,731,199 2,554,818 992,327 497,525 -- 152,295 --
----------- ----------- ----------- ----------- ---------- ---------- --------
Net assets at end of period . . . $ 8,790,049 $ 5,731,199 $ 2,554,818 $ 2,504,952 $ 497,525 $1,475,245 $152,295
=========== =========== =========== =========== ========== ========== ========
<CAPTION>
Mid Cap Growth Large Cap Value
Subaccount Subaccount
--------------------- ----------------------
1997 1996* 1997 1996*
----------- --------- ------------ -----------
<S> <C> <C> <C> <C>
Increase (decrease) in net assets
from operations:
Net investment income (loss) . . $ (8,287) $ 458 $ 183,036 $ 12,680
Net realized gains (losses). . . 1,235 (391) 164,821 1,327
Net unrealized appreciation
(depreciation) during the period 486,186 6,440 279,449 23,553
---------- -------- ----------- --------
Net increase (decrease) in net 479,134 6,507 627,306 37,560
assets resulting from operations
From policyholder transactions:
Net premiums from policyholders. 3,212,754 858,546 5,421,062 767,660
Net benefits to policyholders. . (915,459) (26,730) (1,620,578) (42,864)
---------- -------- ----------- --------
Net increase in net assets
resulting from policyholder 2,297,295
transactions . . . . . . . . . . ---------- 831,816 3,800,484 724,796
-------- ----------- --------
Net increase in net assets. . . . 2,776,429 838,323 4,427,790 762,356
Net assets at beginning of period 838,323 -- 762,356 --
---------- -------- ----------- --------
Net assets at end of period . . . $3,614,752 $838,323 $ 5,190,146 $762,356
========== ======== =========== ========
</TABLE>
- ---------
* From May 1, 1996 (commencement of operations).
See accompanying notes.
36
<PAGE>
JOHN HANCOCK VARIABLE LIFE ACCOUNT S
STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED)
FOR THE YEARS AND PERIODS ENDED DECEMBER 31,
<TABLE>
<CAPTION>
Mid Cap
Value
Money Market Subaccount Subaccount
------------------------------------------- ----------------------
1997 1996 1995 1997 1996*
-------------- ------------- ------------- ------------ ---------
-----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Increase in net assets from
operations:
Net investment income . . . $ 691,552 $ 256,599 $ 107,629 $ 434,660 $ 6,501
Net realized gains -- -- -- 101,787 845
Net unrealized appreciation
(depreciation) during the
period. . . . . . . . . . . -- -- -- (39,717) 13,910
------------- ------------ ------------ ----------- --------
Net increase in net assets
resulting from operations . 691,552 256,599 107,629 496,730 21,256
From policyholder
transactions:
Net premiums from
policyholders . . . . . . . 103,737,470 36,814,029 19,983,940 6,323,061 324,248
Net benefits to
policyholders . . . . . . . (100,296,756) (31,658,283) (17,720,190) (1,089,206) (9,188)
------------- ------------ ------------ ----------- --------
Net increase in net assets
resulting from policyholder
transactions. . . . . . . . 3,440,714 5,155,746 2,263,750 5,233,855 315,060
------------- ------------ ------------ ----------- --------
Net increase in net assets . 4,132,266 5,412,345 2,371,379 5,730,585 336,316
Net assets at beginning of
period. . . . . . . . . . . 10,038,857 4,626,512 2,255,133 336,316 --
------------- ------------ ------------ ----------- --------
Net assets at end of period. $ 14,171,123 $ 10,038,857 $ 4,626,512 $ 6,066,901 $336,316
============= ============ ============ =========== ========
<CAPTION>
Special Opportunities Subaccount Real Estate Equity Subaccount
-------------------------------------- ------------------------------------
1997 1996 1995 1997 1996 1995
------------ ------------ ----------- ------------ ----------- ----------
--------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Increase in net assets from
operations:
Net investment income . . . $ 842,666 $ 217,017 $ 35,210 $ 232,798 $ 45,657 $ 29,812
Net realized gains 297,666 317,400 28,812 252,095 19,122 613
Net unrealized appreciation
(depreciation) during the (730,748)
period. . . . . . . . . . . ----------- 344,786 185,349 (13,488) 191,067 25,077
----------- ---------- ----------- ---------- ---------
Net increase in net assets 409,584 879,203 249,371 471,405 255,846 55,502
resulting from operations .
From policyholder
transactions:
Net premiums from 8,511,081 4,939,686 1,639,491 4,833,914 748,683 466,306
policyholders . . . . . . .
Net benefits to
policyholders . . . . . . . (6,274,668) (1,301,761) (551,692) (2,393,463) (295,788) (370,910)
----------- ----------- ---------- ----------- ---------- ---------
Net increase in net assets
resulting from policyholder 2,236,413
transactions. . . . . . . . ----------- 3,637,925 1,087,799 2,440,451 452,895 95,396
----------- ---------- ----------- ---------- ---------
Net increase in net assets . 2,645,997 4,517,128 1,337,170 2,911,858 708,741 150,898
Net assets at beginning of
period. . . . . . . . . . . 6,187,188 1,670,060 332,890 1,279,523 570,782 419,884
----------- ----------- ---------- ----------- ---------- ---------
Net assets at end of period. $ 8,833,185 $ 6,187,188 $1,670,060 $ 4,191,379 $1,279,523 $ 570,782
=========== =========== ========== =========== ========== =========
<CAPTION>
Growth & Income Subaccount
----------------------------------------
1997 1996 1995
------------- ------------ --------------
-------------------------------------------
<S> <C> <C> <C>
Increase in net assets from
operations:
Net investment income . . . $ 5,747,928 $ 2,967,234 $ 646,215
Net realized gains 2,390,414 512,402 170,322
Net unrealized appreciation
(depreciation) during the 435,778
period. . . . . . . . . . . ------------ (496,647) 322,628
----------- -----------
Net increase in net assets 8,574,120 2,982,989 1,139,165
resulting from operations .
From policyholder
transactions:
Net premiums from 35,535,599 19,263,021 8,168,426
policyholders . . . . . . .
Net benefits to
policyholders . . . . . . . (21,776,809) (5,502,524) (1,740,418)
------------ ----------- -----------
Net increase in net assets
resulting from policyholder 13,758,790
transactions. . . . . . . . ------------ 13,760,497 6,428,008
----------- -----------
Net increase in net assets . 22,332,910 16,743,486 7,567,173
Net assets at beginning of
period. . . . . . . . . . . 25,663,282 8,919,796 1,352,623
------------ ----------- -----------
Net assets at end of period. $ 47,996,192 $25,663,282 $ 8,919,796
============ =========== ===========
</TABLE>
- ---------
* From May 1, 1996 (commencement of operations).
See accompanying notes.
37
<PAGE>
JOHN HANCOCK VARIABLE LIFE ACCOUNT S
STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED)
FOR THE YEARS AND PERIODS ENDED DECEMBER 31,
<TABLE>
<CAPTION>
Short-Term U.S.
Managed Subaccount Government Subaccount
--------------------------------------- --------------------------------------
1997 1996 1995 1997 1996 1995
------------ ------------ ------------ ------------ ------------ -----------
-----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Increase (decrease) in net assets from
operations:
Net investment income . . . . . . . . . $ 1,814,571 $ 1,246,046 $ 305,796 $ 394,991 $ 172,660 $ 61,585
Net realized gains (losses). . . . . . . 171,318 124,493 179,131 35,294 (52,888) 8,251
Net unrealized appreciation
(depreciation) during the period. . . . 715,231 (507,517) 51,622 (25,976) (7,734) 22,112
----------- ----------- ----------- ----------- ----------- ----------
Net increase (decrease) in net assets
resulting from operations. . . . . . . . 2,701,120 863,022 536,549 404,309 112,038 91,948
From policyholder transactions:
Net premiums from policyholders. . . . . 16,914,475 9,996,216 5,502,408 12,911,228 8,757,242 2,439,840
Net benefits to policyholders. . . . . . (9,357,535) (3,151,700) (2,875,967) (4,234,624) (7,683,085) (364,204)
----------- ----------- ----------- ----------- ----------- ----------
Net increase in net assets resulting from
policyholder transactions. . . . . . . . 7,556,940 6,844,516 2,626,441 8,676,604 1,074,157 2,075,636
----------- ----------- ----------- ----------- ----------- ----------
Net increase in net assets. . . . . . . . 10,258,060 7,707,538 3,162,990 9,080,913 1,186,195 2,167,584
Net assets at beginning of period . . . . 11,517,261 3,809,723 646,733 3,395,242 2,209,047 41,463
----------- ----------- ----------- ----------- ----------- ----------
Net assets at end of period . . . . . . . $21,775,321 $11,517,261 $ 3,809,723 $12,476,155 $ 3,395,242 $2,209,047
=========== =========== =========== =========== =========== ==========
<CAPTION>
Small Cap Value International Opportunities
Subaccount Subaccount
--------------------- ----------------------------
1997 1996* 1997 1996*
----------- --------- --------------- --------------
-------------------------------------------------------
<S> <C> <C> <C> <C>
Increase (decrease) in net assets from
operations:
Net investment income . . . . . . . . . $ 290,784 $ 7,773 $ 55,901 $ 1,526
Net realized gains (losses). . . . . . . 75,149 58 80,782 242
Net unrealized appreciation
(depreciation) during the period. . . . (18,626) 14,046 (260,664) 36,666
---------- -------- ----------- --------
Net increase (decrease) in net assets 347,307 21,877 (123,981) 38,434
resulting from operations. . . . . . . .
From policyholder transactions:
Net premiums from policyholders. . . . . 4,182,527 335,271 8,906,153 960,081
Net benefits to policyholders. . . . . . (897,951) (16,141) (3,655,731) (89,402)
---------- -------- ----------- --------
Net increase in net assets resulting from
policyholder transactions. . . . . . . . 3,284,576 319,130 5,250,422 870,679
---------- -------- ----------- --------
Net increase in net assets. . . . . . . . 3,631,883 341,007 5,126,441 909,113
Net assets at beginning of period . . . . 341,007 -- 909,113 --
---------- -------- ----------- --------
Net assets at end of period . . . . . . . $3,972,890 $341,007 $ 6,035,554 $909,113
========== ======== =========== ========
</TABLE>
- ---------
* From May 1, 1996 (commencement of operations).
See accompanying notes.
38
<PAGE>
JOHN HANCOCK VARIABLE LIFE ACCOUNT S
STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED)
FOR THE YEARS AND PERIODS ENDED DECEMBER 31,
<TABLE>
<CAPTION>
Equity Strategic
Index Bond Turner Core Growth
Subaccount Subaccount Subaccount
------------------------ --------------------- -----------------------
1997 1996* 1997 1996* 1997 1996*
------------ ----------- ----------- --------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Increase (decrease) in net assets from
operations:
Net investment income (loss) . . . . . . . . . $ 378,697 $ 21,338 $ 71,030 $ 7,076 $ 87,289 $ 19,638
Net realized gains (losses). . . . . . . . . . 901,978 17,398 8,335 22 76,711 (9,767)
Net unrealized appreciation (depreciation)
during the period . . . . . . . . . . . . . . 392,256 55,782 (11,727) (591) 32,626 16,054
----------- ---------- ---------- -------- ---------- ----------
Net increase (decrease) in net assets resulting
from operations. . . . . . . . . . . . . . . . 1,672,931 94,518 67,638 6,507 196,626 25,925
From policyholder transactions:
Net premiums from policyholders. . . . . . . . 23,412,687 1,282,798 1,828,179 259,231 743,622 1,135,180
Net benefits to policyholders. . . . . . . . . (9,622,006) (403,009) (534,164) (7,110) (580,027) (506,352)
----------- ---------- ---------- -------- ---------- ----------
Net increase in net assets resulting from
policyholder transactions. . . . . . . . . . . 13,790,681 879,789 1,294,015 252,121 163,595 628,828
----------- ---------- ---------- -------- ---------- ----------
Net increase in net assets. . . . . . . . . . . 15,463,612 974,307 1,361,653 258,628 360,221 654,753
Net assets at beginning of period . . . . . . . 974,307 -- 258,628 -- 654,753 --
----------- ---------- ---------- -------- ---------- ----------
Net assets at end of period . . . . . . . . . . $16,437,919 $ 974,307 $1,620,281 $258,628 $1,014,974 $ 654,753
=========== ========== ========== ======== ========== ==========
<CAPTION>
Edinburgh Frontier Enhanced
International Equity Capital Appreciation US
Subaccount Subaccount Equity
------------------------ ------------------------ Subaccount
1997 1996* 1997 1996* 1997**
------------ ----------- ------------ ----------- ------------
<S> <C> <C> <C> <C> <C>
Increase (decrease) in net assets from
operations:
Net investment income (loss) . . . . . . . . . $ 25,175 $ 2,983 $ 118,150 $ (1,679) $ 14,857
Net realized gains (losses). . . . . . . . . . 12,541 (2,433) 614,358 (21,044) 4,177
Net unrealized appreciation (depreciation)
during the period . . . . . . . . . . . . . . (26,022) (12,286) (368,570) 5,101 6,844
----------- ---------- ----------- ---------- --------
Net increase (decrease) in net assets resulting 11,694 (11,736) 363,938 (17,622) 25,878
from operations. . . . . . . . . . . . . . . .
From policyholder transactions:
Net premiums from policyholders. . . . . . . . 2,484,010 1,021,041 10,030,418 1,535,063 475,503
Net benefits to policyholders. . . . . . . . . (1,088,249) (80,162) (5,969,436) (549,363) (4,176)
----------- ---------- ----------- ---------- --------
Net increase in net assets resulting from
policyholder transactions. . . . . . . . . . . 1,395,761 940,879 4,060,982 985,700 471,327
----------- ---------- ----------- ---------- --------
Net increase in net assets. . . . . . . . . . . 1,407,455 929,143 4,424,920 968,078 497,205
Net assets at beginning of period . . . . . . . 929,143 -- 968,078 -- --
----------- ---------- ----------- ---------- --------
Net assets at end of period . . . . . . . . . . $ 2,336,598 $ 929,143 $ 5,392,998 $ 968,078 $497,205
=========== ========== =========== ========== ========
</TABLE>
- ---------
* From May 1, 1996 (commencement of operations).
** From July 1, 1997 (commencement of operations).
See accompanying notes.
39
<PAGE>
JOHN HANCOCK VARIABLE LIFE ACCOUNT S
NOTES TO FINANCIAL STATEMENTS
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 formed to fund variable life insurance policies
(Policies) issued by JHVLICO. The Account is operated as a unit investment trust
registered under the Investment Company Act of 1940, as amended, and currently
consists of twenty-two subaccounts. The assets of each subaccount are invested
exclusively in shares of a corresponding Portfolio of John Hancock Variable
Series Trust I (the Fund) or of M Fund Inc. (M Fund). New subaccounts may be
added as new Portfolios are added to the Fund or to M Fund, or as other
investment options are developed, and made available to policyholders. The
twenty-two Portfolios of the Fund and M Fund which are currently available are
the Large Cap Growth, Sovereign Bond, International Equities, Small Cap Growth,
International Balanced, Mid Cap Growth, Large Cap Value, Money Market, Mid Cap
Value, Special Opportunities, Real Estate Equity, Growth & Income, Managed,
Short-Term U.S. Government, Small Cap Value, International Opportunities, Equity
Index, Strategic Bond, Turner Core Growth, Edinburgh International Equity,
Frontier Capital Appreciation, and Enhanced U.S. Equity Portfolios. Each
Portfolio has a different investment objective.
The net assets of the Account may not be less than the amount required under
state insurance law to provide for death benefits (without regard to the minimum
death benefit guarantee) and other policy benefits. Additional assets are held
in JHVLICO's general account to cover the contingency that the guaranteed
minimum death benefit might exceed the death benefit which would have been
payable in the absence of such guarantee.
The assets of the Account are the property of JHVLICO. The portion of the
Account's assets applicable to the policies may not be charged with liabilities
arising out of any other business JHVLICO may conduct.
2. SIGNIFICANT ACCOUNTING POLICIES
ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
VALUATION OF INVESTMENTS
Investment in shares of the Fund and of M Fund are valued at the reported net
asset values of the respective Portfolios. Investment transactions are recorded
on the trade date. Dividend income is recognized on the ex-dividend date.
Realized gains and losses on sales of 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
40
<PAGE>
JOHN HANCOCK VARIABLE LIFE ACCOUNT S
NOTES TO FINANCIAL STATEMENTS--CONTINUED
2. SIGNIFICANT ACCOUNTING POLICIES--CONTINUED
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.
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, 1997, 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.
41
<PAGE>
JOHN HANCOCK VARIABLE LIFE ACCOUNT S
NOTES TO FINANCIAL STATEMENTS--CONTINUED
4. DETAILS OF INVESTMENTS
The details of the shares owned and cost and value of investments in the
Portfolios of the Fund and of M Fund at December 31, 1997 were as follows:
<TABLE>
<CAPTION>
Shares
Subaccount Owned Cost Value
- ---------- ------ ---- -----
<S> <C> <C> <C>
Large Cap Growth . . . . . . . . . . . 1,561,287 $31,151,210 $32,504,276
Sovereign Bond . . . . . . . . . . . . 1,956,128 19,437,026 19,461,475
International Equities . . . . . . . . 578,299 9,765,082 8,790,049
Small Cap Growth . . . . . . . . . . . 220,819 2,380,918 2,504,952
International Balanced . . . . . . . . 145,916 1,537,651 1,475,245
Mid Cap Growth . . . . . . . . . . . . 303,110 3,122,126 3,614,752
Large Cap Value . . . . . . . . . . . . 382,482 4,887,145 5,190,146
Money Market . . . . . . . . . . . . . 1,417,112 14,171,123 14,171,123
Mid Cap Value . . . . . . . . . . . . . 437,535 6,092,708 6,066,901
Special Opportunities . . . . . . . . . 574,138 9,030,644 8,833,185
Real Estate Equity . . . . . . . . . . 263,435 3,978,788 4,191,379
Growth & Income . . . . . . . . . . . . 2,890,378 47,801,795 47,996,192
Managed . . . . . . . . . . . . . . . . 1,517,509 21,524,241 21,775,321
Short-Term U.S. Government . . . . . . 1,237,301 12,488,078 12,476,155
Small Cap Value . . . . . . . . . . . . 320,361 3,977,470 3,972,890
International Opportunities . . . . . . 567,935 6,259,552 6,035,554
Equity Index . . . . . . . . . . . . . 1,156,526 15,989,880 16,437,919
Strategic Bond . . . . . . . . . . . . 158,189 1,632,599 1,620,281
Turner Core Growth . . . . . . . . . . 75,183 966,293 1,014,974
Edinburgh International Equity . . . . 234,598 2,374,907 2,336,598
Frontier Capital Appreciation . . . . . 361,461 5,756,467 5,392,998
Enhanced U.S. Equity . . . . . . . . . 32,949 490,361 497,205
</TABLE>
42
<PAGE>
JOHN HANCOCK VARIABLE LIFE ACCOUNT S
NOTES TO FINANCIAL STATEMENTS--CONTINUED
4. DETAILS OF INVESTMENTS--CONTINUED
Purchases, including reinvestment of dividend distributions and proceeds from
sales of shares in the Portfolios of the Fund and of M Fund for the period ended
December 31, 1997, were as follows:
<TABLE>
<CAPTION>
Subaccount Purchases Sales
- ---------- --------- -----
- ---------------------------------------------------------------------------
<S> <C> <C>
Large Cap Growth . . . . . . . . . . . . . . . $20,094,623 $ 7,427,382
Sovereign Bond . . . . . . . . . . . . . . . . 21,367,667 7,236,163
International Equities . . . . . . . . . . . . 8,130,858 4,097,278
Small Cap Growth . . . . . . . . . . . . . . . 2,578,061 719,040
International Balanced . . . . . . . . . . . . 1,670,073 288,058
Mid Cap Growth . . . . . . . . . . . . . . . . 3,122,169 833,161
Large Cap Value . . . . . . . . . . . . . . . 5,031,714 1,048,194
Money Market . . . . . . . . . . . . . . . . . 59,512,461 55,380,195
Mid Cap Value . . . . . . . . . . . . . . . . 6,426,342 757,826
Special Opportunities . . . . . . . . . . . . 8,664,245 5,585,165
Real Estate Equity . . . . . . . . . . . . . . 4,202,541 1,529,291
Growth & Income . . . . . . . . . . . . . . . 37,713,543 18,206,825
Managed . . . . . . . . . . . . . . . . . . . 17,294,008 7,922,497
Short-Term U.S. Government . . . . . . . . . . 13,060,114 3,988,519
Small Cap Value . . . . . . . . . . . . . . . 4,303,961 728,601
International Opportunities . . . . . . . . . 8,336,576 3,030,253
Equity Index . . . . . . . . . . . . . . . . . 22,483,862 8,314,485
Strategic Bond . . . . . . . . . . . . . . . . 1,944,789 579,743
Turner Core Growth . . . . . . . . . . . . . . 830,019 579,134
Edinburgh International Equity . . . . . . . . 2,552,366 1,131,429
Frontier Capital Appreciation . . . . . . . . 9,434,861 5,293,298
Enhanced U.S. Equity . . . . . . . . . . . . . 561,076 74,892
</TABLE>
5. IMPACT OF YEAR 2000 (UNAUDITED)
The John Hancock Variable Life Account S, along with John Hancock Mutual Life
Insurance Company, its ultimate parent (together, John Hancock), have developed
a plan to modify or replace significant portions of the Account's computer
information and automated technologies so that its systems will function
properly with respect to the dates in the year 2000 and thereafter. The Account
presently believes that with modifications to existing systems and conversions
to new technologies, the year 2000 will not pose significant operational
problems for its computer systems. However, if certain modifications and
conversions are not made, or are not completed timely, the year 2000 issue could
have an adverse impact on the operations of the Account.
John Hancock as early as 1994 had begun assessing, modifying and converting
the software related to its significant systems and has initiated formal
communications with its significant business partners and customers to determine
the extent to which John Hancock's interface systems are vulnerable to those
third parties' failure to remediate their own year 2000 issues. While John
Hancock is developing alternative third party processing
43
<PAGE>
JOHN HANCOCK VARIABLE LIFE ACCOUNT S
NOTES TO FINANCIAL STATEMENTS--CONTINUED
5. IMPACT OF YEAR 2000 (UNAUDITED)--CONTINUED
arrangements as it deems appropriate, there is no guarantee that the systems of
other companies on which the Account's systems rely will be converted timely or
will not have an adverse effect on the Account's systems.
The Account expects the project to be substantially complete by early 1999.
This completion target was derived utilizing numerous assumptions of future
events, including availability of certain resources and other factors. However,
there can be no guarantee that this completion target will be achieved.
44
<PAGE>
REPORT 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
Large Cap Growth, Sovereign Bond, International Equities, Small Cap Growth,
International Balanced, Mid Cap Growth, Large Cap Value, Money Market, Mid Cap
Value, Special Opportunities, Real Estate Equity, Growth & Income, Managed,
Short-Term U.S. Government, Small Cap Value, International Opportunities, Equity
Index, Strategic Bond, Turner Core Growth, Edinburgh International Equity,
Frontier Capital Appreciation and Enhanced U.S. Equity Subaccounts) as of
December 31, 1997, and the related statements of operations, and statements of
changes in net assets for each of the periods indicated therein. These financial
statements are the responsibility of the Account's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of each of the respective
subaccounts constituting John Hancock Variable Life Account S at December 31,
1997, 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 6, 1998
45
<PAGE>
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
To the Directors and Policyholders
John Hancock Variable Life Insurance Company
We have audited the accompanying statutory-basis statements of financial
position of John Hancock Variable Life Insurance Company as of December 31, 1997
and 1996, and the related statutory-basis statements of operations and
unassigned deficit and cash flows for the years then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
As described in Note 1 to the financial statements, the Company presents its
financial statements in conformity with accounting practices prescribed or
permitted by the Commonwealth of Massachusetts Division of Insurance, which
practices differ from generally accepted accounting principles. The variances
between such practices and generally accepted accounting principles also are
described in Note 1. The effects on the financial statements of these variances
are not reasonably determinable but are presumed to be material.
In our opinion, because of the effects of the matter described in the preceding
paragraph, the financial statements referred to above do not present fairly, in
conformity with generally accepted accounting principles, the financial position
of John Hancock Variable Life Insurance Company at December 31, 1997 and 1996,
or the results of its operations or its cash flows for the year ended December
31 1997.
Also, in our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of John Hancock Variable Life
Insurance Company at December 31, 1997 and 1996, and the results of its
operations and its cash flows for the years then ended in conformity with
accounting practices prescribed or permitted by the Commonwealth of
Massachusetts Division of Insurance.
Ernst & Young LLP
Boston, Massachusetts
February 18, 1998
46
<PAGE>
JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY
STATUTORY-BASIS STATEMENTS OF FINANCIAL POSITION
<TABLE>
<CAPTION>
December 31
-------------------
1997 1996
---- ----
(In millions)
<S> <C> <C>
ASSETS
Bonds--Note 6 . . . . . . . . . . . . . . . . . . . . $1,092.7 $ 753.5
Preferred stocks . . . . . . . . . . . . . . . . . . . 17.2 9.6
Common stocks . . . . . . . . . . . . . . . . . . . . 2.3 1.4
Investment in affiliates . . . . . . . . . . . . . . . 79.1 72.0
Mortgage loans on real estate--Note 6 . . . . . . . . 273.9 212.1
Real estate . . . . . . . . . . . . . . . . . . . . . 39.9 38.8
Policy loans . . . . . . . . . . . . . . . . . . . . . 106.8 80.8
Cash items:
Cash in banks . . . . . . . . . . . . . . . . . . . 83.1 26.7
Temporary cash investments . . . . . . . . . . . . . 60.1 5.2
-------- --------
143.2 31.9
Premiums due and deferred . . . . . . . . . . . . . . 33.8 36.8
Investment income due and accrued . . . . . . . . . . 24.7 22.6
Other general account assets . . . . . . . . . . . . . 16.8 17.8
Assets held in separate accounts . . . . . . . . . . . 4,691.1 3,290.5
-------- --------
TOTAL ASSETS . . . . . . . . . . . . . . . . . . . . . $6,521.5 $4,567.8
======== ========
OBLIGATIONS AND STOCKHOLDER'S EQUITY
OBLIGATIONS
Policy reserves . . . . . . . . . . . . . . . . . . $1,124.3 $ 877.8
Federal income and other taxes payable--Note 1 . . . 36.1 29.4
Other accrued expenses . . . . . . . . . . . . . . . 335.1 75.1
Asset valuation reserve--Note 1 . . . . . . . . . . 18.6 16.6
Obligations related to separate accounts . . . . . . 4,685.7 3,285.8
-------- --------
TOTAL OBLIGATIONS . . . . . . . . . . . . . . . . . . 6,199.8 4,284.7
STOCKHOLDER'S EQUITY
Common Stock, $50 par value; authorized 50,000
shares;
issued and outstanding 50,000 shares . . . . . . . 2.5 2.5
Paid-in capital . . . . . . . . . . . . . . . . . . 377.5 377.5
Unassigned deficit . . . . . . . . . . . . . . . . . . (58.3) (96.9)
-------- --------
TOTAL STOCKHOLDER'S EQUITY . . . . . . . . . . . . . . 321.7 283.1
-------- --------
TOTAL OBLIGATIONS AND STOCKHOLDER'S EQUITY . . . . . . $6,521.5 $4,567.8
======== ========
</TABLE>
The accompanying notes are an integral part of the statutory-basis financial
statements.
47
<PAGE>
JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY
STATUTORY-BASIS STATEMENTS OF OPERATIONS AND UNASSIGNED DEFICIT
<TABLE>
<CAPTION>
Year ended December 31
-----------------------
1997 1996
---- ----
(In millions)
<S> <C> <C>
INCOME
Premiums . . . . . . . . . . . . . . . . . . . . $ 872.7 $ 820.6
Net investment income--Note 3 . . . . . . . . . 89.7 76.1
Other, net . . . . . . . . . . . . . . . . . . . 420.1 406.0
-------- --------
1,382.5 1,302.7
BENEFITS AND EXPENSES
Payments to policyholders and beneficiaries . . 264.0 236.1
Additions to reserves to provide for future
payments to policyholders and beneficiaries . 814.2 790.1
Expenses of providing service to policyholders
and obtaining new insurance--
Note 5 . . . . . . . . . . . . . . . . . . . . 216.2 183.8
State and miscellaneous taxes . . . . . . . . . 19.1 17.3
-------- --------
1,313.5 1,227.3
-------- --------
GAIN FROM OPERATIONS BEFORE FEDERAL INCOME
TAXES AND NET REALIZED CAPITAL LOSSES . . . 69.0 75.4
Federal income taxes--Note 1 38.5 38.6
-------- --------
GAIN FROM OPERATIONS BEFORE NET REALIZED
CAPITAL LOSSES . . . . . . . . . . . . . . . 30.5 36.8
Net realized capital losses--Note 4 . . . . . . . (3.0) (1.5)
-------- --------
NET INCOME . . . . . . . . . . . . . . . . . 27.5 35.3
Unassigned deficit at beginning of year . . . . . (96.9) (131.3)
Net unrealized capital gains and other
adjustments--Note 4 . . . . . . . . . . . . . . . 5.0 2.5
Other reserves and adjustments . . . . . . . . . . 6.1 (3.4)
-------- --------
UNASSIGNED DEFICIT AT END OF YEAR . . . . . . $ (58.3) $ (96.9)
======== ========
</TABLE>
The accompanying notes are an integral part of the statutory-basis financial
statements.
48
<PAGE>
JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY
STATUTORY-BASIS STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year ended December 31
-----------------------
1997 1996
---- ----
(In millions)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Insurance premiums . . . . . . . . . . . . . . . $ 877.0 $ 824.2
Net investment income . . . . . . . . . . . . . 89.9 73.4
Benefits to policyholders and beneficiaries . . (245.2) (212.7)
Dividends paid to policyholders . . . . . . . . (18.7) (15.7)
Insurance expenses and taxes . . . . . . . . . . (250.2) (196.6)
Net transfers to separate accounts . . . . . . . (703.2) (524.2)
Other, net . . . . . . . . . . . . . . . . . . . 379.9 386.7
------- -------
NET CASH PROVIDED FROM OPERATIONS . . . . . . 129.5 335.1
------- -------
CASH FLOWS USED IN INVESTING ACTIVITIES:
Bond purchases . . . . . . . . . . . . . . . . . (621.6) (489.9)
Bond sales . . . . . . . . . . . . . . . . . . . 197.3 228.3
Bond maturities and scheduled redemptions . . . 34.1 27.8
Bond prepayments . . . . . . . . . . . . . . . . 51.6 31.9
Stock purchases . . . . . . . . . . . . . . . . (15.7) (6.5)
Proceeds from stock sales . . . . . . . . . . . 6.7 0.4
Real estate purchases . . . . . . . . . . . . . (1.3) (10.5)
Real estate sales . . . . . . . . . . . . . . . 0.4 8.5
Other invested assets purchases . . . . . . . . (1.0) 0.0
Proceeds from the sale of other invested assets 0.3 1.5
Mortgage loans issued . . . . . . . . . . . . . (94.5) (84.4)
Mortgage loan repayments . . . . . . . . . . . . 32.4 17.7
Other, net . . . . . . . . . . . . . . . . . . . 393.1 (104.6)
------- -------
NET CASH USED IN INVESTING ACTIVITIES . . . . (18.2) (379.8)
------- -------
INCREASE (DECREASE) IN CASH AND TEMPORARY CASH
INVESTMENTS . . . . . . . . . . . . . . . . . . . 111.3 (44.7)
Cash and temporary cash investments at beginning of
year. . . . . . . . . . . . . . . . . . . . . . . 31.9 76.6
------- -------
CASH AND TEMPORARY CASH INVESTMENTS AT END OF YEAR $ 143.2 $ 31.9
======= =======
</TABLE>
The accompanying notes are an integral part of the statutory-basis financial
statements.
49
<PAGE>
JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS
NOTE 1--NATURE OF OPERATIONS AND SIGNIFICANT ACCOUNTING PRACTICES
John Hancock Variable Life Insurance Company (the Company) is a wholly-owned
subsidiary of John Hancock Mutual Life Insurance Company (John Hancock). The
Company, domiciled in the Commonwealth of Massachusetts, principally writes
variable and universal life insurance policies. Those policies primarily are
marketed through John Hancock's sales organization, which includes a career
agency system composed of company-owned, unionized branch offices and
independent general agencies. Policies also are sold through various
unaffiliated securities broker-dealers and certain other financial institutions.
Currently, the Company writes business in all states except New York.
The preparation of financial statements requires management to make estimates
and assumptions that affect amounts reported in the financial statements and
accompanying notes. Such estimates and assumptions could change in the future as
more information becomes known, which could impact the amounts reported and
disclosed herein.
Basis of Presentation: The financial statements have been prepared using
accounting practices prescribed or permitted by the Commonwealth of
Massachusetts Division of Insurance and in conformity with the practices of the
National Association of Insurance Commissioners (NAIC), which practices differ
from generally accepted accounting principles (GAAP).
The significant differences from GAAP include: (1) policy acquisition costs are
charged to expense as incurred rather than deferred and amortized over the
related premium-paying period; (2) policy reserves are based on statutory
mortality, morbidity, and interest requirements without consideration of
withdrawals and Company experience; (3) certain assets designated as
"nonadmitted assets" are excluded from the balance sheet by direct charges to
surplus; (4) reinsurance recoverables are netted against reserves and claim
liabilities rather than reflected as an asset; (5) bonds held as available for
sale are recorded at amortized cost or market value as determined by the NAIC
rather than at fair value; (6) an Asset Valuation Reserve and Interest
Maintenance Reserve as prescribed by the NAIC are not calculated under GAAP.
Under GAAP, realized capital gains and losses are reported in the income
statement on a pretax basis as incurred and investment valuation allowances are
provided when there has been a decline in value deemed other than temporary; (7)
investments in affiliates are carried at their net equity value with changes in
value being recorded directly to unassigned deficit rather than consolidated in
the financial statements; (8) no provision is made for the deferred income tax
effects of temporary differences between book and tax basis reporting; and (9)
certain items, including modifications to required policy reserves resulting
from changes in actuarial assumptions or increased benefits, are recorded
directly to unassigned deficit rather than being reflected in income. The
effects of the foregoing variances from GAAP have not been determined but are
presumed to be material.
The significant accounting practices of the Company are as follows:
Pending Statutory Standards: The NAIC currently is in the process of recodifying
statutory accounting practices, the result of which is expected to constitute
the only source of prescribed statutory accounting practices. Accordingly, that
project, which is expected to be approved by the NAIC in 1998 will likely
change, to some extent, prescribed statutory accounting practices, and may
result in changes to the accounting practices that the Company uses to prepare
its statutory-basis financial statements. The impact of any such changes on the
Company's unassigned deficit is not expected to be material.
50
<PAGE>
JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS--CONTINUED
NOTE 1--NATURE OF OPERATIONS AND SIGNIFICANT ACCOUNTING PRACTICES--CONTINUED
Revenues and Expenses: Premium revenues are recognized over the premium-paying
period of the policies whereas expenses, including the acquisition costs of new
business, are charged to operations as incurred and policyholder dividends are
provided as paid or accrued.
Cash and Temporary Cash Investments: Cash includes currency on hand and demand
deposits with financial institutions. Temporary cash investments are short-term,
highly-liquid investments both readily convertible to known amounts of cash and
so near maturity that there is insignificant risk of changes in value because of
changes in interest rates.
Valuation of Assets: General account investments are carried at amounts
determined on the following bases:
Bond and stock values are carried as prescribed by the NAIC; bonds generally
at amortized amounts or cost, preferred stocks generally at cost and common
stocks at fair value. The discount or premium on bonds is amortized using the
interest method.
Investments in affiliates are included on the statutory equity method.
Goodwill is amortized on a straight-line basis over a ten year period.
Mortgage loans are carried at outstanding principal balance or amortized cost.
Investment real estate is carried at depreciated cost, less encumbrances.
Depreciation on investment real estate is recorded on a straight-line basis.
Accumulated depreciation amounted to $2.1 million in 1997 and $1.2 million in
1996.
Real estate acquired in satisfaction of debt and held for sale is carried at
the lower of cost or market as of the date of foreclosure.
Policy loans are carried at outstanding principal balance, not in excess of
policy cash surrender value.
Asset Valuation and Interest Maintenance Reserves: The Asset Valuation Reserve
(AVR) is computed in accordance with the prescribed NAIC formula and represents
a provision for possible fluctuations in the value of bonds, equity securities,
mortgage loans, real estate and other invested assets. Changes to the AVR are
charged or credited directly to the unassigned deficit.
The Company also records the NAIC prescribed Interest Maintenance Reserve (IMR)
that represents that portion of the after tax net accumulated unamortized
realized capital gains and losses on sales of fixed income securities,
principally bonds and mortgage loans, attributable to changes in the general
level of interest rates. Such gains and losses are deferred and amortized into
income over the remaining expected lives of the investments sold. At December
31, 1997, the IMR, net of 1997 amortization of $1.2 million, amounted to $7.8
million, which is included in policy reserves. The corresponding 1996 amounts
were $1.2 million and $5.9 million, respectively.
Goodwill: The excess of cost over the statutory book value of the net assets of
life insurance business acquired was $13.1 million and $15.1 million at December
31, 1997 and 1996, respectively, and generally is amortized over a ten-year
period using a straight-line method.
Accumulated amortization was $8.8 million and $6.7 million at December 31, 1997
and 1996, respectively.
51
<PAGE>
JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS--CONTINUED
NOTE 1--NATURE OF OPERATIONS AND SIGNIFICANT ACCOUNTING PRACTICES--CONTINUED
Separate Accounts: Separate account assets and liabilities reported in the
accompanying statements of financial position represent funds that are
separately administered, principally for variable life insurance policies, and
for which the contractholder, rather than the Company, generally bears the
investment risk. Separate account obligations are intended to be satisfied from
separate account assets and not from assets of the general account. Separate
accounts generally are reported at fair value. The operations of the separate
accounts are not included in the statement of operations; however, income earned
on amounts initially invested by the Company in the formation of new separate
accounts is included in other income.
Fair Value Disclosure of Financial Instruments: Statement of Financial
Accounting Standards (SFAS) No. 107, "Disclosure about Fair Value of Financial
Instruments," requires disclosure of fair value information about certain
financial instruments, whether or not recognized in the statement of financial
position, for which it is practicable to estimate the value. In situations where
quoted market prices are not available, fair values are based on estimates using
present value or other valuation techniques. SFAS No. 107 excludes certain
financial instruments and all nonfinancial instruments from its disclosure
requirements. Therefore, the aggregate fair value amounts presented do not
represent the underlying value of the Company. See Note 11.
The methods and assumptions utilized by the Company in estimating its fair value
disclosures for financial instruments are as follows:
The carrying amounts reported in the statement of financial position for cash
and temporary cash investments approximate their fair values.
Fair values for public bonds are obtained from an independent pricing service.
Fair values for private placement securities and publicly traded bonds not
provided by the independent pricing service are estimated by the Company by
discounting expected future cash flows using current market rates applicable
to the yield, credit quality and maturity of the investments.
The fair values for common and preferred stocks, other than its subsidiary
investments, which are carried at equity values, are based on quoted market
prices.
The fair value of interest rate swaps and currency rate swaps is estimated
using a discounted cash flow method adjusted for the difference between the
rate of the existing swap and the current swap market rate. Discounted cash
flows in foreign currencies are converted to U.S. dollars using current
exchange rates.
The fair value for mortgage loans is estimated using discounted cash flow
analyses using interest rates adjusted to reflect the credit characteristics
of the underlying loans. Mortgage loans with similar characteristics and
credit risks are aggregated into qualitative categories for purposes of the
fair value calculations.
The carrying amount in the statement of financial position for policy loans
approximates their fair value.
The fair value for outstanding commitments to purchase long-term bonds and
issue real estate mortgages is estimated using a discounted cash flow method
incorporating adjustments for the difference in the level of interest rates
between the dates the commitments were made and December 31, 1997. The fair
value for commitments to purchase real estate approximates the amount of the
initial commitment.
Capital Gains and Losses: Realized capital gains and losses are determined using
the specific identification basis. Realized capital gains and losses, net of
taxes and amounts transferred to the IMR, are included in net gain or loss.
52
<PAGE>
JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS--CONTINUED
NOTE 1--NATURE OF OPERATIONS AND SIGNIFICANT ACCOUNTING PRACTICES--CONTINUED
Unrealized gains and losses, which consist of market value and book value
adjustments, are shown as adjustments to the unassigned deficit.
Policy Reserves: Life reserves are developed by actuarial methods and are
determined based on published tables using statutorily specified interest rates
and valuation methods that will provide, in the aggregate, reserves that are
greater than or equal to the minimum or guaranteed policy cash values or the
amounts required by the Commonwealth of Massachusetts Division of Insurance.
Reserves for variable life insurance policies are maintained principally on the
modified preliminary term method using the 1958 and 1980 Commissioner's Standard
Ordinary (CSO) mortality tables, with an assumed interest rate of 4% for
policies issued prior to May 1, 1983 and 41/2% for policies issued on or
thereafter. Reserves for single premium policies are determined by the net
single premium method using the 1958 CSO mortality table, with an assumed
interest rate of 4%. Reserves for universal life policies issued prior to 1985
are equal to the gross account value which at all times exceeds minimum
statutory requirements. Reserves for universal life policies issued from 1985
through 1988 are maintained at the greater of the Commissioner's Reserve
Valuation Method (CRVM) using the 1958 CSO mortality table, with 41/2% interest
or the cash surrender value. Reserves for universal life policies issued after
1988 and for flexible variable policies are maintained using the greater of the
cash surrender value or the CRVM method with the 1980 CSO mortality table and
51/2% interest for policies issued from 1988 through 1992; 5% interest for
policies issued in 1993 and 1994; and 41/2% interest for policies issued in 1995
through 1997.
Federal Income Taxes: Federal income taxes are reported in the financial
statements based on amounts determined to be payable as a result of operations
within the current accounting period. The operations of the Company are
consolidated with John Hancock in filing a consolidated federal income tax
return for the affiliated group. The federal income taxes of the Company are
allocated on a separate return basis with certain adjustments. The Company made
payments of $29.6 million in 1997 and $33.5 million in 1996.
Income before taxes differs from taxable income principally due to tax-exempt
investment income, the limitation placed on the tax deductibility of
policyholder dividends, accelerated depreciation, differences in policy reserves
for tax return and financial statement purposes, capitalization of policy
acquisition expenses for tax purposes and other adjustments prescribed by the
Internal Revenue Code.
Adjustments to Policy Reserves: From time to time, the Company finds it
appropriate to modify certain required policy reserves because of changes in
actuarial assumptions or increased benefits. Reserve modifications resulting
from such determinations are recorded directly to stockholder's equity. During
1997, the Company refined certain assumptions inherent in the calculation of
reserves related to AIDS claims under individual life policies resulting in a
$6.4 million increase in stockholder's equity at December 31, 1997.
Reinsurance: Premiums, commissions, expense reimbursements, benefits and
reserves related to reinsured business are accounted for on bases consistent
with those used in accounting for the original policies issued and the terms of
the reinsurance contracts. Premiums ceded to other companies have been reported
as a reduction of 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.
53
<PAGE>
JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS--CONTINUED
NOTE 2--ACQUISITION
On June 23, 1993, the Company acquired all of the outstanding shares of stock of
Colonial Penn Annuity and Life Insurance Company (CPAL) from Colonial Penn Life
Insurance Company for an aggregate purchase price of approximately $42.5
million. At the date of acquisition, assets of CPAL were approximately $648.5
million, consisting principally of cash and temporary cash investments and
liabilities were approximately $635.2 million, consisting principally of
reserves related to a block of interest sensitive single-premium whole life
insurance business assumed by CPAL from Charter National Life Insurance Company
(Charter). The purchase price includes contingent payments of up to
approximately $7.3 million payable between 1994 and 1998 based on the actual
lapse experience of the business in force on June 23, 1993. The Company made
contingent payments to CPAL of $1.5 million during each of 1997 and 1996.
Unamortized goodwill at December 31, 1997 was $13.1 million and is being
amortized over ten years on a straight-line basis.
On June 24, 1993, the Company contributed $24.6 million in additional capital to
CPAL. CPAL was renamed John Hancock Life Insurance Company of America (JHLICOA)
on July 7, 1993. JHLICOA manages the business assumed from Charter and does not
currently issue new business.
NOTE 3--NET INVESTMENT INCOME
Investment income has been reduced by the following amounts:
<TABLE>
<CAPTION>
1997 1996
---- ----
(In millions)
<S> <C> <C>
Investment expenses . . . . . . . . . . . . . . . . . $ 5.0 $7.0
Interest expense . . . . . . . . . . . . . . . . . . . 0.7 0.0
Depreciation expense . . . . . . . . . . . . . . . . . 1.1 0.9
Investment taxes . . . . . . . . . . . . . . . . . . . 0.4 0.5
-------------- ----
$ 7.2 $8.4
============== ====
</TABLE>
NOTE 4--NET CAPITAL GAINS (LOSSES) AND OTHER ADJUSTMENTS
Net realized capital losses consist of the following items:
<TABLE>
<CAPTION>
1997 1996
---- ----
(In millions)
<S> <C> <C>
Net gains (losses) from asset sales . . . . . . . . $ 0.8 $(0.2)
Capital gains tax . . . . . . . . . . . . . . . . . (0.7) (1.0)
Net capital gains transferred to IMR . . . . . . . (3.1) (0.3)
-------------- -----
Realized Capital Losses . . . . . . . . . . . . . . $ (3.0) $(1.5)
============== =====
</TABLE>
54
<PAGE>
JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS--CONTINUED
NOTE 4--NET CAPITAL GAINS (LOSSES) AND OTHER ADJUSTMENTS--CONTINUED
Net unrealized capital gains and other adjustments consist of the following
items:
<TABLE>
<CAPTION>
1997 1996
---- ----
(In millions)
<S> <C> <C>
Net gains from changes in security values and book
value adjustments . . . . . . . . . . . . . . . . $ 7.0 $ 3.7
Increase in asset valuation reserve . . . . . . . . (2.0) (1.2)
-------------- -----
Net Unrealized Capital Gains and Other Adjustments $ 5.0 $ 2.5
============== =====
</TABLE>
NOTE 5--TRANSACTIONS WITH PARENT
The Company's Parent provides the Company with personnel, property and
facilities in carrying out certain of its corporate functions. The Parent
annually determines a fee for these services and facilities based on a number of
criteria which were revised in 1997 and 1996 to reflect continuing changes in
the Company's operations. The amount of the service fee charged to the Company
was $123.6 million and $111.7 million in 1997 and 1996, respectively, which has
been included in insurance and investment expenses. The Parent has guaranteed
that, if necessary, it will make additional capital contributions to prevent the
Company's stockholder's equity from declining below $1.0 million.
The service fee charged to the Company by the Parent includes $0.9 million and
$1.6 million in 1997 and 1996, respectively, representing the portion of the
provision for retiree benefit plans determined under the accrual method,
including a provision for the 1993 transition liability which is being amortized
over twenty years, that was allocated to the Company.
The Company has a modified coinsurance agreement with John Hancock to reinsure
50% of 1994 through 1997 issues of flexible premium variable life insurance and
scheduled premium variable life insurance policies. In connection with this
agreement, John Hancock transferred $22.0 million and $24.5 million of cash for
tax, commission, and expense allowances to the Company, which increased the
Company's net gain from operations by $10.1 million and $15.7 million in 1997
and 1996, respectively.
The Company has a modified coinsurance agreement with John Hancock to reinsure
50% of 1995 through 1997 issues of certain retail annuity contracts
(Independence Preferred and Declaration). In connection with this agreement, the
Company made a net cash payment of $1.1 million and received a net cash payment
of $35.0 million for surrender benefits, tax, reserve increase, commission,
expense allowances and premium. This agreement increased the Company's net gain
from operations by $9.8 million and $15.1 million and in 1997 and 1996,
respectively.
Effective January 1, 1997, the Company entered into a stop-loss agreement with
John Hancock to reinsure mortality claims in excess of 110% of expected
mortality claims in 1997 for all policies that are not reinsured under any other
indemnity agreement. In connection with the agreement, John Hancock transferred
$2.4 million of cash for mortality claims to the Company, which increased the
Company's net gain from operations by $1.3 million.
55
<PAGE>
JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS--CONTINUED
NOTE 6--INVESTMENTS
The statement value and fair value of bonds are shown below:
<TABLE>
<CAPTION>
Gross Gross
Statement Unrealized Unrealized Fair
Year ended December 31, 1997 Value Gains Losses Value
- ---------------------------- --------- ---------- ---------- -----
(In millions)
<S> <C> <C> <C> <C>
U.S. Treasury securities and
obligations of U.S. government
corporations and agencies . . $ 254.5 $ 0.2 $0.1 $ 254.6
Obligations of states and
political subdivisions . . . . 12.1 1.0 0.0 13.1
Debt securities issued by
foreign governments . . . . . 0.2 0.0 0.0 0.2
Corporate securities . . . . . 712.7 43.9 2.7 753.9
Mortgage-backed securities . . 113.2 3.5 0.0 116.7
-------- ----- ---- --------
Total bonds . . . . . . . . . . $1,092.7 $48.6 $2.8 $1,138.5
======== ===== ==== ========
</TABLE>
<TABLE>
<CAPTION>
Gross Gross
Statement Unrealized Unrealized Fair
Year ended December 31, 1996 Value Gains Losses Value
- ---------------------------- --------- ---------- ---------- -----
(In millions)
<S> <C> <C> <C> <C>
U.S. Treasury securities and
obligations of U.S.
government corporations and
agencies. . . . . . . . . . $ 44.4 $ 0.2 $0.2 $ 44.4
Obligations of states and
political subdivisions . . 12.6 0.4 0.0 13.0
Debt securities issued by
foreign governments . . . . 0.8 0.1 0.0 0.9
Corporate securities . . . . 623.2 29.8 3.4 649.6
Mortgage-backed securities . 72.5 10.2 0.1 82.6
-------------- ----- ---- ------
Total bonds . . . . . . . . $ 753.5 $40.7 $3.7 $790.5
============== ===== ==== ======
</TABLE>
The statement value and fair value of bonds at December 31, 1997, by contractual
maturity, are shown below. Maturities will differ from contractual maturities
because eligible borrowers may exercise their right to call or prepay
obligations with or without call or prepayment penalties.
<TABLE>
<CAPTION>
Statement Fair
Value Value
--------- -----
(In millions)
<S> <C> <C>
Due in one year or less . . . . . . . . . . . . . . . . $ 89.1 $ 90.7
Due after one year through five years . . . . . . . . . 466.8 477.0
Due after five years through ten years . . . . . . . . 284.2 299.2
Due after ten years . . . . . . . . . . . . . . . . . . 139.4 154.9
-------- --------
979.5 1,021.8
Mortgage-backed securities . . . . . . . . . . . . . . 113.2 116.7
-------- --------
$1,092.7 $1,138.5
======== ========
</TABLE>
Gross gains of $1.1 million in 1997 and $1.3 million in 1996 and gross losses of
$4.5 million in 1997 and $2.1 million in 1996 were realized from the sale of
bonds.
56
<PAGE>
JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS--CONTINUED
NOTE 6--INVESTMENTS--CONTINUED
At December 31, 1997, bonds with an admitted asset value of $3.6 million were on
deposit with state insurance departments to satisfy regulatory requirements.
The cost of common stocks was $0.0 million at December 31, 1997 and 1996,
respectively. Gross unrealized appreciation on common stocks totaled $2.3
million, and gross unrealized depreciation totaled $0.0 million at December 31,
1997. The fair value of preferred stock totaled $17.2 million at December 31,
1997 and $9.6 million at December 31, 1996.
Bonds with amortized cost of $2.0 million were nonincome producing for the
twelve months ended December 31, 1997.
At December 31, 1997, the mortgage loan portfolio was diversified by geographic
region and specific collateral property type as displayed below. The Company
controls credit risk through credit approvals, limits and monitoring procedures.
<TABLE>
<CAPTION>
Statement Geographic Statement
Property Type Value Concentration Value
------------- --------- ------------- ---------
(In millions) (In millions)
<S> <C> <C> <C>
Apartments. . . . . . $104.1 East North Central . . $ 32.7
Hotels. . . . . . . . 3.8 Middle Atlantic . . . 11.3
Industrial. . . . . . 51.3 Mountain . . . . . . . 17.9
Office buildings . . 32.2 New England . . . . . 35.8
Retail. . . . . . . . 33.2 Pacific . . . . . . . 64.2
Agricultural. . . . . 38.8 South Atlantic . . . . 67.9
Other . . . . . . . . 10.5 West North Central . . 2.5
West South Central . . 41.6
------ ------
$273.9 $273.9
====== ======
</TABLE>
At December 31, 1997, the fair values of the commercial and agricultural
mortgage loans portfolios were $243.8 million and $42.0 million, respectively.
The corresponding amounts as of December 31, 1996 were approximately $189.0
million and $30.4 million, respectively.
The maximum and minimum lending rates for mortgage loans during 1997 were 10.49%
and 8.14% for agricultural loans and 8.53% and 7.42% for other properties.
Generally, the maximum percentage of any loan to the value of security at the
time of the loan, exclusive of insured, guaranteed or purchase money mortgages,
is 75%. For city mortgages, fire insurance is carried on all commercial and
residential properties at least equal to the excess of the loan over the maximum
loan which would be permitted by law on the land without the building, except as
permitted by regulations of the Federal Housing Commission on loans fully
insured under the provisions of the National Housing Act. For agricultural
mortgage loans, fire insurance is not normally required on land based loans
except in those instances where a building is critical to the farming operation.
Fire insurance is required on all agri-business facilities in an aggregate
amount equal to the loan balance.
57
<PAGE>
JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS--CONTINUED
NOTE 7--REINSURANCE
The Company cedes business to reinsurers to share risks under variable life,
universal life and flexible variable life insurance policies for the purpose of
reducing exposure to large losses. Premiums, benefits and reserves ceded to
reinsurers in 1997 were $427.4 million, $18.3 million, and $10.1 million,
respectively. The corresponding amounts in 1996 were $384.3 million, $9.9
million, and $12.1 million, respectively.
Reinsurance ceded contracts do not relieve the Company from its obligations to
policyholders. The Company remains liable to its policyholders for the portion
reinsured to the extent that any reinsurer does not meet its obligations for
reinsurance ceded to it under the reinsurance agreements. Failure of the
reinsurers to honor their obligations could result in losses to the Company;
consequently, estimates are established for amounts deemed or estimated to be
uncollectible. To minimize its exposure to significant losses from reinsurance
insolvencies, the Company evaluates the financial condition of its reinsurers
and monitors concentration of credit risk arising from similar characteristics
of the reinsurer.
Neither the Company, nor any of its related parties, control, either directly or
indirectly, any external reinsurers with which the Company conducts business. No
policies issued by the Company have been reinsured with a foreign company which
is controlled, either directly or indirectly, by a party not primarily engaged
in the business of insurance.
The Company has not entered into any reinsurance agreements in which the
reinsurer may unilaterally cancel any reinsurance for reasons other than
nonpayment of premiums or other similar credits. The Company does not have any
reinsurance agreements in effect in which the amount of losses paid or accrued
through December 31, 1997 would result in a payment to the reinsurer of amounts
which, in the aggregate and allowing for offset of mutual credits from other
reinsurance agreements with the same reinsurer, exceed the total direct premiums
collected under the reinsured policies.
NOTE 8--FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK
The Company utilizes a variety of off-balance sheet financial instruments as
part of its efforts to hedge and manage fluctuations in the market value of its
investment portfolio attributable to changes in general interest rate levels and
to manage duration mismatch of assets and liabilities. Those instruments include
swaps, caps, and future contracts.
The Company enters into interest rate swap contracts for the purpose of
converting the interest rate characteristics (fixed or variable) of certain
investments to match those of related insurance liabilities. Maturities of
current agreements range through 2011. These swaps involve, to varying degrees,
interest rate risk in excess of amounts recognized in the statement of financial
position.
The Company enters into interest rate cap contracts to manage exposure on
underlying security values due to a rise in interest rates. Maturities of
current agreements range through 2007.
The Company also uses financial futures contracts to hedge public bonds intended
for future sale in order to lock in the market value at the date of contract. he
Company is subject to the risks associated with changes in the value of the
underlying securities; however, such changes in value generally are offset by
changes in the value of the hedged items. The contract or notional amounts of
the contracts represent the extent of the Company's involvement
58
<PAGE>
JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS--CONTINUED
NOTE 8--FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK--CONTINUED
but not in the future cash requirements, as the Company intends to close the
open positions prior to settlement. Net deferred losses on financial contracts
were $2.8 million and $0.0 million at December 31, 1997 and 1996, respectively.
The Company enters into currency rate swap agreements to manage exposure to
foreign exchange rate fluctuations. Maturities of current agreements range
through 2009. Should the counterparty fail to meet the terms of the contract,
the Company's market risk is limited to the currency rate differential.
The contract or notional amount of the foregoing financial instruments, which
indicates the Company's involvement and in certain instances, maximum credit
risk related to those instruments, is as follows:
<TABLE>
<CAPTION>
December 31
----------------------
1997 1996
---- ----
(In millions)
<S> <C> <C>
Futures contracts to sell securities . . . . . . . . $ 40.8 $ 73.0
============== ======
Notional amount of interest rate swaps, currency rate
swaps, and interest rate caps to:
Receive variable rates . . . . . . . . . . . . . . $ 323.7 $215.9
============== ======
Receive fixed rates . . . . . . . . . . . . . . . $ 25.0 $ 26.6
============== ======
</TABLE>
The Company's exposure to credit risk is the risk of loss from a counterparty
failing to perform according to the terms of the contract. The Company
continually monitors its positions and the credit ratings of the counterparties
to these financial instruments. To limit exposure associated with counterparty
nonperformance on interest rate and currency agreements, the Company enters into
master netting agreements with its counterparties. The Company believes the risk
of incurring losses due to nonperformance by its counterparties is remote and
that such losses, if any, would not be material.
Based on the market rates in effect at December 31, 1997, the Company's interest
rate swaps, currency rate swaps and interest rate caps represented (assets)
liabilities to the Company with fair values of $7.8 million, $2.1 million and
$(1.4) million, respectively. The corresponding amounts as of December 31, 1996
were $2.3 million, $(8.2) million, and $(2.0) million, respectively. The fair
values of the swap agreements are not recognized in the financial statements.
59
<PAGE>
JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS--CONTINUED
NOTE 9--POLICY RESERVES, POLICYHOLDERS' AND BENEFICIARIES' FUNDS AND OBLIGATIONS
RELATED TO SEPARATE ACCOUNTS
The Company's annuity reserves and deposit fund liabilities that are subject to
discretionary withdrawal, with and without adjustment, are summarized as
follows:
<TABLE>
<CAPTION>
December 31, 1997 Percent
----------------- -------
(In millions)
<S> <C> <C>
Subject to discretionary withdrawal (with
adjustment)
With market value adjustment . . . . . . . . . . $ 0.4 0.0%
At book value less surrender charge . . . . . . 970.3 88.7
-------- -----
Total with adjustment . . . . . . . . . . . . . 970.7 88.7
Subject to discretionary withdrawal at book value
(without adjustment) . . . . . . . . . . . . . 118.9 10.9
Not subject to discretionary withdrawal--general
account . . . . . . . . . . . . . . . . . . . . 4.1 0.4
-------- -----
Total annuity reserves and deposit liabilities . $1,093.7 100.0%
======== =====
</TABLE>
NOTE 10--COMMITMENTS AND CONTINGENCIES
The Company has extended commitments to purchase long-term bonds and issue real
estate mortgages totalling $168.6 million and $28.3 million, respectively, at
December 31, 1997. The Company monitors the creditworthiness of borrowers under
long-term bond commitments and requires collateral as deemed necessary. If
funded, loans related to real estate mortgages would be fully collateralized by
the related properties. The estimated fair value of the commitments described
above is $194.5 million at December 31, 1997. The majority of these commitments
expire in 1998.
In the normal course of its business operations, the Company is involved with
litigation from time to time with claimants, beneficiaries and others, and a
number of litigation matters were pending as of December 31, 1997. It is the
opinion of management, after consultation with counsel, that the ultimate
liability with respect to these claims, if any, will not materially affect the
financial position or results of operations of the Company.
60
<PAGE>
JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS--CONTINUED
NOTE 11--FAIR VALUE OF FINANCIAL INSTRUMENTS
The following table presents the carrying amounts and fair values of the
Company's financial instruments:
<TABLE>
<CAPTION>
Year ended December 31
-----------------------------------------
1997 1996
----------------------- ----------------
Carrying Fair Carrying Fair
Amount Value Amount Value
-------- ----- -------- -----
(In millions)
<S> <C> <C> <C> <C>
Assets
Bonds--Note 6 . . . . . . . . $1,092.7 $1,138.5 $753.5 $790.5
Preferred stocks--Note 6 . . . 17.2 17.2 9.6 9.6
Common stocks--Note 6 . . . . 2.3 2.3 1.4 1.4
Mortgage loans on real
estate--Note 6 . . . . . . . 273.9 285.8 212.1 219.4
Policy loans--Note 1 . . . . . 106.8 106.8 80.8 80.8
Cash and cash equivalents--Note
1. . . . . . . . . . . . . . 143.2 143.2 31.9 31.9
Derivatives liabilities relating
to:--Note 8
Interest rate swaps . . . . . -- 7.8 -- 2.3
Currency rate swaps . . . . . -- 2.1 -- (8.2)
Interest rate caps . . . . . . -- (1.4) -- (2.0)
Liabilities
Commitments--Note 10 . . . . . -- 194.5 -- 76.2
</TABLE>
The carrying amounts in the table are included in the statutory-basis statements
of financial position. The method and assumptions utilized by the Company in
estimating its fair value disclosures are described in Note 1.
NOTE 12--IMPACT OF YEAR 2000 (UNAUDITED)
The Company relies on John Hancock, its parent company, for information
processing services. John Hancock has developed a plan to modify or replace
significant portions of its computer information and automated technologies so
that its systems, including those relied upon by the Company, will function
properly with respect to the dates in the year 2000 and thereafter. The Company,
along with John Hancock, presently believes that with modifications to existing
systems and conversions to new technologies, the year 2000 will not pose
significant operational problems for the computer systems upon which the Company
relies. However, if certain modifications and conversions are not made, or are
not completed timely, the year 2000 issue could have an adverse impact on the
operations of the Company.
John Hancock as early as 1994 had begun assessing, modifying and converting the
software related to its significant systems and has initiated formal
communications with significant business partners and customers to determine the
extent to which interface systems are vulnerable to those third parties' failure
to remediate their own year 2000 issues. While John Hancock is developing
alternative third party processing arrangements as it deems appropriate, there
is no guarantee that the systems of other companies on which John Hancock's
systems rely will be converted timely or will not have an adverse effect on John
Hancock's systems, including those upon which the Company relies.
61
<PAGE>
JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS--CONTINUED
NOTE 12--IMPACT OF YEAR 2000 (UNAUDITED)--CONTINUED
John Hancock expects the project to be substantially complete by early 1999.
This completion target was derived utilizing numerous assumptions of future
events, including availability of certain resources and other factors.
However, there can be no guarantee that this completion target will be achieved.
62
<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 than3 1/2% a
year on proceeds held on deposit.
Option 2A--Income of a Specified Amount, with payments each year totaling
at least 1/12th of the proceeds, until the proceeds, with interest credited at
the declared rate but not less than3 1/2% a year on unpaid balances, are fully
paid.
Option 2B--Income for a Fixed Period, with each payment as declared.
Option 3--Life Income with Payments for a Guaranteed Period.
Option 4--Life Income without Refund at the death of the Payee of any part
of the proceeds applied. Only one payment is made if the Payee dies before the
second payment is due.
Option 5--Life Income with Cash Refund at the death of the Payee of the
amount, if any, equal to the proceeds applied less the sum of all income
payments made.
No election of an option may provide for income payments of less than $50.
Other options may be arranged with JHVLICO's approval including optional
methods of settlement available from John Hancock.
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. In general, 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 Servicing Office. JHVLICO assumes no
responsibility for the validity or sufficiency of any assignment.
63
<PAGE>
MISSTATEMENT OF AGE OR SEX. If the age or sex of the insured has been
misstated, JHVLICO will adjust the benefits payable to those which would have
been purchased at the correct age or sex by the most recent insurance charge
deducted from Account Value.
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, the
Policy will terminate and 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
less 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, Policy years and
Policy anniversaries 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 during the lifetime of the
insured 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 Servicing Office of all documents required for any
such payment. Approximately two-thirds of the claims for death proceeds which
are made within two years after the date of issue of the Policy will be
investigated to determine whether the claim should be contested and payment of
these claims will therefore be delayed.
JHVLICO may defer 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 and to any variations in Policy provisions required by the regulatory
authorities of the state that has approved the Policy for issue.
64
<PAGE>
APPENDIX--IMPACT OF YEAR 2000
The advent of the Year 2000 presents a technological challenge to JHVLICO. In
close cooperation with John Hancock Mutual Life Insurance Company, its ultimate
parent, JHVLICO has developed a plan to modify or replace significant portions
of JHVLICO's computer information and automated technologies so that its systems
will function properly with respect to dates in the year 2000 and thereafter.
The plan also involves coordination and testing with business partners to ensure
that external factors do not adversely impact JHVLICO's systems. JHVLICO
presently believes that with modifications to existing systems and conversions
to new technologies, the year 2000 will not pose significant operational
problems for its computer systems. However, if certain modifications and
conversions are not made, or are not completed on time, the year 2000 issue
could have an adverse impact on the operations of JHVLICO.
JHVLICO expects the project to be substantially complete by early 1999. This
completion target was derived utilizing numerous assumptions of future events,
including availability of certain resources and other factors. However, there
can be no guarantee that this estimate will be achieved, that these steps will
be sufficient or that actual results may not differ materially from those
anticipated.
65
<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 .58%) 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 .18%). 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.
66
<PAGE>
PLAN: FLEXIBLE PREMIUM VARIABLE LIFE $100,000 TOTAL SUM INSURED MALE, ISSUE AGE
45, FULLY UNDERWRITTEN SELECT UNDERWRITING CLASS OPTION A DEATH BENEFIT
GUIDELINE PREMIUM AND CASH VALUE CORRIDOR TEST PLANNED PREMIUM: $2,000*
USING CURRENT CHARGE
<TABLE>
<CAPTION>
Death Benefit Surrender Value
---------------------------- ---------------------------
Assuming hypothetical Assuming hypothetical
End of Planned Premiums gross annual return of gross annual return of
Policy accumulated at ---------------------------- ---------------------------
Year 5% annual interest 0% 6% 12% 0% 6% 12%
- ------ ------------------ -------- -------- -------- ------- -------- ----------
<S> <S> <S> <S> <S> <S> <S> <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.
67
<PAGE>
PLAN: FLEXIBLE PREMIUM VARIABLE LIFE $100,000 TOTAL SUM INSURED MALE, ISSUE AGE
45, FULLY UNDERWRITTEN SELECT UNDERWRITING CLASS OPTION A DEATH BENEFIT
GUIDELINE PREMIUM AND CASH VALUE CORRIDOR TEST PLANNED PREMIUM: $2,000*
USING MAXIMUM CHARGES
<TABLE>
<CAPTION>
Death Benefits Surrender Value
---------------------------- --------------------------
Assuming hypothetical Assuming hypothetical
End of Planned Premiums gross annual return of gross annual return of
Policy accumulated at ---------------------------- --------------------------
Year 5% annual interest 0% 6% 12% 0% 6% 12%
- ------ ------------------ -------- -------- -------- ------- ------- ----------
<S> <S> <S> <S> <S> <S> <S> <C>
1 $ 2,100 $100,000 $100,000 $100,000 $ 607 $ 676 $ 746
2 4,305 100,000 100,000 100,000 1,569 1,754 1,947
3 6,620 100,000 100,000 100,000 2,163 2,514 2,898
4 9,051 100,000 100,000 100,000 2,868 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 4,511 5,683 7,129
7 17,098 100,000 100,000 100,000 5,436 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 7,765 11,016 15,693
11 29,834 100,000 100,000 100,000 8,430 12,393 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 9,478 15,099 24,270
14 41,157 100,000 100,000 100,000 9,852 16,423 27,630
15 45,315 100,000 100,000 100,000 10,120 17,722 31,293
16 49,681 100,000 100,000 100,000 10,269 18,985 35,294
17 54,265 100,000 100,000 100,000 10,287 20,202 39,676
18 59,078 100,000 100,000 100,000 10,156 21,357 44,485
19 64,132 100,000 100,000 100,000 9,855 22,434 49,779
20 69,439 100,000 100,000 100,000 9,364 23,413 55,629
25 100,227 100,000 100,000 111,388 3,253 26,206 96,859
30 139,522 ** 100,000 172,801 ** 22,121 164,572
35 189,673 ** ** 286,656 ** ** 273,006
</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.
68
<PAGE>
PLAN: FLEXIBLE PREMIUM VARIABLE LIFE $100,000 TOTAL SUM INSURED MALE, ISSUE AGE
45, FULLY UNDERWRITTEN SELECT UNDERWRITING CLASS OPTION B DEATH BENEFIT
GUIDELINE PREMIUM AND CASH VALUE CORRIDOR TEST PLANNED PREMIUM: $2,000*
USING CURRENT CHARGES
<TABLE>
<CAPTION>
Death Benefit Surrender Value
---------------------------- --------------------------
Assuming hypothetical Assuming hypothetical
End of Planned Premiums gross annual return of gross annual return of
Policy accumulated at ---------------------------- --------------------------
Year 5% annual interest 0% 6% 12% 0% 6% 12%
- ------ ------------------ -------- -------- -------- ------- ------- ----------
<S> <S> <S> <S> <S> <S> <S> <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.
69
<PAGE>
PLAN: FLEXIBLE PREMIUM VARIABLE LIFE $100,000 TOTAL SUM INSURED MALE, ISSUE AGE
45, FULLY UNDERWRITTEN SELECT UNDERWRITING CLASS OPTION B DEATH BENEFIT
GUIDELINE PREMIUM AND CASH VALUE CORRIDOR TEST PLANNED PREMIUM: $2,000*
USING MAXIMUM CHARGES
<TABLE>
<CAPTION>
Death Benefit Surrender Value
---------------------------- -------------------------
Assuming hypothetical Assuming hypothetical
End of Planned Premiums gross annual return of gross annual return of
Policy accumulated at ---------------------------- -------------------------
Year 5% annual interest 0% 6% 12% 0% 6% 12%
- ------ ------------------ -------- -------- -------- ------ ------- ----------
<S> <S> <S> <S> <S> <S> <S> <C>
1 $ 2,100 $100,602 $100,671 $100,740 $ 602 $ 671 $ 740
2 4,305 101,395 101,578 101,770 1,555 1,738 1,930
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 26,414 107,434 110,520 114,949 7,434 10,520 14,949
11 29,834 108,011 111,740 117,313 8,011 11,740 17,313
12 33,426 108,480 112,909 119,810 8,480 12,909 19,810
13 37,197 108,839 114,022 122,451 8,839 14,022 22,451
14 41,157 109,081 115,069 125,242 9,081 15,069 25,242
15 45,315 109,201 116,037 128,190 9,201 16,037 28,190
16 49,681 109,188 116,911 131,297 9,188 16,911 31,297
17 54,265 109,029 117,671 134,563 9,029 17,671 34,563
18 59,078 108,707 118,292 137,982 8,707 18,292 37,982
19 64,132 108,201 118,745 141,548 8,201 18,745 41,548
20 69,439 107,495 119,000 145,251 7,495 19,000 45,251
25 100,227 100,431 116,321 165,617 431 16,321 65,617
30 139,522 ** 102,964 187,075 ** 2,964 87,075
35 189,673 ** ** 202,240 ** ** 102,240
</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.
70
<PAGE>
PLAN: FLEXIBLE PREMIUM VARIABLE LIFE $100,000 TOTAL SUM INSURED MALE, ISSUE AGE
45, FULLY UNDERWRITTEN SELECT UNDERWRITING CLASS OPTION A DEATH BENEFIT CASH
VALUE ACCUMULATION TEST PLANNED PREMIUM: $2,000* USING CURRENT CHARGES
<TABLE>
<CAPTION>
Death Benefit Surrender Value
---------------------------- ---------------------------
Assuming hypothetical Assuming hypothetical
End of Planned Premiums gross annual return of gross annual return of
Policy accumulated at ---------------------------- ---------------------------
Year 5% annual interest 0% 6% 12% 0% 6% 12%
- ------ ------------------ -------- -------- -------- ------- -------- ----------
<S> <S> <S> <S> <S> <S> <S> <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 49,681 100,000 100,000 100,599 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.
71
<PAGE>
PLAN: FLEXIBLE PREMIUM VARIABLE LIFE $100,000 TOTAL SUM INSURED MALE, ISSUE AGE
45, FULLY UNDERWRITTEN SELECT UNDERWRITING CLASS OPTION A DEATH BENEFIT CASH
VALUE ACCUMULATION TEST PLANNED PREMIUM: $2,000* USING MAXIMUM CHARGES
<TABLE>
<CAPTION>
Death Benefit Surrender Value
---------------------------- --------------------------
Assuming hypothetical Assuming hypothetical
End of Planned Premiums gross annual return of gross annual return of
Policy accumulated at ---------------------------- --------------------------
Year 5% annual interest 0% 6% 12% 0% 6% 12%
- ------ ------------------ -------- -------- -------- ------- ------- ----------
<S> <S> <S> <S> <S> <S> <S> <C>
1 $ 2,100 $100,000 $100,000 $100,000 $ 607 $ 676 $ 746
2 4,305 100,000 100,000 100,000 1,569 1,754 1,947
3 6,620 100,000 100,000 100,000 2,163 2,514 2,898
4 9,051 100,000 100,000 100,000 2,868 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 4,511 5,683 7,129
7 17,098 100,000 100,000 100,000 5,436 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 7,765 11,016 15,693
11 29,834 100,000 100,000 100,000 8,430 12,393 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 9,478 15,099 24,270
14 41,157 100,000 100,000 100,000 9,852 16,423 27,630
15 45,315 100,000 100,000 100,000 10,120 17,722 31,293
16 49,681 100,000 100,000 100,000 10,269 18,985 35,294
17 54,265 100,000 100,000 100,000 10,287 20,202 39,676
18 59,078 100,000 100,000 100,000 10,156 21,357 44,485
19 64,132 100,000 100,000 100,000 9,855 22,434 49,779
20 69,439 100,000 100,000 100,000 9,364 23,413 55,629
25 100,227 100,000 100,000 139,194 3,253 26,206 93,545
30 139,522 ** 100,000 199,855 ** 22,121 147,538
35 189,673 ** ** 278,936 ** ** 222,083
</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.
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LOGO
POLICIES ISSUED BY JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY JOHN HANCOCK
PLACE, BOSTON, MASSACHUSETTS 02117
S8156 12/98
